Principles of Management
November 17th, 2004
Making Decisions is Hardly Easy
Sheep need a shepherd. Without a good shepherd the poor critters spread apart and become McSheep snacks for the neighborhood wolf gang. Likewise a company needs someone to look over it and decide where to go, and what to do. Large companies might have a whole group of decision-makers, but everyone has to start small. Therefore, this research paper will be biased toward the individual level. We will cover the types of decisions, consider some factors affecting individual managerial decision-making, and throughout examine the traditional decision-making process with emphasis on the first two steps.1
Both in private lives and work, every person is faced with problems of a wide range. Every problem faced also requires a reaction. Maybe you decide to take action, or maybe you decide to ignore the problem and hope it goes away. Some problems are simple, or routine, and can be resolved without any major trouble. An example could be deciding which route to take through the streets of a bustling metropol when going to the office. Such are classified as programmed decisions. However, complex problems or crises can appear as well. The phrase "Maybe I shoulda taken that left turn at Wisconsin" suggests being hopelessly lost, a problem with uniqueness, and the decision requires careful thought to not make matters worse. Such are classified as non-programmed decisions. An efficient company manager, whether at tactical, strategic, or operational level, must be able to deal with decisions succesfully.
An example of the importance of decisive managerial actions are crises. An American consulting firm, the Institute for Crisis Management, keeps a database of more than 80000 stories of business crises. They are placed in four categories depending on the perceived reason: Management decisions/indecisions, Human errors, Mechanical problems, and the strangely named Acts of God. ICM reckons that over 60% of crises are due to poor managerial decisions. This should sober any manager facing a problem.2
Since you have to know what you're trying to accomplish before starting to come up with solutions, a good decision-maker needs to first of all have a clear perception of the faced problems. Problem identification is a difficult first step if the manager does not know what to look for. Customer complaints are the final line to pick warning signals from. If customers are not happy with the company, it is a quite clear indicator that whatever they are unhappy about is a problem. Often it is far better to realise the existence of a problem before the complaints begin flooding in, and two things to keep an eye out for are drops in work performance and work actions that are not going as planned. When identifying the exact problem, a manager would do well to remember that some problems can be opportunities. If the operating plan is not being followed well, perhaps the new situation suggests an enhancement to the plan.
After defining the problem to be solved and gathering relevant facts, it is time to start making a decision on how to react. A good way to go about this is to spawn a number of alternative solutions to the problem, then evaluate them carefully and select the best course of action.3 The ideal alternative should appear to have a high probability of rectifying the problem, doing so in harmony with the company's objectives and ethics, and have an acceptable level of risk involved. A solution can not really go against the company's goals as that would be counterproductive, and although high-risk solutions offer temptingly lucrative outcomes, realistically they rarely work out as well as hoped. It is also important to remember the importance of business ethics, when ethically dark grey alternatives appear the most beneficial to choose. Unethical solutions tend to have negative long-term effects.
When faced with a slew of alternatives, it is very possible that no single one rises above the others. Different decision-makers will choose different alternatives based on a few individual factors. Indeed, even though a manager would like to believe she can be unbiased and objective, everyone has biases and prejudices. She would do well to be aware of these factors, to try minimising their subjective effect. Some pitfalls include relying on misleading or unreliable information, over- or underestimating the opinions of other people or the society, and filtering information selectively depending on what one wants to believe.4
Furthermore, a person's basic attitude has a large effect. An optimistic person is very self-confident in making decisions, but as a result may make a hasty or risky decision without exploring enough alternatives. A pessimistic person, on the other hand, tends to pick options with low risk and less expected benefits, often avoiding huge losses but also being too timid to go for great profits either. A person settling in the middle-ground to grab opportunities that arise while being careful about risk is called a regret minimiser. The fourth basic type of decision-makers is an insufficient reasoner, who lacks the facts to make any logical choice from the alternatives and functions pretty much at random. These are a few extremities that a manager had best avoid.
Apart from the basic types, a few other general variables exist. An individual's personal values and beliefs affect her decisions. An ecological person would gravitate toward green solutions. Cultural and social background play a part. The textbook also adds a "Potential for Dissonance", the emotional effect of past decisions. Previous failures may haunt the manager, causing her to not reach her full potential.
The actual decision has been made now, and hopefully it is a good one. Even though the decision-making part is over, that doesn't mean the manager can yet give herself a hearty slap on the back for succesfully dealing with the problem. The decision must be implemented, and once the work has begun, the process must be observed to see it is working out. In a company the implementation most often works by getting the lower managers or workers under your supervision to carry out the plan. In case something is going wrong or the results are sub-desirable, the decision may need a revision.
As we have seen from this brief paper, there are many problems, and many decisions to be made, and making a good decision in important matters requires more thought than might be expected. The decision maker needs to take care to be objective and to take influencing factors in account to avoid failed decisions. Problems need careful examination, and solution alternatives diverse development before laying down the plan and putting it to work. A failed decision can mean trouble for a company, while a successful decision may spell profit.
- Donnelly, J., Gibson, J., Ivancevich, J. (1995). Fundamentals of Management, 9th ed.
Most of this paper bases broadly on this work.
- Hindle, T. (2003). Guide to Management Ideas. London: Profile Books Ltd. p.49.
- Griffin, R., Ebert, R. (1993). Introduction to Business, 3rd ed. New Jersey: Prentice-Hall.
- About Advice: Are You a Good Decision Maker? Accessed November 16th, 2004.