DECISION MAKING IN ORGANIZATIONS

Objectives

By the end of the lesson, students should be able to;

  • explain the criteria that guides good decisions
  • give examples of the types of decisions made in organizations
  • explain the rational decision making process
  • give the advantages and disadvantages of individual and group decision making

 

 DECISION MAKING

Decision making is the process through which managers identify organizational problems and attempt to resolve them.

 

 Criteria for making decisions

A manager knows that he has made a good decision if the decision has the following criteria:

  • quality
  • timeliness
  • acceptance
  • ethical appropriateness

Quality

High quality decisions result in the desired outcomes e.g. When work gets done on time and within budgetary constraints. A decision to launch a new product for example is of high quality if its introduction results in increased reputation, increased profits and market share for the firm.

A high quality decision helps an organization to accomplish its strategic goals. A high quality decision helps to meet the needs of the stakeholders. It may for example improve the working conditions of performance pf employees, increase stock value for shareholders or facilitate a manager’s advancement in the organization.

 

 Timeliness

A good decision should be made within an acceptable period. Failure to make decisions within the given time limits results in inefficient use of resources, decreased worker’s satisfaction and inability to compete effectively in the market place. Even the best decisions lose their value when they are made or implemented too late.

 

 Acceptance

These criteria for effectiveness in decision making focuses on whether those affected the decision understand it accept it and can implement it. Top managers should recognize the importance of obtaining support of employees when making and implementing certain decisions. Acceptance reduces employee’s resistance and improves organization’s efficiency.

 

 Ethical appropriateness

Managers and other decision makers should evaluate a decision according to how well it meets the criteria of ethical justness. The multiple and potentially conflicting stakeholder’s interests and values as well as ambiguous laws sometimes give rise to ethical issues. A person who makes decisions must recognize the moral issues involved. He/she must act on the moral concerns of the situation, uphold, and protect human life. A decision that leads to harmful effects on human beings is unethical and it should be avoided. Managers and employees should decide whether the decisions they make meet ethical standards before implementing.

 

Types of problems Managers face.

Managerial decision making typically centers on three types of problems; crisis, non- crisis and opportunity problems.

A crisis problem is a serious difficulty requiring immediate action. Examples?

Strikes, fraud, plant breakdown, negative publicity, drastic reduction in profits, high rates of turnover.

A non- crisis problem is an issue requiring resolution but does not have the importance and urgency characteristics of a crisis problem. Examples? Many of the decisions managers make center on non- crisis problems. Disciplinary problems, resource allocation issues, transfer issues.

An opportunity problem is a challenge that offers a strong potential for significant organizational gain if appropriate action is taken. Opportunities problems typically involve new ideas and therefore are major vehicles for innovation. Opportunities involve ideas that could be used rather than difficulties/problems that must be resolved. Non innovative managers sometimes fall prey to focusing on various crisis and non-crisis situations and in the process, the opportunities bypass them. Examples

 

  DIFFERENT DECISION MAKING SITUATIONS.

In addition to facing three types of decision problems, managers also typically deal with different types of decision making situations. Managerial decision making typically falls under two types of categories; programmed and non-programmed.

 

Programmed decisions involve rule following i.e. Performing tasks following a well-designed set of rules. They are often based on standard procedures that have been tested through past experience. Once a decision maker identifies a decision as programmed he/she identifies and applies the appropriate set rules and procedures to result in quality outcome. These decisions are mostly guided policies.

 

Non programmed decisions

They are applied where standard laws and policies cannot help. Decisions e.g. Which new product should a company develop, what benefits should a company introduce, how can a company change its corporate image. The answers to these questions require making non programmed decisions. Most decisions dealing with crisis problems can be categorized as non programmed.

They are usually unstructured and they typically call for innovative solution or unusual application of existing rules and policies. Making non programmed decisions requires time, expertise and creativity because the decision maker is breaking new ground. The decisions call for a manager to verify that the problem lacks both structure and a ready solution and then he must apply high quality decision making technique. One of the most popular decision making technique is the rational decision making technique

 

The rational decision making process

It is a step-by-step process that ensures that decisions made meet the criteria for effectiveness. The process has six steps:

  1. analyzing the situation
  2. setting objectives
  3. searching for alternative solutions
  4. evaluating the alternative solutions
  5. making the decision
  6. evaluating the decision made

 

Analyzing the situation

This involves the following;

  1. Determination of the key elements which include recognition of the problem to be solved, classification of the decision situation/problem, identification of groups and individuals involved/affected and identification of the organization’s characteristics that may affect the decision, how the environment may influence the outcomes.
  2. Identifying the situation’s constraints and their effects on the decision. These constraints may include the laws that affect employment, location of the organization, nature of available workforce etc.
  3. Identifying the resources available. This would include financial, time, staff/labour and material resources that may affect the decision. When decision makers fail to analyze the situation completely they may fail to identify environmental and other influences that nay affect the decision, they may also fail to correctly assess the organization’s capability.

 

Setting objectives

Involves identifying the goals and objectives that the decision must accomplish as well as setting the criteria that will be used to assess effectiveness. The way the decision maker frames the problem will affect the ultimate solution and the objective setting. It is reviewed as revenue maximization problem, cutting cost problem, performance improvement problem. The decision maker needs to set out criteria that will be used to assess quality, timeliness, ethical and acceptance.

 

Searching for alternatives

After objectives have been set and evaluated the next step is to identify a set of realistic and potentially acceptable solution to the problem. The alternatives should achieve the decision objectives without producing undesirable consequences.

 

Evaluating the alternatives

The decision maker must evaluate the alternative in terms of whether each can  result in a high quality decision. Each alternative’s feasibility cost and potential benefits as well as the risks involved should be determined.

 

 Making the decision

The decision maker here chooses the alternative that best meets his/her objectives within the constraints of the situation. The best alternative need not be the optimal one. It can be the most satisfactory considering the cost and constraints involved in the optimal one.

 

Evaluating the decision

Before the decision is finalized it should be reviewed together with the process used in arriving at it. This will allow the decision maker a final opportunity to reassess the situation, adjust the objectives and ensure that sufficient alternatives were examined.

Implement the Decision

 

Individual Vs Group Decision Making

 

Managers sometimes have to choose between using individuals or groups to make decisions. There are both advantages and disadvantages in the use of both strategies.

.Advantages of group decision making

  1. Synergy-they tend to create synergy that combines and improves the knowledge of the group to make decisions of higher quality than the sum of individual decisions. The synergy results when each individual brings additional knowledge and skills to the decision.
  2. Creativity- increasing the group’s diversity helps it to become innovative when dealing with difficult tasks.
  3. Acceptance- group decision making reflects consensus and for this reason it is easily acceptable.

 

 Disadvantages

  1. Longer time framegroups generally need more time to make decisions than individuals. This is because a group has to exchange information among many individuals and obtain a consensus.
  2. More expensive – they require more resources
  3. More risky decisionsgroups tend to make riskier decisions. This is because no single person will shoulder the consequences of the decision.
  4. Ignore individual expertisegroups tend to ignore the inputs of individual experts, opting instead for group consensus.
  5. Lack confidentiality
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