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DECISION MAKING

Decision making can be regarded as the mental processes (cognitive process) resulting in the selection of a course of action among several alternative scenarios. Every decision making process produces a final choice. The output can be an action or an opinion of choice.

Steps Involved In Decision Making Process


Decision-making involves a number of steps which need to be taken in a logical manner. This is treated as a rational or scientific 'decision-making process' which is lengthy and time consuming. Such lengthy process needs to be followed in order to take rational/scientific/result oriented decisions. Decision-making process prescribes some rules and guidelines as to how a decision should be taken / made. This involves many steps logically arranged. It was Peter Drucker who first strongly advocated the scientific method of decision-making in his world famous book 'The Practice of Management' published in 1955. Drucker recommended the scientific method of decision-making which, according to him, involves the following six steps: 1. 2. 3. 4. 5. 6. Defining / Identifying the managerial problem, Analyzing the problem, Developing alternative solutions, Selecting the best solution out of the available alternatives, Converting the decision into action, and Ensuring feedback for follow-up.

The figure given below suggests the steps in the decision-making process:-

1. Identifying the Problem: Identification of the real problem before a business

enterprise is the first step in the process of decision-making. It is rightly said that a problem well-defined is a problem half-solved. Information relevant to the problem should be gathered so that critical analysis of the problem is possible. This is how the problem can be diagnosed. Clear distinction should be made between the problem and the symptoms which may cloud the real issue. In brief, the manager should search the 'critical factor' at work. It is the point at which the choice applies. Similarly, while diagnosing the real problem the manager should consider causes and find out whether they are controllable or uncontrollable. 2. Analyzing the Problem: After defining the problem, the next step in the decisionmaking process is to analyze the problem in depth. This is necessary to classify the problem in order to know who must take the decision and who must be informed about the decision taken. Here, the following four factors should be kept in mind: 1. Futurity of the decision, 2. The scope of its impact, 3. Number of qualitative considerations involved, and 4. Uniqueness of the decision. Collecting Relevant Data: After defining the problem and analyzing its nature, the next step is to obtain the relevant information/ data about it. There is information flood in the business world due to new developments in the field of information technology. All available information should be utilised fully for analysis of the problem. This brings clarity to all aspects of the problem. Developing Alternative Solutions: After the problem has been defined, diagnosed on the basis of relevant information, the manager has to determine available alternative courses of action that could be used to solve the problem at hand. Only realistic alternatives should be considered. It is equally important to take into account time and cost constraints and psychological barriers that will restrict that number of alternatives. If necessary, group participation techniques may be used while developing alternative solutions as depending on one solution is undesirable. Selecting the Best Solution: After preparing alternative solutions, the next step in the decision-making process is to select an alternative that seems to be most rational for solving the problem. The alternative thus selected must be communicated to those who are likely to be affected by it. Acceptance of the decision by group members is always desirable and useful for its effective implementation. Converting Decision into Action: After the selection of the best decision, the next step is to convert the selected decision into an effective action. Without such action, the decision will remain merely a declaration of good intentions. Here, the manager has to convert 'his decision into 'their decision' through his leadership. For this, the subordinates should be taken in confidence and they should be convinced about the correctness of the decision. Thereafter, the manager has to take follow-up steps for the execution of decision taken. Ensuring Feedback: Feedback is the last step in the decision-making process. Here, the manager has to make built-in arrangements to ensure feedback for continuously testing actual developments against the expectations. It is like checking the effectiveness of follow-up measures. Feedback is possible in the form of organised information, reports and personal observations. Feed back is necessary to decide whether the decision already taken should be continued or be modified in the light of changed conditions.
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A General Rational Decision Making Model Rational decision making processes consist of a sequence of steps designed to rationally develop a desired solution. Typically these steps involve:

1) Identifying a problem or opportunity the first step is to recognise a problem or to see opportunities that may be worthwhile. A rational decision making model is best employed where relatively complex decisions have to be made. The first decision making lesson should be to ask yourself if you really have a problem to solve or a decision to make. Then read this article for more specific advice: Problem Solving Skill: Finding the Right Problem to Solve. 2) Gathering information What is relevant and what is not relevant to the decision? What do you need to know before you can make a decision, or that will help you make the right one? 3) analyzing the situation What alternative courses of action may be available to you? What different interpretations of the data may be possible? Our Problem Solving Activity uses a set of structured questions to encourage both broad and deep analysis of your situation or problem. 4) Developing options Generate several possible options. Be creative and positive. Read The Power of Positive Thinking for our five questions that create possibilities. 3

5) Evaluating alternatives What criteria should you use to evaluate? Evaluate for feasibility, acceptability and desirability. Which alternative will best achieve your objectives? 6) Selecting a preferred alternative Explore the provisional preferred alternative for future possible adverse consequences. What problems might it create? What are the risks of making this decision? 7)Acting on the decision Put a plan in place to implement the decision. Have you allocated resources to implement? Is the decision accepted and supported by colleagues? Are they committed to making the decision work?

Types of Decision Making: 1) Strategic 2) Tactical 3) Routine or Operational Each of these types of decision can also be defined by the type of data needed to support them. These decisions should be classed as data driven decision making. The following chart depicts the frequency of decision and types of decision making against its potential impact on the organisation

1) are usually but can the example


Strategic Decisions infrequent e.g. annually have a huge impact on organisation. For Select a Market Acquire a Company Recruit additional staff used to drive these decision is usually external to the

The data types of found organisation. E.g. market research reports, press releases

2) Tactical Decisions are more frequent e.g. weekly, monthly. Examples would be:

Change product pricing Reschedule work Reorganise a department


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The impact of these types of decision is of a medium nature in terms of risk to the organisation and impact on profitability. The data used to drive this type of decision is usually found in summaries of routine transactions e.g. sales orders from the next level or classification. 3) Operational or Routine Decisions are usually very frequent e.g. hourly, daily but can have a lesser impact on the organisation. For example

How to answer a sales enquiry Approve a quotation Approve an Invoice

The data used to drive this decision type is usually prescribed or defined in the procedures and rules of the organisation.