MEANING OF DECISION MAKING PROCESS
MEANING OF DECISION MAKING
The thought process of selecting a logical choice from the available options
When trying to make a good decision, a person must weight the positives and negatives of each option, and consider all the alternatives. For effective decision making, a person must be able to forecast the outcome of each option as well, and based on all these items, determine which option is the best for that particular situation.
The act or process of deciding something especially with a group of people the project will require some difficult decision-making. All members of the organization have a role in decision-making. —often used before another noun the company’s decision-making process
Decision-making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem”.
As evidenced by the foregone definitions, decision making process is a consultative affair done by a comity of professionals to drive better functioning of any organization. Thereby, it is a continuous and dynamic activity that pervades all other activities pertaining to the organization. Since it is an ongoing activity, decision making process plays vital importance in the functioning of an organization. Since intellectual minds are involved in the process of decision making, it requires solid scientific knowledge coupled with skills and experience in addition to mental maturity.
Further, decision making process can be regarded as check and balance system that keeps the organisation growing both in vertical and linear directions. It means that decision making process seeks a goal. The goals are pre-set business objectives, company missions and its vision. To achieve these goals, company may face lot of obstacles in administrative, operational, marketing wings and operational domains. Such problems are sorted out through comprehensive decision making process. No decision comes as end in itself, since in may evolve new problems to solve. When one problem is solved another arises and so on, such that decision making process, as said earlier, is a continuous and dynamic.
A lot of time is consumed while decisions are taken. In a management setting, decision cannot be taken abruptly. It should follow the steps such as
- Defining the problem
- Gathering information and collecting data
- Developing and weighing the options
- Choosing best possible option
- Plan and execute
- Take follow up action
Since decision making process follows the above sequential steps, a lot of time is spent in this process. This is the case with every decision taken to solve management and administrative problems in a business setting. Though the whole process is time consuming, the result of such process in a professional organization is magnanimous.
STAGES OF DECISION MAKING PROCESS
5 Steps of Decision Making Process. It is every marketer’s goal to get inside the head of a consumer. … There are 5 steps in a consumer decision making process a need or a want is recognized, search process, comparison, product or service selection, and evaluation of decision.
5 Steps of Decision Making Process
It is every marketer’s goal to get inside the head of a consumer. You want to figure out how the consumer makes decisions and how you can get them to make a decision to purchase your product or service. There are 5 steps in a consumer decision making process a need or a want is recognized, search process, comparison, product or service selection, and evaluation of decision.
Most decision making starts with some sort of problem. The consumer develops a need or a want that they want to be satisfied. The consumer feel like something is missing and needs to address it to get back to feeling normal. If you can determine when your target demographic develops these needs or wants, it would be an ideal time to advertise to them. For example, they ran out of toothpaste and now they need to go to the store and get more.
Most of us are not experts on everything around us. In the searching phase we research for products or services that can satisfy our needs or wants. Search Engines have become our primary research tool for answers. It is an instant and easy way to find out what you are looking for.
Also don’t forget about actual human beings. Our friends and families all have had many different experiences and can offer us recommendations. In most cases recommendations from actual people instead of a search engines are preferred. You have more of a trust factor with people close to you then a computer program.
You also may have had past experiences that assist you in solving your problem. You may have had a life experience in the past that helps you make the correct purchase decision. You could also just know what decision to make just by picking up things over the years and knowing how to solve them.
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In this stage you are also beginning your risk management. You might make a pro’s vs. con’s diagram to help make your decision. People often don’t want to regret making a decision so extra time being put into managing risk may be worth it. People also remember bad experiences over good ones, take that into account.
Once the consumer has determined what will satisfy their want or need they will begin to begin to seek out the best deal. This may be based on price, quality, or other factors that are important for them. Customers read many reviews and compare prices, ultimately choosing the one that satisfies most of their parameters.
After tallying up all the criteria for the decision the customers now decide on what they will purchase and where. They have already taking risk into account and are definite on what they want to purchase. They may have had prior experience with this exact decision or maybe they succumbed to advertising about this product or service and want to give it a try.
Evaluation of Decision
Once the purchase has been made, does it satisfy the need or want? Is it above or below your expectations? The goal for every marketer is not for a one-time customer but a repeating lifetime customer. One bad experience of buyer’s remorse and your brand perception could be tarnished forever. On the other hand, one superb experience can lead to a brand loyal customer who may even become a brand evangelist for you.
The Decision‐Making Process
Quite literally, organizations operate by people making decisions. A manager plans, organizes, staffs, leads, and controls her team by executing decisions. The effectiveness and quality of those decisions determine how successful a manager will be.
Managers are constantly called upon to make decisions in order to solve problems. Decision making and problem solving are ongoing processes of evaluating situations or problems, considering alternatives, making choices, and following them up with the necessary actions. Sometimes the decision‐making process is extremely short, and mental reflection is essentially instantaneous. In other situations, the process can drag on for weeks or even months. The entire decision‐making process is dependent upon the right information being available to the right people at the right times.
The decision‐making process involves the following steps:
1.Define the problem.
2.Identify limiting factors.
3.Develop potential alternatives.
4.Analyze the alternatives.
5.Select the best alternative.
6.Implement the decision.
7.Establish a control and evaluation system.
Define the problem
The decision‐making process begins when a manager identifies the real problem. The accurate definition of the problem affects all the steps that follow; if the problem is inaccurately defined, every step in the decision‐making process will be based on an incorrect starting point. One way that a manager can help determine the true problem in a situation is by identifying the problem separately from its symptoms.
The most obviously troubling situations found in an organization can usually be identified as symptoms of underlying problems. (See Table for some examples of symptoms.) These symptoms all indicate that something is wrong with an organization, but they don’t identify root causes. A successful manager doesn’t just attack symptoms; he works to uncover the factors that cause these symptoms.
All managers want to make the best decisions. To do so, managers need to have the ideal resources — information, time, personnel, equipment, and supplies — and identify any limiting factors. Realistically, managers operate in an environment that normally doesn’t provide ideal resources. For example, they may lack the proper budget or may not have the most accurate information or any extra time. So, they must choose to satisfice — to make the best decision possible with the information, resources, and time available.
Time pressures frequently cause a manager to move forward after considering only the first or most obvious answers. However, successful problem solving requires thorough examination of the challenge, and a quick answer may not result in a permanent solution. Thus, a manager should think through and investigate several alternative solutions to a single problem before making a quick decision.
One of the best known methods for developing alternatives is through brainstorming, where a group works together to generate ideas and alternative solutions. The assumption behind brainstorming is that the group dynamic stimulates thinking — one person’s ideas, no matter how outrageous, can generate ideas from the others in the group. Ideally, this spawning of ideas is contagious, and before long, lots of suggestions and ideas flow. Brainstorming usually requires 30 minutes to an hour. The following specific rules should be followed during brainstorming sessions:
Concentrate on the problem at hand. This rule keeps the discussion very specific and avoids the group’s tendency to address the events leading up to the current problem.
Entertain all ideas. In fact, the more ideas that come up, the better. In other words, there are no bad ideas. Encouragement of the group to freely offer all thoughts on the subject is important. Participants should be encouraged to present ideas no matter how ridiculous they seem, because such ideas may spark a creative thought on the part of someone else.
Refrain from allowing members to evaluate others’ ideas on the spot. All judgments should be deferred until all thoughts are presented, and the group concurs on the best ideas.
Although brainstorming is the most common technique to develop alternative solutions, managers can use several other ways to help develop solutions. Here are some examples:
Nominal group technique. This method involves the use of a highly structured meeting, complete with an agenda, and restricts discussion or interpersonal communication during the decision‐making process. This technique is useful because it ensures that every group member has equal input in the decision‐making process. It also avoids some of the pitfalls, such as pressure to conform, group dominance, hostility, and conflict, that can plague a more interactive, spontaneous, unstructured forum such as brainstorming.
Delphi technique. With this technique, participants never meet, but a group leader uses written questionnaires to conduct the decision making.
No matter what technique is used, group decision making has clear advantages and disadvantages when compared with individual decision making. The following are among the advantages:
Groups provide a broader perspective.
Employees are more likely to be satisfied and to support the final decision.
Opportunities for discussion help to answer questions and reduce uncertainties for the decision makers.
These points are among the disadvantages:
This method can be more time‐consuming than one individual making the decision on his own.
The decision reached could be a compromise rather than the optimal solution.
Individuals become guilty of groupthink — the tendency of members of a group to conform to the prevailing opinions of the group.
Groups may have difficulty performing tasks because the group, rather than a single individual, makes the decision, resulting in confusion when it comes time to implement and evaluate the decision.
The results of dozens of individual‐versus‐group performance studies indicate that groups not only tend to make better decisions than a person acting alone, but also that groups tend to inspire star performers to even higher levels of productivity.
So, are two (or more) heads better than one? The answer depends on several factors, such as the nature of the task, the abilities of the group members, and the form of interaction. Because a manager often has a choice between making a decision independently or including others in the decision making, she needs to understand the advantages and disadvantages of group decision making.
The purpose of this step is to decide the relative merits of each idea. Managers must identify the advantages and disadvantages of each alternative solution before making a final decision.
Evaluating the alternatives can be done in numerous ways. Here are a few possibilities:
Determine the pros and cons of each alternative.
Perform a cost‐benefit analysis for each alternative.
Weight each factor important in the decision, ranking each alternative relative to its ability to meet each factor, and then multiply by a probability factor to provide a final value for each alternative.
Regardless of the method used, a manager needs to evaluate each alternative in terms of its
Feasibility — Can it be done?
Effectiveness — How well does it resolve the problem situation?
Consequences — What will be its costs (financial and nonfinancial) to the organization?
After a manager has analyzed all the alternatives, she must decide on the best one. The best alternative is the one that produces the most advantages and the fewest serious disadvantages. Sometimes, the selection process can be fairly straightforward, such as the alternative with the most pros and fewest cons. Other times, the optimal solution is a combination of several alternatives.
Sometimes, though, the best alternative may not be obvious. That’s when a manager must decide which alternative is the most feasible and effective, coupled with which carries the lowest costs to the organization. (See the preceding section.) Probability estimates, where analysis of each alternative’s chances of success takes place, often come into play at this point in the decision‐making process. In those cases, a manager simply selects the alternative with the highest probability of success.
Managers are paid to make decisions, but they are also paid to get results from these decisions. Positive results must follow decisions. Everyone involved with the decision must know his or her role in ensuring a successful outcome. To make certain that employees understand their roles, managers must thoughtfully devise programs, procedures, rules, or policies to help aid them in the problem‐solving process.
Ongoing actions need to be monitored. An evaluation system should provide feedback on how well the decision is being implemented, what the results are, and what adjustments are necessary to get the results that were intended when the solution was chosen.
In order for a manager to evaluate his decision, he needs to gather information to determine its effectiveness. Was the original problem resolved? If not, is he closer to the desired situation than he was at the beginning of the decision‐making process?
If a manager’s plan hasn’t resolved the problem, he needs to figure out what went wrong. A manager may accomplish this by asking the following questions:
Was the wrong alternative selected? If so, one of the other alternatives generated in the decision‐making process may be a wiser choice.
Was the correct alternative selected, but implemented improperly? If so, a manager should focus attention solely on the implementation step to ensure that the chosen alternative is implemented successfully.
Was the original problem identified incorrectly? If so, the decision‐making process needs to begin again, starting with a revised identification step.
Has the implemented alternative been given enough time to be successful? If not, a manager should give the process more time and re‐evaluate at a later date.
The Decision‐Making Process
Small business owners and managers make decisions on a daily basis, addressing everything from day-to-day operational issues to long-range strategic planning. The decision-making process of a manager can be broken down into six distinct steps. Although each step can be examined at length, managers often run through all of the steps quickly when making decisions. Understanding the process of managerial decision-making can improve your decision-making effectiveness.
The first step in the process is to recognize that there is a decision to be made. Decisions are not made arbitrarily; they result from an attempt to address a specific problem, need or opportunity. A supervisor in a retail shop may realize that he has too many employees on the floor compared with the day’s current sales volume, for example, requiring him to make a decision to keep costs under control.
Managers seek out a range of information to clarify their options once they have identified an issue that requires a decision. Managers may seek to determine potential causes of a problem, the people and processes involved in the issue and any constraints placed on the decision-making process.
Having a more complete understanding of the issue at hand, managers move on to make a list of potential solutions. This step can involve anything from a few seconds of though to a few months or more of formal collaborative planning, depending on the nature of the decision.
Choose an Alternative
Managers weigh the pros and cons of each potential solution, seek additional information if needed and select the option they feel has the best chance of success at the least cost. Consider seeking outside advice if you have gone through all the previous steps on your own; asking for a second opinion can provide a new perspective on the problem and your potential solutions.
Implement the Plan
There is no time to second guess yourself when you put your decision into action. Once you have committed to putting a specific solution in place, get all of your employees on board and put the decision into action with conviction. That is not to say that a managerial decision cannot change after it has been enacted; savvy managers put monitoring systems in place to evaluate the outcomes of their decisions.
Even the most experienced business owners can learn from their mistakes. Always monitor the results of strategic decisions you make as a small business owner; be ready to adapt your plan as necessary, or to switch to another potential solution if your chosen solution does not work out the way you expected.
The Decision‐Making Process
The decision making process starts before the actual purchase, and continues even after the purchase. The model implies that customers pass through all stages in every purchase. However, in more routine purchases, customers often skip or reverse some of the stages.
1. Need Recognition
- Customers recognize a problem as a Need or Want.
- Most frequent problem: Run out of product.
- Also occurs when: Receive new information (about a product / service), or respond to Stimuli.
2. Information Search
The customer then decides how much information (if any) is required.
A customer can obtain information from several sources:
- Personal sources: family, friends, neighbours, etc
• Commercial sources: advertising; salespeople; retailers; dealers; packaging; point-of-sale displays
• Public sources: newspapers, radio, television, consumer organisations; specialist magazines, internet, forums, blogs
• Experiential sources: handling, examining, using the product
Research suggests that customers value and respect personal sources more than commercial sources (the influence of “word of mouth”).
Decision making is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions.
Using a step-by-step decision-making process can help you make more deliberate, thoughtful decisions by organizing relevant information and defining alternatives. This approach increases the chances that you will choose the most satisfying alternative possible.
Step 1: Identify the decision
You realize that you need to make a decision. Try to clearly define the nature of the decision you must make. This first step is very important.
Step 2: Gather relevant information
Collect some pertinent information before you make your decision: what information is needed, the best sources of information, and how to get it. This step involves both internal and external “work.” Some information is internal: you’ll seek it through a process of self-assessment. Other information is external: you’ll find it online, in books, from other people, and from other sources.
Step 3: Identify the alternatives
As you collect information, you will probably identify several possible paths of action, or alternatives. You can also use your imagination and additional information to construct new alternatives. In this step, you will list all possible and desirable alternatives.
Step 4: Weigh the evidence
Draw on your information and emotions to imagine what it would be like if you carried out each of the alternatives to the end. Evaluate whether the need identified in Step 1 would be met or resolved through the use of each alternative. As you go through this difficult internal process, you’ll begin to favor certain alternatives: those that seem to have a higher potential for reaching your goal. Finally, place the alternatives in a priority order, based upon your own value system.
Step 5: Choose among alternatives
Once you have weighed all the evidence, you are ready to select the alternative that seems to be best one for you. You may even choose a combination of alternatives. Your choice in Step 5 may very likely be the same or similar to the alternative you placed at the top of your list at the end of Step 4.
Step 6: Take action
You’re now ready to take some positive action by beginning to implement the alternative you chose in Step 5.
Step 7: Review your decision & its consequences
In this final step, consider the results of your decision and evaluate whether or not it has resolved the need you identified in Step 1. If the decision has not met the identified need, you may want to repeat certain steps of the process to make a new decision. For example, you might want to gather more detailed or somewhat different information or explore additional alternatives.
MODELS OF DECISION MAKING
The opposite of intuitive decision making is rational decision making, which is when individuals use analysis, facts and a step-by-step process to come to a decision. The decision maker needs to optimize, or determine the best solution for the problem, by using a six step model. The steps are: Define the problem.
Models of Decision Making: Rational, Administrative and Retrospective Decision Making Models
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The decision-making process though a logical one is a difficult task. All decisions can be categorized into the following three basic models.
(1) The Rational/Classical Model.
(2) The Administrative or Bounded Rationality Model.
(3) The Retrospective Decision-Making Model.
All models are beneficial for understanding the nature of decision-making processes in enterprises or organisations. All models are based on certain assumptions on which the decisions are taken.
1. The Rational/Classical Model:
The rational model is the first attempt to know the decision-making-process. It is considered by some as the classical approach to understand the decision-making process. The classical model gave various steps in decision-making process which have been discussed earlier.
Features of Classical Model:
- Problems are clear.
- Objectives are clear.
- People agree on criteria and weights.
- All alternatives are known.
- All consequences can be anticipated.
- Decision makes are rational.
- They are not biased in recognizing problems.
- They are capable of processing ail relevant information
They anticipate present and future consequences of decisions.
They search for all alternatives that maximizes the desired results.
2. Bounded Rationality Model or Administrative Man Model:
Decision-making involve the achievement of a goal. Rationality demands that the decision-maker should properly understand the alternative courses of action for reaching the goals.
He should also have full information and the ability to analyse properly various alternative courses of action in the light of goals sought. There should also be a desire to select the best solutions by selecting the alternative which will satisfy the goal achievement.
Herbert A. Simon defines rationality in terms of objective and intelligent action. It is characterised by behavioural nexus between ends and means. If appropriate means are chosen to reach desired ends the decision is rational.
Bounded Rationality model is based on the concept developed by Herbert Simon. This model does not assume individual rationality in the decision process.
Instead, it assumes that people, while they may seek the best solution, normally settle for much less, because the decisions they confront typically demand greater information, time, processing capabilities than they possess. They settle for “bounded rationality or limited rationality in decisions. This model is based on certain basic concepts.
1. Sequential Attention to alternative solution:
Normally it is the tendency for people to examine possible solution one at a time instead of identifying all possible solutions and stop searching once an acceptable (though not necessarily the best) solution is found.
These are the assumptions that guide the search for alternatives into areas that have a high probability for yielding success.
Herbert Simon called this “satisficing” that is picking a course of action that is satisfactory or “good enough” under the circumstances. It is the tendency for decision makers to accept the first alternative that meets their minimally acceptable requirements rather than pushing them further for an alternative that produces the best results.
Satisficing is preferred for decisions of small significance when time is the major constraint or where most of the alternatives are essentially similar.
Thus, while the rational or classic model indicates how decisions should be made (i.e. it works as a prescriptive model), it falls somewhat short concerning how decisions are actually made (i.e. as a descriptive model).
3. Retrospective decision model (implicit favourite model):
This decision-making model focuses on how decision-makers attempt to rationalise their choices after they have been made and try to justify their decisions. This model has been developed by Per Soelberg. He made an observation regarding the job choice processes of graduating business students and noted that, in many cases, the students identified implicit favorites (i.e. the alternative they wanted) very early in the recruiting and choice process. However, students continued their search for additional alternatives and quickly selected the best alternative.
The total process is designed to justify, through the guise of scientific rigor, a decision that has already been made intuitively. By this means, the individual becomes convinced that he or she is acting rationally and taking a logical, reasoned decision on an important topic.
Some Common Errors in Decision-Making:
Since the importance of the right decision cannot be overestimated enough for the quality of the decisions can make the difference between success and failure. Therefore, it is imperative that all factors affecting the decision be properly looked into and fully investigated.
In addition to technical and operational factors which can be quantified and analyzed, other factors such as personal values, personality traits, psychological assessment, perception of the environment, intuitional and judgemental capabilities and emotional interference must also be understood and credited.
Some researchers have pinpointed certain areas where managerial thinking needs to be re-assessed and where some common mistakes are made. These affect the decision-making process as well as the efficiency of the decision, and must be avoided.
Some of the errors re:
Decision-making is full of responsibility. The fear of its outcome can make some people timid about taking a decision. This timidity may result in taking a long time for making a decision and the opportunity may be lost. This trait is a personality trait and must be looked into seriously. The managers must be very quick in deciding.
2. Postponing the decision until the last moment:
This is a common feature which results in decision-making under pressure of time which generally eliminates the possibility of thorough analysis of the problem which is time consuming as well as the establishment and comparison of all alternatives. Many students, who postpone studying until near their final exams, usually do not do well in the exams.
Even though some managers work better under pressures, most often an adequate time period is required to look objectively at the problem and make an intelligent decision. Accordingly, a decision plan must be formulated; time limits must be set for information gathering, analysis and selection of a course of action.
3. A failure to isolate the root cause of the problem:
It is a common practice to cure the symptoms rather than the causes. For example, a headache may be on account of some deep-rooted emotional problem. A medicine for the headache would not cure the problem. It is necessary to separate the symptoms and their causes.
4. A failure to assess the reliability of informational sources:
Very often, we take it for granted that the other person’s opinion is very reliable and trustworthy and we do not check for the accuracy of the information ourselves.
Many a time, the opinion of the other person is taken, so that if the decision fails to bring the desired results, the blame for the failure can be shifted to the person who had provided the information. However, this is a poor reflection on the manager’s ability and integrity and the manager must be held responsible for the outcome of the decision.
5. The method for analysing the information may not be the sound one:
Since most decisions and especially the non-programmed ones have to be based upon a lot of information and factors, the procedure to identify, isolate and select the useful information must be sound and dependable. Usually, it is not operationally feasible to objectively analyse more than five or six pieces of information at a time.
Hence, a model must be built which incorporates and handles many variables in order to aid the decision makers. Also, it will be desirable to define the objectives, criteria and constraints as early in the decision-making process as possible.
This would assist in making the process more formal so that no conditions or alternatives would be overlooked. Following established procedures would eliminate the efforts of emotions which may cloud the process and rationality.
6. Do implement the decision and follow through:
Making a decision is not the end of the process, rather it is a beginning. Implementation of the decision and the results obtained are the true barometer of the quality of the decision. Duties must be assigned, deadlines must be set, evaluation process must be established and contingency plans must be prepared in advance. The decisions must be implemented whole heartedly to get the best results.