Decision-making: the engine-room of growth

You can only spend a dollar once. Choosing where to invest valuable cash is one of the most important tasks of a business owner. This includes investment in pursuing new customers, new products, investments in cost-saving efficiencies and in marketing. Business decisions are always a mix of judgement and science. Too often, SMEs rely on judgement and don't apply any business science.

GrowthPath brings the science of decision making to our clients. The two important considerations are

• What's the purpose of decision-making tools?

• What's the role of judgement and entrepreneurship?

We've uploaded a presentation on decision making tools for small businesses looking to make investment decisions to take advantage of opportunity. It's part of GrowthPath's Opportunity-based Growth approach.

What's the purpose of financial decision-making tools?

The purpose of decision-making tools is to answer the question: "what must a growth investment do to justify proceeding?".

What's the role of judgement and entrepreneurship?

The judgement call about whether the opportunity can meet that hurdle is for a human decision-maker.

Entrepreneurship is identifying a pool of potential opportunities and then investing in the best

The Small and SME Decision-making maturity model

The slides define a maturity-level for decision making. The first level is "Gut-feel".

Gut-feel is big on judgement but not so big on process and comparison to alternatives. Gut-feel decision may miss better opportunities, but a more formal approach makes your investment funding work harder.

Alternatives to big-business approaches

Big business approaches such as Discounted Cashflows (DCF) are good to know about, but they have weaknesses and complexities which mean they are often not practical for small businesses.

However, the key insights behind DCF such as opportunity cost, risk and relevant cashflows are very valuable.

The slides look at some practical alternatives to DCF such as payback, the EBIT multiplier method and contribution margin analysis.