Companies of all industries benefit from a figurehead taking a business-case approach in decision making. Leaders well versed in business can conjure up solutions to problems using their technical knowledge and direct application of financial tools they have in their arsenal. Furthermore, all companies, from startups to enterprises, need skilled supervisors to formulate macro issues through informed, systematic, and practical decisions. Hence, the financial tools listed below are crucial for every successful company.
Financial Tools and Techniques for All Skill Levels
Pareto Analysis estimates and identifies the optimum effect a future change in a business may create. The Pareto principle or the 80/20 rule, named from economist Vilfredo Pareto, states that 80% of the result comes from 20% of the initial work. Simply put, 20% of the initial work done contributes to 80% growth in the company.
Since the Pareto Analysis is versatile, it can apply to all businesses through insights from the Pareto Principle. Through this financial tool, companies can learn which aspects of a company they should prioritize and which problems they should resolve. Take loans borrowed from a mortgage company as an example: 80% of the mortgage loan profit stems from 20% of a company’s efforts and services.
Supervisors who can utilize the Pareto Analysis to its fullest can identify minute changes that can create lasting effects on the company.
The Ishikawa Diagram, also known as cause and effect, is a diagram that estimates the prospective outcomes of an event. Businesses that focus on manufacturing, product development, and marketing benefits the most from this financial tool. Subsequently, the Ishikawa diagram’s process involves a detailed list of all the steps and procedures for the services an industry distributes. Furthermore, this financial tool helps point out possible quality control issues and its solution.
The Ishikawa diagram takes the shape of a fish skeleton with the “ribs” portraying an event’s causes while the effect is positioned at the skeleton’s head. Companies that employ the Ishikawa diagram will quickly determine the issues they must address to avoid adverse outcomes.
The Strengths, Weaknesses, Opportunities, and Threats (SWOT) diagram is a management application that aims to help assess any situation a company faces. All upper management should learn how to use the SWOT diagram since it is crucial for strategic planning.
The SWOT diagram aims to let supervisors know:
- The company’s strengths. What makes them stand out amongst the competition.
- The company’s weaknesses. Particularly all aspects the company might improve itself on.
- Opportunities that the company can create for their employees and business. And;
- Threats in the forms of challenges and competitors that prevent the company from prospering.
A company that utilizes the SWOT diagram in its decision-making will know what steps to take in the industry. Furthermore, when writing a SWOT diagram, it’s crucial to employ multiple perspectives to get the whole picture and avoid biases. Plus, the company can use a SWOT diagram as a company activity in which everyone can participate.
Akin to the pros and cons list, a decision matrix is best for dealing with multiple factors and elements. This technique aims to help decision-making by listing the choices of a specific problem and displaying probable results. A successful decision matrix involves:
- The decision alternatives and its score of effectiveness.
- Relevant factors that might hinder the decision’s effectiveness.
- A scale on which a description of the alternative options is compared to the current decision.
- The importance of the decision and its possible effects. And ends with;
- A tallied score that explains the pros and cons of its outcome.
A strategy map, taken from the balanced scorecard methodology, is an expanded diagram that illustrates a company’s strategy and its cause and effects all in a single page. The strategy map is an easily readable graph for every employee’s perusal. Furthermore, companies can use this financial tool to document all business goals and strategies. Utilizing a strategy map improves a company’s strategic communication across all employees through graphs and diagrams.
There are numerous financial tools companies can use for better decision-making. Furthermore, supervisors aren’t locked down with one tool to use. Companies can mix and match financial tools and determine which one benefits them the most. In retrospect, curating a decision-making aid for the company is confusing and tiring. However, businesses can use the financial tools as a company event to gather insights from all employees. After all, a successful business utilizes all available resources to get to its goal further.