What is Operational Decision Making?
Operational decision making is a central business process that has massive implications on bottom line profitability and longevity. A proper decision making process evaluates both the risks and potential benefits of each decision made.
The operational decision structure includes three steps-
1. Data input
2. Decision logic
3. Judgement or action
Every business, regardless of the industry type, necessarily requires decisions to be made on a regular basis. Many businesses have hundreds, if not thousands, of operational decisions to make every day. Some businesses are estimated to have millions of actions that impact their day to day operations.
Thankfully, operational decisions are generally repetitive and routine, so the decision making process can be reused. These simple, routine decisions are usually very easy to automate which further decreases the amount of attention and consideration they require.
Operational decisions range from internal authorization requests to formulating a customer loyalty program. Due to the wide variety of different decisions within everyday business operations, establishing a central set of business rules surrounding strategic decisions is incredibly beneficial.
Each decision should be made with much consideration of how it will affect overall business operations. Though it is tempting to think of decisions as separate from one another, an incorrectly made decision can have massive comprehensive consequences.
The consequences of improper operational decision making can range from decreased customer retention to costly compliance violations. In other words, both the reputation and the profits of your business are directly on the line when decisions are not strategic and standardized.
When customers are not provided with an ideal experience at your business, they are unlikely to return. Business professionals know how costly new customer retention is and how much reputational and financial damage a disgruntled customer can create with online reviews.
Bottom line profits are increased when company money does not need to be allocated to addressing the consequences of poor decisions or compliance violations. Considering that violations can result in costly fines and even business closure, compliance decisions are especially important.
Operational Decision Making Tips
There are many best practice tips to consider for establishing and maintaining an ideal operational decision making process. One best practice tip is the implementation and use of artificial intelligence (AI) for automating decisions.
Technology affords businesses with AI decision making capabilities that decrease human bias and increase transparency. Instead of decisions being at all influenced by human emotion, an AI decision is strictly based on data.
Documenting and managing decisions made is much easier with AI technology in comparison with manual processes. Not only does this AI technology decrease labor costs, but it also improves compliance.
Compliance is increased when software can clearly display why a decision was made and what protocol and processes were involved. Risk reduction not only provides business owners with peace of mind but also decreases costs associated with business noncompliance.
Consistency and communication majorly impact the effectiveness of your business's decision making. Establishing and maintaining standardized rules increases the likelihood of positive outcomes.
Business rules should be communicated clearly and consistently to staff members. An additional best practice tip is to have a copy of the rules contained within your employee handbook for easy reference.
A management decision regarding business rules is only effective if everyone on staff understands what it entails. A common mistake that businesses make is only communicating rules to certain staff members instead of the entire company.
When team members are not following the same rules and processes, miscommunications and errors are unavoidable. Miscommunications between employees can result in workplace conflict, which negatively impacts both your company culture and work environment.
Standardization of the decision making process decreases the likelihood of misunderstandings and mistakes. When your team members are all following the same rules and processes they are much more productive and profitable.
- Operational decision making affects both business productivity and bottom line profitability. All businesses have decisions that need to be made in order for day to day operations to continue, with some businesses estimated to have millions of everyday decisions.
- The three steps of the operational decision structure include data input, decision logic, and action or judgment.
- Decisions should be carefully considered and viewed comprehensively to avoid consequences for the business.
- Standardizing rules and processes around making decisions will decrease the likelihood of team member mistakes or miscommunications. Miscommunications can quickly proliferate into workplace conflict if left unchecked, creating issues for both the work environment and company culture.
- Consequences of improperly making decisions can range from compliance violations to decreased profitability.
- Implementation and utilization of AI can greatly streamline and simplify the decision making process. With automation, human error and labor costs are both decreased.
- Standardized processes and rules increase employee productivity and overall business bottom line profitability.