5 Steps to Making Data-Driven Business Decisions
The world is full of data. According to one estimate, the volume of data created, captured, copied, and consumed in 2022 was nearly 100 zettabytes.
Not sure what a zettabyte is? It’s about 1 billion terabytes (which is 1,000 gigabytes).
The amount of data in the world is also growing fast. By 2025, we’re expected to have 181 zettabytes worth of data. That’s nearly double the amount in less than five years.
You get the point. There’s a lot of data out there, and there’s more coming.
For companies, this is great news. Why? Because data presents a valuable resource for making better business decisions.
When you have data to back up decisions about what markets to launch in, what customers to target, and how to reduce inefficiencies, your business can grow faster.
According to The Economist, data is the world’s most valuable resource.
As a result, data-driven decision-making is essential to thriving in the modern economy.
What is data-driven decision-making (DDDM)?
Data-driven decision-making (DDDM) refers to collecting data related to your business’s key performance indicators (KPIs) and then transforming that data into actionable insights and adapting to it.
This helps you make objective business decisions based on facts rather than emotions and bias. It can be a path forward to driving more sales and profits, optimizing operations and cutting costs, improving the customer experience, and much more.
Benefits of data-driven decision making
Data-driven decision-making can lead to many benefits for your business. These include being able to:
- Find answers to unresolved questions. Relying on statistics, graphs, and charts can uncover new insights into business questions you wouldn’t arrive at otherwise.
- Guard against bias. It can be easy to follow your gut when making business decisions. By following the data, however, you help minimize bias that could end up costing you.
- Minimize risks. Every business must take risks. However, too much risk can be costly. With data-driven analysis, you can make sure your business maintains a low risk profile.
- Improve on measurable goals. Peter Drucker once said, “You can’t improve what you don’t measure.” DDDM is all about making incremental improvements over time.
- Become more competitive. To be competitive in a global economy, it’s not enough to rely on instincts. You need to follow the data and adapt quickly.
- Cut operational costs. With the right data, you can identify operational inefficiencies and then take steps to eliminate them.
Now that you know what DDDM is and how it can benefit your business, here are five steps to making more data-driven decisions:
1. Set business objectives
The first step to DDDM is setting goals to help you achieve your vision as a company. Maybe you want to double your revenue in five years or expand into a new market. Whatever it is, set yearly and quarterly goals to help you get there.
This could involve setting target benchmarks for metrics like gross profit margin, ROI, number of customers, recurring revenue, and so on. Keep the goals quantifiable so you can easily track your progress and know when you’ve succeeded.
As a rule of thumb, your business goals should meet the SMART criteria, which means they are specific, measurable, achievable, relevant, and time-bound.
Once you have your goals, you can start to prioritize them and develop a business strategy around them.
2. Identify relevant data sources
Next, identify data sources that will help you progress toward your business goals.
For example, if your goal is to choose a new market with the most ROI potential, you may want to find datasets related to different markets’ demographics, economies, and industry growth. Other data sources might include online behavior statistics or consumer surveys.
The point is to find valuable data sources that can inform your future business decisions. In some cases, the data will be publicly available. Other times, you will need to use private data sources. The more accessible the data, the better.
3. Collect and organize data
At this point, it’s time to collect and organize your data. With the sheer volume of data available, this can be challenging. So it helps to leverage machine learning (ML) technology to aggregate data and use integrated systems connected to many data sources at once.
A common solution is to use a business intelligence (BI) reporting tool. Many have central dashboards that make it easy to collect, organize, and monitor business data in real time. Some, such as Microsoft’s Power BI, are general tools, while others, like Cetaris’s enterprise asset management (EAM) software, are tailored to specific industries.
By choosing the right tool, you can streamline data collection and make it easier to track, organize, and make sense of your data.
4. Perform data analysis and draw conclusions
As you begin tracking data, you can start to analyze it and draw conclusions from it. Use data analytics software and work with your team to detect patterns and trends. Then determine what implications these have for your business.
For example, if you notice that your net promoter scores (NPS) are falling, it could signal an issue with your customer service. This can help you know where to focus.
You can present your data findings to executives and other stakeholders with the help of data visualization tools. These can make it easy for non-technical users to understand what the data says and what the implications are.
5. Take action, evaluate, and repeat
The last step is to execute a course of action. Now that you know what the data is saying, follow through. This might mean cutting or hiring staff, canceling a subscription to software that’s no longer providing value, or doubling down on a successful marketing strategy.
From there, you can evaluate your performance and identify areas for further improvement, and the DDDM process starts over.
Ultimately, data-driven decision-making is an ongoing process of continual refinement. With time, you’ll start seeing improvements that will pay off big time.
