Rational Decision-Making: A 7-Step Model

We make decisions for a number of reasons—some emotional, some rational. And while choosing a pizza topping or falling in love might be instances where you follow your heart, making strategic business decisions often requires a different process.

A rational decision-making model can help you eliminate emotional bias and make an informed decision that achieves the best possible outcome for your business. Read on for a seven-step process to guide you through making rational decisions.

What is rational decision-making?

Rational decision-making is a methodology that uses logic and objectivity to evaluate options and make the decision that best serves your goals. When engaging in rational decision-making, you analyze the risks, benefits, and costs of a decision to improve the likelihood of achieving your desired outcome.

As a business owner, you might use rational decision-making to conduct a cost-benefit analysis on launching a new service or product. Or, maybe you’re considering entering a new market and want to figure out if it’s worth the investment. Conducting market research, gathering relevant information on consumer behaviors, studying the competition and its strategies, and following overall market trends are all components of making a well-informed and rational decision.

Rational vs. irrational vs. intuitive decision-making

Rational decision-making is a critical and analytical approach that requires you to consciously weigh different aspects of a decision. It relies on going beyond your feelings and prior experiences to make informed predictions about potential outcomes.

The opposite of rational decision-making is irrational decision-making, which is emotional decision-making driven by bias. This isn’t always a bad thing—the field of behavioral economics acknowledges emotional and irrational decision-making as fundamental to how humans make choices—but the practice of rational decision-making can help you sidestep unhelpful tendencies. For example, your past experience working at a company that ran out of funding might mean you’re inclined to always choose the cheapest supplier available, whether or not it’s the best option for your business.

Intuitive decision-making often gets misnomered as irrational decision-making because it’s a more mysterious process than rational decision-making and is typically described as a “gut feeling.” However, instinct comes from experience that you build over a lifetime, and that experience allows you to see patterns. Intuitive decision-making tends to rely on the process of identifying patterns. You can use rational decision-making to validate your intuition or to course correct when your intuition leads you astray. For instance, you may be more intuitively inclined to choose a software provider who makes a thorough (if slightly boring) presentation over one with a glitzy highlight reel but who’s missing the details, because you’ve learned through experience that showmanship isn’t everything. Your rational decision-making analysis comparing the two firms may then bear this out to be true.

Rational decision-making model

1. Identify the problem
2. Determine decision criteria
3. Assess relevant data
4. Brainstorm a solution
5. Make your decision
6. Implement the decision
7. Evaluate the outcome

Because making rational decisions is an analytical and precise process meant to help you evaluate alternatives for the best possible desired outcome, it demands a detailed and strategic approach. Here are seven steps to guide your rational decision-making:

1. Identify the problem

First, you need to know the current problem you’re solving and your end goal. Take the time to describe the issue in detail. If your problem is ill-defined, you run the risk of making a decision that fails to address and focus on the real issue. The more specific and clear you can be in defining the issue, the more relevant your information gathering will be and the better your final decision.

Example

You run a CPG snack company, and you recently decided to launch a new line of saffron pistachio cookies. You invest in the ingredients (which certainly aren’t cheap), but unfortunately, the cookies don’t sell the way you’d hoped. You’re at risk of large amounts of finished product expiring before you can sell them, and you’re unsure you’ll be able to recoup a return on investment.

You’ve identified your problem: You’re losing money on the new cookie because sales are below your predictions.

2. Determine decision criteria

The next step is to weigh decision criteria that will affect how you solve the problem, assessing relevant costs, time constraints, risks, your business’s principles and values, and any other factors that will impact your decision.

Example

You need to recoup the money you spent on the new product offering. You don’t have the financial flexibility to take a loss on a single product right now, and as part of your brand values, you aim to reduce unnecessary waste. You also face a time constraint: Eventually, the ingredients will expire. The criteria you lay out are as follows: Minimize waste, solve the problem within three months, and at least break even on your new offering.

3. Assess relevant data

At this stage, you’ll use the precepts of data-driven decision-making to inform your decision. The more information you can pull in on the criteria you’ve identified, the better you’ll be able to guide your decision-making. Perform extensive research to include any avenues you might not have considered previously.

Example:

In this case, the information at your disposal includes extensive pricing data, as well as marketing data you collected from both this and prior new recipes. You notice that the items that sold the best had story-centric marketing, a strategy you set aside for this latest product launch in favor of ads that emphasized the appeal of the product itself.

4. Brainstorm a solution

Get creative and come up with as many potential solutions as possible. Bring in key players of your team to provide input. Developing a robust list of different options makes it easier to land on a solution that addresses your problem and matches your decision criteria.

Example:

You start to make a list of alternative solutions, ranking them as you go along, based on their viability, to meet the decision criteria and solve the problem. You consider a new story-centric marketing strategy to sell the cookies, a promotion where you’d sell the cookies for less but still recoup some ingredient costs, and using the ingredients you bought to develop other baked goods.

5. Make your decision

Time for the final decision. Make sure you’re taking the time to evaluate all the options, consider the pros and cons of each, and analyze the potential results. Does this decision best meet the decision criteria? Consider using a decision matrix as a visual to ensure you’re meeting all your criteria.

Example: 

You decide that making a new item with the same ingredients would involve too much costly development (making it impossible to break even), and your pricing data indicates that selling the cookies at a discount could damage your brand. Instead, you pick the best alternative, which is to develop a robust marketing strategy crafted around a narrative. You start to plan out how you can better advertise the cookies, including a brand story about why they are so special to you and your team. You decide that familiarizing customers with the reasons you chose ingredients will help them fall in love with what you love. 

6. Implement the decision

Plan how you’re going to effectively implement your final decision. What are the steps that you need to take to ensure it’s firing on all cylinders? Don’t skimp on this step: Even the best decision can go south if not implemented properly and with care.

Example: 

You start by strategizing a marketing campaign built around the community your bakery has created and bringing some of your home to your new home in the city. You then start planning content strategies across marketing channels—you blast an email newsletter to customers with a story about the ingredients, promote the cookies on the blackboard outside your shop, make an in-shop advertisement, encourage your team to highlight the cookies on the menu, and print out a mini version of the product story for customers to take home.

7. Evaluate the outcome

You need to know whether you successfully addressed the problem and whether there is room for improvement. Identify how you’ll quantify success and the metrics you’ll track to assess whether the plan you’ve put in place is working as you expected.

Example: 

You carefully adjust your projections based on initial sales after the new marketing campaign roll-out. If sales show signs of increasing enough to recoup—or surpass—your costs, you’re on the right track. If not, it’s time to revisit the rational decision-making process.