Decision making has following distinct phases:- 1. Defining the Problem 2. Analysing the Problem 3. Developing Alternative Solutions 4. Deciding upon the Best Solution 5. Making the Decision Effective 6. Implementing and Verifying the Decision.
Step # 1. Defining the Problem:
Management may see a clash of personalities; the real problem may well be poor organization structure. Management may see a problem of manufacturing costs and start a cost-reduction drive; the real problem may well be poor engineering design or poor sales planning.
Similarly, management may see an organizational problem; the real problem may well be lack of clear objectives. In the light of above, the first job in decision making is therefore to find the real problem and to define it. Symptomatic diagnosis-the method used by most managers is no solution.
It is based upon experience rather than upon analysis, which alone rules it out for the business manager who cannot systematically acquire this experience. To arrive at the definition of the problem, the manager must begin by finding the critical factor.
This is the elements in the situation that has to be changed before anything else can be changed, moved, and acted upon. To find the critical factor by straight analysis of the problem is not always easy. Often two subsidiary approaches have to be used.
One approach assumes that nothing whatever will change and asks: what will then happen in time? The other approach projects backward and asks what, that could have been done or left undone at the time this problem first appeared, would have materially affected the present situation? The second step in the definition of the problem is to determine the conditions for its solution.
The objectives for the solution must be thought through. The objectives should always reflect the objectives of the business, should always be focused ultimately on business performance and business results. They should always balance and harmonize the immediate and the long range future.
They should always take into account both the business as a whole and the activities needed to run it. At the same time the rules that limit the solution must be thought through. What are the principles, policies and rules of conduct that have to be followed? It may be a rule of the company never to borrow more than half its capital needs.
It may be a principle never to hire a man from outside without first considering all inside managers carefully, etc. To spell out the rules is necessary because in many cases the right decision will require to change accepted policies or practices.
Step # 2. Analysing the Problem:
Analysing the problem means classifying it and finding the facts. It is necessary to classify the problem in order to know who must make the decision, who must be consulted in making it and who must be informed. Classification alone can show who has to do what in order to convert the decision into effective action.
There are four principles of classification:
(1) The futurity of the decision (the time-span for which it commits the business to a course of action and the speed with which the decision can be reversed.)
(2) The impact of the decision on other areas and functions.
(3) The number of qualitative considerations that enter into it, and
(4) The uniqueness or periodicity of the decision.
This classification can alone ensure that a decision really contributes to the whole business rather than solves an immediate or local problem at the expense of the whole.
In getting the facts the manager has to ask:
(i) What information does he need for this particular decision?
(ii) He has to decide how relevant and how valid are the data in his possession,
(iii) He has to determine what additional information he needs and do whatever is necessary to get it.
These are not mechanical jobs. The information itself needs skillful and imaginative analysis.
To make a sound decision, it is not necessary to have all the facts; but it is necessary to know what information is lacking in order to judge how much of a risk the decision involves, as well as the degree of precision and rigidity that the proposed course of action can afford. The manager must know where lack of information has forced him to guess. He must define the unknown.
Step # 3. Developing Alternative Solutions:
It should be an invariable rule to develop several alternative solutions for every problem. Otherwise there is the danger of falling into the trap of the false either-or. Taking an example: an old plant of a small plumbing equipment manufacturer had become obsolete and threatened the company with the total loss of market position in a highly competitive and price-conscious industry.
Management rightly concluded that it had to move out of the plant. But because it did not force itself to develop alternative solutions, it decided that it had to build a new plant. And this decision bankrupted the company.
Actually there were plenty of alternative courses of action:
(i) To sub-contract the plant,
(ii) To become a distributor for another manufacturer not yet represented in the territory etc.
The above and many such cases reveal how limited most of us are in our imagination. We tend to see one pattern and consider it right. Alternative solutions are the only means of bringing our basic assumptions up to the conscious level, forcing ourselves to examine them and test their validity.
Alternative solutions are no guarantee of wisdom or of the right decision. But at least they prevent our making, what we would have known to be the wrong decision had we but thought the problem through.
What the alternatives are, will vary with the problem. It is rare for alternatives to be lacking for any course of action; indeed, a sound adage for the manager is that if there seems to be only one way of doing a thing, that way is probably wrong.
In such a case, the manager, probably has not forced himself to consider other ways, which is necessary if the decision is to be the best possible. The ability to develop alternatives is often as important as selecting correctly from among them.
On the other hand, ingenuity, research and perspicacity will often unearth so many choices that they cannot be adequately evaluated. The decision maker needs help in this situation, and this, as well as assistance in choosing the best alternative, may be found in the concept, of the strategic factor.
A limiting factor is one which stands in the way of accomplishing a desired factor. If these factors are clearly recognized, managers will confine their search for alternatives to those which will overcome the limiting factors. A limiting factor in a manufacturing enterprise may be lack of cash.
Step # 4. Deciding upon the Best Solution:
In choosing from among alternatives, the more an individual can recognize and solve for those factors which are limiting or critical to the attainment of the desired goal, the more clearly and accurately he can select the most favourable alternative.
There are four criteria for picking the best from among the possible alternative solutions:
(i) The Risk:
The manager has to weigh the risks of each alternative solution against the expected gains.
(ii) Economy of Effort:
Which of the possible alternative solutions will give the greatest results with the least effort. Far too many managers pick an elephant gun to chase sparrows. Too many others use sling-shots against forty-ton tanks.
If the situation has great urgency, the preferable course of action is one that dramatizes the decision and serves notice on the organization that something important is happening. If, on the other hand, long consistent effort is needed, a slow start that gathers momentum may be preferable.
(iv) Limitations of Resources:
The most important resource whose limitations have to be considered, are the human beings who will carry out the decision. No decision can be better than the people who have to carry it out. Their vision, competence, skill and understanding determine what they can and cannot do. Efforts must be made to raise the ability and standard of the people or new people may have to be found for the purpose.
In selecting from among alternatives, a manager has three bases for decision open to him — experience, experimentation and research and analysis:
(a) Reliance on past experience probably plays a larger part than it deserves in decision making. This attitude is more pronounced, the more experience a manager has had and the higher in an organisation he has risen.
To some extent, the attitude that experience is the best teacher is justifiable. There is danger, however, in relying on one’s past experience as a guide for future action, because future may have new problems and events.
On the other hand, if experience is carefully analyzed rather than blindly followed and if the fundamental reasons for success or failure are distilled from it, it can be useful as a basis for decision analysis.
(b) Experimentation is another way to help make decisions. An obvious way to decide upon alternatives is to try them and see what happens. Such experimentation is used in scientific inquiry.
Experimentation is likely to be the most expensive of all techniques, but their are many decisions which cannot be made until the best course of action can be ascertained with experiment.
(c) Research and Analysis is the most generally used and certainly a most effective technique for selecting from alternatives when major decisions are involved. Research and analysis is much cheaper than experimentation.
The approach entails solving a problem by:
(i) Comprehending it. It thus involves a search for relationships between the more critical variables, constraints and premises that bear upon the goal sought. In a real sense it is the pencil and paper (or better, the computer and print out) approach to decision making.
(ii) In the second place, the solution of a planning problem requires that it be broken into its component parts and the various tangible and intangible factors studied.
A major characteristic of research and analysis approach is to develop a model simulating the problem situation by mathematical terms and relationships. Being thus able to conceptualize a problem is a major step toward its solution.
Process of Evaluation:
Once appropriate alternatives have been isolated, the next step is to evaluate them and select the one which will best contribute to the goal. This is the point of ultimate decision making. As we approach the problem of comparing alternatives for achieving an objective, both quantitative and qualitative factors need to be taken into consideration. Quantitative factors are those which can be measured such as various types of fixed and operating costs and the time and cost associated with ancillary services.
Qualitative or un-measurable factors are such as quality of labour relations, the risk of technological change or the international political climate. In many cases, even the best of quantitative plans were destroyed by an unforeseen war.
The evaluation of alternatives may utilize the techniques of marginal analysis, wherein the additional revenues from additional costs are compared. Marginal analysis can be used in comparing factors other than costs and revenues.
For example, to find the optimum output of a machine, one could vary inputs against outputs until the additional input equals the additional output. This would then be the point of maximum efficiency of the machine.
An improvement on traditional marginal analysis is cost effectiveness or cost-benefit analysis. Cost effectiveness is a technique for choosing from among alternatives to identify a preferred choice when objectives are far less specific than those expressed by such clear quantities as sales, costs or profits.
For example, defense objectives may be so unspecific as those to repel enemy attack, social objectives such as reduce air pollution, reduce unemployment, etc.
Step # 5. Making the Decision Effective:
Finally, any solution has to be made effective in action. It is of the essence of a manager’s decision that other people must apply it to make it effective. A manager’s decision is always a decision concerning what other people should do.
They must make it their own. To convert a solution into action requires that people understand what change in behaviour is expected of them, and what change to expect in the behaviour of others with whom they work. What they have to learn is the minimum necessary to make them able to act the new way.
However, it is poor decision making (to present a decision) if people are required to learn all over again. It is better, if the people who have to carry out the decision should always participate in the work of developing alternatives.
Precisely because the decision affects the work of other people, it must help these people achieve their objectives, assist them in their work, contribute to their performing better, more effectively and with a greater sense of achievement. It cannot be a decision designed merely to help the manager perform better, do his job more easily or obtain greater satisfaction from it
Step # 6. Implementing and Verifying the Decision:
Effectiveness of decision in achieving the desired goals depends on its implementation. Best decisions are futile if they are not effectively implemented. Further, follow up is essential to verify the proper implementation of the decision and to modify decisions, if necessary. Follow-up system will ensure the achievement of objectives.