Steps in Decision Making

Everything you need to know the steps involved in the process of decision making. Decision-making is the cognitive process of selecting a course of action from among multiple 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.

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.

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

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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.

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.

(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?

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?

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

(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)

(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:

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.

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:

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 monitored to check whether a decision produces good results. Sometimes it may be necessary to adjust the way that the decision is imple­mented or it may be necessary to adjust the decision itself – in extreme circumstances it may even be necessary to abandon or reverse the decision in the light of subsequent events. The lessons learned during evaluation should be used to improve later decisions.

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Steps in Decision Making – Defining the Problem, Analysing the Problem, Developing Alternative Solutions, Evaluating Alternatives and a Few Others

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.

The various stage in the process of decision making as given by Stanley Vance:

1. Defining the Problem:

Assuming known goals and objective; the First step is to recognize identify, determine and define the problem clearly. Perception of the problem is necessary to find the right solution. It involves definition of desired results, identification of the fundamental course and magnitude of the problems and the limits within which it can be solved. An overall new of the situation should be taken by defining a problem. The problem must be understood in relation to higher goals of the organisation.

2. Analysing the Problem:

Once the problem is defined it must be analysed in terms of nature impact futurity, periodicity of the decision. Analysis of the problem also involves enumeration of limiting or strategic factors relevant to decision. These are the major obstacles in achieving the result such analysis in required to determine who should take the decision. What information is required and how it can be gathered.

This is known as conception of the problem. It is necessary to collect all facts and figures which are pertinent to the decision. The collected data must be classified and analysed carefully.

3. Developing Alternative Solutions:

In order to make a sound decision, it is essential to search for and identify viable or possible alternatives because time and cost constraints. Weighing alternatives and reaching a decision requires considerable imagination, experience and judgement. The quality of a decision can be no better than the quality of alternatives that are identified. This is the stage of investigation.

4. Evaluating Alternatives:

After the alternatives are developed, the next step is in terms of their costs, time, feasibility and contribution to objectives. Alternative solutions should be assessed in terms of critical or limiting factor both tangible and intangible. Marginal analysis and cost benefit analysis are helpful in evaluation of alternatives in terms of merits and demerits. Analytical technique of operation research may be used for systematic assessment of the alternative. The criteria for evaluation are risk, economy of effort, timing limitation of resources.

5. Selecting the Best Alternative:

A comparative evaluation of different alternatives will reveal the relative worth of each alternative. That alternative which can make net maximum contribution to the goal is selected. Selection is the point of ultimate decision making.

Selection of the most promising or desirable course of action involves choice-making while choosing the best alternative the following approaches are used:

(a) Experience

(b) Experimentation

(c) Research and Analysis.

6. Implementing the Decision:

Execution of the decision involves development of detailed plans, communication of the decision, gaining acceptance of the decision getting support and co-operation of those concerned for converting the decision into effective actions and developing controls to ensure that the decision is being carried out properly. Promulgation involves declaration and communication of the decision so that sub-ordinates are notified.

7. Evaluation of Decision Process:

The final step in the decision making is the appraisal of both the decision and the process of decision making. If the evaluation of follow-up shows unsatisfactory results, the process show be reviewed and decision may be modified follow up is an ongoing process.

The review involves answers to the following questions:

(a) Was the problem really defined adequately in terms of objectives constraints and measures of success?

(b) Were pertinent alternatives and uncertainties identified?

(c) Was available information analysed and interpreted logically?

(d) Was relevant information obtained? Was enough time spent on defining the problem and collecting the information?

(e) Was the preferred alternative-the solution-implemented properly?

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Steps in Decision Making – To be Followed by a Manager: Identification of Problem, Diagnose the Problem, Collection of Data, Discovery of Alternatives and a Few Others

It is very difficult to set a fix decision making process because it depends upon the nature and type of problem and situation. The decision making is a product of deliberation evaluation and thought.

However, there are certain basic steps which have to be followed by manager during selecting the best course of action:

1. Identification of Problem:

The first step in decision making process is recognising the problem for which internal and external situations are analysed. The manager must become aware that a problem exists in his system. It arises because of gap between what is and what should be.

As per views of C. Barnard, “occasions for decision originate in three distinct field, namely, authoritative communication from superior, case referred to superior by subordinate and cases originating due to the initiative of the manager”. Finding the real problems and defining them is difficult task.

A well-defined problem is half solved. The efficiency of the decision making process and its quality depends on clear defining of the problem because the real problem may be quite different from what it appears. It is time consuming step.

2. Diagnose the Problem:

The next step is the diagnosis of the problem. The adequate care should be taken in diagnosing the problem because if the problem is not correctly diagnosed, efforts made to solve it will be of no use. As per opinion of Joseph L. Massie, “a good decision is dependent upon the recognition of the right problem. A correct diagnosis of the problem is of utmost importance because a disease can be cured only if it is properly diagnosed”.

Managers may have to examine because it affect relationship in the diagnosis of the problem. The following questions should be looked into carefully for establishing cause effect relationship –

(a) What is the problem?

(b) What are the real causes of the problem?

According to Peter Drucker, “Critical factor analysis” helps in identifying the causes properly. The Critical factor spells the difference between actual and desired results. According to Barnard, the nature of strategic factor will shift when the problem is defined correctly.

3. Collection of Data:

The required, relevant and reliable information has a very important role in collection from secondary sources. It may be internal or external. It is useful for analysing the problem and developing alternative courses of action. The availability and reliability of information is a critical input for decision making.

4. Discovery of Alternatives:

The next step is to develop alternative courses of action and assess their probable consequences. The research by Mintzberg and his associates has shown that people are often tempted to seek readymade solutions to problems. They try to solve the problems either by looking through organisational records or by seeking expert advice.

The development of alternatives is a creating and innovative activity. The managers should try to seek solutions outside the present realm of their knowledge. They must try to look beyond organisational barriers. A flexible mental framework would help in developing better alternatives.

5. Analysis and Evaluation of Alternatives:

After discovery of various alternative the next step is to analyse and evaluate each alternative with respect to the objectives of the organisation. The consequences of each alternative would also be considered because sometimes any alternative may meet internal demands but may fail to meet the environmental conditions. Both tangible and intangible factors should be considered during evaluating different alternatives.

Tangible factors like profits, time, money and rate of return on capital investment can be expressed numerically. Management can afford to overlook intangible factors where their effect on the course of action is likely to be negligible. The attempt is made to limit the alternatives to a manageable and economically feasible number.

As commented by Drucker, “the right decisions grows out of the clash and conflict. For every problem there are alternatives and they should be evaluated before taking a final decision.”

6. Select the Best Alternative:

The next step is to select the best solution out of the several alternatives developed. In this exercise the manager is guided by his knowledge and past experience. He has to consider merits and drawbacks of each alternative, cost and sacrifices involved in each.

The application of operations research techniques should also be made to visualise the causal relationship between different variables affecting the problem in mathematical terms.

Peter Drucker has suggested the following criteria for selecting the right choice among available alternatives:

(a) Risk:

The manager should weigh the risks of each course of action against the expected gains. In general, the risks are involved in all the alternatives but it is responsibility of manager to select the solution in which very minimum risk is involved.

(b) Economy of Effort:

The best alternative is that will produce best result with minimum effort in terms of materials and human resources. The manager must ensure effective utilisation of all available resources with minimum effort.

(c) Timing:

The selection of course of action will depend upon the situation prevailing at a particular point of time. If the situation has urgency the best alternative is the one that dramatises the decision and serves notice on the organisation that something important is happening along and consistent effort is needed, “a slow start gathers momentum approach may be preferable.”

(d) Limitation of Resources:

The resources impose a limitation of the choice of selection of alternative or best possible solution. Human resources is the most valuable resource, if adequate human resources are not currently available then the decision should be deferred because only human resource is responsible to utilise other resources effectively and efficiently.

Koontz, O’Donnell and Weihrich have suggested three bases which should be used by manager for selecting the best alternative.

There as follows:

(a) Experience:

Every manager has some past experience and he gives due importance to his past experience in selecting best alternative. He should take sufficient care and give due weightage during decision making process of his past experience but in case of rational decision the weightage of past experience reduces.

(b) Experimentation:

The manager may test the solution under actual or simulated conditions. This approach has proved to be of considerable help in many cases particularly in test marketing of a new product, but at the same time it is very expensive and time consuming. It is utilised as the last resort after all other techniques of decision making have been tried.

(c) Research and Analysis:

It is considered to be the most effective technique of selecting among the alternatives where a major decision is involved. It involves a search of relationships among the more critical variables constraints and premises that bear upon the goal sought. In fact, it is the pencil and paper approach to decision making.

7. Implementation of Decision:

After selecting the best solution or decision, the management takes steps to translate the decision into action with the help of employees. The necessary structural, administrative and logistic arrangements are made by managers such as delegation of authority, allocation of resources, assignment of activities and installation of controlling mechanism in order to implement decisions. In order to avoid opposition from the employees in implementation of the decision, it is desirable that the employees should be involved with the decision making process.

8. Follow Up the Decision:

Sometimes, it is possible that a decision taken by a manager may not be correct therefore, it is necessary that during translating the decision into action, manager should introduce a system of follow up and periodic review. This helps in safeguarding against incorrect decision and also in modifying or altering the decision without loss of time.

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Steps in Decision Making – Define the Problem, Make the Decision, Implement the Alternatives, Evaluate the Decision and a Few Others

The decision-making process involves the following steps:

Step # 1. Define the Problem:

The most significant step in the decision-making process is describing why a decision is called for and identifying the most desired outcome(s) of the decision-making process.

One way of deciding if a problem exists is to define the problem in terms of what one wants or expects and the actual situation. A problem is defined as the difference between expected and/or desired outcomes and actual outcomes. This is a critical consideration because how one defines the problem determines how one defines causes and searches for solutions.

Step # 2. Identify Alternative Solutions to the Problem:

The decision makers should not limit to obvious alternatives or what has worked in the past but be open to new and better alternatives. They should consider as many alternatives as they can. Realistically, the decision makers should consider more than five alternatives in most cases. They should not have only two opposing choices; either this or that.

Step # 3. Evaluate the Identified Alternatives:

While evaluating alternatives, decision-makers should look at the likely positive and negative sides of each alternative. It is unusual to find one alternative that would completely resolve the problem and is better than all others. The decision maker should develop a “confidence score” for each alternative. He should determine the results of each alternative and the probability that those results will be realized. If evaluation is based on facts, expected outcome is likely to occur.

Step # 4. Make the Decision:

After evaluating the alternatives against accepted criteria, managers screen the non-feasible alternatives and select the most appropriate alternative that will help in achieving the desired objective.

Alternatives can be selected through the following approaches:

(a) Experience:

Part experience serves as a guide for future. Managers follow past actions, their successes and failures, analyse them in the context of future environment and select the most suitable alternative that fits in the present situation.

(b) Experimentation:

In experimentation, each alternative is put to practice and the most suitable alternative is selected. This method is costly as implementation of every alternative to the decision-making situation involves heavy capital expenditure. Testing each alternative is not possible. Also, this method may be suitable in the present circumstances only. The selected course of action should meet the future requirements also.

(c) Research and Analysis:

It helps to search and analyse the impact of future variables on the present situation, apply various mathematical models and select the most suitable alternative. This method is more suitable and less costly, in terms of time and money, as compared to the methods of experimentation and experience.

Step # 5. Implement the Alternative:

The selected alternative should be implemented with least resistance from organizational members. Implementation must be planned. Those who will be affected by implementation should be allowed to participate in the implementation process to make it more effective and fruitful.

Implementation of the alternative ensures the following:

(a) The selected alternative should be communicated to everyone in the organization.

(b) Changes in the organisation structure because of implementation should be communicated to everyone in the organization.

(c) Authority and responsibility for implementation should be specifically assigned.

(d) Resources should be allocated to respective departments for carrying out the decisions.

(e) Budgets, schedules, procedures and controls should be established to ensure effective implementation.

(f) A committed work force should be promoted. Unless everyone is committed to the decision, the desired outcome will not be achieved.

Step # 6. Evaluate the Decision:

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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