Making decisions has been identified as one of the primary responsibilities of any manager. Decisions may involve allocating resources, appointing people, investing capital or introducing new products. Decision-making is at the core of all planned activities. Decision-making is a process of selection from a set of alternative courses of action which is thought to fulfill the objectives of the decision problem more satisfactorily than others.
Process of Decision Making
There are generally eight steps in the process of decision-making but all decisions might not fully conform to the neat eight step pattern. The steps, however, may be skipped or combined. These steps are:
- Identifying the problems.
- Defining the objectives to be met in solving the problem.
- Making a pre-decision
- Taking a decision about how to make a decision.
- Generating alternatives
- Evaluating alternate solutions
- Choice to be made
- Implementation of the chosen alternatives
- Follow up
- Monitoring the effectiveness of any attempted solution
Herbert Simon, described the activities associated with three major stages in the following way:
- Intelligence Activity: Simon describes this initial phase as an attempt to recognise and understand the nature of the problem, as well as search for the possible causes.
- Design Activity: During the second phase, alternative courses of action are developed and analysed in the light of known constraints.
- Choice Activity: The actual choice among available and assessed alternatives is made at this stage.
Henry Mintzberg and some of his colleagues (1976) have traced the phases of some decisions actually taken in organisations. They have also come up with a three-phase model:
- The identification phase, during which recognition of a problem or opportunity arises and a diagnosis is made.
- The development phase, during which there may be a search for existing standard procedures, ready-made solutions or the design of a new, tailor-made solution.
- The selection phase, during which the choice of a solution is made. There are three ways of making this selection:
- by the judgement of the decision maker, on the basis of experience or intuition rather than logical analysis;
- by analysis of the alternatives on a logical, systematic basis; and
- by bargaining when the selection involves a group of decision makers.
Types of Managerial Decisions
There are multiple categories of managerial-decisions. Five most widely recognised classifications are:
- Personal and Organisational Decisions.
- Routine & Strategic Decisions
- Programmed and Non-programmed Decisions
- Individual and group decisions
- Policy and operating decisions
This above classification, ignores the dimension of how complex the problem is and how much certainty can be placed with the outcome of a decision. Considering, these two dimensions four kinds of decision modes can be identified:
- Decisions that are routine and repetitive in nature
- Decision that involves a problem with a large number of decision variables, where the outcomes of each decision alternative can be computed.
- A judgemental decision involves a problem with a limited number of decision variables, but the outcomes of decision alternatives are unknown.
- An adaptive decision involves a problem with a large number of decision variables, where outcomes are not predictable. because of the complexity and uncertainty of such problems, decision makers are not able to agree on their nature or on decision strategies
Models of Decision Making
Models of the decision making process help one understand how decisions are made. These models are:
- Contingency model
- Economic man model
- Administrative man model
- Implicit Favourite Model or Gamesman Model
- Social man model
Beach and Mitchell (1978) felt that the decision maker uses one of three general types of decision strategies:
- Aided analytic
- The aided analytic strategy employs some sort of formal model or formula, or an aid such as a checklist.
- Unaided analytic
- An unaided analytic strategy is one in which the decision maker is very systematic in his or her approach to the problem and perhaps follows some sort of model, but does it all in his or her head.
- No analytic
- Here the decision maker chooses by habit or uses some simple rule of thumb (“nothing ventured, nothing gained” or “better safe than sorry”) to make the choice.
Economic Man Model
The economic man-model assumes that people are economically rational and so people attempt to maximise outcomes in an orderly and sequential process. Hence, people will select the decision or course of action that has the greatest advantage or payoff from among the many alternatives. This model suggests the following orderly steps in the decision process:
- 1. Discover the symptoms of the problem or difficulty,
- 2. Determine the goal to be achieved or define the problem to be solved,
- 3. Develop a criterion against which alternative solutions can be evaluated,
- 4. Identify all alternative courses of action,
- 5. Consider the consequences of each alternatives as well as the likelihood of occurrence of each,
- 6. Choose the best alternative by comparing the consequences of each alternative (step5) with the decision criterion (step3), and
- 7. Act or implement the decision.
Administrative man model
This model was presented by Simon as is also called as Bounded Rationality Model. This model assumes that people, while they may seek the best solution, usually settle for much less because the decisions they confront typically demand greater information processing capabilities than they possess. The following three steps are involved in the process of this model.
- Sequential attention to alternative solutions:
- In this step, all the alternatives are identified and evaluated one at a time. If one of the alternatives fails then the next alternative is considered
- Use of heuristics:
- A heuristic is a rule which guides the search for alternatives into areas that have a high probability for yielding satisfactory solutions. In this step if the previous solution was working then a similar set of alternatives are used in that situation.
- Here the alternatives which are workable are found to be satisfying.
Identification of Alternatives
In order to generate alternatives three main processes are generally used.
- This was developed by Alex F. Osborn.
- It is the best technique in stimulating creative thinking.
- The objective of this method is to produce as many ideas as possible.
- In this method:
- ‘Criticism’ is prohibited.
- ‘Freewheeling’ is welcome.
- Generating a number of alternatives is the motto.
- Combination and improvement are sought.
- This was Developed by William J.J. Gordon.
- Here members are selected from different backgrounds and training.
- The leader poses the problem in such a way that the members deviate from traditional ways of thinking.
- Developed by Andre Delbecq and Andrew Van De Ven.
- Nominal grouping has been found to be particularly effective in situations requiring a high degree of innovation and idea generation.