2.2 Managerial Decision making
2.2.2 Decision making process
In decision-making, there is a classic five-step approach that decision maker should find extremely helpful. That does not mean he would follow it blindly in all situations. It is a fairly
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natural sequence. Of thought, however, and so even without the formal framework he would tend to follow this mental path. The advantage of making it conscious is that it is easier to be swiftly aware when a step is missing or – moreprobably – has been performed without understanding or intention (Adair, 2007).
More formally, as Figure (6) illustrates, decision makers should (1) Recognize and define the problem or opportunity, (2) Generate and evaluate alternative solutions, (3) Choose a preferred course of action, (4) Implement the preferred course of action, and (5) Evaluate the results and follow up as necessary.
Figure 3: the Steps of Decision-making
Step 1. Recognize and define the problem or opportunity
The first stage in the decision-making process is to recognize that a problem exists and must be solved. A discrepancy exists between some current state of affairs and some desired state. Such
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discrepancies- say, in organizational or unit performance- may be detected by comparing current performance against (1) past performance, (2) the current performance of other organizations or units, or (3) future expected performance as determined by plans and forecasts (Bateman and Snell, 2004). Recognizing that a problem exists is only the beginning of this stage. The decision maker also must dig in deeper and attempt to define the true cause of the problem (Alamry and Alghalby, 2007).
For example, a sale manager knows that sales have dropped drastically; he should not automatically reprimand his sales staff, add new people, or increase the advertising budget. He must analyze why sales are down and then develop a solution appropriate to his analysis. Asking why, of yourself and others, is essential to understand the real problem.
A great deal of communication might be necessary for a group to quantify the problem, explore the extent of its effect, and determine whether other stakeholders have differing views of the problem. There should be agreement on the definitions and significance of the problem before the decision-makers proceed to finding solutions to it. It is a good principle not to make decisions in the absence of critically important information that is not immediately to hand, provided that a planned delay is acceptable. The rapid growth of methods of communication such as faxes, voice mail, e-mail, junk mail and the internet has now contributed to a new disease: Information Overload Syndrome. A recent international survey of 1,300 managers listed the new disease’s symptoms, which included a feeling of inability to cope with the incoming data as it piles up, resulting sometimes in mental stress and even physical illness requiring time off work. The survey found that such overload is a growing problem among managers – almost all of whom expect it to become worse (Adair, 2007).
32 Step 2. Generate and Evaluate Alternative Solutions
The second stage in the decision-making process is to explore alternative solutions to the problem identified in the previous stage. Decision-making experts call alternatives "the raw material of decision-making." (Dessler, 2004). This step reallyconsists of two parts:
- Generating alternatives - Evaluating alternatives
There are several ways to generate good alternatives. The following are three common ways to do that:
1- Brainstorming. Brainstorming can be done individually or in a group. Brainstorming requires an environment in which the participants (individuals or group members) are free to “think out loud.” Participants blurt out as many ideas as possible within a specified time period. No evaluation of ideas is permitted so as to encourage the free flow of creative ideas. These ideas are recorded. When the specified time period ends, then evaluation of the ideas begin (Dessler, 2004).
2- Surveys. Surveys economically tap the ideas of a large group of respondents. Surveys present respondents with the problem and a series of alternative solutions.
3- Discussion groups. Discussion groups should consist of those who are directly involved in decision-making. In generating alternatives, the group members should:
Becomprehensive. Avoid initial judgments (as in brainstorming). Focus on the problem, not on the personalities of the people involved in the decisionmaking process (Alateia, 2003).
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After you have generated alternative solutions, you must have some means of evaluating them.
Fundamental to this process is to predict the consequences that will occur if the various options are put into effect. Of course, you must attempt to predictthe effects on financial or other performance measures. Another part of evaluation is identifying contingencies alternative courses of action that can be implemented based on how the future unfolds (Alamry and Alghalby, 2007).
Step 3. Choose a preferred course of action
The third step in the decision-making process is to select one of the alternatives explored in Step 2 for implementation. The critical preliminary activity here is to establish the selection Criteria (Adair, 2007). After you have evaluated each alternative, one should stand out as coming closest to making the decision with the most advantages and fewest disadvantages. Important concepts here are maximizing, satisfying, and optimizing. Maximizing is making the best possible decision. In other words, maximizing results in the greatest benefit at lower cost, with the largest expected total return. It requires searching thoroughly for a complete range of alternatives, comparing one to another, and then choosing or creating the very best. Satisfying is choosing the first solution that is minimally acceptable or adequate; the choice appears to meet a targetedgoal or criterion. It means that a search for alternatives stopsat the first one that is okay. Commonly, people do not expend the time or energy to gather more information.Instead, they make the expedient decision based on readily available information.Let's say you are purchasing new equipment and your goal is to avoid spending too much money. You would be maximizing if you checked out all your options and their prices, and then bought the cheapest one that met your
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requirements. But you would be satisfying if you bought the first one you found that was within your budget and fail to look for less expensive options. Optimizing means that you achieve the bestpossible balance among several goals. Perhaps, in purchasing equipment, you are interested in quality and durability as well as price. So, you buy the one with the best combination of attributes, even though there may be options that are better on the price criterion and others are better on the quality and durability criterion (Bateman and Snell, 2004).
Step 4. Implement the preferred course of action
The decision-making process does not end once a choice is made. The chosen alternative must be implemented. People who implement the decision must understand the choice and why it was made. They also must be committed to its successful implementation. These needs can be met by involving those people in the early stages of the decision process (Alamry and Alghalby, 2007).
Managers should plan implementation carefully through developing an action plan, determining objectives, identifying needed resources, building a plan, and implementing the plan
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Step 5. Evaluate the results and follow up as necessary
The final stage in the decision-making process is evaluating the decision. This means collecting information on how well the decision is working. Quantifiable goals (a 20 percent increase in sales, a 95 percent reduction in accidents, 100 percent on-time deliveries) can be set before the solution to the problem is implemented. Then objectivedata can be gathered to accurately determine the success (or failure) of the decision (Bateman and Snell, 2004).
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Decision evaluation is useful whether the feedback is positive or negative. Feedback that suggests the decision is working implies that the decision should be continued and perhaps applied elsewhere in the organization. Negative feedback, indicating failure, means that either (1) implementation will require more time, resources, effort, or thought or (2) the decision was bad one. If the decision appears inappropriate, it's back to the drawing board. Then the process cycles back to the first stage: (re)definition of the problem. The decision-making process begins anew, preferably with more information, new suggestions, and an approach.