Managers run organizations by the decisions they make on a daily basis. The quality of these decisions, to a smaller or greater degree, impacts the success or failure of an organization. Managers encounter challenges and opportunities every day. Some situations require actions that are very straightforward; others, not so simple. Some decisions need to be made right away, while others take a long period of time to be made. Decision making can be challenging, and it’s important we understand why.
In this paper, we will cover the main characteristics of managerial decisions, the stages of decision making, and the tools a manager has to achieve efficient decision making in a challenging and uncertain work environment. Characteristics of Managerial Decisions Structure: For most routine decisions, there is a determined procedure, or structure, that helps managers solve a problem. If it’s a routine problem, then they have standard responses. In these situations, managers only have to implement previously stated solutions, from past experiences in the organization. Unfortunately, not all decisions are programmed.
New problems arise all the time in an organization, and that’s when managers have to get creative to solve them. Past experience helps, so does intuition, but the decision maker, in this case, has to create, or rely on a method for making the decision. In this case, there’s no standard response. Uncertainty and Risk: As Schermerhorn, Hunt, & Osborn (1994) point out, problem solving decisions in organizations are typically made under three different conditions or environments: certainty, risk, and uncertainty. When information is sufficient, and outcomes of decisions are predictable, you are working in an environment of certainty.
However, for most important decisions, uncertainty is to be expected. Uncertainty exists when a manager doesn’t have enough information to assign probabilities to the consequences of different possible decisions. A manager might have a good guess, or opinion, but doesn’t know for sure if something will or won’t happen. Whenever there’s uncertainty, and something to lose, then there’s risk. Risk isn’t a bad thing; it’s just the fact that comes with any managerial decision. Choosing one alternative over another can imply losing time, or money, so every decision entails risk. Managers have to be aware that with their decisions they manage risk.
With good planning and problem resolution, risk can be minimized and controlled. Contending Interests: J. Davids (2012) talks about decisions that affect people with contending interests. An example of this is a CFO who argues in favor of increasing long-term debt to finance a purchase. On the other hand, the CEO wants to minimize long-term debt and find the funds somewhere else. In another example, a marketing department wants more product lines to sell, the engineers want higher quality of products, and the production manager wants less variety of products to lower costs.
In these situations, it’s up to the decision maker to fashion a workable decision that reflects an appreciation of all these antagonizing point of views. If a key player’s perspective isn’t taken into consideration, and the manager pushes forward in the decision process, the outcomes will probably not satisfy the decision makers’ plans. There are different approaches to managing participation of multiple players that we’ll touch on a bit later. Stages of Decision Making Situation: The first step in the decision making process is knowing the situation. This means, recognizing a problematic situation that exists, and must be fixed.
This usually implies comparing things the way they are now, to what they should be. An example of this is comparing the actual expenses to the budgeted expenses. Another example is looking at this quarter’s sales, and comparing them to the previous quarter. The problem that needs to be solved is usually an opportunity that managers seek to take advantage of. Bowen, Lewicki, Hall, Hall (1997) present an interesting approach of looking at a problem. It’s a technique referred to as “framing” or “reframing”. There are four essential perspectives of organization and management theory that help us define a situation.
* Structural. This perspective deals with the activities, functions assignments, tasks and so forth. It’s basically who does what and who reports to whom. * Human. This point of view looks at issues of how people and organizations relate, how organizations satisfy people’s needs, provide meaningful work, productivity, and relationships in the organization. * Political. This frame of mind looks at the organization as a system with shifting bases of power, and conflicts between different groups fighting for limited resources. * Symbolic. The symbolic frame references the culture of the organization, made up by ceremonies, rites, stories, and so on.
When dealing with a problem difficult to resolve, the manager can look at it, and use these different vantage points. This will help see the problem from a new perspective, and define the situation with a different understanding, and meaning of the problem. Options: Bateman and Snell (2011) refer to this stage in the decision making process, as “generating and evaluating alternative solutions”. What they mean by this is, once the problem is defined, the manager, or decision maker, has to develop different courses of action aimed at solving the problem. Solutions might be found by using similar tactics used in previous problems.
Custom made solutions are the other option. These take creativity and probably more resources. This step is key in the decision making process. Many times managers don’t take the time to brainstorm and come up with alternatives. In a hypothetical situation where the decision maker is trying to improve the organization’s bottom line, there are many options. You can increase prices to improve margin, advertise your products’ quality to increase sales, drop prices to increase sales, open new service lines that will give you higher participation in the market, just to name a few.
The point is: it’s important for the manager to take his time and consider all the options. Once managers have different options, they have to evaluate them, and come up with the best one. The best way of evaluating the options is measuring the consequences of the different alternatives. Measures such as lower costs, higher market share, bigger bottom line, employee satisfaction, customer satisfaction, just to name a few. Ethical aspects of decision making should also be considered in this step. Richard Ritti and Steve Levy (2010) combine what we previously mentioned about certainty, risk, and uncertainty, with alternative decisions.
We can have an alternative solution that implies increasing production of a service line by 15%, but based on the uncertainty of the environment, we have a decrease in the demand by 20%. This, in retrospect would be a bad choice. What I mean by this is, not all results can be predicted with perfect precision. In an uncertain environment, what decision makers have to consider, is creating contingency plans. These are plans that will be implemented if the future develops differently than what expected. Choose: Once you’ve generated different options, and evaluated them, it’s time to choose which one is best.
The manager must have an assertive attitude, and not over think the decision. Once the decision maker has all the information he’s going to have, he just has to take the leap and make the decision. Bateman and Snell (2011) bring in a few interesting concepts to this decision making step. These steps are maximizing, satisficing, and optimizing. * Maximizing: Maximize means, to make the most out of something, in this case, the decision. Maximizing requires looking carefully for a complete variety of alternatives, evaluating them, and then choosing the best. Maximizing is the better strategy for important decisions.
Managers that are maximizers, plan systematically in solving problems, and their high expectations of quality drives them to achieve great results. * Satisficing: Satisficing is choosing the first satisfactory option, rather than looking for the optimal decision alternative. This concept was originally referred to by Herbert Simon (1947). He stated: “Most human decision making, whether individual or organizational, is concerned with the discovery and selection of satisfactory alternatives; only in exceptional cases is it concerned with the discovery and selection of optimal decisions. When managers make decisions, many times they are facing limitations, such as time barriers, unavailability of information, and other situations that make finding the optimal option impossible. When the decision isn’t of great importance, satisficing could be the optimal approach. * Optimizing: Managers have to balance their decisions. Since there are contending interests in many of the important decisions in the organization, managers have to find an alternative that meets multiple criteria, and achieves the organization’s goals.
Act: Once the problem has been recognized, alternatives generated and evaluated, and the choice has been made, someone has to act. Also known as the implementation process, managers have to plan it vigilantly. Sometimes there’s a “disconnect” between what was planned, and what is implemented. The people involved in the process assume things are just magically going to occur. This isn’t the case, so it’s up to the manager to ensure things are taking shape. Good communication is essential in this implementation process, especially since this is when all the change happens.
People aren’t naturally comfortable with change, so the manager has to be clear with the steps that have to take place. The manager must manage the chronological order in which things have to happen and delegate the individuals responsible for each task. He must ensure everyone understands their role, and knows what the final outcome should look like. The buy-in from the different players in the organization, when implementing decisions that cause change, will dictate the outcome of the implementation stage.
If needs were ignored when making the decision, or if the paths of communication haven’t been fluid in the process, it will be very hard to implement change effectively. The manager must take these things into consideration if he wants to avoid potential problems that arise in this step of the process. Evaluate: Evaluating the decision is the last step in the decision making process. It’s time for the results to determine whether the manager’s choice is having the effect it was intended to have. For this stage to be successful, there has to be measurable results; they must be quantifiable.
For an adequate evaluation of the decision, a validating mechanism collects information and compares it to an expected value. That validating mechanism can be set and developed even before the solution to the problem is determined. If the decision made proves to be effective, and the results show that the goals were met, then this decision could serve another purpose elsewhere in the organization. The positive feedback will be welcomed by the manager, and reinforce the decision making process. If the results demonstrate negative results, then it’ll take some good analysis to see where things have gone wrong.
Things might have gone wrong in any of the previous stages. It’ll take brainstorming, and effort to assess what things need to happen to put things on the right track. Participation in Decision Making As Bowen et al. (1997) point out, most changes in organizations not only require technical modifications, but alterations in the work and social satisfactions of the employees. This makes the challenge of implementing change even greater. It’s not only important that the new methods are efficient; they must also be accepted by the employees who will be implementing these changes.
In this context, managing the participation of the employees in making a decision plays an important role. There are different approaches when making decisions that involve change. They can be grouped into different variants of authoritative decisions, mutual problem solving, and consultative decisions. In the authoritative decision alternative, the manager makes the decision alone. Then he puts together arguments and rational information to show the employees the advantages of change. In the mutual problem solving approach, the manager shares the problem with his employees, and the group works together to come up with a final decision.
The consultative approach is a middle ground; the manager shares the problem with the group, obtains ideas and suggestions, and then makes a decision that may or may not reflect the employee’s contribution. There are advantages and disadvantages in making group decisions. The biggest one is that the acceptance of participants is high, mainly because they’ve had an opportunity to give their opinion. They feel like they’ve had a say in the new process, so they’ll naturally support it. It’s also a huge advantage in the implementation stage, because the employees understand what management is trying to achieve.
Many times the subordinates bring knowledge and experience that even the manager might not have. It’s the employees who work in the details, and they might have good input in solving problems. One of the disadvantages of group decision making is the time it takes. A lot of time can be wasted meeting in groups to come up with good ideas. Another negative aspect is that groups tend to make riskier decisions because the responsibility doesn’t fall on just one person. In the same sense, group embers might not put that much effort into thinking of all the ramifications of their decisions, because they think someone else is probably thinking of that already.
The main takeaway from participation in decision making is that it really depends on the situation, and the problem being solved. The challenge for the manager is to know when he should employ each of the decision making approaches according to the situation. A smart manager will know how to use these managing tools to make decisions that are not only efficient, but will also have the support and buy-in from the employees.
Conclusion A good manager will assess each situation and find opportunities where change can be made; always looking for the organization’s best interest. When making important decisions, the manager will see the type of environment he’s in, if there’s certainty or not, and always account for the contending interests his decisions will undoubtedly face. A wise decision maker will recognize a situation that requires an intervention on his behalf. He will generate and evaluate different options, and apply the concepts of maximizing, satisficing, and optimizing to make the best decision.
Not only does the manager choose; he acts. He takes responsibility and accountability for his choices, and makes sure there’s follow through in the implementation stage of the process. The decision maker will then evaluate the results, to validate that his decisions are having the results that were intended. If not, he’ll go back to the drawing board. Organizations live and die by the decisions made by managers, and to the extent that they can define problems, and make smart choices. Good decision making is found at the heart of all successful businesses.
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Topic: Decision Making
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