Page 216 - Encyclopedia of Business and Finance

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Decision Making

Decision making typically follows a six-step process: In step 6, after the decision has been implemented,
the decision maker must follow-up on the decision to see
1. Identify the problem or opportunity if it is working successfully. If the decision that was imple-
2. Gather relevant information mented has corrected the difference between the actual
and desired outcome, the decision is considered success-
3. Develop as many alternatives as possible
ful. However, if the implemented decision has not pro-
4. Evaluate alternatives to decide which is best duced the desired result, once again a decision must be
5. Decide on and implement the best alternative made. The decision maker can decide to give the decision
more time to work, choose another of the generated alter-
6. Follow-up on the decision
natives, or start the whole process over from the begin-
In step 1, the decision maker must be sure he or she ning.
has an accurate grasp of the situation. The need to make a
decision has occurred because there is a difference STRATEGIC, TACTICAL, AND
between the desired outcome and what is actually occur- OPERATIONAL DECISIONS
ring. Before proceeding to step 2, it is important to pin-
People at different levels in a company have different types
point the actual cause of the situation, which may not of decision-making responsibilities. Strategic decisions,
always be obviously apparent. which affect the long-term direction of the entire com-
In step 2, the decision maker gathers as much infor- pany, are typically made by top managers. Examples of
mation as possible because having all the facts gives the strategic decisions might be to focus efforts on a new
decision maker a much better chance of making the product or to increase production output. These types of
appropriate decision. When an uninformed decision is decisions are often complex and the outcomes uncertain,
made, the outcome is usually not very positive, so it is because available information is often limited. Managers
important to have all the facts before proceeding. at this level must often depend on past experiences and
In step 3, the decision maker attempts to come up their instincts when making strategic decisions.
with as many alternatives as possible. A technique known Tactical decisions, which focus on more intermedi-
as “brainstorming,” whereby group members offer any ate-term issues, are typically made by middle managers.
and all ideas even if they sound totally ridiculous, is often The purpose of decisions made at this level is to help
used in this step. move the company closer to reaching the strategic goal.
In step 4, the alternatives are evaluated and the best Examples of tactical decisions might be to pick an adver-
one is selected. The process of evaluating the alternatives tising agency to promote a new product or to provide an
usually starts by narrowing the choices down to two or incentive plan to employees to encourage increased pro-
three and then choosing the best one. This step is usually duction.
the most difficult, because there are often many variables Operational decisions focus on day-to-day activities
to consider. The decision maker must attempt to select the within the company and are typically made by lower-level
alternative that will be the most effective given the avail- managers. Decisions made at this level help to ensure that
able amount of information, the legal obstacles, the pub- daily activities proceed smoothly and therefore help to
lic relations issues, the financial implications, and the time move the company toward reaching the strategic goal.
constraints on making the decision. Often the decision Examples of operational decisions include scheduling
maker is faced with a problem for which there is no appar- employees, handling employee conflicts, and purchasing
ent good solution at the moment. When this happens, the raw materials needed for production.
decision maker must make the best choice available at the It should be noted that in many “flatter” organiza-
time but continue to look for a better option in the future. tions, where the middle management level has been elim-
inated, both tactical and operational decisions are made
Once the decision has been made, step 5 is per-
by lower-level management and/or teams of employees.
formed. Implementation often requires some additional
planning time as well as the understanding and coopera-
tion of the people involved. Communication is very GROUP DECISIONS
important in the implementation step, because most peo- Group decision making has many benefits as well as some
ple are resistant to change simply because they do not disadvantages. The obvious benefit is that there is more
understand why it is necessary. In order to ensure smooth input and therefore more possible solutions to the situation
implementation of the decision, the decision maker can be generated. Another advantage is that there is shared
should communicate the reasons behind the decision to responsibility for the decision and its outcome, so one per-
the people involved. son does not have total responsibility for making a decision.

ENCYCLOPEDIA OF BUSINESS AND FINANCE, SECOND EDITION 193