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    Demystifying The Decision Making: Getting It Right


    rahulbillapati

    "Whatever a manager does, he does through decision-making", said by none other than the man who invented management theory Peter Drucker. Decision-making is an indispensable component of the management process. It is a well-balanced judgment and a commitment to action. What a manager needs to do is rational decision making to achieve his objectives effectively.

    If you have been successful in taking decisions with your intuition, which means that you have acquired the skill through experience. In the fast moving world where change is only constant, decision making requires the scientific approach .The time has come for you to acquire an additional skill if you want to be a competitive and an updated manager.

     

    A decision should be rational because it may facilitate expansion of business and give more profit, goodwill and fame to a business unit. Decision making is continuous activity, mental/intellectual activity, based on reliable information, time consuming activity, and a responsible job. Good decisions are always taken by proper analysis of reliable information. The decision making process at all levels of the Organisation can be improved with the support of an effective management information system (MIS). This facilitates the manager to take a bold and confident decision.

     

    Reasons to use data based decision making

    Storing of data is becoming more cheaper and easier. The data is flowing with a characteristic of 3V's (Velocity, Variety and Volume). The velocity of data incoming to companies is very high. This is through various mediums like sensors, transaction systems, social media web sites, forums, research reports etc. This data is coming in variety of formats like text, numbers, audio, video and images. The volume of the data is a similar to tsunami. As of 2012, data that is created in a day is 2.5 Exabyte’s (2.5×1018). Every two years, the amount of data available on internet is doubled.

    Companies boast of their growth in terms of

    • Customers grow at x%
    • CAGR grow at y%

     

    So it is time to realize that data also grows at an even faster pace. Ignoring this vast amount of data is nothing but losing a wonderful opportunity to dive in and taking better decisions. Decision-making is an intellectual process which involves selection of one course of action out of many alternatives. The effectiveness of management depends on the quality of decision-making.

     

    Here are some of the Loop holes in decision making through gut and intuition

    · Decision depends on the mood of the manager

    - The decision on same situation can be contradicting when a manager is in different moods if he is not using data.

    · Especially in Uncertain environment, it is the most difficult task to take decisions. So without the use of data, you are in great risk.

    · A situation may be encountered wherein a manager have too many choices. Moreover more than 1 seems to be right. Then the manager faces the dilemma of which choice to be selected.

    · Personal element in decision-making is a common phenomenon in the process. Similarly, every decision-maker will have his own personal background in the form of personal beliefs, attributes, preferences, likes and dislikes and so on.

     

    Need for data driven decision making

    a) The higher u climb up the corporate ladder, the more data is available just before you. Remember the more power you get, the more responsible you become. Consider a situation wherein you were managing hundred people. You may know each and every name of them and how they work. You may be very comfortable to take decision on promoting a certain employee. But, when you are given a responsibility of a thousand or more employees under you. Then the importance of data comes into picture.

    b ) A person at management position can be posted in any division of the company. The manager at different division who took decisions based on his experience may no longer be able to do the same.

    c) Data driven decision making is always backed by logic by proper analysis of relevant data.

    d) This power of analytics is realized and now, it is extensively used by top fortune companies of the world.

     

    Ways of data based decision making

    • Big data is the emerging trend in the world now. Companies are investing heavily on the use of big data to get the powerful insights from data. This data may be of various formats as mentioned before.
    • Many statistical tools like SPSS, SAS are available for analysis of data. These tools facilitate the manager to get important insights from the data. Open source tools like R and weka are gaining popularity these days.

     

    Finally, Nothing but Change is constant in this world. So the manager should be embracing change

     

     

     

     

    It is in your moments of decision that your destiny is shaped.

     

     

     

    Do it wise...

     

     

     

     

     

     

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    You have mentioned about big data and companies are investing heavily on it. What is the difference between traditional and big data analysis? What is the reason of companies increasingly using it? 


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    Answering your first question..


    Data can be analysed in two types –


     


    1.Traditional data analysis


    2. Big data analysis


     


    Traditional data analysis is the analysis of structured data with statistical tools. It is still being practised by many companies and managers. SAS, SPSS are some of the tools to analyse the traditional data.


     


    On the other hand, Big data analysis is the analysis of unstructured data. Big data is the buzzword in the industry right now. This data can be of various formats that include video, audio, text and numbers. These data is being recieved in huge volumes and with great velocity. The managers are also getting more insights by analyzing from these varieties of data. Hadoop, MapReduce are some of the tools used for analyzing big data.


     


    TO answer your second question about the reason why companies are increasingly using it, the cost of storing data is becoming cheap. The data is flowing into the company and available for manager in various formats. The data can be transaction data, data from social media, data from sensors and many other sources.


     


    Hope I answered your two questions..Please ask for further clarifications if any..


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     After reading the article, I understand the loop holes in decision making through gut and intuition. Influence of Personal element, too many appropriate choices, mood of manager are some of them. But If the manger starts using data and make decisions, and still the decision turned out to be a bad choice, how can you justify using data in that case? Are there no loop holes in data based decision making? What is the risk involved in data based decision making?


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    Good question..


    There are primarily two factors in decision making using data: risk and cost.


    Risk :  how likely that something will happen?


    Cost  : what is the cost if this course of action is taken and implemented?


     


    Risk analysis has become the important tool at all levels in an organization. It involves a probability statement.


    Another important consideration is consequences of an event. The manager should analyse the consequences that may happen ( that includes how much cost incurs)  when each of the alternative is chosen.


    Managers should use probabilities based on past experience to estimate risks.


     


    The assessment, cost, and consequences of risks are important stages to the decision-making process.


     


    Decision tree is one of the concept that is used in decision making when a manager have many choices in front of him. In this concept, all the possibilities are considered, their probability of occurrence, costs incurred. So the manager can calculate the risk associated and take the appropriate decision based on which alternative will give him a better return on investment.


    When scientific approach like this is used in making decision, there would be no loop holes in data based decision making.


     


    Hope I answered your questions and thanks for asking for a specific question. Please ask  for any further clarifications


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    Indeed an very informative article...


    I have a question.. You have mentioned that “The decision making process at all levels of the Organisation can be improved with the support of an effective management information system (MIS)“. What are these management information systems and how do these systems help managers take better decisions?

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    Indeed an very informative article...

    I have a question.. You have mentioned that “The decision making process at all levels of the Organisation can be improved with the support of an effective management information system (MIS)“. What are these management information systems and how do these systems help managers take better decisions?

     

     

    Thanks for reading the article and your comment..

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    @Phani kumar


    The management information systems are computer systems which produce regular reports on data extracted from the transaction processing systems. These systems help managers to identify structured and semi-structured decision problems.


    The management information systems are computer systems which produce regular reports on data extracted from the transaction processing systems. These systems help managers to identify structured and semi-structured decision problems.


     The firms can gather extremely detailed data from many sources that may include consumers, suppliers, partners, and competitors. This has led to increase usage of Information systems such as Enterprise Resource Planning (ERP), Supply Chain Management (SCM), and Customer Relationship Management (CRM) systems.


     


     


     


    These Information systems and MIS are broader categories that include ERP.


    These systems are integrated with analytic capabilities, and are extended by Business Intelligence (BI)systems that helps in applying analytic tools on operational data.


    So, firms like Wal-Mart are increasingly using these systems to gain a competitive advantage over others and implementing an excellent supply chain.


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    Your article about how data is important in Decision making is very well articulated. You also emphasized on using data and analytics for decision making. But Can this approach of data based decision making applicable in all industries? If so, give an example..


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    Very Informative Article.


    I am pretty much convinced that a manager should use data to make better decisions. Data has to be analysed well to get better insights. Can you please mention some of the analytical tools available to manager to help him/her in decision making.


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    @Bhanu Chokani


    Answering your question about whether this appoach can be used in all industries or not...


     


    The organisations have understood the importance of using data and analytics to take informed decisions. But they are not able to realize its full potential due to lack of data capturing process, data integration and lack of appropriate software across business practises.


    The trend of taking decisions with gut and intuition is gradually changing to data based decision making.


    Organisations especially in Retail, telecom, health care, financial services are some of the first sectors to adopt analytics in their day to day operations and making decisions


     


    Some of the examples are as follows:


    Retail – Tesco and Arvind Mills are some of the top companies that use analytics in retail category.


    Telecom – Vodafone has been using mobile analytics to gain insights into customer insights to take better decisions.


    Health care – Novartis, Reddy’s labs are frontrunners in using analytics in this industry. Novartis has been using analytics for sales performance management, leadership training.


    Financial services – Many banks and insurance companies use consumer risk analysis, fraud analysis to provide better services to their customers ex- ICICI,HDFC are some of them.


     


    So, As quoted some of the examples, use of analytics can be applicable in all the industries wherever data is available. It is evident that more number of companies are moving towards using data and applying analytics to take better decisions.

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    @Chitambaram


     


    Its great that you have been convinced that data is crucial in decision making.


    However here is my response on the tools to be used by managers.


    The  managers who do not have any experience with data analysis tools can easily start using them. This is because there are wide variety of tools that have excellent visualization capabilities and easy to use. I will mention some of the tools a manager can start using with-


     


    1.      MS-Excel


    Microsoft Excel is a spreadsheet application used for calculation, graphing tools, pivot table used in most businesses. It is an excellent reporting and dash boarding tool. The latest version can handle upto 1 million rows. A manager can start using this tool without any training.


     


    2.      SAS


    SAS is the market leader in analytic tool world. This software has wide range of features starting from data management, business intelligence, advanced analytics and predictive analytics. This tool can be used in all functions like finance, human resources, IT, operations, marketing in an organisation. It is an expensive tool and a manager need to be trained to utilize all features of this tool.


     


    3.      SPSS


    SPSS is a predictive analytic software which guides in predicting future and help in making smarter decisions. It is acquired by IBM. This software is widely used by market researchers, marketing organisations and many other managers.


    Some of the other popular tools available data analysis are Statistica, Salfors systems, Matlab, KXEN, Weka, R(open source software).


    These are the widely used tools for managing purposes. There are many online guides available on how to use these tools.


     


    Hope i answered your question on how a manager can start using these tools.


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    @Chitambaram

     

    Its great that you have been convinced that data is crucial in decision making.

    However here is my response on the tools to be used by managers.

    The  managers who do not have any experience with data analysis tools can easily start using them. This is because there are wide variety of tools that have excellent visualization capabilities and easy to use. I will mention some of the tools a manager can start using with-

     

    1.      MS-Excel

    Microsoft Excel is a spreadsheet application used for calculation, graphing tools, pivot table used in most businesses. It is an excellent reporting and dash boarding tool. The latest version can handle upto 1 million rows. A manager can start using this tool without any training.

     

    2.      SAS

    SAS is the market leader in analytic tool world. This software has wide range of features starting from data management, business intelligence, advanced analytics and predictive analytics. This tool can be used in all functions like finance, human resources, IT, operations, marketing in an organisation. It is an expensive tool and a manager need to be trained to utilize all features of this tool.

     

    3.      SPSS

    SPSS is a predictive analytic software which guides in predicting future and help in making smarter decisions. It is acquired by IBM. This software is widely used by market researchers, marketing organisations and many other managers.

    Some of the other popular tools available data analysis are Statistica, Salfors systems, Matlab, KXEN, Weka, R(open source software).

    These are the widely used tools for managing purposes. There are many online guides available on how to use these tools.

     

    Hope i answered your question on how a manager can start using these tools.

     

    Thank you for quick response.

     

    But the tools mentioned by you are suitable for data containing numbers. But Data doesn't mean only numbers. It may include text, audio, video, etc., Are there any tools which  analyses forms of data other than numbers?

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    @Chitambaram

    You have rightly pointed out that the above tools are for analysing only numbers.

    However there are some tools and software that can be used to analyze numbers, text, websites and many more varieties of data.

    I mentioned that Excel, SAS, and SPSS are used to analyze only numbers.

    Predictive modelling techniques such as regression, decision trees, clustering,

    market basket analysis etc are being used on this type of data.

    Here are the tools that are used to analyse other varieties of data –

     

    Website analysis – mouseflow.com is the website that provide the service to analyze the website. A heatmap can be produced by using this service by which we can know where the visitors are spending more time on the website. We can also know in which page of the website the visitor is moving out of website. By analysing the results we can know which web page should be improved in terms of navigation, design.

     

    Text analysis – Text can be analysed by using software known as ‘R’. Text includes the content from social media. Many companies are looking for deep insights, customer tastes, preferences in the posts that people are posting in facebook, twitter and other social media websites. So, twitter analytics(analytics.twitter.com) and www.hashtaging.com are other websites that provide an option to analyze the tweets by the people.

     

    The other tools that have been used in big data analysis to analyse this variety of data are hadoop, MapReduce.

    Apache Hadoop is open source software framework to store and process large amount of data.

    Hadoop MapReduce is a programming model for large scale data processing.

     

    These are the various tools that have been used by the managers of organisations to get deeper insights from the customers.

    You are most welcome to ask  further questions and clarifications..

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