DECISION MAKING

Decision Making – Complete Process

INTRODUCTION

Decision making is believed to be an art rather than a science. One has to weigh so many aspects that, one has to use judgment in decision making. The aspect to be considered, weightage to be given to each aspect and the way it is to be implemented in terms of action is mind-boggling.

Decision making is useful throughout all managerial functions. The nature of the decision, the circumstances in which they are taken, and the variety of ways in which these can be implemented are so widespread that we can only pinpoint certain aspects of decision-making.

Human managers are required because the decision-making process is not an objective but highly subjective matter. However, it is possible to enumerate some ways to look at the decision-making process and adhere to some techniques to make it easier to evaluate and apply.

NATURE OF DECISION MAKING

Making decisions

Decision-making process is really thinking of alternatives and then choosing one to convert into action.  If we don’t have any alternative option in deciding, then there is no choice and we follow whatever option that is available to us. Even then we decide whether to follow the option available. Not taking action is also a decision.

Keeping Time Factor in Mind

Must keep in mind 2 types of the time element in decision making. First is the time for implementing a decision. If you delay your decision you will get different results. You must along with the decision also decide the time of implementation of the decision. Time is a crucial factor, if decisions are not implemented on time it will prove meaningless. The other element involved is the time which you take to make a decision. There can be a reactive and proactive decision.

Ease in Taking Decisions

Decisions are to be followed by actions and we must see the practicality of implementing the decision. The factors can be – the capacity of employees to handle situations or shortcomings of resources. Both of these factors will impact the efficiency of implementing the decision.

Applying Creativity & Innovation

Decision-making process involves not only analysis of the present environment but something which is not thought of. For example, if you are a microwave oven producer and your competitor comes up with an oven that’s powered by a solar cell, these ovens can be used in places where there is no electricity. When R&D poses a problem like what new features can be added, one may come up with such an idea. Alternative building for decision making is a creative and innovative process.  This approach requires management to be more participative.

Posing the Right Problem

Creating alternative sets of solutions to make decision making more thorough also depends on how you pose a problem. Posing the right problem for a decision is important and if we can invite several possible questions, we will get different alternatives to think and frame our decision. Alternatives come from the individual frame of mind and at this stage, more participation will give a wider problem profile. Thus, we should seek as many questions as possible so that different alternative emerges almost around the same problem area.

Relating Decision to Resource Availability

One of the most important resources for making a better decision is the availability of information. More and better the information, the viewpoint will widen further. Thus, facilitating the good decision-making process.

Connecting Decision with Objectives

Decision can only be taken against the objective that is to be achieved. The expected result should be very clear. Otherwise, the proper decision can’t be taken. One can concentrate on decision making, if the objective from the standpoint of time, results to be achieved, and resources available are clear.

Taking Risk

When we are not happy with the current state of affairs, we start thinking in terms of change. Such a decision is called breakthrough thinking in the present stalemate. It calls for a change. We cannot foresee the results of any change and each change is a risk.

The ability to take risk determines the choice of alternatives in decision making. People who are risk-averse and prefer status quo or little incremental change do not like transformational changes so they will choose a less risky alternative.

Managing Change

Decision involves making a change and handling a change. One must weigh how much change is involved in a decision.

Handling Associated Problems

Normally a problem and the decision based on it require actions on many associated problems. To satisfy employees you may raise salaries but this will lead to more expense and to deal with it something needs to be done. If one has to make a decision effectively, then it’s important to be prepared to handle many problems associated with the decision.

Choosing Between Alternatives

Decisions are taken by choosing rationally between different alternatives. Alternatives are also chosen rationally. But this rationality depends on the subjective capacity of the decision-maker and his understanding of the environment. Knowledge one should have to make a decision is also a subjective decision. Moreover, if one waits for all the knowledge, by the time one collects it perhaps the decision will be delayed and will be no longer effective. The rationality which we speak in taking the decision is bound by the knowledge one has at the time of taking a decision and the willingness of the individual to take the risk.

Being Open to Surrounding Issues

Decision cannot be taken by just confined to the area of the decision itself. The decision must be connected to surrounding areas to arrive at a better decision. There are purpose, policy, objectives, etc which are set outside but which are necessary to consider before a decision is taken. The course of action is decided by the managers by taking into consideration the overall environment and its purpose.

THE DECISION-MAKING PROCESS

The process of decision making can be explained with the help of the following flow chart:

decision making process

Premising

Before we start making a decision, we must have some premise in mind such as the objective, nature of the problem, operating conditions in which the decision is been taken, likely scenario during the time of implementation of the decision, & the expected result. The more the premising is proved correct, the more will be the chances of getting the expected result. This will depend on the information one has collected, studies carried out, experience, and judgement of people making the decision.

Understanding Limiting Factor

To consider any alternative we must think of the factors that limit the choice either because of internal problems within an organization or because of those which are present in the environment around the organization that prohibits accepting an alternative.

Understanding the limitations is very important, otherwise, the whole exercise of decision making will prove futile. A good self & environment assessment at the beginning of decision making is vital.

Developing Alternatives

If we have the possibility of choosing, only then decisions are required else we can continue with the status quo. Thus we must have a range of alternatives to decide. This can be done by mixing up resources in different proportions, thinking about the same problem using different perspectives, making more people participate, using creativity, etc. Decision making is a thinking process while implementation requires resources. Thinking is cheap and implementation requires a commitment of actual resources. Hence we should think of as many alternatives as possible before the decision stage. Inclusiveness is an important factor in developing alternatives. Click here to read more about inclusiveness in leadership.

Evaluating Alternatives

After evaluating alternatives, one finds that one or two alternatives are meeting our objectives. The evaluation is generally done based on experience, meeting objectives, time frame, the cost involved, organizational preparedness, the risk involved, and the probability of its success.

Handling Decisions

Very few people realize that decisions require handling when they are to be implemented. Most of the decisions are to be implemented through a shortage of people and resources. It is not easy to implement decision thinking that people will execute in the same spirit as it was contemplated. A decision is formed in one environment and is implemented in another which is dynamic and requires a contingent approach.

Taking Feedback, Reviewing & Revising

As after-sales service is important when you sell a product, it is also important to see that decisions have served the purpose for which these have been implemented. The feedback can be oral, in writing, casual, or in a well-designed form. What is important is that it should satisfy to know the outcome and if necessary, make it possible to rework on such an outcome.

TYPES OF DECISIONS & THEIR IMPLICATIONS FOR MANAGING

Proactive & Reactive Decisions

When management does not think sufficiently of the future, and as problems come by themselves and you try to respond to these immediately you make reactive decisions. These decisions are forced by circumstances and one has no alternative but to react to it. In a proactive decision, you are the initiator while when you are not an initiator and respond only because someone else has acted, it is a reactionary decision.

Prescriptive Decision

If the nature of a problem is repetitive, one prepares a readymade solution based on experience and prescribes the same solution. These are called prescriptive solutions. Generally, it is said that physicians always prescribe medicine – this is a prescriptive decision. The physician only uses pre-approved medicine and does not make it.

Structured & Unstructured Decisions

When steps in which a problem is to be solved are fixed, and its values can be determined at each step it is a structured decision. Most of the mathematical decisions are pre-structured. Such decision-making is prone to automation. Most of the decisions which a computer can arrive at are structured decisions. The decisions which cannot be put in an equation or calculating mode are called unstructured decisions. Most of the qualitative decisions are unstructured.

Policy Decisions

Policy decisions are long term decisions that are like a guide for other decisions. Thus, the subsequent decision gets a fixed parameter and, therefore, becomes easy to take. The company announces that it will not give any maternity leave and other benefits for the third time to the same person to cultivate the habit of planned family. This is a policy decision anyone who comes for the third time to take the benefits is automatically rejected. Thus, further decision making becomes easy, if policy decisions are taken. The more the policy decisions, the better it is.

Rules

Rules are policy decisions leaving no discretion to the decision-maker. There is no scope to interpret it any other way. For example: “No Smoking in the factory area” cannot be interpreted liberally.

Procedural decisions

Decisions involving changes in procedures laid down are classified as procedural decisions. These decisions are implemented generally for increasing efficiency in terms of actions.

Strategic Decisions

Strategic decisions are taken because of competitive conditions, and the non-availability of enough resources to overcome such limitations. These decisions are either competition related or resources related.

Normative Decisions

These decisions set norms of behavior and are, therefore called normative decisions. If you decide that all must come on time, it is a normative decision. Normative decisions are related to values.

Quantitative & Qualitative Decision

When decisions are expressed in number or money, they are called quantitative decisions. E.g.: “We must reach sales of 3 lakhs”. If people do not put their best in work, we must improve their work morale. Here we talk of quality improvements without any quantitative indicators. This is called a Qualitative Decision.

Group Decision

Group decisions are those which are taken in group situations such as in meetings, quality circles, etc.

Short-Term & Long-Term Decisions

Short term decisions are for foreseeable future. You base your decisions on what you see and what you can correct now. While long term decisions are concerned with what you feel about the future and conclusions, you draw of surrounding conditions then. Short term decisions are taken in a way that they do not mar long term prospects.

Technical Decisions

Decisions become technical when the knowledge involved in taking a decision requires some specialized knowledge which can be a summary described as technical.

ASSISTING TECHNIQUES IN DECISION-MAKING

DECISION MAKING TECHNIQUES

Marginal Analysis

While evaluating alternatives one might use the technique of marginal analysis which denotes additional revenue arising from an additional cost. E.g. you produced tetra packed juice and you find the additional revenue meets the cost at 100th tetra pack production. It is profitable to get 99th tetra pack made since its leaving some positive surplus. The 100th tetra pack is on the margin of surplus and loss. While we do the alternative analysis we can see which gives us better marginal cost advantage at a planned production level.

Cost-Benefit Analysis

Cost-benefit seeks the best ratio of benefits and costs. Here one analyses the different scales of incurring the cost and the advantages one may gain in terms of benefits. This is done where it is a social project and where commercial indicators such as profits or surplus do not play an equal part in the evaluation. One can also evaluate alternatives in this method and conclude as to which is better in terms of effectiveness. It is also called a cost-effective analysis.

Experimentation

If the implementation of a decision is very expensive to take abundant caution people undertake experimentation. Experimentation needs resources, cost, and time. Thus, it is not a very easy method. It is equally important that high-cost projects should undergo experimentation before one can commit to total resources. One can also simulate similar conditions and then experiment. This is called Simulation.

Research & Analysis

Research & Analysis can also help us a lot in collecting information and then analysis of alternatives. Being more of a desk exercise, the cost of this is comparatively limited than experimentation.

Risk Analysis

We take the decision on works in the future and the future is uncertain. One has to take the risk that alternatives that are likely to be chosen give the same result as imagined. A decision is associated with risk. Those who are risk-averse will make more reactive decisions than pro-active decisions. One of the problems in corporate life is, we commit resources, which are not owned by us psychologically. E.g.: Employees will be willing to spend money of their owners and may take decisions with extra risk since money does not belong to them. If it is their own money they will be more careful in taking the risk. Thus, risk-taking is dependent upon factors such as who owns resources, at what level one takes decisions, how much experience one has to manage, the magnitude of risk involved, etc.

Decision Tree

If one sees the pattern of a tree, one sees that it has a common trunk, several branches, each branch again has many sub-branches, and it grows that way. Similarly, we take a decision as a tree trunk, we get a number of branches in form of alternatives, and then it grows. If one considers alternatives as branches, each such alternative leads afterward to other alternatives, and then one can imagine a decision tree.

Let’s assume that we have to take the decision to grow our business. The first alternative is whether it should or should not. If we decide negatively, we can maintain the status quo. If we decide yes, then the question is whether we should first increase production or marketing capabilities. If we decide to increase marketing capabilities, the question is whether we should increase the advertising budget or sales manpower? If there is one decision, one has to branch off to so many decisions that it becomes a chain of alternatives at each point of chance event and probabilities involved in the various course of actions.

If we can put such a decision tree showing chance events and probabilities, we get a clear picture of consequences likely in case of any decision. If one can assign values to probabilities, it may give us a chance to express alternatives in mathematical terms. The main advantage of decision tree analysis is to create an instrument in writing to act as a mirror of our thinking and make us see objectively the choices available in decision making and their possible outcomes. It can also be shown to others to involve them in decision making.

Preference Theory

Individual attitude towards risk will vary and, therefore, the choice of alternatives. People are more likely to take a small risk when compared to big risks. This curve changes with the type of person taking the decision, whether he is a risk avert or a gambler. Point to note here is that the growth of an organization to the great extent is related wit risk-taking on part of individuals or organizations.

Decision Support System

Providing the necessary information input to the decision-maker is called a decision support system. The major aim is to make the decision process more effective.

Management Information System

Here managers give their needs as well as decisions and get such type of information designed from experts, and make it available as requested by managers. Database systems are used for this purpose.

SUMMARY

  • Taking a decision is more of an art than science but scientific tools are available to impose more rationality and objectivity in decision making. In the case of indecision, time will decide for you leaving no control over its consequences.
  • Decisions are objective-based, action-oriented, value and time based, need ease of handling, creativity, resource availability, and demands risk-taking capacity on part of the decision-maker.
  • If one has to cultivate more alternatives, one must pose the right problem. We should invite more problems to get more alternatives.
  • Mere decision taking is not enough, managers must decide how to handle a decision in terms of value and culture obtainable at any given time as well as synchronize numbers of stages involved at the same time.
  • The major steps involved in decision making are proper premising, understanding limiting factors, developing alternatives, evaluation of alternatives, handling decisions, make a periodical review, and revision by arranging feedback.
  • Different types of decisions are expected from managers and the manager must choose one which is effective in a given situation.
  • Mangers should get acquainted with managerial techniques that can be used to support decision-making activities.
  • Human judgment still holds a dominating role in decision making.

KEYWORDS

  • Risk Taking: Refers to the ability and appetite for risk in business.
  • Change management: Refers to thetechniques, skills, and attitudes required to manage the impact of any change in the business environment- Internal & External.
  • Premising: Refers to making some assumptions before making a decision, generally these are well thought out.
  • Proactive: When action is taken in advance to save time, cost, and energy.
  • Reactive: Refers to decisions and actions that are taken in direct response to a situation that arises.
  • Prescriptive: Refers to what has been prescribed and has been tired and tested before as a solution to a problem.
  • Management Information System (MIS): Refers to the system that store and allow the retrieval of information from taking decisions.

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