Process of decision-making
Decision Making Process detail below:
1. Defining the problem.
2. Analysing the problem.
3. Collection of data.
4. Developing alternatives.
5. Review of key factors.
6. Selecting the best alternative.
7. Implementing the decision.
8. Follow up.
1. Defining the Problem: Sufficient time should be spent on defining the problem as it is not always easy to define the problem and to identity the fundamental reason that is causing the trouble and that needs correction. Practically, no problem presents itself in a manner that an immediate decision may be taken. It is, therefore, essential to define the problem before any action is taken, otherwise the manager will answer the wrong question rather than the core problem. Clear definition of the problem is very important as the right answer can be found only for a right question.
2. Analysing the Problem: After clearly recognising the problem, the next phase of decision-making is the analysis of problem which involves classifying the problem and gathering information. Classification is necessary in order to know who should take the decision and who should be consulted while taking it. Without proper classification, the effectiveness of the decision may be jeopardised. The problem should be classified keeping in view the following factors:
(i) the nature of the decision, i.e., whether it is strategic or it is routine,
(ii) the impact of the decision on other functions,
(iii) the futurity of the decision,
(iv) the periodicity of the decision, and
(v) the limiting or strategic factor relevant to the decision.
3. Collection of Data: A lot of information is required to classify any problem. So long as the required information is not available, any classification would be misleading. This will also have an adverse impact on the quality of the decision. Trying to analyse without facts is like guessing directions at a crossing without reading the highway signboards. Thus, collection of right type of information is very important in decision-making. It would not be an exaggeration to say that a decision is as good as the information on which it is based.
4. Developing Alternatives: After defining and analysing the problem, the next step in the decision-making process is the development of alternative courses of action. Without resorting to the process of developing alternatives, a manager is likely to be guided by his limited imagination. It is rare for alternatives to be lacking for any course of action. But, sometimes, a manager assumes that there is only one way of doing a thing. In such a case, he limits his horizon. Alternatives exist for every decision problem. Effective planning involves a search for the alternatives towards the desired goal.
5. Review of Key Factors: While developing alternatives, the principle of limiting factor has to be taken care of. A limiting factor is one which stands in the way of accomplishing the desired goal. It is a key factor in decision-making. If such factors are properly identified, manager can confine his search for alternatives to those which will overcome the limiting factors. Depending upon the situation faced, the limiting factor may be inadequate funds, shortage of human resources, old machines, or lack of marketing skills.
6. Selecting the Best Alternative: In order to make the final choice of the best alternative, one will have to evaluate all the possible alternatives. There are various ways to evaluate alternatives. The most common method is through intuition, i.e., choosing a solution that seems to be good at that time. There is an inherent danger in this process because a manager’s intuition may be wrong on several occasions.
The second way to choose the best alternative is to weigh the consequences of one against those of the others. Peter Drucker has laid down four criteria in order to weigh the consequences of various alternatives. They are:
(i) Risk: A manager should weigh the risks of each course of action against the expected gains. As a matter a fact, risks are involved in all the solutions. What matters is the intensity of different types of risks in various solutions.
(ii) Economy of Effort: The best manager is one who can mobilise the resources for the achievement of results with the minimum of efforts. The decision to be chosen should ensure the maximum possible economy of efforts, money and time..
(iii) Situation or Timing: The choice of a course of action will depend upon the situation prevailing at a particular point of time. If the situation has great urgency, the preferable course of action is one that alarms the organisation that something important is happening. If a long and consistent effort is needed, a ‘slow start gathers momentum’ approach may be preferable.
(iv) Limitation of Resources : In choosing among the alternatives, primary attention must be given to those factors that are limiting or strategic to the decision involved. The search for limiting factors in decision-making should be a never ending process. Discovery of the limiting factor lies at the basis of selection from the alternatives and hence of planning and decision-making.
7. Implementing the Decision: The choice of an alternative will not serve any purpose if it is not put into practice. The manager is not only concerned with taking a decision, but also with its implementation. He should try to ensure that systematic steps are taken to implement the decision. The main problem which the manager may face at the implementation state is the resistance by the subordinates who are affected by the decision. If the manager is unable to overcome this resistance, the energy and efforts consumed in decision-making will go waste. In order to make the decision acceptable, it is necessary for the manager to make the people understand what the decision involves, what is expected of them and what they should expect from the management. The principle of slow and steady progress should be followed to bring about a change in the behaviour of the subordinates.
SWOT Analysis helps a business in the below mentioned ways:
1. Helps a firm in getting first mover advantage : Constant monitoring of the environment enables a firm to foresee opportunities and take advantage by coming out with new products/services, e.g. with the increasing incomes a number of lot of car companies are coming up with SUVS (Sports Utility Vehicles).
2. Early warning signals: The trends, taste, preferences, demand and technology are constantly changing. The analysis of such changes can help the firm to adapt to changes. The threats may be in form of technology change, government intervention, legal issues; change in consumer preferences, etc, e.g. TV companies are constantly upgrading technology to make to flatter and thinner TVs.
The changes from LCD to LED to HD and now 3D and curve TVs by Samsung, Sony and LG becomes threat to other manufacturers.
3. Increases efficiency and performance: To meet the market expectations constant endeavour is made to increase efficiency.
4. Cope up With the rapid change: The understanding of environment and forecasting the changes will enable the firm to take steps for coping with the changes.
5. Guides in decision-making and strategy formulation : Environment monitoring provides relevant information for strategy formulation; e.g. increasing health consciousness has made companies to come out with product like-Multigrain Atta, Brown Atta Bread and Multigrain Maggi, etc.
6. Helps in tapping useful resources: To engage in any type of activity, a business enterprise assembles various resources like finance; machines, raw materials, water, land, labour, etc. from its environment. In return, the business supplies its output in the form of goods and services, tax to government; interest to financiers, etc. The resources can be tapped only when a firm understands, what the environment has to offer.
