THE ELEMENTS OF DECISION MAKING
Decision making is a vital component of business success. Decisions that are based on a foundation of knowledge and sound reasoning can lead a company into long-term prosperity; conversely, decisions that are made on the basis of flawed logic, emotionalism, or incompetent information can quickly put a business out of commission (indeed, bad decisions can cripple even big, capital-rich corporations over time). All business people recognize the painful necessity of choice. Furthermore, making these choices must be done in a timely fashion, for as most people recognize, indecision is in essence a choice in and of itself – a choice to take no action. Ultimately, what drives business success is the quality of decisions, and their implementation. Good decisions mean good business.
The concept of decision making has a long history – choosing among alternatives has always been a part of life. But sustained research attention to business decision making has developed only in recent years. Contemporary advances in the field include progress in such elements of decision making as the problem context: the process of problem finding, problem solving, and legitimation; and procedural technical aids.
The Elements of Decision Making
The Problem Context – All decisions are about problems, and problems shape context at three levels. The macro-context draws attention to global issues (exchange `rates, for example), national concerns (the cultural orientations towards decision processes of different countries), and provincial and state laws and cultures within nations. The meso-context attends to organizational cultures and structure. The micro-context addresses the immediate decision environment – the organization’s employees, board, or office.
Decision processes differ from company to company. But all companies need to take these three context levels into consideration when a decision needs to be made. Fortunately, economical ways to obtain this information are available and keep the cost of preparing for decisions from becoming prohibitive.
Problem Finding and Agenda Setting – An important difficulty in making decision is failure to act until one is too close to the decision point – when information and opinions are greatly limited. Organizations usually work in a “reactive” mode. Problems are “found” only after the issue has begun to have a negative impact on the business. Nevertheless, processes of environmental scanning and strategic planning are designed to perform problem reconnaissance to alert people to problems that will need attention down the line. Proactivity can be a great strength in decision making, but it requires a decision intelligence process that is absent from many organizations.
Moreover, problem identification is of limited use if the business is slow to heed or resolve the issue. Once a problem has been identified, information is needed about the exact nature of the problem and potential actions that can be taken to rectify it. Unfortunately, small business owners and other key decision makers too often rely on information sources that “edit” the data – either intentionally or unintentionally – in misleading fashion. Information from business managers and other employees, vendors, and customers alike has to be regarded with discerning eye, then.
Another kind of information gathering reflects the array and priority of solution preferences. What is selected as possible or not possible, acceptable or unacceptable, negotiable, or non-negotiable depends upon the culture of the firm itself and its environment. A third area of information gathering involves determining the possible scope and impact that the problem and its consequent decision might have. Knowledge about impact may alter the decision preferences. To some extent, knowledge about scope dictates who will need to be involved in the decision process.
Problem solving – also sometimes referred to as problem management – can be divided into two parts – process and decision. The process of problem solving is predicated on the existence of a system designed to address issues as they crop up. In many organizations, there does not seem to be any system. In such businesses, owners, executives, and managers are apparently content to operate with an ultimately fatalistic philosophy – what happen, happens. Business experts contend that such an attitude is simply unacceptable, especially for smaller businesses that wish to expand, let alone survive.
The second part of the problem management equation is the decision, or choice, itself. Several sets of elements need to be considered in looking at the decision process. One set refers to the rationales used for decisions. Others emphasize the setting, the scope and the level of the decision, and the use of procedural and technical aids.
RATIONALES – Organizational decision makers have adopted a variety of styles in the decision making process. For example, some business leaders embrace processes wherein every conceivable response to an issue is examined before settling on the final response, while others adopt more flexible philosophies. The legitimacy of each style varies in accordance with individual business realities in such realms as market competitiveness, business owner personality, acuteness of the problem, etc.
SETTINGS – Certainly, some entrepreneurs/owners make business decisions without a significant amount of input or feedback from others. Home-based business owners without any employees, for example, are likely to take a far different approach to problem-solving than will business owners who have dozens of employees and/or several distinct internal departments. The latter owners will be much more likely to include findings of meetings, task forces, and other information gathering efforts in their decision making process. Of course, even a business owner who has no partners or employees may find it useful to seek information from outside sources (accountants, fellow businesspeople, attorneys, etc.)
Since the owner makes all key decisions for a small business, he or she is responsible for its success or failure. Marketing and finance are two of the several areas in which small business owners frequently lack sufficient experience, since they previously worked as specialists for other people before they started their own businesses. As a result, they generally do not have the experience needed to make well-informed decisions in the areas with which they are unfamiliar. The demands of running and growing a small business will soon expose any Achilles heel in a president/owner. It is best to find out your weaknesses early, so you can develop expertise or get help in these areas.
SCOPE AND LEVEL – Finally attention must be paid to problem scope and organizational level. Problems of large scope need to be dealt with by top levels of the organization. Similarly, problems of smaller scope can be handled by lower levels of the organization. This is a failing of many organizations, large and small. Typically, top level groups spend much too much time deciding low-level, low-impact problems, while issues of high importance and organizational impact linger on without being addressed or resolved.
PROCEDURAL AND TECHNICAL AIDS – In recent years, a number of procedural and technical aids have been developed to help business managers in their decision making process. Most of these have taken the form of software programs that guide individuals or groups through the various elements of the decision making process in a wide variety of operational areas (budgeting, marketing, inventory control, etc.). Leadership seminars and management training offer guidance in the decision making process as well.
OUTCOME – Whatever decision making process is utilized, those involved in making the decision need to make sure that a response has actually been arrived at. All too often, meetings and other efforts to resolve outstanding business issues adjourn under an atmosphere of uncertainty. Participants in decision making meetings are sometimes unsure about various facets of the decision arrived at. Some meeting participants, for example, may leave a meeting still unsure about how the agreed-upon response to a problem is going to be implemented, while others may not even be sure what the agreed-upon response is. Indeed, business researchers indicate that on many occasions, meeting participants depart with fundamentally different understandings of what took place. It is up to the small business owner to make sure that all participants in the decision making process fully understand all aspects of the final decision.
IMPLEMENTATION – The final step in the decision making process is the implementation of the decision. This is an extremely important element of decision making; after all, the benefits associated with even the most intelligent decision can be severely compromised if implementation is slow or flawed.
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