This article throws light upon the top seven steps involved decision-making process. The steps are: 1. Identifying the Problem 2. Identifying Resources and Constraints 3. Generating Alternative Solutions 4. Evaluating Alternatives 5. Selecting an Alternative 6. Implementing the Decision 7. Monitoring the Decision.
Decision-Making Process: Step # 1. Identifying the Problem:
The first step in the decision-making process is identifying the problem. Prior to identifying the problem, it is essential to first recognize that a problem exists. Identification of the problem involves three stages: scanning, categorization, and diagnosis. The scanning stage involves monitoring the work environment for changes that may indicate the emergence of a problem.
At this stage, a manager may have a very faint idea that an environmental change could lead to a problem or that an existing situation is posing a problem. When an organization fails to achieve its goals, there is a performance gap between the predicted or expected level of performance and the actual performance level.
The categorization stage attempts to understand this performance gap. At this point, the manager attempts to categorize the situation as problematic or not. The diagnosis stage involves gathering relevant facts and other additional information pertaining to the problem. It also specifies both the nature and the causes of the problem.
At this stage, the problem should be stated in terms of the discrepancy that exists between the current conditions and the desired conditions, and the causes for the discrepancy should also be specified. Proper diagnosis is very essential for the success of the decision-making process.
Constraints of Decision-Making:
An organization has to make decisions to achieve its objectives. Decision-making is a very important managerial domain. Decisions can be classified into various categories, as listed below:
(i) Programmed decisions – Routine decisions taken by a manager.
(iij Non-Programmed decisions – These are decisions that are unstructured and are made in unforeseen conditions.
(iii) Strategic decisions – Long-term decisions of the organization, regarding its direction and policy.
(iv) Tactical decisions – These are used to implement .strategic decisions and are medium-term decisions.
(v) Operational decisions – These are the decisions which are made on a day-to-day basis and are less contentious.
As a business operates in an environment that is constantly changing, a manager has to be cognizant of both the external and internal factors that affect it.
A manager faces several constraints while making decisions. These constraints could be internal (for instance, management style, organizational structure, current policy, employee behavior, etc.) or external in nature.
The external constraints affecting decision-making are:
An organization is affected by changes in the political environment. For instance, a change in the government of a State or country may affect policies in effect. Further, the policies of a particular party may or may not be conducive to the organization.
b. Economic Constraints:
Economic factors also impose certain constraints on an organization. The economic factors that affect decision-making are economic policies, condition of the economy, domestic demand, etc.
c. Social Constraints:
Decision-making is also affected by various social constraints. Social variables such as changes in lifestyle of people, the increasing number of women in the workplace, the increasing number of divorces, etc. affect an organization’s decisions regarding products and marketing strategy.
d. Technical Constraints:
Technology also has a great impact on decision-making. Organizations find it essential to adopt automation and information technology in order to compete effectively with competitors and to achieve their goals.
e. Legal Constraints:
An organization’s decisions are also affected by changes in legislation. New laws and regulations have a direct bearing on the way an organization functions.
f. Environmental Constraints:
With growing concern for the environment, an organization has to take into consideration the norms set by the government and other agencies. An organization has to keep its pollution under control, recycle the Waste it produces, and produce environment-friendly products. These constraints affect the organization’s decisions on how to utilize its resources.
g. Ethical Constraints:
Organizations are often governed by norms which guide ethical behavior. These norms are set either by the government, an association of organizations, or by the organization itself.
Decision-Making Process: Step # 2. Identifying Resources and Constraints:
Once the problem is identified and diagnosed, the manager should identify the resources and constraints relevant to the problem. Anything that can be used to solve the problem is a resource. These include people, money, materials, time, equipment, expertise, and information. On the other hand, constraints are the factors that limit managers’ efforts to solve the problem.
They are hindrances to problem solving. Examples of constraints include lack of adequate resources, etc. Organizations generally face more than one problem at a time. These problems compete for the manager’s attention and for the scarce resources of the organization.
Making an explicit list of the organization’s resources allows the manager to allocate the resources in such a way that they are utilized to the maximum extent possible.
The listing of constraints alerts managers to the presence of various bottlenecks that could create problems. Organizations sometimes face situations in which the absence of a specific resource or the presence of a particular constraint poses a problem for conducting its business.
Decision-Making Process: Step # 3. Generating Alternative Solutions:
Once the problem, resources and constraints of the organization are identified, the next step would be to generate feasible alternatives to the problem. Managers should not take any major decision without exploring all the possible alternatives.
The temptation to accept the first feasible alternative often prevents managers from finding the best solution to the problem. Generating a number of alternatives allows them to resist the temptation of finding a speedy solution to the problem and increases the chances of reaching an effective decision.
The development of alternatives can often be facilitated through brainstorming, a group decision-making technique that encourages members of a group to generate as many feasible ideas as possible on a given topic, without carefully evaluating each one of them. In a brainstorming session, none of the ideas offered is criticized. Each idea is recorded for later evaluation.
Since there are always alternatives waiting to be discovered, the process of generating alternatives could go on forever. Two factors must be taken into consideration when determining the appropriate amount of time to be spent on generating alternatives. The first is the importance of the problem.
The greater the importance of the problem, greater will be the value of any improvements that can be made to the solution of the problem. The second factor relates to how accurately the manager is able to differentiate between alternatives. This depends on the availability of data and the cost of evaluating the data.
When sufficient data is available, it is relatively easy to distinguish between alternatives and to determine their relative effectiveness. Managers should not devote too much time to generating alternatives when the data available is very limited. Similarly, a manager prefers fewer alternatives when the cost of evaluating the data is high.
Decision-Making Process: Step # 4. Evaluating Alternatives:
The generation of alternatives should be followed by a thorough analysis of the pros and cons of each alternative. In other words, alternatives should be evaluated in order to see how effective each would be. Generally, there are five criteria on the basis of which alternatives are evaluated: feasibility, quality, acceptability, cost, and ethics.
Feasibility refers to the degree to which an organization can accomplish a particular goal within the related organizational constraints (such as time, budget, technology and policies). Alternatives that do not seem feasible should not be considered any further. Quality refers to the extent to which an alternative finds an effective solution to the problem under consideration.
Alternatives that only partially solve the problem are eliminated at this stage. Acceptability refers to the degree of support extended to the chosen alternative by the decision-makers and those who would be affected by its implementation. This criterion is considered to be very important in evaluating alternatives.
The costs criterion refers to the resources required and also the degree to which the alternative may produce undesirable side effects. Thus, the term ‘costs’ not only includes monetary expenditures that the company incurs but also some intangible issues such as retaliation from competitors.
Ethics refers to the degree of compatibility of an alternative with the ethical standards and social responsibilities of the organization.
Decision-Making Process: Step # 5. Selecting an Alternative:
After evaluating the alternatives, the next step in the decision-making process would be to select the best alternative. Managers can make use of three basic approaches for selecting among alternatives.
(b) Experimentation, and
(c) Research and analysis.
When taking decisions, managers tend to rely on past experience to a great extent. Many managers believe that their previous accomplishments and mistakes are infallible guides to the future. Though experience is the best teacher, excessive reliance on it can be dangerous, especially since many managers fail to recognize the underlying reasons for their mistakes or failure.
Moreover, the solutions to new problems may be very different and the lessons from one’s experience may not be valid in every situation.
For one to take good decisions, these have to be evaluated in terms of the future. Experience can be useful only when the decision-maker learns the fundamental reasons for success or failure from experience. A successful program, a profitable product promotion, or any other decision that turns out well, may provide avenues for such learning.
Another way to decide among alternatives is to try one of them and see the consequences. Experimentation is often used in scientific inquiry. Most people recommend that it should be employed more often in managing and that it should be the only way by which a manager can make sure that the plans are right.
The experimentation approach can be quite expensive, especially if a program requires heavy capital expenditure, and if several alternatives have to be tried out.
Moreover, after experimenting, doubts may still linger as to what the experiment proved. Thus, this technique must be used only after considering other techniques. Experimentation can, however, be used in other ways.
For instance, a firm may test a new product in a certain market before launching it nationwide. Organizational techniques are often tried out in a branch office before being implemented throughout the company.
When important decisions are involved, one of the most effective techniques to select an alternative is through research and analysis. This approach attempts to solve a problem by first understanding it. It tries to find relationships among the critical variables, constraints, and premises which have a direct effect on the goal to be accomplished.
In this approach, the decision-maker develops a model simulating the problem. He may also represent the variables in a problem situation through mathematical terms and relationships. One of the most comprehensive research and analysis approaches to decision-making is operations research.
Whatever approach the decision-maker may adopt in selecting an alternative, he must bear in mind that the selected alternative should be acceptable to those who must implement it and those who will be affected by the decision. Failure to meet this condition is one of the most likely reasons for failure of the decision-making process.
Decision-Making Process: Step # 6. Implementing the Decision:
Once the best among the available alternatives has been selected, it must be implemented properly to achieve the objective for which it was selected. It is possible for a good decision to become ineffective due to poor implementation. Successful implementation of a decision usually depends on two factors – careful planning, and sensitivity to those who will implement the decision and/or those who will be affected by it.
Minor changes require only a little planning, whereas major changes require extensive planning efforts, such as written plans, special funding arrangements, and careful coordination with units inside and outside the organization. Decisions can be implemented smoothly by being sensitive to the reactions of those whom the decision will affect.
The decision-makers should anticipate potential resistance at various stages of the implementation process. They should also realize that unanticipated consequences may arise despite the fact that precise evaluation of all alternatives and carefully consideration of the consequences of each alternative have been undertaken.
After the process of implementing the decision has begun, any number of situations, such as unexpected effects on cash flow or operating expenses, can arise. Managers must, therefore, have contingency plans ready to deal with such situations. In order to overcome resistance to change, the people who will be implementing the decision should be given careful orientation and training.
A participative approach may be an effective way for the successful implementation of certain decisions. Most managerial problems require the combined efforts of many members of the organization; each should understand what role he or she is to play during each phase of the implementation process.
Decision-Making Process: Step # 7. Monitoring the Decision:
Managers are required to monitor the process of implementation of the decision so as to make sure that everything is progressing according to plan. It should also be ensured that the problem that initiated the decision-making process has been resolved.
Monitoring decisions involves gathering information to evaluate how the decision is working. Thus, feedback is an essential component of the decision process. It allows the decision-maker to determine the effectiveness of the chosen alternative in solving the problem or in moving the organization closer to the attainment of its goals.
In order to evaluate the effectiveness of a decision, there should be a set of standards against which actual performance can be compared. A second requirement is the availability of performance data for comparison with the set of standards.
Finally, a data analysis strategy, which includes a formal plan outlining how the data will be used, should be developed. By reviewing the decisions, the decision-maker will recognize the mistakes he has made and learn where and how to avoid them in the future. This will also help him sharpen his decision-making skills.