How to Make Good Decisions in Business - Essay Example

How to Make Good Decisions in Business Introduction Decision-making may be defined as the actof selection between two or more option, the result of which is not perfectly known, with the intention of solving a problem. The success or failure of a business relies on the value of decisions made or not made. Decision makers are frequently faced with a variety of opportunities or problems that entail that a decision must be made. Decision-making is often an immense test of the managerial competence of managers and how useful they have been in their managerial situation. (Andrew, 2) Decision-making today places a premium on speed to a degree unparalleled in world history. The need to take action in time is testing the limits of the command-and-control model that has subjugated commercial and military leadership for generations. To maintain a bias for action and stay centered on the appropriate goals both realms are coalescing around and emerging leadership model that rebalances traditional attitudes toward two crucial decision factors: risk and control. (Garvin, 108-116) In the corporate world today, decision makers need to have a higher tolerance for, and comfort level with risk. Multi month task forces are the buggy whips of leadership. Today, failure to decide and act quickly can pre-empt options altogether. However, business decisions are frequently made on input information that are either biased or manipulated. Input bias is defined as the systematic misuse of input information in judgments of outcome quality. While researchers note that the quality of a decision is often "positively related" to the quantity of the inputs used to make that decision, the relationship between input quantity and output quality is not automatic. In many cases, inputs are misused, misrepresented or even negatively related to outcome quality. Other common flaws noticeable in decision making include: a) Poor Framing: This involves allowing a decision to be "framed" by the language or context in which it is presented. Often times, in making a decision, the whole system or situation surrounding the problem or opportunity needs to be carefully analyzed. (Andrew, 8) For example an opportunity that arose from a visit to ones village should not necessarily translate to the decision being centered only in that village. It may even be that the decision to provide a service in that village is transferred somewhere else since the success guarantee in higher in another location. b) Recent Effects: Making decisions based on recently seen information. It may also be known as availability bias. A careful analysis of that information may have eventually proven not very useful for the type of decision to be made. c) Primacy Effects: once people develop an opinion about something of a frame of reference for analyzing an issue, it is often difficult for them to move out from that position. The effect is that wrong judgments may trail certain decision-making situations they come up. d) Overconfidence: Both experts and the general public tend to be overconfident about the accuracy of what they know. Overconfidence is sometimes what prevents managers from seeking opinions of their subordinates of others within their organization. e) Association Bias: This involves trying to repeat past successes by choosing strategies more related to a past situation than the current one. Of course a good manger should know that decision-making situations are never really the same. The secret is to know when fine-tuning of a strategy is needed. (Bazerman, 88-97) f) Poor Probability Estimation: Overestimating the probability of events that are familiar or dramatic, are under ones control, or are beneficial, while underestimating the probability of negative events, is a typical everyday flaw. A market share could be lost to a competitor’s service provision methods through this flaw, because one underestimated the competitors resolve to better our service provision. g) Escalation Phenomena: Finding it difficult to abandon already adopted courses of action, and ignoring feedback indicating the course of action is failing. "A stitch in time saves nine", like it is often said, could be the determinant between effectiveness and ineffectiveness. Our strategies become obsolete in a short time especially in the ever-changing business world of today. So abandoning a strategy that worked before may just be the right thing to do sometimes. From the above analysis, it is not difficult to observe that the action or inaction of the maker often times determines the effectiveness of the decision. THE DECISION MAKER: The decision maker may be a single person of a group of persons, saddled with the task of choosing amongst various alternatives, that choice which should be efficient in meeting organizational objectives. Decision makers vary in their decision-making capabilities due to certain factors as mentioned below. a) Intelligence. b) Knowledge. c) Training. d) Experience. e) Personality. f) Leadership style. g) Cognitive style. (Bazerman, 88-97) The decision maker accepts messages from various competing situations or opportunities and to create a decision, his intelligence, knowledge based, training, his previous experience, his personality, leadership style all come in to play before a choice of which decision to make among the various options open to him. Whatever decision choice he makes, will be added to his knowledge base, which together with the reservoir of knowledge he already has will be put to play when similar situations arise in future. (Buchanan, 32-41) The decision maker is an intuitive person because even when he finds himself in a group or committee, he must be able to weigh all opinions and suggestions, such that his eventual choice must be effective. His task is made more difficult if he finds himself in a group of persons with great knowledge and experience because then he is faced with what suggestion to take and not to take, whose opinion to use and not to use, but again this is when his leadership qualities comes to play. The Decision Making Process The decision making process is the systematic method information gathering, analysis of problems or opportunities and possible solutions, choice making implementation and monitoring. For better analysis, the decision making process may be divided into five different stages. 1. Intelligence: This intelligence stage is the stage where a problem is noticed or an opportunity arises. If its a problem, the problem is then classified into its appropriate group, is wither its a programmed or non-programmed problem, routine or unique problem. The problem is then decomposed into sub-problems and assigned to different persons or divisions within an organization. Thereafter, data or information needed to solve the problem is gathered. At the information/data gathering stage, various other issues come to fore in relation to what type of data is needed or what type of information to look for. A careful analysis of the problem situation will help in no small measure. (Bazerman, 88-97) The analysis of the situation involves decisions as to whether the problem situation is an established situation or an emergent situation, is it an ordinary problem of a unique one? Is the problem repetitive or one-shot occurrence? Are the issues involved in the problem understood or elusive? Is the data required available of hard to get? Is the solution a programmed one or creative? These and more are questions that are faced at this stage of decision making process. 2. Design: Once the problem has been understood, the design stage comes next. This is the stage to generate decision alternatives, from the data gathered or information available. Since a choice must be made from the alternatives generated, a criterion for evaluation of the alternatives must be established. The criteria will often be based on what goal the decision is set to achieve. That is, the effectiveness of the decision in relation to organizational objectives. (Garvin, 108-116) The evaluation of decision alternatives may be categorized into two types: a) Systematic/Analytic: The decision maker structures the problem and the available data into a method, which is expected to lead to a solution. b) Intuitive/Heuristic: A variety of methods and solutions are examined using the trial-and-error approach to find the best of the available choices of action. However, commonly used in evaluating decision alternatives in the dynamic world of today is the decision making models, which categorizes the issues involved in decision making into different models for better understanding. I. Rational Model: This is a classical model of analytical decision-making. It assumes that decision makers are rational, that they operate autonomously in a world where all alternatives, consequences and probabilities are known. Therefore an optimal alternative can be found. II. Satisficing Model: The satisficing model suggests that rational behavior is bounded by human capacities and the limited, incomplete and imperfect knowledge most decision makers have. Decision makers in the group will therefore opt for "good enough" solutions rather than optimal ones. III. Organizational Program Model: Organizational decisions are often based on standard operating procedures, conformance to group norms, budget limitations, reinforcement of past decisions, training, motivational programs, reward structures, etc. Decision-making behaviour often copies what worked before. Most medium and large-scale organizations fall in this group. IV. Political Model: people with competing or conflicting goals make organizational decisions. Therefore, power and influence, rather than rationality determine outcomes. Negotiations, bargaining, conflict resolution, and compromise are important to decision making. (Garvin, 108-116) V. Garbage Can Model: The garbage can model states that decisions are consequences of intersections of problems looking for solutions, solutions looking for problems, and opportunities for decision making. It maintains that decisions are the result of random, stochastic events (i.e. chance, luck and timing). Therefore, evaluation of decision-making alternatives is also dependent on the organizational type and what decision-making model is being practiced. 3. Choice: This is the selection of the most profitable, agreed upon, most acceptable, least offensive, etc alternative. Many times goals or criteria conflict, particularly when others are affected. The mathematical optimal solution may therefore not always be implementable. Also, outcomes of any given alternative can rarely be predicted with certainty, hence the need for sensitivity analysis. Issues to consider at the choice stage include: a. What will happen to decision outcomes when reasonable changes occur in internal or external factors? b. How will decision outcomes behave over time? c. Mathematical optimal alternatives may be very sensitive to optimal conditions. 4. Implementation: The implementation of a decision usually requires others in the organization to agree and co-operate. Implementation requirements often play a part in the decision making process. Implementation requires an understanding of organizational change. The organizational culture is a set of major understandings and assumptions shared by a group or an organization. It consists of work related understandings communication systems and role perceptions among other factors. Organizational change on the other hand has to do with how organizations plan for, implement and handle change. (Rogers, 52-61) The implementation of a chosen alternative may well require methods and or style. The effectiveness of method of implementation can affect the outcome of the decision made. 5. Monitoring: This is not really a stage, but rather a continuous organizational activity. It involves the examination of internal and external indicators of decision results. This information is often used to steer current decision or to initiate new decision process. The feedback or outcome of a previous decision is gotten at this stage and therefore could result in having to make new decisions. The stage dovetails into intelligence stage (i.e. the beginning of a whole new decision making process). a) Small-scale service organization: Decision making in the small-scale service industry is often a one-person decision making process. The decision maker (i.e. the owner, manager, supervisor or even the ordinary worker) bases his decisions on personality traits and leadership skills or style. His decision is based on personal intelligence, knowledge repertoire, training he has acquired, experience he has garnered over the years and cognitive style. The decision maker filter data on deviations from or conformities to their expectations. The decision maker focuses on individual pieces of data rather than on preconceived relations or holistic models. In the small-scale organization, the decision types ranges from easy or hard decisions, to important or unimportant decisions, routine or unique decisions, personal or business decisions and fun or troubling decisions. The decision maker has observed is always trying to make a judgment between whether or not a situation requires a decision to be made. The decision maker here exhibits most of the flaws of decision-making earlier enumerated. (Bazerman, 88-97) b) Medium/Large-scale organization: Both the medium and large-scale organizations have similar tendencies in decision-making. Since most of these organizations are divided into different sections or functional areas, decision makers often have proprietary knowledge requirements and solution approaches. The division could include marketing department, accounting department, personnel department, manufacturing department, etc. (Buchanan, 32-41) Decision makers in these various departments use their repertoire of knowledge usually acquired from tertiary institutions and/or experience gathered over the years informing proprietary decisions. They are supposed to be experts in their various functions. Also deductible, is the fact that decision-making in the medium and large-scale organizations are often based on the organizational program and political models. Organizational decisions are often based on standard operating procedures, conformance to group norms, budget limitations, reinforcement of past decisions, training, motivational programs, reward structures, among others. Also, people with competing or conflicting objectives make these decisions. Therefore, power and influence could be the basis of decisions made rather than rationality. Decision-making is the medium and large-scale organizations are hardly a one-person process, except as regards an organizational method or process for getting things done. Usually a committee or group will make decisions from analysis of alternatives available. (Rogers, 52-61) Conclusion In the modern workplace, command and control leadership is out; replaced by a way of leading that emphasizes collaboration and participation. If included, the people affected by decisions in the decision making process, better ideas are suggested and evaluated, and more people buy-in to decisions taken. The process may however take time and bring up unresolved issues. And theres also the risk of frustrating people who provide input and dont see their ideas reflected in the final decision. However, collaboration doesnt mean that all decisions should be made by consensus. Leaders who believe that abdicate their responsibilities and become passive members of their team, or waste time. It is understandable that we should want to avoid making decisions for a number of reasons. First of all, it is often risky. Risk is defined as the possibility of suffering harm, loss or danger. We tend to be comfortable in the patterns and expectations. Often times making a decision means we must step out of the "comfort zone" into the unknown. Through past experience we know that even a slight shift in the course can have dramatic effects on what the lives will be. Secondly, leaders often make decisions while they are slightly ahead of the prevailing group or culture. It is often a lonely, thankless practice with little noticeable support. This condition is compounded when the manager has not taken the time and efforts to build a strong agreement among others. Even on an individual level, we may stay away from or postponement making decisions about our family, careers or funds because of a dislike to risk and fear of failure. But there is a significant fact about decision making and risk. We will often come to a crisis in life or business where a significant decision must be made. In business, it is in fact an everyday development. There are always alternative to be made about our services, pricing plan, competitiveness, actions, techniques, opportunities appraisal, workers wellbeing, etc. The common thread arising from the respondents views is that most successful organizations maintain a high level of continuity between varying levels of decision making functions, from strategic to operational. Secondly and equally important has been the role of optimal decisions at each level. In other words, decisions that maximize the productivity of resources and customer satisfaction level, while simultaneously minimizing operational costs. The executives therefore always makes strategic decisions on what seem like reasonable expectations of their customers, as well as expected economic cycles and trends. Of course the bias of the executive may always be in conflict with these decisions. Works Cited Andrew Campbell and Marcus Alexander What’s Wrong with Strategy. Harvard Business Review, (Nov-Dec 1997). pp. 2-8. Bazerman, M. H. and D. Chugh. Decisions without blinders. Harvard Business Review (January, 2006): 88-97. Buchanan, L. and A. OConnell. A brief history of decision making: Humans have perpetually sought new tools and insights to help them make decisions. From entrails to artificial intelligence, what a long strange trip its been. Harvard Business Review (January 2006): 32-41. Garvin, D. A. and M. A. Roberto. What you dont know about making decisions. Harvard Business Review (September 2001): 108-116. Rogers, P. and M. Blenko. Who has the D? How clear decision roles enhance organizational performance. Harvard Business Review (January 2006): 52-61. Read More