Everything you need to know about the steps, stages, procedure and process of decision-making adopted by business, organisations and managers.
Decision making is many-phased and sequential process. It involves a series of interrelated steps that lead manager towards optimum solution.
The stages need not be rigidly applied, rather they depend on situations. This process is more applicable to non-programmed decisions.
Decision-making has been defined as a selection of the best alternative out of many. Hence, decision-making is a choice-making activity. In order to select a proper alternative, one has to pass a long distance right from gathering the information about the problem to the final decision-making and implication.
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The decision making process consists of various steps, stages and procedure.
The steps are:- 1. Identify the Problem 2. Define the Problem 3. Identify Decision Criteria 4. Allocates Weights to the Criteria 5. Develop Alternatives 6. Analyzing Alternatives 7. Selecting an Alternative 8. Implement the Decision 9. Evaluate the Decision 10. Monitoring and Feedback.
Decision-Making Process Adopted by Business, Organisations and Managers: Detailed Steps, Stages, Procedure and Process
Process of Decision-Making – 5+ Steps in Decision-Making
Decision-making is frequently defined as the selection of one course of action from two or more alternative courses of action. This definition is precise, easy to remember and pinpoints our attention upon essential element of decision making, viz. choice-making activity.
Whatever a manager does, he does through decision making, i.e. making a choice. Thus, management is always a decision-making process.
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The decision-making process can be defined as a series of steps (step-by-step approach) that starts with an analysis of information (facts and figures) and ultimately terminate in a solution- a selection from several available alternatives and verification of this selected alternative to solve the problem under consideration. Verification may be done immediately or at some time in the future.
The process of decision-making has six distinct steps:
(1) Defining of the problem;
(2) Analysing the problem;
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(3) Developing alternative solutions to the problem;
(4) Deciding upon the best solution, i.e. choosing the best alternative or selection of a decision;
(5) Communication and implementation of a decision or converting the decision into effective action;
(6) Follow-up and feedback of results of decisions.
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The last step must be included in order to ensure that the decisions are effective in meeting our set objectives.
Step # 1. Defining the Real Problem:
The first step in decision-making is to find the real problem and define it. A problem originates when a manager is acutely conscious of an unsatisfied need a felt need. Pinpoint the gap between what we want to happen and what is likely to occur if no action is taken. Identify the cause of the gap and/or any obstacle standing in the way of achieving the desired objective; Sound diagnosis or defining the problem covers three elements.
1. A result that is desired. The gap between where we are and where we want to go.
2. The key obstacle to activating the result. The root cause and other causes of the gap.
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3. The limits- The boundaries within which we must find a satisfactory solution.
Let the problem be stated in terms of a gap. This will sharpen our objective of the desired results.
After specifying the results desired, we have to identify obstacles (real causes) that must be overcome to reach these ends or objectives. We have to distinguish between the symptoms and the real causes of a problem. A key obstacle can be distinguished from a symptom.
When a symptom is removed, the trouble persists, but when a real cause is removed, the situation improves. Treating the fever (symptom) itself will not work. The doctor will have to find out the real cause of the fever. This he does by diagnosis.
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While defining the problem, we have to find critical factors or strategic factors of the problem. These factors limit or restrict the chances of a solution of the problem. These are the root causes or obstacles. For example, the limiting or critical factor in house-lighting is a fuse.
A machine fails due to the lack of a screw. It means that the screw is the limiting factor. A car otherwise in order suddenly stops. Lack of petrol is the limiting factor. When choosing among alternatives or tentative solutions to the problem under study, the more the decision-maker takes into account those factors that are limiting or critical to the alternative solutions, the easier it is to make the best decisions.
The limiting or critical factor is the root cause or obstacle to be removed. It may be money, material, managerial skill, technical know-how, employee morale, customer demand. It may be an external root cause, e.g., political situation, government regulations. It may be constant or changing.
After specifying the result desired and the main causes or obstacles in achieving our objectives, we have to find the boundaries imposed on acceptable solutions. For instance, existing company policies and activities may influence the acceptable solution considerably. We may have limited available resources and this will influence an acceptable solution.
Step # 2. Analysis:
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Once the problem is defined and the right question is found, the next step is the systematic analysis of available data or information. Additional information may not be necessary for correct solutions when the problems fall within the scope of existing policies. In all other cases, getting the relevant and adequate facts is a necessary step for sound decision-making.
Information system and data bases provide timely flow of relevant information to management. This will assure proper information for analysis. Judgment is necessary to secure only relevant facts for analysis. Management information service (MIS) and decision-making are closely inter-connected as sound decisions are based on collection, classification and analysis of facts and figures. Creative ideas help creative search for alternative solution to a problem.
Step # 3. Development of Alternative Solutions:
Once the problem is defined and the available information is analysed, the decision-maker is ready to take the third step, the developing of alternative courses of action. Logic terms this step as the formulation of hypotheses tentative explanations or conclusions.
The development of alternatives is the central step of the decision-making process. At this stage we come across creative or original solutions to the problems. The techniques of Operations Research (OR) and other computer appliances are special aids in the development of alternative courses of action. Modern management uses these techniques in decision-making.
Step # 4. Selection of the Decision:
Rarely does a manager have only two alternatives from which he has to select one. In practice, he will have many alternatives from which he will choose one. Of course, there is always one other alternative, viz., to do nothing.
Making the correct choice is not easy. In business, decisions are neither black nor white. Many a time, they are grey.
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There are four criteria in choosing the best alternative picking up the best from among the possible solutions:
(1) The element of risk has to be weighed against the expected gains in each alternative.
(2) Economy of effort will have to be ensured to secure the greatest results with the least efforts.
(3) Proper timing of the decision and action is also very important. The question is not merely to do a thing but when to do it. A stitch in time saves nine. In business, time is money. Timing problems elude analysis, depend on perception and are very difficult to systematise.
(4) Limitations on the resources at our disposal also influence our final choice Solutions possible on paper may fail in practice due to lack of resources. Human resources are always limited. We must have people to carry out our decisions. Their vision competence, skill and understanding will determine finally what they can and cannot do.
The worth of a decision is governed by three concepts:
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(1) Does the decision contribute towards the achievement of stated objectives?
(2) Does it represent the maximum decree of economic effectiveness?
(3) Is it capable of execution?
Step # 5. Execution of the Decision:
It is the final step in decision-making, a manager has to put the selected decision into action. As decisions are made effective through the action of other people (the Manager cannot supply action), we need three things-
(1) Effective communication of decisions is necessary. Information must flow to those people who will convert the decision into action. Decisions must be communicated in clear, concise and understandable terms to the subordinates.
(2) Securing employee acceptance is necessary in the execution of the decision. Group participation in both creative thinking and decision making will facilitate the smooth execution of decisions.
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A manager can look after diagnosis and analysis. But in developing alternative solutions and in choosing the best solution, group participation is essential to improve the quality and to secure employee support.
(3) Correct timing of decision execution will minimise the resistance to change. Every decision introduces a change and people are reluctant to accept a change. Hence, timing plays an important role in effective decisions.
Step # 6. Follow-Up System:
He who makes no mistakes makes no progress Follow- up system is essential to modify decisions, if necessary, at the earliest opportunity while the decision is verified through implementation. In management cycle we have planning (deciding) –action- control- replanning- action- control. This is an ongoing process. All facts cannot be secured because of cost and time involved in analysing the problem.
Hence, we may have to modify our decisions and remove the mistake as early as possible. A follow-up system will ensure the achievement of objectives. It is exercised through control. In practice, planning and control are inseparable and they are the two sides of the same coin.
Process of Decision-Making – 8+ Steps (Identify the Problem, Define the Problem, Identify Decision Criteria, Allocating Weights to the Criteria and a Few Others)
A typical decision-making process follows the following steps:
Step 1 – Identify the Problem:
Before problems can be solved, they must be identified. That is, individuals must determine which situation represents problems and which of these problems should be solved. For example- a manager confronted with high rate of resignation of employees may consider it a problem requiring an early solution.
Step 2 – Define the Problem:
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The manager must correctly define the problem. It is not easy. In order to define the problem, the manager must describe what is the problem, what are the factors that are causing the problem, and what kind of cure he is aiming at. Defining the problem brings clarity in understanding the problem and its implications.
In the process of defining the problem, a manager may come across different dimensions of the problem, which he didn’t perceive earlier. For example- considering the above problem of employee resignations, if it is found that the individuals resigning are relatively low performers, and more qualified people can be readily found to replace them, the resignations may represent opportunities rather than problem. Curing the turnover problem, then may be the last thing that a manager should do.
Step 3 – Identify Decision Criteria:
Once a manager has identified a problem that needs attention, the decision criteria important to resolving that problem must be identified. That is, managers must decide what is relevant in making a decision. For example- if a computer has to be bought, the relevant criteria may be – reliability, manufacturer, model, after sales support available, warranties, and price.
It is important that decision criteria be established early in the problem solving process because if the criteria are developed as analysis of data is taking place, the chances are good that the data will determine the criteria. Thus, setting the criteria early introduces objectivity.
This process is somewhat subjective, because what serves as important criteria for one manager may be less important for another. For instance, the decision-making criteria used to hire employees differs across departments; the sales department uses the number of new store openings in different geographic areas, while the manufacturing department uses how many units of the product needs to be produced and how quickly.
Step 4 – Allocating Weights to the Criteria:
Not all criteria have the same importance. (Criteria weights can vary among different managers as well.) Assigning weights indicates the importance a manager places on each criterion for resolving the problem and helps establish priorities. Criteria that are extremely important can be given more weight, while those that are least important can be given less weight. For example- while buying a computer, more weight may be given to reliability of performance than to the comparative price.
Step 5 – Develop Alternatives:
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The fifth step requires decision maker to list the workable alternatives that could resolve the problem. No attempt is made in this step to evaluate these alternatives, only to list them. Considering workable alternatives means alternative solutions that are too expensive, too time-consuming, or too elaborate, should be left as non-workable.
Generating alternative solutions requires information on all the criteria, and divergent thinking. Groups can be used to generate alternative solutions. Brainstorming is one of the processes of suggesting as many alternatives as possible without evaluation.
Step 6 – Analyzing Alternatives:
The manager must judge what would happen with each alternative and its effect on the problem. The strengths and weaknesses of each alternative are critically analyzed by comparing the weights assigned and then eliminating the alternatives that are not workable. Probability factors — such as risk, uncertainty, and ignorance – must be considered.
Step 7 – Selecting an Alternative:
The seventh step is crucial act of choosing the best alternative from among those listed and assessed. Since we have determined all the relevant factors in the decision, weighted them appropriately, and identified the workable alternatives, we merely have to choose the alternative that rates the highest score. The decision can be assisted by the manager’s experience, past judgment, advice from others, or even on intuition.
Step 8 – Implement the Decision:
Implementing a decision involves more than giving appropriate orders. Resources must be acquired and allocated as necessary. Managers set up budgets and schedules for the actions they have decided upon. This allows them to measure progress in specific terms. Next, they assign responsibility for the specific tasks involved. They also set up a procedure for progress reports and prepare to make corrections if new problems should arise.
Including employees who are directly involved in the implementation of a decision, or who are indirectly affected by that decision, will help foster their commitment. Without their commitment, gaining support and achieving outcomes becomes increasingly difficult.
Step 9 – Evaluate the Decision:
The manager must follow up and appraise the outcomes from the decision to determine if desired results were achieved. If not, then the process needs to be reviewed from the beginning to determine where errors may have been made. Evaluation can take many forms, depending on the type of decision, the environment, working conditions, needs of managers and employees, and technical problems.
Generally, feedback and reports are necessary to learn of the decision’s outcome. Sometimes, corrections can be introduced for different steps. Other times, the entire decision-making process needs to start over.
The main function of the follow up is to determine whether or not the problem has been resolved. It is better to discover this failure during the follow up period rather than remain unaware of a new problem provoked by the implemented solution.
Process of Decision-Making – Stages Involved in the Basic Process of Rational Decision-Making
Decision making is many-phased and sequential process. It involves a series of interrelated steps that lead manager towards optimum solution. The stages need not be rigidly applied, rather they depend on situations. This process is more applicable to non-programmed decisions.
The basic process of rational decision making involves the following stages:
I. Investigating the situation and defining the problem
II. Analysing the problem
III. Identifying constraints and decision criteria
IV. Collection of relevant information or finding the facts
V. Generation and development of alternatives
VI. Evaluation of alternative
VII. Selection of best alternative
VIII. Implementation of decision
IX. Monitoring and feedback
Stage # I. Investigating the Situation and Defining the Problem:
Decision making begins with a problem. But to identify and diagnose a problem, a thorough investigation of environment and various aspects should be made.
This step involves the following stages:
1. Scanning Stage:
This involves perception of the environment and investigating the work situation for changing circumstances. The manager must monitor the environment for potential change. He should consider how the relevant environmental factors may- change. He should also assess the implications of such change for the firm.
2. Recognizing the Need for a Decision:
Some signals, such as declining sales or conflict with supervisor, may alert the decision maker that a decision is needed.
3. Establishing Objectives:
Decisions are made within the context of certain objectives. Hence decision maker should define the relevant objectives in a concrete and operational form.
4. Categorisation Stage:
This involves attempting to categorise the situation or events as a “problem”. The exact picture of the problem is not clear at this stage. Managers only evaluate the degree of certainty that surrounds a problem.
5. Identifying and Diagnosing the Problem:
Huber says, “Solving the wrong problem seldom accomplishes a manager’s objective”. To the Japanese, the most important element in decision making is – defining the question. Drucker writes, “Japanese managers may come up with the wrong answer to the problem, but they rarely come up with the right answer to the wrong problem.” Clearly, it is necessary to identify and understand the problem properly, before the solution process begins.
There are two ways of viewing a “problem”-(a) One way is only to consider situations as problems in which objectives are not being attained. This is a reactive way. (b) The other is to view an opportunity as a problem. Drucker stresses this probationary view when he says that solving a problem merely restores normalcy, but results “must come from the exploitation of opportunities.” It is essential to diagnose problems thoroughly to recognize symptoms and to identify causes.
There are several methods that managers use to locate problem such as:
(a) Deviation from past performance,
(b) Deviation from the plan,
(c) Criticism by customers or suppliers
(d) Action by competitors and government agencies.
6. Defining and Stating the Problem:
It is essential to define the problem because it determines action. It is said that “a problem defined is a problem half-solved”. If the problem is misdefined, then- (a) the real problem continues, and (d) misdirected action may create another problem. A problem is a deviation from a standard or expectation.
Richard Lyles believes that “defining the problem means to identify and describe the obstacles, conditions, or phenomena that stand in the way of achieving objectives or cause a deviation from the desired status.” Thus, a decision maker needs to identify clearly- (i) factors that can block progress towards objectives and (ii) deviations from desired conditions. Drucker states that to arrive at the definition of the problem the manager must begin by finding the “critical factor.” This is the element in the situation that has to be changed before anything else can be changed, moved, acted upon.
Stage # II. Analysing the Problem:
Peter Drucker says that analysing the problem means to classify it in order to know who must make the decision, who must be consulted in making it and who must be informed. He writes, “Classification of the problem alone can show who has to do what in order to convert the decision into effective action.
He pointed out four principles of classifying the decision problem as under:
(1) Futurity of the decision – It means the time span for which decision commits the company to a course of action and the speed with which the decision can be changed.
(2) Impact of the decision – The manager should consider the impact of his decision on other areas and functions. If it affects only one function, it is of the lowest order. If it affects large functions, it will be made on a higher level.
(3) Qualitative considerations – The character of a decision can be determined by the number of qualitative factors such as ethical values, social and political beliefs, principles of conduct etc.
(4) Periodicity – Decision can be classified according to whether they are unique, recurrent or rare
Analysing the problem on these principles can insure that a decision really contributes to the whole business. Drucker says, “It forces the manager to see his own problem from the point of view of the enterprise.”
Stage # III. Identifying Constraints and Decision Criteria:
Organisations face multiple problems at the same time. Also, decisions are made in the context of the organisation and its external environment. These decisions compete for the limited resources and manager’s attention.
Many possible solutions may not be realistic. Some elements related to a decision may be forces outside of the organisation. Thus, these limitations impose constraints on the decision maker. These constraints “alert the decision maker to the important stumbling blocks affecting a solution so that they can be avoided.”
Hence, managers must determine what these constraints are, which very widely among organisations. Some common constraints may be- (a) inadequate funds, (b) insufficient number of people, (c) lack of requisite skills, (d) inability to compute cost, (e) powerful competitive situation, (f) legislation, (g) political and ethical considerations, etc.
In addition to identifying constraints, decision makers also need to develop decision criteria or standards against which possible alternatives can be measured. These are guidelines that define what is relevant in a decision and on which the decision will be evaluated.
Stage # IV. Collection of Relevant Information or Finding the Facts:
“Getting the facts” is a next step in decision making process. To make a sound decision, it is necessary to gather relevant information and data. The decision maker should not collect merely interesting information which may be misleading and meaningless.
He has to decide how relevant and valid data he has and what additional information he needs to solve the unique problems. Peter Drucker opines that for sound and precise decisions, it is not necessary to have all the facts; but it is necessary to know what information is lacking in order to judge the risk in the decision.
He writes- “To the decision-making manager applies the old saying of doctors : The best diagnostician is not the man who makes the largest number of correct diagnoses, but the man who can spot early, and correct right away, his own mistaken diagnosis. To do this, however, the manager must know where lack of information has forced him to guess. He must define the unknown.” After collection, data are interpreted and presented to the decision maker in the form of “facts.”
Stage # V. Generation and Development of Alternatives:
This is the creative step in decision making. The object of developing alternative solutions is to avoid the risk of falling into the trap of the narrow “either-or.” The manager should have creative imagination to consider different alternatives. He needs original and distinctive thinking to generate better alternatives.
Koontz and O’Donnell write; “The ability to develop alternatives is often as important as making a right decision among alternatives. If there seems to be only one way of doing a thing, that way is probably wrong.” Drucker has rightly said that “Alternative solutions are in effect only tool to mobilize and to train the imagination. They are the heart of what is meant by the scientific method.”
According to Jon Pierce, alternative solutions fall into two categories:
(i) Existing solutions – these have been used by other decision makers in similar situations.
(ii) Custom solutions – these are developed specifically for a current situation.
The decision maker should be creative enough to modify existing alternatives, to combine alternatives, or to develop new alternatives.
Stage # VI. Evaluation of Alternatives:
The evaluation of alternatives is not a simple job. This is a “weeding out” process which eliminates unreal and too costly alternatives. Each alternative must be judged in light of the goals and resources of the organisation. Managers should focus on each alternative’s strengths and weaknesses, pros and cons, and probable consequences. In addition, it should be feasible, realistic and logical.
Alvar Elbing has stated the following five rules for evaluating alternatives:
1. A solution should have substantial quality so that it can meet organisational goals.
2. A solution has to be acceptable to those affected by it and to those who must implement it.
3. A solution has to be evaluated in terms of the anticipated responses to it.
4. The risk of each alternative must be considered.
5. The choice of solution should focus on present alternatives, not past possibilities.
Stage # VII. Selection of Best Alternative:
After evaluating the alternatives properly, it is necessary to choose the alternative which will yield “the most likely” decision understated circumstances. Choice among alternatives is an act of judgement.
There are four approaches to select an alternative:
1. Satisficing – It is resolving the problem. In this approach, a course of action that is good enough to meet the minimum constraints is selected. Here, managers try only to find the first satisfactory solution. It is choosing a solution that is good enough rather than the best possible. Most managers rely on problem resolving. Simon believes that managers must satisfice because they operate under conditions of “bounded rationality.”
According to him, elements that cause satisficing include:
(a) Incomplete information,
(b) Time and cost constraints,
(c) Communication failures,
(d) A course of action dictated by prior policies,
(e) Selective perception of information, that is, the manager “sees” only part of the evidence.
2. Maximizing – When managers maximize, they make a decision that meets the maximum number of criteria.
3. Optimizing – It is solving the problem. Managers are said to optimize when they select a best possible solution through scientific observation and quantitative measurement. They systematically research alternative solutions and select the one with the best combination of benefits.
4. Idealizing – It is dissolving the problem. In this approach, the situation in which the problem occurs is changed so that the problem no longer exists. Here, the decision making managers change the nature of the system in which a problem resides. They rely on whatever combination of quantitative or non-quantitative tools is needed to achieve the goal.
The decision-making process can change substantially, depending on which approach a manager chooses. Whatever may be the approach, the advice of Russell Ackoff is worth noting- “Few if any problems … are ever permanently resolved, solved, or dissolved; every treatment of a problem generates new problems.” In fact, in business, we have problems. They are where the opportunities lie.
Stage # VIII. Implementation of the Decision:
Peter Drucker writes, “For the solution to become a decision, action is needed.” A decision is useless unless it is implemented. Merely selecting a course of action is of little value to a company. To dissolve a problem or to take advantage of an opportunity, the decision must be implemented.
Implementing a decision involves the following features and considerations:
1. It is more than giving orders to employees.
2. To implement a decision, resources must be acquired and allocated, budgets and schedules must be set up and the responsibility for the specific tasks must be assigned.
3. It includes conveying the decision to those affected and getting their commitment to it.
4. A decision is no better than the actions taken to make it a reality.
5. A great deal of time is spent on “selling” solutions. It is wasted time. People must be led to accept a decision. It requires that any decision become “our decision” to the people who have to convert it into action. (Drucker)
6. A decision should always be presented to people in language they use and understand.
7. Time is the true test of any decision. To be effective, any solution must prove its worth in practice.
Stage # IX. Monitoring and Feedback:
Once decisions are implemented, their effectiveness needs to be monitored. For this, controls are needed to guide actions towards desired results. Results need to be judged in terms of objectives. Monitoring reveals the need to redefine the problem, to reassess alternatives and possibly to change the decision. Periodic reviews can be established to analyze progress towards the attainment of a desired objective.
Also, certain controls can be designed for the careful monitoring. Feedback mechanism is required not only to ensure results but also to provide information for future decisions. If possible, feedback should be built into the process which would give periodic reports on the effectiveness of decisions and, if necessary, change them before serious harm is done to the company.
Process of Decision-Making – Identifying the Problem, Collecting Data, Formulating a Model, Evaluation, Framing a Decision and Follow-Up Actions
Process 1 – Identifying the Problem:
Identifying the problem of choice and then describing it is the base point of making decisions. As a part of description, alternative solutions to a problem have to be listed. The structure or ordering of alternatives is important.
Process 2 – Collecting Data:
Data here means available facts and figures. Description of an economic problem has to be followed by analysis. For analysis, data must be collected. Data can be collected from a number of sources like handbooks, public records, government bulletins, trade journals, official reports, personal interviews etc. The problem often occurs is data may not be always available; available data may not be usable; available and usable data may not be always reliable source.
Process 3 – Formulating a Model:
In describing the problem, the objectives and alternatives are developed. The relation between objectives and constraints must be clearly stated so that data can be meaningfully used to analyze the outcome of alternative courses of action under different decision environments.
Such statement of relations, taking care of the data environment and the system environments is called a model. Model is an analytical aid for making decisions under different situations.
Process 4 – Evaluation:
We formulate models in the abstract symbolic world at the very beginning. Then, we must evaluate it to see how far the model represents conditions of the real world. This is done by considering the realistic elements in the basic assumptions of the model. Fewer times assumptions have to be relaxed to study the outcome of a course of action in reality very often.
Process 5 – Framing a Decision:
When the possible outcomes are thus analyzed, with the help of data and models, it becomes simple to select a particular course of action to cope with a particular problem. Such a selection is designated as taking or making a decision. In the absence of adequate and appropriate data or if, we do not have a practical and flexible model to take care of varied decision environment, decision may not be taken.
Process 6 – Follow-Up Actions:
Decision-making is an ongoing process. The decision-maker has to prepare follow-up strategies and actions; he has to anticipate reactions (moves and counter-moves) of others who are likely to be affected by his decisions. In that light, he has to make short-run (immediate) and long-run (remote) decisions.
Process of Decision-Making – 7 Important Steps Adopted by Managers for an Ideal Decision
Decision-making has been defined as a selection of the best alternative out of many. Hence, decision-making is a choice-making activity. In order to select a proper alternative, one has to pass a long distance right from gathering the information about the problem to the final decision-making and implication. This long distance or the various steps taken constitutes the process of decision-making. The process of decision-making is divided into two parts- Traditional Process and Scientific Process.
Under the traditional process the managers take decisions on the basis of their limited knowledge, experience and assumptions, and no definite process is followed. On the other hand, under scientific process managers follow an established process from the beginning to the final result. In other words, the destination can be reached after crossing various steps.
(1) Defining the Problem:
The first step in the process of decision-making involves obtaining information about the problem for which a solution is to be sought. First of all the origin of the problem shall have to be studied. Generally a problem is created because of the difference in the pre-determined objectives of the organisation and the actual progress of work. Now the cause of difference in results shall have to be studied. If the true cause of this problem can be located the solution of the problem can be easier.
The cause of a problem is known as strategic or limiting or critical factor. In fact the information about the critical factor is the very basis of decision-making. In respect of business the problem and the critical factor can be explained with the help of an example. For example- in a company the sales of 1,00,000 units was decided upon but a sale of only 80,000 units could be made. Now there is a problem of decrease in sales facing the sales manager.
There can be many causes for the decline in sales-like the inferior quality of products, little expenditure on advertisement, more price of the product, entry of rival companies in the market, etc. If after inquiry it is found out that the inferior quality of the product is the main cause of the decline in sales, the quality of the product will be the critical factor.
The critical factor plays a prominent role in defining the problem. If correct information about it can be obtained, fifty percent of the problem is solved. On the other hand, if the information obtained is false, it leads to one problem after the other.
(2) Analysing the Problem:
After having defined the problem, the manager analyses it. Under analysis it is decided what information will be required in connection with the problem and where from this information can be gathered. For example- the quality of the product has been treated as a critical factor in the problem of decline in sales.
Now for analysing the inferior quality of the product the information that will be needed can be – whether the inferior quality raw material was purchased, have the machines not worked properly, whether the supplier has deliberately supplied inferior quality raw material, whether there is a deficiency of training among the employees, whether the quality control officer has been careless, etc.
We can say that the analysis of the problem yields the information that because of the improper working of the machines the quality of the product has not been of expected standard.
What is important to understand regarding the analysis of the problem is that it is more important to know what information could not be obtained rather than the amount of information collected. In this way at the time of taking decision, the non-available information may be accepted as limitations and on the basis of these limitations the risk involved in the decision can be determined. In other words, it does not mean that if the information is not available, a decision cannot be taken.
A decision will be taken but there will be a risk of it not being the best decision for want of the expected information. If it can be ascertained what information has not been obtained, the amount of risk involved in the decision can be determined keeping in view the importance of the information not received.
(3) Development of Alternatives:
The third step in the process of decision-making is the development of different alternatives. When the problem has been defined and its causes have been deeply studied, its possible solutions remain to be seen. There can be many alternatives for the solution of a problem. If there is only one method of the solution of a problem, there is no need to take any decision, because that method is in itself a decision.
The examples taken in the process of decision-making can be considered in the process of development of alternatives. It shall have to be found as to what alternatives there can be about the removal of deficiency in machines being the cause of inferior production. To remove the deficiency in machinery there can be different alternatives – like the repair of machinery if it is not very old. If the machinery is old, new one can be purchased.
If the new machinery is expensive and beyond the capacity of the organisation to purchase it can be hired. While developing alternatives the limiting factors must be kept in mind. The finance is a limiting factor in the alternative about the expensive machinery which can compel the manager to abandon it.
A manager makes use of many sources while exploring the possibility of alternatives. This can be his own past experience, practices followed by others and some entirely new idea. In this example, the manager can have an idea whether the same material of good quality can be obtained at cheap rates from other firms, if the answer is in the affirmative, the alternative about the repair of machines, purchase of new machines or taking them on rent can be left out.
(4) Evaluation of Alternatives:
After finding out the different alternatives, the next step is their evaluation so that the best alternative can be selected. Under their analysis their merits and demerits are studied. On the basis of analysis the manager comes to know about the inherent risk of different alternatives.
Evaluation of alternatives should be made with reference to time and capital and only that alternative should be selected which is most economical. The function of evaluation becomes easy if a particular alternative is better than the other alternatives. On the other hand, different alternatives of the same level complicate the problem.
In such a situation they should be studied more deeply. This is also possible that none of the alternatives may be acceptable. Not accepting an alternative is in itself an important decision. In such a situation the manager should search out some suitable alternative.
In the given example the merits and demerits of all the possible alternatives will be looked into. In the first alternative the expenses involved in the repair (of machinery) can be looked into. It can also be considered as to how long the effect (of repair) will remain. Regarding the second alternative it can be considered whether the machines are available on rent; what will be the rent; for how long they will be available on rent.
Similarly, the alternative of purchasing the finished product rather than it being manufactured by the organisation in the light of its effect on the customers can be considered. Thus, the information about all these things will be collected.
(5) Selection of the Best Alternative:
After analysing various alternatives it becomes clear that to what extent every alternative presented can be helpful in solving a problem. Under the fifth step in the process of decision-making the selection of the best alternative is made after comparing their possible results. While selecting the best alternative a manager takes the help of his experience and experiments. A manager can take the help of his experience in case he had to confront a similar problem earlier.
Sometime the alternatives are examined by putting them into practice and they are reconsidered on getting favourable results. In the given example, suppose the alternative of getting the machines repaired to improve the quality of the product is selected. Thus, making a final selection is called decision. Hence, the decision has been taken but the decision-making process is not completed. It is important to implement the decision and find out its results.
(6) Execution of the Decision:
Once the best alternative has been selected, the next step is its effective implementation. To make the decision effective, action by other people is essential (Manager takes decisions without any action).
Therefore, following things have to be specially taken care of:
(i) Effective Communication:
Effective communication of decision is essential. It should be clearly communicated to all those persons who will translate it into reality,
(ii) Securing Employees’ Acceptance:
It is important to secure the acceptance of the employees-concerned for the effective implementation of the decision. In order to get the acceptance and cooperation of the employees, it is necessary that they should be consulted while developing different alternatives,
(iii) Correct Timing of Decision Execution:
Every decision does bring some change and it is the nature of employees to oppose a change. Therefore, the decision should be implemented in a congenial atmosphere, and there should not be any fear of opposition.
(7) Follow-Up:
Follow-up action is the last step in the process of decision-making. As the decision is implemented, results start pouring in. These results should essentially be in line with the expected outcome. The difference between the actual results and the expected results clearly points out whether the decision has been properly implemented or not. If the results are not good, it means another problem has come up and the decision-making process shall have to be initiated afresh.
Therefore, the decision shall have to be amended, its results to be re-examined and if the results are favourable the decision shall continue to prevail. But unfavourable results shall require another amendment. Therefore, follow-up action is also an important part of decision- making process.
After having studied the steps taken in the process of decision-making it becomes clear as to how an ideal decision needs to pass through all these steps. It is, however, worth-mentioning here that it is not necessary that all these steps should be taken. The number of steps involved in decision-making process can be reduced according to the nature of the problem.
Process of Decision-Making – Identification of Problem, Analysis of Problem, Examination of the Problem, Evolving Alternative Courses of Action and a Few Others
Decision-making is nothing but response of an organization to a problem.
1. Identification of Problem:
First step in decision-making is the identification of the problem. Problem identified is problem half solved. Problems arise due to gap between what it is and what it should be. The threats and opportunities throw up the problem.
A lot of problems may emerge in any undertaking like breakdown of machinery, poor quality of products, employee dissatisfaction, lower productivity, strike, grievances, poor customer service, bad debts, poor sales turnover and so on. The decision maker has to first spot out the problem.
2. Analysis of Problem:
Next step is to examine the problem. He has to split it into a number of sub problems.
Suppose, there is higher attrition in an enterprise, decision maker has to break it into:
i. Gender wise attrition.
ii. Designation wise attrition.
iii. Month wise attrition.
iv. Function wise attrition.
v. Age wise attrition.
vi. Income wise attrition.
Similarly, if a machine breaks down, he has to analyse:
a. What machine conks out and which brand?
b. Age of the machine.
c. Time of breakdown.
d. Output in the breakdown machine.
e. Nature of breakdown.
f. Previous history of breakdown.
g. Name of the mechanic who handled it.
3. Examination of the Problem:
Under this step, the decision maker has to analyse the cause or factors contributing to the problem. In this stage, the decision maker has to analyse the sources of problem, that is, if it is internal or external.
For example, machinery breakdown. Decision maker has to find the cause of break down.
i. Source of breakdown – Internal or external.
ii. Internal source – Faulty parts, worn out parts, age of machine, over strain; misalignment, over heating or over cooling, manufacturing defect, etc.
iii. External causes – Mishandling, power fluctuation, deliberate action, atmospheric condition, carelessness of the operator, poor maintenance, poor repair service, etc.
4. Evolving Alternative Courses of Action:
The decision maker now proceeds to evolve various alternative courses of action to address the problem. All the alternatives may not be equally addressing the problem.
i. There is an attrition of women employees in the executive cadre.
Various alternatives to address the issue are-
a. Transferring them to die place of spouse.
b. Allowing liberal maternity leave.
c. Providing day care facility.
d. Increasing emoluments.
e. Giving alternate work options.
f. Providing fast career growth opportunities for women.
ii. Suppose two workers are quarrelling beyond the tolerable limit.
Options-
a. Suspending them.
b. Arranging counseling.
c. Discharging them.
d. Transferring them to different location.
e. Issuing memo.
f. Working out a compromise.
g. Whatever may be the problem, the decision maker has to screen all the possible alternatives.
5. Evaluation of Alternatives:
Each and every alternative needs a deep scrutiny in terms of its positives and negativities. Generally decision involves time, energy, money, technology, human resources and infrastructure. Each alternative needs to be evaluated in terms of constraints or limiting factors like time, limited resources, risks, return and so on.
6. Selection of the Best Course:
Selection of the best alternative is facilitated by past experience, user’s feedback, research and analysis, experimentation and so on. Optimum choice is one that maximizes the earning in the conditions prevailing in an organization.
7. Implementation:
The alternative chosen is to be implemented. In this regard, decision maker has to fix a time schedule for implementation, to provide resources for implementation, to prepare budget therefore and lay out a procedure to review it periodically.
Process of Decision-Making – 7 Steps Followed by a Good Decision-Maker
A decision cannot be taken in isolation. It is influenced by past experience, present conditions and future expectations. Once a decision is taken, then it becomes difficult to reverse it. It is pertinent to discuss the problem involved and then take a decision after considering various possibilities.
Decision-making involves the following steps:
Decision making is a complex mental process. A good decision-maker has to follow certain steps in decision making.
They are:
1. Identify the problem arid define it.
2. Develop objectives.
3. Seek the facts and identify the problem.
4. Develop a model.
5. Evaluate the alternatives.
6. Select the best solution.
7. Implement the decision or plan a course of action.
1. Identify the Problem and Define It:
“A problem well defined is half-solved”. Unless one knows the problem in clear terms, it is not possible to attempt a solution. Critically examine the situation and identify the apparent problem. This is the starting point in decision-making.
The decision-maker must identify the problem correctly. He has to answer questions such as whether the real problem has been identified? Will solving the problem accomplish the results desired now and in the future? Are there any related Problems?
2. Develop Objectives:
To develop specific and measurable objectives, it is to be remembered that the real problem should be borne in mind.
3. Seek the Facts:
Collect all available information relating to the problem; Seek the facts relating to- The situation factor (What?); The people factor (Who?); The place factor (Where?); The time factor (When) and; The causative factor (Why?).
Information should also be collected regarding the influence of environmental factors such as political, economic and social factors.
4. Develop a Model:
The next step is developing a model. Simply stated a model is a representation (usually mathematical) of a given situation. Examples of models are architects making physical models of buildings, engineers developing scale models of chemical plants etc. But a decision-maker uses a mathematical model which is a set of mathematical relationships. These relationships are expressed in equations. Business problems can be easily understood and analysed by constructing models.
5. Evaluate the Alternatives:
We have to find out as many alternatives or solutions to the real problem as we can. We have to be sure that we are considering all the possibilities. The result of each alternative is to be evaluated.
6. Select the Best Alternative:
After reviewing each of the proposed alternatives, a few will appear to be better than the rest. Take the best alternative that gives the maximum pay-offs according to our selected criterion. The decision-maker should consider questions such as- Is this the best alternative? Whether it can be done? Is it feasible and practical? Will it correct the conditions that caused the problem? Will it have adverse consequences?
7. Implement the Decisions:
Put together an action plan to implement the decision. There must be feedback and control after implementing the decision. This will give him valuable information regarding the effectiveness of the decision and also whether the decision taken will achieve the designed objectives.
One of the hallmarks of a good executive and an effective leader is the ability to take decisions-which will be right decision most of the time. Even if he hits a record of 60 to 70% as right decisions, he would have done an excellent job and would be considered a good executive.
However, most of the executives suffer from a “fear to decide” complex. They may get cold feet with the anticipation that their decisions may turn wrong; and that they may have to pay a very heavy price for it. They forget that they have to pay an even heavier price for not taking a decision at all. All decisions are fought with risks.