Decision Making and Business Chapter

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Decision-Making Process in Business Environment

The activity of decision-making may be defined as mental processes leading to the choosing of one alternative out of many.

All decision-making processes generate an ultimate choice.

Decision-making output may be a chosen view or action.

Broadly, decision-making represents a process of choosing between numerous alternatives and making a commitment to adopting some particular option for the future (Masood).

The Nature of Decision-Making

Successful decision-making, realizing where one has made the wrong choice, and being quick to respond to one's errors, forms a major component of corporate efficiency.

According to some scholars, decision-making constitutes the most elementary and salient of all the responsibilities of a manager.

The activity of decision-making relates most closely to the activity of planning.

But it also forms part of leadership, organization, and control (Wicaksana).

Decision-Making Process

Decision-making entails six steps:

a. Problem Identification

• Need for explicitly outlining the issue

• Manager should thoroughly understand the issue

• Manager should carefully regard and assess the situation

b. Identification of Alternatives

a. The manager needs to recognize the fact that limited feasible options may be available, owing to ethical, legal, authority, and moral constraints, economic considerations, unofficial social standards, and technology availability.

c. Evaluation of Alternatives

• All individual options have to successfully pass through the following three steps before one can consider them as solutions to the problem:

• Feasibility -- Is the option legally feasible? Is it financially feasible? What are the informational, material and human resource constraints?

• Affordability -- What impact will choosing this option have on other organizational areas? What are the non-financial and financial costs linked to this option?

• Satisfactory -- Are the decision situation's conditions met by the alternative? [50% sales growth]

• 'Price tags' should be attached by the manager, on every option's consequences

• An option whose consequences overtax the organization's financial and other resources should not be chosen even if it is feasible as well as satisfactory (Wicaksana)

d. Alternative Selection

• The biggest challenge for a decision-maker is selecting the best option

• The objective must be optimization, as any decision will likely impact multiple departments and persons

• One may also be able to identify two or more acceptable options.

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It is not compulsory to choose only one option and discard all others (Wicaksana).

e. Implementation of the selected alternative

• Managers should take stakeholders' resistance to organizational change into account when executing the alternative.

• Some options are easy to implement, while others prove rather time-consuming or challenging.

• Operational plans prove valuable in the implementation of options.

• Moreover, managers should realize that even after undertaking the most accurate evaluation possible, of all potential options and their repercussions, unforeseen consequences may arise.

f. Follow-up and outcome evaluation

• Managers should assess their choice's effectiveness -- Did the selected course of action serve its real purpose?

• In case the implemented option seems to be unsuccessful, the manager may:

0. Adopt another of the earlier-determined options or

0. Commence the decision-making process from scratch after realizing he/she failed to accurately define the situation or

0. Agree that the option hasn't had sufficient time to prove its effectiveness (or lack thereof), or ought to be implemented differently (Wicaksana).

IV. Types of Decisions

1. Programmed decision

• These are decisions that repeat with a particular frequency, or are fairly structured, or both.

• Several decisions pertaining to fundamental operating processes and structures, and standard business transactions, fall under the category of programmed decisions.

• Numerous businesses such as Starbucks apply programmed decision-making for the replenishing supplies such as coffee beans, napkins, and cups.

1. Non-programmed decision

• These are unstructured decisions that occur far less frequently compared to programmed decisions.

• A majority of top management decisions revolving around organizational plans and approaches fall under this category (Wicaksana).

• Some examples of non-programmed corporate decisions are decisions pertaining to acquisitions, takeovers, and mergers, new products, new facilities, legal issues, and labor contracts.

• Managers who have to make such decisions should regard all decisions as unique, and invest considerable quantities of energy, time and financial and human resources into examining the issue from all perspectives

• Experience and intuition form the key factors in such decision-making (Wicaksana).

V. Decision-Making Conditions

a. Decision-Making Under Certainty

• Every fact needed by decision-making entities is wholly available

• There is a feel of certainty, with the decision-maker being reasonably aware and sure of.....

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