What is a Data-Driven Decision?

A data-driven decision utilises facts, metrics, and analytics to guide the choice made. Rather than relying on intuition, past precedent, or untested assumptions, data-driven decisions allow leaders to ground their judgment in concrete evidence and insights derived from data.

Data removes bias and emotions from the equation. With solid data, decisions can be made logically based on what the numbers objectively indicate as the optimal path forward. Being data-driven means making data a core part of your process.

‍

Why is Being Data-Driven So Important?

Research shows companies that describe themselves as data-driven are on average 5% more productive and 6% more profitable than competitors (McAfee and Brynjolfsson, 2012). Data-driven decisions lead to better outcomes by:

• Increasing speed and agility - Data offers real-time insights to pivot quickly.
• Minimising risk - Data reveals potential pitfalls before major mistakes.
• Optimising strategies - Trends and scenario modeling improve planning.
• Allocating resources effectively - Data shows where to direct time, money and people.
• Delivering value - Data helps build features, products, and services that consumers value most.

In short, being data-driven allows organizations to operate smarter – making them more competitive, innovative, and successful in meeting business objectives.

The 5 Steps of Data-Driven Decision Making

Making decisions truly data-driven requires a structured process. Here are five key steps to follow:

1. Identify the Decision to Make: Clearly define the upcoming choice, strategic question, or problem you need to solve. This frames the decision-making.
2. Determine Data Needs: Figure out what data is required to sufficiently inform the decision. Seek both quantitative and qualitative data sources.
3. Collect and Analyse Relevant Data: Gather data from across sources. Clean, process, and perform analysis to derive meaningful insights from the data.
4. Interpret Data and Develop Models: Synthesise data, analysis, and models to create actionable recommendations for the decision. As recommended by Carlsson & Akerman in HBR (2020) ask key questions like:

• How does this analysis change my understanding of the problem?
• How can we quantify the impact of potential decisions?
• What are the strategic implications?
• Do we need to gather more data?

‍

‍

Make an Informed Data-Driven Decision

Use insight from the data to guide the final decision, in combination with experience and judgement.

This process ensures decisions are fully grounded in data insights while still allowing room for leadership experience and discretion.

‍

Data-Inspired Decision Making

While being fully data-driven is ideal, it's not always possible due to factors like limited data or time constraints. In these cases, “data-inspired decision making” that synthesises some level of data with experience and wisdom can lead to quality outcomes. But in general, maximising data in decisions almost always leads to better results.

To learn more about becoming a data-driven organisation, check out our data consultancy services. Harnessing the power of data analytics will be a key competitive advantage as we progress deeper into the 21st century. Use data to make smarter choices.

‍