Decision making process
Most models of decision making include six essential steps that it is recommended managers should follow when making decisions:
Step 1: Problem identification and diagnosis
The first stage of the decision-making process is recognising that a problem exists and that action has to be taken. A problem is a discrepancy between the current state of affairs and a desired state of affairs. Unless the problem is identified in precise terms, solutions are very difficult to find. In seeking to identify a problem, managers can use a variety of sources of data, including comparing organisational performance against historical performance, against the current performance of other organisations/departments or against future expected performance.
Problem identification must be followed by a willingness to do something to rectify the situation. Before taking action the problem needs accurate diagnosis. Diagnosis involves assessing the true cause of the problem by carefully selecting all relevant material and discarding information, which is not relevant to the problem at hand. Sometimes decisions need to be made when a problem does not exist: for example, a company might want to grow rapidly to capitalize on market opportunities and will have to decide on what route to take.
What, Where, Which, When, Who, How much
Step 2: Identification of alternatives
Having identified and diagnosed the problem, the next step for an organisation is to identify a range of alternatives to solve the problem. Managers should try to identify as many alternatives as possible in order to broaden options for the organisation. In generating alternatives the organization may look toward ready-made solutions that have been tried before, or custom-made solutions that have to be designed specifically for the problem at hand. In today’s business environment more and more organizations are applying custom-made solutions to enhance competitive advantage.
Step 3: Evaluation of alternatives
Having identified the available alternatives, a manager needs to evaluate each alternative in order to choose the best one. Consideration should be given to the advantages and disadvantages as well as the costs and benefits associated with each option. Most alternatives will have positive and negative aspects and the manager will have to try to balance anticipated outcomes.
Depending on the situation, evaluation of alternatives may be intuitive (based on gut feeling) or based on scientific analysis. Most organisations try to use a combination of both. When evaluating alternatives, managers may consider the potential consequences of alternatives under several different scenarios. In doing so they can develop contingency plans which can be implemented with possible future scenarios in mind. When evaluating the range of alternatives available to the organisation to handle growth, a number of different criteria can be applied. The organisation will consider the cost associated with each option as well as the time taken to complete each alternative. The chances of success of each of the options will also have to be considered, as will the impact of any decision on employees, training and culture.
Step 4: Choice of alternative
Having evaluated the various alternatives, the next step is to choose the most suitable one. If for some reason none of the options considered is suitable, the manager should revert back to Step 2 of the process and begin again. When there are suitable alternatives and Steps 2 and 3 have been conducted skillfully, selecting alternatives may be relatively easy. In practice, however, alternatives may not differ significantly in terms of their outcomes and therefore decisions will be a matter of judgement. In coming to a decision the manager will be confronted by many conflicting requirements that will have to be taken into account. For example, some trade-offs may involve quality versus acceptability of the decision, and political and resource constraints.
Step 5: Implementation
Once the decision has been made it needs to be implemented. This stage of the process is critical to the success of the decision and is the key to effective decision making. The best alternative is worth nothing if it is not implemented properly. In order to successfully implement a decision, managers must ensure that those who are implementing it fully understand why the choice was made, why it is being implemented, and are fully committed to its success.
Decisions often fail at the implementation stage because managers do not ensure that people understand the rationale behind the decision and that they are fully committed to it. For this reason, many organisations are attempting to push decision making further down the organisation to ensure that employees feel some sense of ownership in the decisions that are made.
To implement the decision to acquire another smaller business in a different country requires good conceptual skills and could prove challenging. In addition to legal and competitive issues the company will have to deal with assimilating aspects of the new business into their current operations.
Step 6: Evaluation
Once the decision is implemented, it needs to be evaluated to provide feedback. The process of evaluation should take place at all managerial levels. This step allows managers to see the results of the decision and to identify any adjustments that need to be executed. In almost all cases some form of adjustment will be made to ensure a more favourable outcome.
Evaluation and feedback are not one-off activities, however, and they should form part of an ongoing process. As conditions change, decisions should be re-evaluated to ensure that they are still the most appropriate for the organisation. This also helps managers to learn about making sound decisions taking past experience into account.