Decision making, also referred to as problem solving, is the process of recognizing a problem or opportunity and finding a solution to it. Decisions are made by everyone involved in the business world, but managers typically face the most decisions on a daily basis. Many of these decisions are relatively simple and routine, such as ordering production supplies, choosing the discount rate for an order, or deciding the annual raise of an employee. These routine types of decisions are known as programmed decisions, because the decision maker already knows what the solution and outcome will be. However, managers are also faced with decisions that can drastically affect the future outcomes of the business. These types of decisions are known as nonprogrammed decisions, because neither the appropriate solution nor the potential outcome is known. Examples of nonprogrammed decisions include merging with another company, creating a newproduct, or expanding production facilities.
Decision making typically follows a six-step process:
- Identify the problem or opportunity
- Gather relevant information
- Develop as many alternatives as possible
- Evaluate alternatives to decide which is best
- Decide on and implement the best alternative
- Follow-up on the decision
In step 1, the decision maker must be sure he or she has an accurate grasp of the situation. The need to make a decision has occurred because there is a difference between the desired outcome and what is actually occurring. Before proceeding to step 2, it is important to pinpoint the actual cause of the situation, which may not always be obviously apparent.
In step 2, the decision maker gathers as much information as possible because having all the facts gives the decision maker a much better chance of making the appropriate decision. When an uninformed decision is made, the outcome is usually not very positive, so it is important to have all the facts before proceeding.
In step 3, the decision maker attempts to come up with as many alternatives as possible. A technique known as "brainstorming," whereby group members offer any and all ideas even if they sound totally ridiculous, is often used in this step.
In step 4, the alternatives are evaluated and the best one is selected. The process of evaluating the alternatives usually starts by narrowing the choices down to two or three and then choosing the best one. This step is usually the most difficult, because there are often many variables to consider. The decision maker must attempt to select the alternative that will be the most effective given the available amount of information, the legal obstacles, the public relations issues, the financial implications, and the time constraints on making the decision. Often the decision maker is faced with a problem for which there is no apparent good solution at the moment. When this happens, the decision maker must make the best choice available at the time but continue to look for a better option in the future.
Once the decision has been made, step 5 is performed. Implementation often requires some additional planning time as well as the understanding and cooperation of the people involved. Communication is very important in the implementation step, because most people are resistant to change simply because they do not understand why it is necessary. In order to ensure smooth implementation of the decision, the decision maker should communicate the reasons behind the decision to the people involved.
In step 6, after the decision has been implemented, the decision maker must follow-up on the decision to see if it is working successfully. If the decision that was implemented has corrected the difference between the actual and desired outcome, the decision is considered successful. However, if the implemented decision has not produced the desired result, once again a decision must be made. The decision maker can decide to give the decision more time to work, choose another of the generated alternatives, or start the whole process over from the beginning.
STRATEGIC, TACTICAL, AND OPERATIONAL DECISIONS
People at different levels in a company have different types of decision-making responsibilities. Strategic decisions, which affect the long-term direction of the entire company, are typically made by top managers. Examples of strategic decisions might be to focus efforts on a newproduct or to increase production output. These types of decisions are often complex and the outcomes uncertain, because available information is often limited. Managers at this level must often depend on past experiences and their instincts when making strategic decisions.
Tactical decisions, which focus on more intermediate-term issues, are typically made by middle managers. The purpose of decisions made at this level is to help move the company closer to reaching the strategic goal. Examples of tactical decisions might be to pick an advertising agency to promote a newproduct or to provide an incentive plan to employees to encourage increased production.
Operational decisions focus on day-to-day activities within the company and are typically made by lower-level managers. Decisions made at this level help to ensure that daily activities proceed smoothly and therefore help to move the company toward reaching the strategic goal. Examples of operational decisions include scheduling employees, handling employee conflicts, and purchasing rawmaterials needed for production.
It should be noted that in many "flatter" organizations, where the middle management level has been eliminated, both tactical and operational decisions are made by lower-level management and/or teams of employees.
Group decision making has many benefits as well as some disadvantages. The obvious benefit is that there is more input and therefore more possible solutions to the situation can be generated.
Another advantage is that there is shared responsibility for the decision and its outcome, so one person does not have total responsibility for making a decision. The disadvantages are that it often takes a long time to reach a group consen sus and that group members may have to com promise in order to reach a consensus. Many businesses have created problem-solving teams whose purpose is to find ways to improve specific work activities.
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