Elements of Decision Making in a Home Based Online Business 3
By Roy Thomsitt
Information You Need To Make Decisions
There is no disputing the fact that to make decisions, you need information. Without information,
you are guessing in a vacuum. If you guess instead of decide, you are reducing your chances of success with your
Company Decision Making
A large company will probably have, or at least should have, quite sophisticated management
information systems. The systems will be computerized, bringing information from all the key areas of the business.
The management team will have a process for reviewing and monitoring that information, through the circulation of
summary reports, meetings (regular and ad hoc), and other means of communication.
Those same sources of management information will be used as a basis for important decision making.
Past sales reports; cost reports for different products, manufacturing processes, and cost centres; market
intelligence; material cost reports; supplier reliability reports. Depending on what type of decision is being
made, some or all of these, plus more, may be taken into account.
There is no doubt that such information should be crucial to making key decisions in that business.
However, some companies fall into the trap of allowing the information system to become an internal industry in
itself, with no checks and balances. If a company becomes complacent, if the whole process becomes routine and
habitual, then the value of those systems dissipates. It turns the information systems themselves into a bottomless
pit for management time, bringing no valuable return.
Let me illustrate. In the early 1990’s, there was an internationally known British company, which,
like most companies, had a budget setting process each year. That was an important time for decisions; absolutely
critical in one of the most competitive markets in the world. That particular company was near the top of the tree,
if not at the top. It had won a reputation for modernization, innovation, and efficiency, in an industry bogged
down by state intervention across the world.
The whole budget setting process went on for many months before the start of the financial year.
Every manager of every department was geared up for it, and it had become a highlight of management activity. So
how did they go about deciding the next year’s budget for each department?
Across the board, in each department, their starting point was the current year’s budget. Each
manager would add a bit here and there for anything new they needed to spend money on. We’re talking many millions
of pounds here. Then the Finance Director and Chief Executive, as they went through their budget setting meetings,
would get individual managers to knock off a bit to make the cost base look better. So, they would end up with a
budget very much like the last, regardless of whether the last budget was nonsense.
One year the Chief Executive decided the whole system was flawed. He threw out the system of “top
down” budgeting, and forced every department to start from zero. They now had to justify every penny they spent to
get their budget for the year. Out went the complacency and blind acceptance of what had been happening in the
past. From then on, the management were forced to justify what they were going to spend. Each item of expenditure
became a decision, rather than a habit. Habits continue unless you “decide” to stop them. Fewer habits and better
decisions ultimately means higher profitability.
I can say with confidence that such examples of poor use of management information systems is
common. Often, too, users of those systems come to accept them as gospel truth, when in reality there may be errors
in the figures or they may include a lot of estimates. They may, on the face of it, appear to be sophisticated, but
under the surface they are often not.
Applying Company Lessons to Your Own Business
So, why have I spent so long writing about large companies when you are probably just a one man
First and foremost, you will have an advantage over many others if you are fully conscious of the
fact that you are making business decisions. I have given the illustration because you are more likely to remember
that than a whole load of theory. It is a hook for your memory, which I hope may aid you in remembering as you go
through your business life:
“I need to make decisions based on good, accurate information, and not let my decision making
becoming a habit that skirts the truth.”
It is amazing how differently you may view a situation given hard facts, rather than just your
memory and perception, mixed in with emotion and mood. A few years ago my partner at the time wanted to drop one of
our magazine clients, because they brought in only about $300 a month. It took only a few minutes to change her
mind. I worked out the income per hour from that magazine, and out of the 7 magazines we handled, that had by far
the highest income per hour. That was a simple decision, and one we were able to make because of a simple part of a
very basic information system – a record of time spent on each client.
It is not possible, in a short article, to give a comprehensive list of all the records you should
keep, and how you should use them, to aid your decision making. Whatever you do, do not become over enamoured with
any systems you set up to get the information you need. You need accuracy and relevancy; you need only the
information necessary for the decisions you are likely to need to make.
In your business, you know your cost base, markets, clients, customers, suppliers and the way they
interact within your business. Think for a while what type of decisions you are going to need to make, and then
ensure you will always have up to date and accurate information in order to make those decisions. Here are a few
• Much of the information you will need will be of a financial nature. When you set up your
accounts for statutory purposes, use a software package, like Quickbooks, that allows you to break down figures
into cost categories, products, markets etc. For example, if you have a bill from an advertising medium you have
used for more than one product, ensure you can input not just the total (for statutory purposes) but can then
allocate the costs to each product A, B and C etc. That will give you a lot of information that can be summarized
quickly for decision making. Similarly with sales income or commissions. A cheque from Clickbank may include
several products; ensure you break it down.
• Try to master the use of spreadsheets. They can be used for simulations or “what if?” scenarios
in decision making, and once set up can be very powerful assistants.
• If you do use spreadsheets, ensure they are 100% right before using them for decision making.
Complex spreadsheets in particular can harbour mistakes in formulae that have not been immediately evident. If
information is not accurate, it is dangerous or worthless, usually both.
• If you are spreading your time between separate sources of income, try to keep a rough record of
time spent on each. As a sole proprietor with no staff, time can be particularly critical; you only have a limited
time each day to work, you want to make the most of it.
• Try to set aside some quiet time when there is a need to make a significant decision of any sort.
Think first about the information you need to make a good decision, and only when all that is in place should you
“decide”. That will help neutralize moods and emotions that may distort your decisions.
• If you have a decision to make, and find you do not have the necessary information from your
records, ask yourself if you need to alter your own record keeping for future decisions.
What I have aimed to do with this series of articles is to increase your awareness of the need to
separate business from personal decision making. In your own business they do overlap, but you will make better
decisions if you not only separate them, but treat them differently also.
I have also tried to encourage you to be aware of the need to gather relevant information that you
may require in the future for making decisions. Often, being prepared right at the beginning will make things a lot
better for you later on.
As your business grows, you may need to think about some of the more sophisticated and statistical
decision making tools and techniques. I will not go into those here, just ask you to remember the lesson from the
British company I mentioned earlier. Bigger is not always better. Accuracy and relevancy are always better.