Traditional Managerial Decision Making
This discussion summarizes the main points of the traditional decision-making process. Let's begin with a widely accepted definition for the term decision:
Decision the act or process of choosing one course of action from among several alternatives
This definition equates decision making with choice: the act of selecting. Psychologically, there are three basic ways to approach the problem of choice:
1. Inactive approach the decision maker does nothing of consequence to make a careful choice. In effect, the choice is to let the problem resolve itself. This approach, surprisingly, can be quite common in everyday decision making: let the chips fall where they may. However, it cannot be considered a rational approach, for little or no reasoning is actually done. From a strategy viewpoint, it is not rational because the decision maker is forgoing opportunities to influence the outcome.
2. Reactive approach the decision maker opts for an alternative by reacting, possibly unawares, to the choices made by other stakeholders of the problem. Again, this approach is rather common in ordinary decision making. At times, selecting reactively may give the impression of being a rational act in a given set of circumstances, but beware: reacting to the actions of others without critically analyzing the overall situation can easily expose the decision maker to unforeseen perils. It is a risky approach which, as history shows, is regularly exploited by military strategists and chess masters to their advantage. Strategically, reacting uncritically is neither a rational nor an advisable approach.
3.
Proactive approach the decision maker opts for a course of action by first critically analyzing the problem situation within its relevant context (the environment in which the problem situation is embedded see
System Concepts), then devising and evaluating prospective measures that increase the likelihood of accomplishing the decision makers strategic goal or tactical objectives
before making the choice. This is the normative approach in professional management. Since it is based on careful reasoning, the use of available or procurable information, and mindful of previously defined goals or objectives, it is a rational approach.
Rationality, in decision making, implies three things:
1. The decision maker has a well-defined goal or objective(s)
2. All actions taken contribute to accomplishing the stated goal/objective(s) people are notorious for failing to do this
3. All actions are logically coherent can objectively be shown to contribute to attaining the goal/objective(s).
When rationality is brought to the forefront, a better definition for decision might be:
Decision an irrevocable commitment of resources intended to accomplish a goal
The following steps provide a way to conduct decision making rationally:
1. Define the problem
This refers to the process of correctly identifying and making explicit the actual problem or opportunity (as opposed to apparent symptoms) faced by the decision maker. To do so, one must first define the goal or objective(s) to be attained. Defining the problem allows the decision maker to pose the all-important question: What must be done to solve this particular problem? Thus, problem definition focuses attention on possible action alternatives that in principle should lead to the attainment of concrete objectives.
2. Gather information
Information gathering aims to ascertain relevant facts related to the decision problem. This often reduces to a search problem. Typical sources of information are published articles and reports, internal company records, market surveys and intelligence, personal views and opinions of various stakeholders culled by interviews and questionnaires or even informal conversations, professional consultations, and direct observation by the decision maker of actual problem-related factors within or outside the organization.
3. Identify action alternatives
Creativity is the key in this phase of the decision process. As the decision maker gathers information, s/he begins crystallizing possible solution alternatives. Traditional decision making draws heavily on subjective criteria based on intuition, experience and personal judgment in order to generate action alternatives. More structured methods may also be invoked, such as brainstorming, focus groups and quality circles. The emphasis at this point should be on generating alternative courses of action, not on criticizing or evaluating the alternatives. The celeberated catchphrase here is: Think outside the box (don't be constrained by conventional thinking).
4. Evaluate the alternatives
The decision maker compares the pros and cons inherent to each action alternative. Costs and benefits are estimated and their impact on organizational objectives is assessed. Weak alternatives are winnowed out and a minimal set of preferred choices is determined, often consisting of two or three main contenders.
5. Select the best alternative
This is the classic decision-making point: choice. By now, goes the traditional argument, the decision maker ought to be clear on which alternative offers the best course of action. Consequently, making use of the best personal judgment, the decision (or selection) is made. However, as we shall see, the best alternative may not always be readily apparent. Modeling can be extremely useful in identifying optimal alternatives.
6. Implement the chosen alternative
The decision maker sets in motion a course of action that involves the customary managerial tasks: planning, organizing, leading and controlling. It is at this point that the functional business specialties come into play: production/operations, logistics, marketing, sales and service, accounting, finance, and human resource management. Note that just about all of what constitutes the typical business school curriculum comes into play after the decision has been made. If the decision is a poor choice, nothing that follows will be able to overcome that initial error. Determining the right decision is the most important aspect of any managerial problem.
7. Evaluate the results
Learn from both your successes and your mistakes.
There is nothing intrinsically wrong with the above decision-making process. By and large, it tends to produce reasonably effective decisions within stable economic environments. Unfortunately, it also tends to mask potentially serious hazards, some of which are discussed on the next page.
