In my previous blog, we discussed how making sound business decisions depends on rational thinking. This week, let me try to break it down further.

It begins with clearly defining the problem. It is important to avoid vague goals and instead focus on what exactly needs to be decided. For example, instead of aiming to “improve revenue numbers,” the focus should be on a specific, actionable question, such as whether to launch a new product or enhance the footprint to a new territory. A well-defined objective gives direction and ensures that time and resources are spent efficiently.

Once the problem is identified, the next step is to collect relevant data. Rational thinking relies on facts, not assumptions, unless it is impossible to progress without them. This involves integrating both internal and external data. In the example above, internal data would include sales numbers, customer feedback, and performance metrics, among others. External data might involve market trends, competitor activities, and economic indicators. Data should be recent, reliable, and complete. Decisions made on incomplete or biased data can lead to poor outcomes. It is essential to incorporate both quantitative data, such as numbers and financial information, and qualitative input, including expert opinions and market sentiment.

After gathering information, it’s necessary to list all the possible options. Rational thinking requires examining more than one path. Limiting the decision to only the most obvious option can lead to missed opportunities. Even unlikely or unconventional options should be explored, as they might offer better outcomes with fewer risks. Listing multiple alternatives opens up more choices and prevents tunnel vision. Sometimes, doing nothing is also a valid option if it results in fewer risks or costs.

Once all the options are identified, each must be carefully evaluated. This involves examining the advantages, disadvantages, and potential risks associated with each. It’s important to consider both short-term and long-term consequences. Being honest in this evaluation is key. Ignoring or downplaying the negatives of a preferred option leads to biased and often faulty decisions.

Before settling on an option, it is wise to consider the worst-case scenario. What happens if everything goes wrong? Understanding the potential downside helps assess whether the risk is acceptable. If the worst-case outcome is too costly or damaging, then the option may need to be avoided, regardless of how attractive its benefits seem. This helps ensure that decisions are not just hopeful guesses but carefully weighed choices.

How we evaluate the options to reach a decision needs a longer explanation. Let us do that in the next blog.