The first step in the decision making process is to identify the alternatives

A decision is a choice made between two or more available alternatives. There are two basic types of decisions, namely programmed decisions and non-programmed decisions.

All decisions regardless of their nature or significance involve certain common elements. Decision making is a systematic and planned process consisting of several interrelated phases.

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The steps involved in the process of decision making are:-

1. Detect Problem 2. Diagnose Problem 3. Establish Decision Criteria 4. Develop Alternatives 5. Evaluate Alternatives 6. Implementation 7. Evaluation 8. Collection of Data 9. Follow Up the Decision.

Decision Making Steps: Detect Problem, Diagnose Problem, Establish Decision Criteria, Develop Alternatives and Other Steps

Steps in Decision Making – Detect Problem, Diagnose Problem, Establish Decision Criteria, Develop Alternatives, Evaluate Alternatives, Implementation and Evaluation

Most organisations wish to make rational decisions and attempt to use the paradigm. Each of the stages needs to be examined in detail.

Step # 1. Detect Problem:

The most crucial step in good decision-making is to recognise a decision needs to be made. It goes without saying that if the need for a decision is not identified then an appropriate action cannot be taken. Most decisions stem from two main causes- a need to correct a problem and a desire to exploit a new opportunity.

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Problems are situations where there has been a failure to meet established goals and it is easy to dismiss failures on the basis that they are minor blips which should go away of their own accord. It is easy, and often justifiable, to claim that a failure is the result of someone else’s actions and should be resolved by them.

Problems arise from five main sources:

(a) A disturbance caused by unpre­dictable factors such as a sudden resignation by an existing employee, the interruption of supplies by bad weather or the discovery of theft and fraud.

(b) A decline in performance such as increased levels of waste, poorer machine utilisation, higher expenses. Gradual, insidious declines often present the greatest difficulties because they are easier to rationalise, overlook or deny.

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(c) Deviation from plan such as a delay in commissioning new equipment, failure to achieve planned market share or even an overproduction of merchandise.

(d) Competitive threats such as new competitors, the expiry of patents or the development of substitution products.

(e) New opportunities usually arise from technological developments such as biotechnology or sociological changes including changes in the age distribution of the population and in social attitudes.

Step # 2. Diagnose Problem:

Once a problem has been recognised it must be defined and the nature of the problem diag­nosed. Sometimes a problem is diagnosed at a very superficial level and a decision is made to treat the symptoms of the problem rather than its real cause. For example, a manager may conclude that a decline in sales is due to lack of effort by the sales force. He or she may then decide to retrain sales staff. However, the real cause of the problem may be that the product is out of date and competitors are offering products that are more in tune with the market.

A very simple approach to problem diagnosis is to ask, “who is doing what to whom”.

A rather more sophisticated method is to ask the following questions:

i. What is the evidence that a problem really exists?

ii. Where does the problem appear to arise?

iii. When does the problem appear to arise?

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iv. How urgent is the problem?

v. Who is most involved with the problem?

vi. What factors, people, departments, organisations, processes are related to the problem?

vii. Why did the problem occur?

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When a problem has been diagnosed, it is always worth checking the analysis with people who are not involved in the situation and who will not share the same assumptions. This will result in a more robust diagnosis.

Step # 3. Establish Decision Criteria:

Establishing the criteria which a good decision should possess is a vital part of the diag­nostic phase. It is often overlooked. Many people do not develop decision criteria until after alternative solutions have been identified. This has a major disadvantage. The decision criteria may be distorted to favour one of the alternatives instead of being thought out in a logical way.

Examples of some frequently used decision criteria are:

(a) Financial benefits

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(b) Financial costs

(c) Physical resources needed

(d) Human resources needed

(e) Quantity (more production)

(f) Quality (better performance)

(g) Certainty of desired outcome (risk)

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(h) Acceptability to others

(i) Appropriate timescale

(j) Reliability (e.g. low maintenance)

(k) Compatibility with organisation

The combination of criteria used to decide between alternative solutions will depend on the exact nature of the problem. For example, an organisation deciding which photocopier to purchase may choose to base its decision upon cost, reliability, quantity (sheets per minute) and delivery time.

When decision criteria have been established their relative importance can be assessed. For example, the weight given to the decision criteria for the photocopier might be- relia­bility 0.4, delivery time 0.3, quantity 0.2 and cost 0.1.

Step # 4. Develop Alternatives:

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The next stage is to develop alternative solutions. Often managers accept the first reason­able solution that occurs. This is called satisficing and it is very common. Satisficing means accepting a solution which meets minimum requirements. It is the opposite of optimising which is the acceptance of the solution that provides the best possible answer. Research suggests that most managers accept satisfactory rather than optimal solutions.

In most circumstances it is important to generate several alternative solutions which can be evaluated and the best one chosen. If the decision is important, special techniques may be employed to produce enough alternatives.

The main techniques are:

(a) Employee suggestion schemes encourage everyone in the organisation to produce new ideas. Many suggestion schemes are moribund and either produce no suggestions or only trivial ones. Good suggestion schemes are usually found in organisations which stress creativity and which give substantial rewards for good ideas.

(b) Idea quotas are used to ensure a steady flow of new proposals. Some companies require each employee to propose at least one improvement to quality, efficiency or service every month. Idea quotas need to be supported by a range of incentives and a commitment by management to implement a large number of the suggestions made.

(c) Brainstorming was a very popular method of generating ideas in the 1970s and 1980s and is still used today. A meeting of, say, six people would meet specifically to generate a large number of ideas. Every member is expected to provide new thoughts, no matter how zany or bizarre they may appear.

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The number of ideas generated is emphasised. Participants are expected to “freewheel” and build on the ideas of others in a sponta­neous and uninhibited way. Criticism, sarcasm or judgemental comments are not allowed. Since written notes appear formal and may slow the process, brainstorming sessions are often tape recorded. Some people doubt the value of brainstorming.

They point to findings from social psychology which indicate that true creativity is often a solitary process and that the presence of other people, even in a brainstorming situ­ation, tends to increase the quantity of routine rather than novel ideas. In group situations many people are reluctant to make radical suggestions because they fear the disapproval or ridicule of others.

(d) The nominal group technique attempts to overcome some of the difficulties that arise from group dynamics and is more controlled than brainstorming. Members first write down their individual ideas. During this stage they are not allowed to speak to other participants. Each member then presents one idea to the group.

The ideas are not dis­cussed but are merely summarised on a flip chart. In the final stage group members rate each alternative. They are not allowed to speak to each other during this process. Nominal groups are useful when complex, controversial decisions need to be made.

They are also useful in situations where assertive members are likely to dominate a dis­cussion. Computer versions of nominal groups in which members communicate by email can also be used. An added advantage of using email is that contributions can be made anonymously.

(e) The Delphi technique is similar to the nominal group technique. However, participants do not meet in person. Instead, participants write out their ideas, which are collated and fed back to the group in an anonymous form. Participants are asked to give the revised estimates which, in turn, are again collated and fed back. The process is repeated until some kind of group consensus is achieved. Initially the Delphi technique used paper questionnaires but today it is more usual to use email.

Step # 5. Evaluate Alternatives:

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The fifth stage of decision-making involves collecting and collating relevant information. For example, data concerning reliability, productivity, delivery time and cost of photocopiers could be obtained from rival manufacturers. The accuracy of the information is important. It makes sense to cross-check information from several sources. It would be better, for example, to cross-check the details given by photocopier manufacturers with information from organisations which have already purchased their photocopiers.

More complex decisions such as where to site a factory or whether to develop a new product will require a great deal of information – often more information than a human brain can store. Consequently computers and management information systems may be used to assemble, collate and present the information.

Generally management information systems track four kinds of information:

(a) Production data, e.g. number of units produced, the number of clients processed, machine utilisation or levels of waste recovery

(b) Financial data such as present and future cash flow, invoices outstanding, investments

(c) Commercial data such as sales, stock levels and perhaps competitor activity

(d) Personnel data, e.g. employee numbers, seniority, location and training

Management information systems usually produce routine, monthly or weekly, reports and only alert managers when events deviate from a plan (exception reporting). However, man­agers who are making major decisions are able to request specific reports which contain the information they need. Programmes which produce these specific reports are often called “decision support systems”.

Decision reports have a tighter focus than general reports and they will attempt to filter out routine and irrelevant information. Decision reports need to deliver high-quality information which is up-to-date and comprehensive. Furthermore, the information needs to be presented in a way that is easily understood by the people who are making the decisions.

Many decisions are made against an uncertain background. The data used by decision support systems often contain estimates containing a margin of error. Decision support systems may therefore include a “sensitivity analysis” (sometimes called a “what if” analysis) that will take account of a range of possibilities.

Typically, a sensitivity analysis consists of three sub-analyses- first, the analysis is performed on the best estimates available. This will be called the “central prediction”; second, an analysis using optimistic estimates, which assume everything goes well, is performed; third, an analysis using pessimistic estimates, which assume that things go wrong, is performed. Sensitivity analyses are vital if a wrong decision could jeopardise the survival of an organisation or have other very serious conse­quences. They allow the decision-maker to see whether a decision could send the organisation out of business.

In theory, a decision should be made on the basis of all relevant information. This is often the counsel of perfection – it may take a long time to assemble all the relevant facts. In the meantime, the decision may have been overtaken by events and a competitor may have already exploited the opportunity.

Furthermore, there may be so much relevant information that it swamps the memory and the brain capacity of the decision-maker. Unless the decision is very important it may be better to make a choice upon the information that is readily to hand. Some people adopt the Pareto Principle, which implies that a decision can be made when 80 per cent of information is available (the 80/20 rule).

Unfortunately, the data on the decision criteria are usually provided in terms of different units. For example, the reliability of a photocopier may be expressed in terms of break­downs per year, productivity may be expressed in terms of pages per minute and the cost of the machine may be expressed in terms of pounds, dollars or euros. It is necessary to convert them into a common unit.

The simplest way of achieving this aim is to rank each alternative on each decision criterion. However, ranks can be very deceptive. It is better to use a common scale (usually a 1-9 scale). These ratings are multiplied by the weighting to produce a decision matrix. For example, Figure 6.2 gives a decision matrix for the purchase of a photocopier.

In this example it is clear that copier B is the best choice despite its relatively poor delivery time.

Step # 6. Implementation:

Even correct decisions are useless unless they are implemented. The first stage of implemen­tation is to communicate the decision to those who need to take action. This is much easier if these people have previously participated in making the decision. One specific person should be made responsible for carrying a decision to fruition.

Step # 7. Evaluation:

The implementation process should be regularly monitored to know its acceptance by the organisational members. The alternative should be regularly monitored through progress reports, to see whether the objective for which it was selected has been achieved or not. If not, managers should make corrections whenever necessary or make changes in the implementation process. If yes, such alternative forms the basis for future decision-making.

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