3 Finance Practices That Can Help You Become Better At Decision Making

Decision making is perhaps the most important component of a manager’s activities that has the power to drive or hamper financial performance. Effective and informed decision making is an essential skill in the arsenal of any business manager.

According to research by management consulting firm McKinsey, organizations with fast and efficient decision making processes are twice as likely to report financial returns of at least 20 percent as a result of recent decisions. McKinsey’s research also shows that inefficient decision making can lead to more than 530,000 days of lost working time and $250 million of wasted labour costs per year. This is because when the managers plan, they decide on many matters; such as what goals their organisation will pursue, what resources they will use, and who will perform each required task. Thus, the wrong decisions have far reaching impact than we can see at the time.

Have you ever made decisions that didn’t quite turn out the way you expected them to? Well, who hasn’t? At Audeo, we are experts at helping our clients make optimum business decisions by providing insights from finances. Over the years, we have discovered that business managers who paid attention to their financial metrics achieved better results at year end. Here are 3 best practices to help you strengthen your decision making and make you a better business manager and leader.

• Make budgeting and budget monitoring a routine and essential activity: Learn how to budget. As George Washington said, “we must consult our means rather than our wishes”. Budgeting ensures you have the resources to meet your business needs at all times. Depending on the nature of your business and your cashflow needs, you can budget either weekly, monthly, quarterly or yearly, or all at the same time. The most important thing is that you track your actual incomes and expenses and compare them against your budget. This will help you identify areas that need sustainable change and highlight how you can get there.

• Track your business and financial data: You’ve heard it said before that data is the new oil. Well, just as oil that isn’t discovered is useless, you are missing out on valuable business insights when you do not meticulously track the data that your business produces every day. Tracking data on physical and digital footfalls can help a business make better choices which will lead to client conversions and tracking receivable days can help you decide how to price better to account for cost of funds. Don’t take for granted that you have a method to remember the little details. Develop the right performance indicators and track everything.

• Analyse your financial statements: Go beyond the face of your income statement and learn the relationships between the numbers and your operations. Proper financial statement analysis will prepare you for the future and help you make the best decisions. For instance, we use advanced analytics to help clients who are heavily reliant on inputs with price volatility, to prepare for future changes and make optimum choices that allow them to deal with the uncertain future.

Finally, to make truly great decisions, you must stress test your ideas before you implement them. Ensure that you fully understand the financial implications of your decisions and that you have weighed the possible outcomes of potential actions against your goals.

If you are like most businesses, you are already in the planning phase for 2022. There is no better time than now to begin cultivating the habit of good decision making, for yourself and your business.

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