A Guide to Data Driven Decision Making

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Data driven decision making gets a lot of attention in headlines and buzzword-filled internal discussions. But what exactly does it mean to make more data driven decisions? Why is this considered so important for modern businesses? And what steps can you take to ensure that your business makes more decisions based on data?

What Is Data Driven Decision Making?

Let's start with a basic description of what data driven decision making is. Essentially, this is the art of making decisions with data as the foundation. It's perhaps easiest to understand with the help of an example.

Let's say you're interested in buying a pizza. If you roll a die to determine which pizza shop to buy from, your decision is not based on data. If you choose a pizza shop recommended by a friend, your decision is not based on data. But there are many ways to base your decision on data, and your decision will become much more effective with each significant data point you add to the equation. You can calculate the distance to various pizza places, use consumer reviews to evaluate the relative quality of each pizza shop, compare prices, compare toppings, and more.

Using objective data in the form of benchmarks and KPIs, business leaders can follow a similar process and generally end up with better results. By crunching the numbers, they can figure out what's working, what isn't, and what the best path forward might be.

Why Is Data Driven Decision Making Important?

Why is this system important?

·       Reducing emotions and subjective influences. One of the most important effects of making decisions based on data is reducing the influence of emotions and other subjective influences. In our pizza example, our non-data-based decision was based on the suggestion of a friend, which might be valid when the stakes are relegated to a single night of dinner, but probably shouldn't be influencing million-dollar plays. Similarly, if you rely on data, you're less prone to follow your whims and emotions, which can easily mislead you.

·       Thinking in dynamic new ways. Relying on data also forces you to think in dynamic, new ways. You might consider concepts you never would have considered before. You might be forced to challenge an assumption that you've held since the beginning. You might come up with an idea that would have been impossible without the grounding of raw data.

·       Providing groundwork for agreement and compromise. Decisions by committee are rarely easy, and they're even more difficult when people are pulled in different directions by emotions and subjective interests. It's much easier to make decisions collectively when you all share a common groundwork for agreement and compromise. If everyone agrees to make the decision best supported by the data, this process is much easier.

·       Justifying and proving decisions to other parties. Some people prefer data driven decisions simply because they're easier to justify than others. If questioned by a partner, investor, or client, you can point to the data and prove the legitimacy of your argument.

The Traps of Data Driven Decision Making

However, there are some traps associated with this type of decision making.

·       Obsessiveness with “more” data. Data is good, but that doesn't mean that more data is always better. In fact, many innovators and entrepreneurs get caught up chasing more data, such that they lose sight of the original problem they were trying to solve.

·       Assuming all data is reliable. If you want your data based decisions to be reliable, your data needs to be reliable, and unfortunately, this isn't always the case. Bad data management practices can easily lead you off course.

·       Focusing on the wrong metrics. Similarly, it's possible to discover the wrong decision by looking at the wrong data. If you focus on vanity metrics or inaccurate benchmarks, you might confidently end resolutely choose something that's bad for your business.

·       Assuming data based answers are always right. Data is great, but it can't do everything. You can't assume that a decision is the right one just because it happens to be supported by the selection of data you chose.

Keys to Success in Data Driven Decision Making

If you do decide to follow the principles of data driven decision making, do the following:

·       Maintain skepticism. Always adopt and maintain a skeptical mindset. Don't take your beliefs or the implications of the data for granted.

·       Ensure data reliability. Take extra measures to ensure the accuracy and reliability of your data streams. Better data means better data based decisions.

·       Look for outliers. It's easy to overlook outliers when you're studying broad trends, but outliers can lead you to even more valuable insights than general trends. Don't neglect them in any of your analyses.

·       Ask the right questions. Data is perhaps best used to answer specific questions. Butfor this process to work properly, you need to ask the right questions. What exactly are you looking for?

·       Challenge your assumptions. Basing your decisions on data doesn’t mean you’re suddenly immune to confirmation bias. Always be willing to directly challenge your assumptions – and try to prove yourself wrong whenever possible.

Data driven decision making is useful for most businesses, as long as it's followed properly. There are some issues with this strategy, but as long as you're aware of them and are accounting for them, you can mitigate their effects.

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