Decision-making

Introduction

Individuals in organisations make decisions. That is, they make choices from among two or more alternatives. Decision-making is almost universally defined as choosing between options. Decision-making is a critical activity in the lives of managers. The decisions a manager faces can range from very simple, routine matters for which the manager has an established decision rule (programmed decisions) to new and complex decisions that require creative solutions (non-programmed decisions).

The word “decision” is derived from the Latin words “de ciso”, which means “cutting away” or to conclude. A decision is the selection of a course of action. Felex M Lopez states, “a decision represents a judgement; a final resolution of a conflict of needs, means or goals; and a commitment to action made in the face of uncertainty, complexity or even irrationality.”

Philip Marvin says, “decision-making may be viewed as the process by which individuals select a course of action from among alternatives to produce a desired result. It is a process made up of four continuous interrelated phases: explorative, speculative, evaluative and selective.”

Thus, decision-making is the process by which the decision-maker tries to overcome obstacles between his current position and the desired future position.

Decisions are made in response to an issue. There is a disparity between some current state of circumstances and some desired state, necessitating the examination of different courses of action. Furthermore, every decision necessitates information interpretation and judgement. Typically, data is received from various sources and must be vetted, processed, and evaluated. The decision perception will determine what data is essential to the decision. maker’s

Components  of Decision-Making

Certain elements are involved in decision-making, such as:

1. Decision-making Environment: Every decision is made inside a decision environment, described as the set of available information, options, values, and preferences at the time of the decision. An ideal decision environment would have all conceivable information, all of it correct, and all available alternatives. However, knowledge and options are bound by the time and effort required to obtain information or discover alternatives. The time restriction merely indicates that a choice must be taken by a specific deadline. The effort constraint reflects human, financial, and priority constraints. (You don’t want to waste three and a half hours of petrol looking for the greatest parking spot at the mall.) Because judgments must be made within this confined environment, we may argue that uncertainty is the major challenge of decision-making, and one of the primary goals of decision analysis is to reduce uncertainty. We nearly never have all the knowledge required to decide with certainty; hence, most judgments are fraught with uncertainty. The requirement to make decisions under a constrained decision environment implies two things. First, it explains why hindsight is far more accurate and effective at decision-making than foresight. The decision environment continues to grow and extend throughout time. Even after a decision must be taken, additional facts and alternatives emerge. Because the decision environment has continued to expand, hindsight can often look back with new information and make a much better judgement than the original maker. The second idea proposed by the decision-within-an-environment concept follows from the first. Because the decision environment expands over time, it is generally best to postpone deciding until near the deadline.
2. Effects of Quantity on Decision-making: Many decision-makers want more knowledge than is necessary to make an informed decision. When an excessive amount of information is requested and collected, one or more of numerous issues may develop.
   1. A decision is delayed due to the time required to gather and review the additional information. This delay may reduce the decision’s or solution’s efficacy.
   2. There will be information overload. In this scenario, so much information is available that decision-making skills decrease since the data cannot be managed or appraised effectively. A manager, for example, spends a day at an information-heavy seminar. By the end of the day, he had forgotten the first half of the lecture and where he had parked his car that morning.
   3. Information will be used selectively. The decision-maker will select only facts from all available information that support a preconceived solution or attitude.
   4. Mental tiredness arises, resulting in slower or lower-quality work.
   5. Decision fatigue arises when the decision-maker becomes bored with making decisions. The outcome is frequently hasty, reckless decisions or even decision paralysis–no decisions at all.

3. Decision Streams: A widespread fallacy regarding decision-making is that decisions are made independently of one another: you receive information, consider alternatives, and decide without consideration for anything that has come before. In reality, decisions are made within the context of prior decisions. The most common metaphor for this is that of a stream. A stream of decisions surrounds a given decision; many previous decisions have led up to this decision, making it both conceivable and limited. Many additional decisions will be influenced by it. Examples:
   1. When you decide to go to the park, you are enabling numerous past decisions. You had to select whether to live near the park, whether to get a car, learn about transit lines, and so on. And your previous choices have limited your future options: you can’t decide to go to a park this afternoon if it’s three states away. By deciding to live where you do, you have enabled and disabled several additional choices.
   2. When you go into a store to buy a VCR or TV, you are presented with the store’s preselected alternatives. There may be 200 models in the universe of models, but you will only be allowed to choose from a dozen. In this situation, your decision has been influenced by other people’s decisions about which models to carry.

Decision-Making Process

Managers must make decisions, whether simple or complex. Making good decisions is a difficult task. They result from careful consideration, appraisal, and contemplation. Managers must always follow a series of stages to make appropriate decisions.

The first step is to recognise the problem. The management must know that there is a problem and that it is significant enough to warrant managerial action. Identifying the problem is critical; otherwise, the manager may be reacting to symptoms and fighting fires rather than addressing the leading cause of the problem. To monitor the problem situation (decision-making environment), managers may need to review management reports, compare results to industry competitors, and examine factors leading to employee efficiency or inefficiency, among other things. They must utilise their judgement and experience to determine the specific nature of the problem. In other words, the management must determine what the decision will accomplish.

Gathering relevant information is the second step in the decision-making process. Before deciding on a course of action, a successful manager must be able to separate the wheat from the chaff. He must state the actual problem once he is aware of it. He must attempt to solve the problem rather than the symptoms. The management must gather enough information to determine why the situation occurred. This entails a detailed assessment of the situation and a fact-finding journey.

The third phase is to list and evaluate potential courses of action. Creating alternate solutions (to the problem) ensures sufficient focus and attention on the situation. It enables managers to thoroughly assess the viability of any concept before putting it into action. A thorough “what if” analysis should be performed at this step to determine the numerous elements that could influence the outcome. To proceed to the next phase, producing a wide range of possibilities and inventive solutions is necessary. As a result, managers should encourage employees to come up with alternative solutions to the same problem. Generating alternatives is just as crucial as making the correct choice among possibilities. Alternative development is a creative and innovative activity. It encourages alternative thinking and “systems thinking.” In other words, managers should endeavour to find solutions outside their current domain of knowledge; they must consider all important elements before creating a creative solution.

Step four: The management chooses the choice that best fits the decision objective. This phase is significantly easier if the problem has been adequately diagnosed and sufficient options have been found. Peter Drucker proposed four criteria for selecting the best option from available alternatives:

1. The management must consider the risks and benefits of each course of action.
2. The ideal option is undoubtedly the one that produces the most output for the least amount of material and human resources.
3. If the issue is critical, the best option is to dramatise the decision and alert the organisation that something serious is happening. A sluggish start that gains momentum may be desirable if consistent work is required.
4. Physical, financial, and human resources limit the number of options available. The human beings who will make the choice are the most significant resources whose limitations must be recognised.

Example: A corporation wishes to improve its research and development. It can outsource it to a well-known organisation or create an in-house panel of specialists.

Both options have advantages and disadvantages. Outsourcing can be cost-effective and time-saving, but it can also be difficult to control. On the other hand, developing an in-house panel will necessitate significant expense, but it will make it easy for higher-level managers to assess their performance.

Managers must analyse the benefits and cons of each option before deciding on one. The long-term benefit should also be addressed here.

If the demand is urgent, outsourcing is preferable because the alternative choice will take time to materialise.

Finally, the solution is implemented. Management must solicit input on the efficacy of the implemented solutions. Thanks to feedback, managers can learn about recent challenges related to the solution. It enables managers to assess their success by monitoring the effects of their actions. They can assess their own decision-making abilities. Consistent monitoring and feedback are critical components of the follow-up process.

Simon’s Model of Decision-Making

Recognizing the flaws in the rational model, Herbert Simon proposed that there are limits to how rational a decision-maker may be. In 1978, he was awarded the Nobel Prize for his decision theory, the bounded rationality model. When presented with complicated problems, decision-makers respond by reducing the difficulties to a level at which they may be easily understood, according to the bounded rationality and satisficing paradigm. This is because human beings’ information processing capabilities make it hard to assimilate and comprehend all of the information required to optimise. Individuals function under the limitations of bounded rationality because the human mind’s ability to create and solve simple problems is far too small to meet all of the conditions for full rationality.

Simon’s model, commonly known as the “Administrative Man” theory, is based on the premise that there are limits that cause a decision-maker to be less than entirely rational. Four assumptions underpin the bounded rationality model:

1. Managers choose the first satisfactory alternative.
2. Managers acknowledge that their worldview is simplistic.
3. Managers are at ease making decisions without exhausting all options.
4. Managers make decisions based on heuristics or rules of thumb.

How does bounded rationality operate for the average person? After identifying the problem, the search for criteria and alternatives begins. However, the list of criteria is unlikely to be thorough. The decision-maker will create a short list of the most obvious options. After identifying this limited collection of choices, the decision-maker will begin reviewing them. However, the review will not be exhaustive. That is, not all alternatives will be thoroughly examined. The decision-maker reviews options only until he or she finds one that satisfies – one that is both satisfactory and sufficient. As a result, the satisficer settles for the first “good enough” answer rather than continuing to seek the optimal. The search is ended when the first choice meets the “good enough” condition.

Bounded rationality assumes that managers are satisfied; that is, they choose the first “good enough” alternative because the costs of optimising in terms of time and effort are too high. Furthermore, the theory assumes that managers adopt decision-making shortcuts known as heuristics to conserve mental energy. Heuristics are guidelines that allow managers to make decisions based on what has worked in the past. According to March and Simon, making optimal organisational judgments is frequently inefficient or costly.

For example, when hiring a new employee, the organisation can hire the first applicant who fits all of the minimal standards rather than wasting time and effort searching for the ideal personality. Satisficing can occur for a variety of causes, according to Hitt, Middlemist, and Mathis:

1. Time constraints.
2. A desire to get through a difficulty fast and move on to other things.
3. A distaste for comprehensive analysis, which necessitates more advanced approaches.
4. To avoid failure and blunders that could have a detrimental impact on their future.

Satisficing decisions move us closer to our goals, and we can do so while still looking for the best decision. In other words, satisficing is a flexible method for achieving objectives by identifying internal and external constraints that decision-makers face.

Evaluation: Does the bounded rationality model more accurately depict the managerial decision-making process? According to research, it does. Managers’ reasoning is partly limited because they must judge under risk and time constraints. Their scenario is exceedingly unclear, and the likelihood of success is unknown. The model also emphasises the need to consider behavioural variables during the decision-making process. This knowledge undoubtedly aids in understanding how and why managerial decisions are made.

Group Decisions-Making

A single person makes individual decisions. These are primarily concerned with routine issues for which comprehensive policies are accessible. The analysis of various variables in such decisions is relatively easy. Individuals may, nonetheless, make crucial decisions in some instances. Group decisions are those made by a specially formed group of people. Group decisions include those made by the Board of Directors or a committee. These judgments are crucial for the organisation as a whole. Group decision-making produces more realistic and balanced decisions, stimulating participatory decision-making. However, it causes delays and makes assigning responsibility for such judgments harder.

Advantages and Disadvantages of Group Decision-making

Advantages:

1. More information and knowledge.
   2. More alternatives can be generated due to more comprehensive experience, variety of opinions and more thorough probing of facts.
   3. Participation in Decision-making increases acceptance and commitment to decisions.
2. People understand the decision better.
3. Interaction between individuals helps to improve cooperation and coordination.
4. One man’s control is reduced as authority is shared.
5. Fosters creativity and initiative.

Disadvantages:

1. Waste of time due to delay in decisions.
2. Groups pressure members to conform and compromise on the least common alternative.
3. Domination of the group by one or two powerful and influential members.
   4. It may be costlier than individual decisions.
   5. Tendency to pass the buck or to avoid responsibility.
   6. Disagreement among group members may lead to conflict and ill feelings.

Creativity Problem Solving

A plethora of approaches have been created to promote creative thinking. Some of these methods are listed below:

1. Attribute Listing: Robert Crawford invented this technique. It entails listing all of an object’s or problem’s attributes. Then, each attribute or collection of attributes is modified in as many ways as feasible.
2. Brainstorming: Alex F. Osborn, an advertising agency executive, devised this technique. In this technique, a group of people is given a problem and encouraged to come up with any possible answers. The discussion is free and open.
3. Garden Technique (Synectics): William J. Gordon created this technique. Participants are kept in the dark regarding the specific nature of the problem to encourage a broader and more innovative perspective. Gordon’s approach is more free-form than brainstorming.
4. Nominal Group Technique: A nominal group is a group that exists only in name. The following steps are involved in this technique:

(a) the leader explains the problem to the members of the target group;

(b) each member writes down his ideas silently and independently;

(c) each member presents his one best idea to the group, which is written on a blackboard for all to see and

(d) a discussion is held to explain and evaluate the idea.

5. Delphi Technique: This technique uses a written questionnaire to obtain information from geographically separated people. This method allows for the collection of ideas from specialists in various areas. Because there is no face-to-face interaction, the members are not influenced by one another.

10 Review Questions

1. What are the two types of decisions managers may face, and how do they differ?
2. Define decision-making and explain its significance in managerial roles.
3. Describe the concept of “bounded rationality” as proposed by Herbert Simon. How does it differ from full rationality in decision-making?
4. What are the four continuous phases of the decision-making process according to Philip Marvin?
5. Explain the importance of identifying the problem correctly in the decision-making process.
6. What role does “decision environment” play in decision-making, and how does it affect the outcome?
7. List and explain two potential effects of information overload on decision-making.
8. What is the concept of “decision streams,” and how do past decisions influence current decision-making?
9. Discuss the advantages and disadvantages of group decision-making.
10. Choose one creative problem-solving technique mentioned in the text and describe how it works.