Concept and Assumptions Usage in Business Decision Making
In business, executives need to make a plethora of decisions. From which company will provide and stock the break room’s vending machines to which costs get cut during a lean time, all require careful thought and planning. It’s essential that every decision, no matter what its perceived importance may be, be made with the best intentions and the company’s best interests at heart.
The Health of the Business Depends on It: Making snap business decisions can make or break a business. Changing business practices on a whim or because an owner is in a bad mood can have irreversible consequences. All business decisions should be carefully considered, and should preferably have input from several others. The business owner has the final say, but other voices should be brought to the table so that all sides of an issue can be considered.
It Takes a Team: A business is only as good as its weakest member, so putting together a strong management group is paramount to the business’ ability to make good decisions, which leads to the success of the business. All members of management need to be on the same page, as to what constitutes the mission and objectives of the business. Once everybody knows the mission, deciding how to meet its objectives becomes easier. If you value a person enough to put her on the team, then you should value that person’s opinion, even if it disagrees with yours.
Consult Someone With More Expertise: If you don’t feel secure enough in your abilities or in your team’s abilities to make a solid decision, there is nothing wrong with getting help from someone outside of the company. For example, a graphics design firm might consult with an attorney to look over a new contract, or an attorney might hire an accountant to assist with the financial statements for the law firm. No one is an expert at everything, and good decision making includes knowing when to seek additional assistance.
Don’t Be Afraid to Reverse: Sometimes, a decision made needs to be revisited. A business move that was ideal in January might not be as effective in July. Evaluating previous business decisions and choosing to modify or completely reverse that decision is acceptable. Although long-term, permanent decisions are typically the goal, sometimes, you have to think short-term and then revisit the issue at a later date.
Gray Areas: Not every decision is black and white. In some cases, you have to look at the gray area, as well. This is where having a strong management team or additional expertise comes into play. These people can help a business owner see all sides of an issue, which improves the chances of making a keen business decision that’s in the company’s best interest.
Assumptions Usage in Business Decision Making
Assumptions are ideas that we presume to be true before taking decisions. Assumptions are also made in businesses for developing a strategy, planning and making decisions. These conjectures are generally standardized as disclosure of uncertainty and risk.
Business, in most cases, occurs in an unsure setting and assumptions are necessary to move ahead with stratagem. Documenting assumptions help in recognizing threats.
Often, you come up with fresh ideas after brainstorming probable assumptions that will help you in improvising your business strategies.
Here are some of the common types of business assumptions:
Even after making profits, it often takes months or even years to pay off the initial investments. Nilesh Biswas, Founder of Calcutta Skyline, a realty consulting firm and My Classroom, an education startup, believes enterprises fail because owners feel they can support the business operations on sales.
“Imagining sales volumes to be more than adequate for making a profit in next few years thereby helping you meet your debt service obligations, is a chimera. If you have sufficient capital to run the business until break-even, reveal that information in the plan. Otherwise, give the investment figures or loan amount you’ll require to start off the business,” he advised.
The next major assumption is the belief that consumers will be keen to buy your products or services, generating sufficient sales to make profit for the long run. Biswas wants your business plans to exhibit more figures as potential customers than required, as all will not buy from you and many will buy from rivals.
“Definite formulae do not exist to calculate this number; the surplus potential buyer base should be substantially more than the sales need. If 100 people are needed to buy from you each day, plan on the requirement of an exponential number, about five to 10 times the number wanted,” he informed.
The assumption that key talent will be available is a dangerous one. According to Anuj Dhawan, Founder of Ridenest, an app targeted to ensuring women safety on public places, quality talent pool becomes a challenge. “The VC-funded fat pay-checks have made getting talent for bootstrapped companies quite a struggle. We have spent significant time in curating the people who would like to work with us,” he shared.
Profitability is the ambition of every entrepreneur. However, the assumption must be validated by market research, financial planning and sales projections as sales is not the only factor determining profitability.
“After calculating the development and overhead costs, reassess the price to pay off your start-up costs and then start thinking of profit. Either decide on a pricing strategy to create high sales volumes by selling at a low price or capitalize on profit margins with a higher price,” he explained.
Products are not created automatically and companies do not run themselves. Proceeding on a plan that the founders alone can run a business profitably leads invariably to disappointment. According to R. K. Agrawal, an independent business consultant who was the Managing Partner in S. R. Batliboi & Co., the creators can make the brightest of products or gadgets that exist in the market but that doesn’t mean they are armed with organizing, accounting, marketing, finance, legal, tax and other skills required to run a business.
“A business plan should lay bare that the founders while excelling in product making or service delivery, have planned for resources to manage other verticals of their business,” added Agarwal, who has over 40 exposures in industries, including Steel, Paper, Cement, Automobiles, Textile, Milk & Dairy Products, etc. both in India and abroad.