Data-driven decision making: A beginner’s guide

Summary

Data-driven decision making is the process of collecting data based on your company’s key performance indicators (KPIs) and transforming that data into actionable insights. This process is a crucial element of modern business strategy. In this article, we’ll discuss the benefits of data-driven decision making and provide tips so you can make informed decisions at work.

If there’s a looming decision ahead of you at work, it’s often hard to know which direction to go. If you go with your gut feeling, you’ll feel more confident in your choices, but will those choices be right for your team members? When you use data to make decisions, you can feel more at ease knowing your decisions are based on facts and meant to maximize business impact.

Whether outshining competitors or increasing profitability, data-driven decision making is a crucial part of business strategy in the modern world. Below, we dive into the benefits of data-driven decision making and provide tips for making these decisions at work.

What is data-driven decision making (DDDM)?

Data-driven decision making is the process of collecting data based on your company’s key performance indicators (KPIs) and transforming that data into actionable insights.

You can use business intelligence (BI) reporting tools during this process, which makes big data collection fast and fruitful. These tools simplify data visualization, making data analytics accessible to those without advanced technical know-how.

Why data-driven decision making is important

When you use data to make decisions, your decisions are based on facts instead of biases. If you’re in a leadership position, making objective decisions is the best way to remain fair and balanced.

The most informed decisions stem from data that measures your business goals and populates in real time. You can aggregate the data you need to see patterns and make predictions with reporting software .

Some decisions you can make with support from data include:

How to drive profits and sales

How to establish good management behavior

How to optimize operations

How to improve team performance

While not every decision will have data to back it up, many of the most important decisions will.

5 steps for making data-driven decisions

Making data-driven decisions takes practice. If you want to improve your leadership skills , then you’ll need to know how to turn raw data into actionable steps that work toward your company initiatives.

The following steps can help you make better decisions when analyzing data.

1. Know your vision

Before you can make informed decisions, you need to understand your company’s vision for the future . This helps you use both data and strategy to form your decisions. Graphs and figures have little meaning without context to support them. As a team lead, this may mean using your company’s yearly OKRs or team KPIs for the quarter to make data backed decisions.

2. Find data sources

Once you’ve identified the goal you’re working towards, you can start collecting data.

The tools and data sources you use will depend on the type of data you’re collecting. If your goal is to analyze data sets pertaining to internal company processes, use a universal reporting tool. Reporting tools offer a single point of reference for keeping track of how work across your organization is progressing. Some reporting tools like Microsoft’s Power BI let you gather data from various external sources. If you want to analyze marketing trends or competitor metrics, you can use one of those tools.

Some general success metrics you may want to measure include:

Gross profit margin : Gross profit margin is measured by subtracting the cost of goods sold from the company's net sales.

Return on investment (ROI) : The ratio between the income and investment, ROI is commonly used to decide whether or not an initiative is worth investing time or money in. When used as a business metric, it often tracks how well an investment is performing.

Productivity : This is the measurement of how efficiently your company is producing goods or services. You can calculate this by dividing the total output by the total input.

Total number of customers : This is a simple but effective metric to track. The more paid customers, the more money earned for the business.

Recurring revenue : Commonly used by SaaS companies, this is the amount of revenue generated by all of your current active subscribers during a specific period. It's commonly measured either monthly or annually.

You can measure a variety of other data sets based on your job role and the vision you’re working toward. Machine learning makes aggregating real time data simpler than ever before.

3. Organize your data

Organizing your data to improve data visualization is crucial for making effective business decisions. If you can’t see all your relevant data in one place and understand how it connects, then it’s difficult to ensure you’re making the most informed decisions.

One way to organize your data is with an executive dashboard . An executive dashboard is a customizable interface that usually comes as a feature of your universal reporting tool. This dashboard will display the data that’s most critical to achieving your goals, whether those goals are strategic, tactical, analytical, or operational.

4. Perform data analysis

Once you’ve organized your data, you can begin your analysis. This is when you’ll extract actionable insights from your data that will help you in the decision-making process .

Depending on your goals, you may want to analyze the data from your executive dashboard in tandem with user research such as case studies, surveys, or testimonials so your conclusions include the customer experience.

Does your team want to improve their SEO tools to make it more competitive with other options on the market? The data sets you can use to determine necessary improvements may include:

Competitors’ performance data

Current SEO software performance data

Current customer satisfaction data

User research on a variety of SEO/marketing tools

Some of this information will come from your organization, while you’ll need to obtain some of it from external sources. Analyzing these data sets as a whole can be helpful because you’ll draw a different conclusion than you would if you were to analyze each data set individually.

5. Draw conclusions

As you perform your data analysis, you’ll likely begin to draw conclusions about what you see. However, your conclusions deserve their own section because it’s important to flesh out what you see in the data so you can share your findings with others.

The main questions to ask yourself when drawing conclusions include:

What am I seeing that I already knew about this data?

What new information did I learn from this data?

How can I use the information I’ve gained to meet my business goals?

Once you can answer these questions, you’ve successfully performed data analysis and should be ready to make data-driven decisions for your business.

5 reasons to use data for decision-making

Data-driven decision making is more than just a helpful skill—it’s a crucial one if you want to lead by example and foster a data-driven culture.

When you use data to make decisions, you can ensure your business remains fair, goal-oriented, and focused on improvement.

1. Make confident decisions

The businesses that outlast their competitors do so because they’re confident in their ability to succeed. If team leads within a business waiver in their decision making, it can lead to mistakes, high team member turnover, and poor risk management .

When you use data to make the most important business decisions, you’ll feel confident in those decisions, which will push you and your team forward. Confidence can lead to higher team morale and better performance.

2. Guard against biases

Using data to make decisions will guard against any biases among leadership. While you may not be aware of your biases, having internal favoritism or values can affect the way you make decisions.

Making decisions directly based on the facts and numbers keeps your decisions objective and fair. It also means you have something to back up your decisions when team members or stakeholders ask why you chose to do what you did.

3. Find unresolved questions

Without using data, there are many questions that go unanswered. There may also be questions you didn’t know you had until your data sets revealed them. Data can benefit your team by providing better visualization into areas you can’t see without statistics, graphs, and charts.

When you bring those questions to the surface, you can feel confident knowing your decisions were made by considering every bit of relevant information.

4. Set measurable goals

Using data is one of the simplest ways to set measurable goals for your team and successfully meet those goals. By looking at internal data on past performance, you can determine what you need to improve and get as granular as possible with your targets. For example, your team may use data to identify the following goals:

Increase number of customers by 20% year over year

Reduce overall budget spend by $20,000 each quarter

Reduce project budget spend by $500

Increase hiring by 10 team members each quarter

Reduce cost per hire by $500

Without data, it would be difficult for your company to see where they’re spending their money and where they’d like to cut costs. Setting measurable goals ultimately leads to data-driven decisions because once these goals are set, you’ll determine how to reduce the overall budget or increase the number of customers.

5. Improve company processes

There are ways to improve company processes without using data, but when you observe trends in team member performance using numbers or analyzing company spending patterns with graphs, the process improvements you make will be based on more than observation alone.

Processes you can improve with data may include:

Risk management based on financial data

Cost estimation based on market pricing data

Team member onboarding based on new hire performance data

Customer service based on customer feedback data

Changing a company process can be difficult if you aren’t sure about the result, but you can be confident in your decisions when the facts are in front of you.

Make data-driven decisions easy with reporting software

You’ll need the right data in front of you to make meaningful decisions for your team. Universal reporting software aggregates data from your company and presents it on your executive dashboard so you can view it in an organized and graphical way.

By pairing this data with relevant data from outside sources, you can ensure you’re making well-supported and comprehensive decisions every time.