North York Mirror
Each month, Toronto Business Times solicits expert opinions on a question of relevance to the small business community. This month’s question is about decision-making.
As a university researcher who specializes in entrepreneurial decision making, I know individual actions are the key to the success or failure of most entrepreneurial ventures.
Yet entrepreneurial decision-making often requires small business owners to simultaneously consider many competing facets of a complex dilemma, requiring the skills of an expert juggler.
While I have the benefit of using complex mathematical models to develop my theory of entrepreneurship, less complicated tools are available to help small business owners adopt a more formal approach to decision-making, leading to more defendable decisions. Small business owners who are tech-oriented, for instance, can train themselves to use some of the commercially available software packages that facilitate multiple criteria decision analysis (MCDA), while those with a thicker wallet can hire the services of a decision analyst familiar with their business or sector.
For business owners with more modest means, however, even a simple spreadsheet can do the trick. The following tips will help you transfer some of the features of MCDA to a spreadsheet to assist you in managing difficult decisions:
• Criteria identification (columns): Options are evaluated based on various criteria. If the decision is to select a country in which to expand, such criteria could include economic, legal, political and cultural perspectives. Focus on criteria that are quantifiable and pay particular attention to any criteria on which key stakeholders disagree as to their relative importance.
• Listing of options (rows): Keep the number of options manageable. Eliminate clearly inferior options. If a group decision is required, prepare a list and select the dozen or so most popular options.
• Quantify each option under each criterion (cells): The assessment of the performance of an option on each criterion can be an undisputable, measurable quantity or a more subjective evaluation. For instance, degree of difficulty (e.g. to learn a language) can be translated into 1 for high, 2 for medium and 3 for low.
• Selection of weights (accompanying cells): Weights translate the decision-maker’s preferences regarding the criteria. Equal weights may not reflect his or her priority.
• Identification of the favoured option (outcome): For each row, the weighted sum over the columns of the cell entries assigns a score to each option, which can now be ranked. The highest ranked option is not necessarily the right answer – the outcome is to help understand and communicate trade-offs among the criteria. Perform sensitivity analysis by varying the weights to observe the implications on the ranking from changes in the relative importance of criteria.
Using criteria weights can help small business owners to better identify their preferences, rank their different courses of action and stimulate fresh new ways to think about their options.
Sensitivity analysis will help small business owners gain perspective on the implications on their decisions from changes in the criteria weights, consider the variations in results among various stakeholders, and to have a discussion that aids stakeholders in understanding the implications of their expressed preferences.
Good judgement is critical to the success of your business. Consider using these simple tools to help power up your decision-making process.
Dr. Moren Lévesque is a professor of operations management and information systems at the Schulich School of Business and holds Schulich’s Certified General Accountants of Ontario Chair in International Entrepreneurship.