1. IMPORTANCE OF THE DECISION-MAKING PROCESS
|
IMPORTANCE
OF THE DECISION-MAKING PROCESS
|
|
Importance of the decision-making
process is generally
recognized as the most critical factor in the overall managerial
activity.
As a business
owner or manager, you are constantly required to make Decisions
throughout the process of planning, organizing, leading, and
controlling your company.
The more important decisions deal with the
Strategic Issues of your organization and involve finding
out what the existing situation is and how to change it. Other
managerial decisions relate to Operational Activities and
necessitate evaluation of the existing resources and their
most effective application within the organization.
The Decision-Making Process concerns the development and selection
of a suitable course of action toward meeting the organizational
objectives.
|
|
| |
|
|
|
|
|
2.
KEY QUESTIONS IN THE DECISION-MAKING PROCESS
|
|
|
THE COMMON
ERROR IN MANAGEMENT DECISIONS
|
|
The
most common error in management decisions is the emphasis on finding
correct answers rather then searching for correct questions
An illustration
of typical questions, which you should be asking yourself and key
members of your management team, are presented below. (12)
|
|
KEY QUESTIONS IN THE
DECISION-MAKING PROCESS
|
|
Activity |
Question |
|
Planning
Activity |
- What is the basic mission of
our company?
- What should be our company's
short- and long-term objectives?
- What are the buying trends in
the marketplace?
- What are the competition trends
in the marketplace?
- How will these trends affect
our company in the future?
- What strategies should be adopted
to reach our objectives?
|
|
Organizing Activity |
- How should we allocate work within
our company?
- How should we organize the working
units?
- How
can we coordinate working units to ensure harmony?
- What decisions should employees
be allowed to make?
- What should be changed within
our company's structure?
|
|
Leading
Activity |
- How can we provide a better leadership
to our employees?
- What specific needs do our employees
have?
- How are these needs being satisfied
through working toward the organization's objectives?
- What are the reasons for decreased
productivity of employees?
- How can we increase the productivity
and motivation of our employees?
|
|
Controlling Activity |
- How should we measure our company's
performance?
- How often should we measure our
company's performance?
- How close are we in meeting our
company's objectives?
- What are the reasons for not
meeting the planned objectives?
- What corrective measures should
we take to improve our company's performance?
|
|
|
3. SEVEN STEPS IN THE DECISION-MAKING
PROCESS
| A typical Decision-Making Process, outlined below,
entails seven steps and may apply to a broad range of business situations. |
|
|
THE DECISION-MAKING PROCESS
|
|
|
|
Step 1: Analyze The Existing Situation. |
|
|
|
Step 2: Define The Problem. |
|
|
|
Step 3: Develop Alternative Solutions. |
|
|
|
Step 4: Select The Most Suitable Solution. |
|
|
|
Step 5: Implement The Decision. |
|
|
|
Step 6: Evaluate The Results. |
|
|
|
Step 7: Repeat The Process As Necessary. |
4.
STEP 1: ANALYZE THE EXISTING SITUATION
|
ANALYSIS OF THE EXISTING SITUATION
|
|
Analysis Of The Existing Situation
represents the first step in
the rational decision-making process.
When conducting a situational analysis of your company
you need to ask several questions, as outlined below. Several examples
that follow are designed to clarify each step in the decision-making
process.
|
|
THE SITUATION ANALYSIS QUESTIONS
|
|
No.
|
Question |
|
1
|
What is the existing situation? |
|
2
|
What happened in the recent past? |
|
3
|
What has been the trend so far? |
|
4
|
What may happen in the near future if the same trend
continues? |
|
|
|
|
|
|
|
|
5.
SMALL
BUSINESS EXAMPLE:
STEP 1: ANALYZE THE
EXISTING SITUATION
|
|
Consider, for example, Mr.
President, who examines the
performance of his company.
Information provided by the financial department
indicates that the company earned net income of $140,000
in 2000. Thereafter, Mr. President turns to financial
statements for the three preceding fiscal periods, and finds the
following information regarding the net income: $200,000
for 1997, $180,000 for 1998,
and $160,000 for 1999.
The Trend
Analysis of the company's net income
indicates an average 10% -12% deterioration of
performance during the last three years. Hence, if the same trend
continues, the company's net income in the year 2001
may drop again by about 10%. This obviously
constitutes an undesirable condition and presents a potential
problem which should be prevented
|
|
Note:
Any reference to gender
means "he" or "she" throughout
this program.
|
|
|
|
6. STEP
2: DEFINE THE PROBLEM
|
DEFINE THE PROBLEM
|
|
In order to avoid any undesirable conditions, it is essential
to get to the root of a particular problem. Problem
Definition, therefore, represents the second
step in the rational decision-making process.
Complete identification of a problem often
represents a difficult task, since all parts of organizational
activities are closely interrelated. It is helpful, therefore, to
break the overall problem into
smaller segments and to identify and subsequently solve each
segment separately. This type of approach is frequently used
by engineers and usually provides effective results.
|
|
| |
|
|
|
|
|
|
7.
SMALL
BUSINESS EXAMPLE:
STEP 2: DEFINE THE PROBLEM
|
|
Continuing
with the decision-making process, Mr. President proceeds with Identification
Of Reasons which may have caused the deterioration of his company's
earnings. This entails detailed examination of the company's
performance in such areas as general administration, human resources,
finance and accounting, production and operations, marketing and
sales.
Moreover,
Mr. President needs to be familiar with relevant management principles
and set appropriate standards of performance in the aforementioned
areas. Subsequently, the company's existing situation
can be examined in terms of the corresponding standards of performance. As
a result of the detailed examination of all operational activities,
Mr. President identifies a number of problems in the following
areas, as illustrated below.
|
|
SUMMARY
OF OPERATIONAL PROBLEMS WITHIN A COMPANY
|
|
Area Of Activity |
Description Of Problems
|
|
General Management |
- Unclear delegation of duties,
responsibilities, and authority. Inefficient operational planning.
- Poor communication between departments.
|
|
Human Resources Management |
- Absence of job descriptions and
job specifications.
- Inefficient performance and
high turnover of employees.
|
|
Financial Management |
- Absence of a budgeting procedure.
- Poor credit control.
- Inaccurate management accounting
reports.
|
|
Production And Operations Management |
- Inefficient plant layout.
- Inaccurate cost estimating.
- Irregular production scheduling.
- Poor inventory control.
|
|
Marketing And Sales Management |
- Absence of a clear marketing plan.
- Ineffective coverage of sales
territories.
- Poor product knowledge by sales
people.
|
|
| |
|
|
|
| |
|
8.
STEP 3: DEVELOP ALTERNATIVE SOLUTIONS
|
DEVELOP ALTERNATIVE
SOLUTIONS
|
|
Once the specific
problem is identified, it is necessary to determine what kind
of action is required to rectify the problem. Thus, the third
step in the rational decision-making process entails Development
Of Alternative Solutions. These
solutions may be generated by one individual or by a group of
employees within the organization, depending on the nature of
a particular problem.
|
|
|
|
|
|
|
9.
SMALL BUSINESS EXAMPLE:
STEP 3: DEVELOP ALTERNATIVE SOLUTIONS
|
|
Mr. President, from the previous example, continues with the decision-making
process. This entails a Search For Alternative Solutions to improve
the company's level of earnings.
It is apparent from the problem identification stage that
there are several interrelated problems which have to be solved in order to upgrade
the company's performance. Hence, it is necessary to Select Alternative
Courses
of action in various areas of the company's activities and Evaluate Each
Option in terms
of its consequences.
In performing the Evaluation
Of Consequences, the manager must provide answers
to such questions as:
-
Does
the alternative action help the company to achieve its objective?
-
Does the alternative
action carry any undesirable consequences or negative side
effects?
-
Can the company afford a particular alternative action?
If the answer to any of these questions is unsatisfactory,
there is a strong indication that a particular course of action is unacceptable. Thus,
alternatives need to be found to secure an effective solution in a specific area of the
company's activities. This leads to the next step in the decision-making process:
Selection Of The Most Suitable Solution.
|
|
|
|
|
|
|
| 10.
STEP 4: SELECT THE MOST SUITABLE SOLUTION
|
|
|
|
SELECT
THE MOST SUITABLE SOLUTION
|
|
Once the manager succeeds
to define a particular problem, to develop a set of alternative
courses of action, and to evaluate consequences of each option,
then the decision itself may become a relatively easy task.
Managers usually consider a number of factors and
often consult with other members of the management team prior
to reaching a final decision. Selection
Of The Most Suitable Solution is often based on a "trade
off" between various positive and negative consequences in
relation to future activities of the organization. This, in turn, requires a delicate
balancing of the proposed solution and "diplomatic"
approach by the manager to the decision-making process.
|
|
|
|
|
|
|
11.
SMALL BUSINESS EXAMPLE:
STEP 4: SELECT
THE MOST SUITABLE SOLUTION
|
The next step in the decision-making
process requires Mr. President to Evaluate A Number Of
Alternative Solutions together with his management team. Each alternative course of action is examined
in detail in terms of its consequences and influence on the company's
performance. Finally, Mr. President selects the most suitable solutions
and prepares a plan of action, as illustrated below.
|
|
SUMMARY OF THE COMPANY'S PLAN OF ACTION
|
|
Area Of Activity |
Description Of The Plan Of Action |
|
General Management |
- Revision
of the organizational chart.
- Accurate
formulation of duties, responsibilities, and authority
for each position.
- Preparation
of detailed operational plans.
- Development
of effective communication between departments.
|
|
Human Resources Management |
- Preparation
of job descriptions and job specifications.
- Execution
of regular employee performance appraisal.
- Introduction
of new employee training and development methods.
|
|
Financial Management |
- Preparation
of the company's budget.
- Introduction
of new credit control procedures.
- Development
of new management accounting reporting system.
|
|
Production And Operations Management |
- Revision of
plant layout.
- Development
of new cost estimating procedures.
- Preparation
of regular production schedules.
- Maintenance
of an effective inventory control system.
|
|
Marketing And Sales Management |
- Development
of a clear marketing plan.
- Redesign of
sales territories.
- Introduction of
new training programs for sales people.
|
12.
STEP 5: IMPLEMENT THE DECISION
|
IMPLEMENT
THE DECISION
|
|
The next in the decision-making process entails a thorough Implementation
Of Decisions undertaken by management. It is essential,
therefore, that managers "sell" their plans of action to each member of
the management team in order to ensure effective implementation. Acceptance
By Subordinates of a particular plan of
action enhances its chances for a successful implementation and improves cooperation among
employees.
|
|
13.
SMALL BUSINESS EXAMPLE:
STEP 5: IMPLEMENT
THE DECISION
|
|
In accordance with information from the previous example, Mr.
President proceeds with the Implementation Of The Plan Of
Action. This entails allocation of the following responsibilities
within the organization, as illustrated below.
|
|
ALLOCATION
OF RESPONSIBILITIES WITHIN A COMPANY
|
|
Area Of Activity |
Allocation Of Responsibilities |
|
General Management
|
Responsibility of
the
president. |
|
Human Resources
Management
|
Responsibility of the president or vice-president,
human resources.
|
|
Financial
Management
|
Responsibility of the vice president, finance.
|
|
Production And Operations
Management
|
Responsibility of the vice president,
production and/or operations.
|
|
Marketing And Sales
Management
|
Responsibility of the vice president,
marketing and/or sales.
|
14.
STEP 6: EVALUATE THE RESULTS
|
EVALUATE THE RESULTS
|
|
The final stage
of the rational decision-making process entails
Evaluation Of Results obtained during
and after the implementation of the previously
selected decisions.
Managers, therefore, need to collect data pertinent
to the company's activities in a particular
area, to evaluate actual results, and to compare
these results with the corresponding projections.
The evaluation of results represents a prime
element of the management control function,
which will be discussed later.
|
|
15.
SMALL BUSINESS EXAMPLE:
STEP 6: EVALUATE
THE RESULTS
|
|
Returning to the previous example, Mr. President proceeds with
the Evaluation Of The Company's Performance and Implementation
Of The Plan Of Action. Provided that all members of the management team
carry out their individual responsibilities, significant improvement
in the company's performance may be expected. This, in turn, may
lead to an effective solution to the original problem and subsequently
generate higher net income.
|
16.
STEP 7: REPEAT THE PROCESS AS NECESSARY
|
REPEAT THE PROCESS AS NECESSARY
|
|
As a business owner or
manager, you should never "rest on your laurels".
It is of a paramount importance that you continue
evaluation of your company's performance on a regular basis to
ensure that there are no surprises
in the future. You must be prepared, therefore, to repeat the
above decision-making steps to ensure successful performance of
your company.
Remember, that in
life you may have at least three possibilities: "up",
"down", or "steady" (no
status change). But in business you have only two
possibilities:
"up" or "down".
If your business continues
to perform on a "no-status change"
basis, this actually means "down",
because when your competition "goes up",
it will outperform you in the marketplace.
|
|
|
|
|
|
|
17. FOR SERIOUS
BUSINESS OWNERS ONLY
|
|
|
|
Reprinted with permission. |
|
|
|
|
|
