DECISION-MAKING
Purposeful selection from among a set of alternatives in light of a given objective. Decision-making is not a separate function of management. In fact, decision-making is intertwined with the other functions, such as Planning, Coordinating, and Controlling. These functions all require that decisions be made. For example, at the outset, management must make a critical decision as to which of several strategies would be followed. Such a decision is often called a strategic decision because of its long-term impact on the organization. Also, managers must make scores of lesser decisions, tactical and operational, all of which are important to the organization's well-being.
Decision Making
Decision making, also referred to as problem solving, is the process of recognizing a problem or opportunity and finding a solution to it. Decisions are made by everyone involved in the business world, but managers typically face the most decisions on a daily basis. Many of these decisions are relatively simple and routine, such as ordering production supplies, choosing the discount rate for an order, or deciding the annual raise of an employee. These routine types of decisions are known as programmed decisions, because the decision maker already knows what the solution and outcome will be. However, managers are also faced with decisions that can drastically affect the future outcomes of the business. These types of decisions are known as nonprogrammed decisions, because neither the appropriate solution nor the potential outcome is known. Examples of nonprogrammed decisions include merging with another company, creating a newproduct, or expanding production facilities.
Decision making typically follows a six-step process:
Identify the problem or opportunity
Gather relevant information
Develop as many alternatives as possible
Evaluate alternatives to decide which is best
Decide on and implement the best alternative
Follow-up on the decision
In step 1, the decision maker must be sure he or she has an accurate grasp of the situation. The need to make a decision has occurred because there is a difference between the desired outcome and what is actually occurring. Before proceeding to step 2, it is important to pinpoint the actual cause of the situation, which may not always be obviously apparent.
In step 2, the decision maker gathers as much information as possible because having all the facts gives the decision maker a much better chance of making the appropriate decision. When an uninformed decision is made, the outcome is usually not very positive, so it is important to have all the facts before proceeding.
In step 3, the decision maker attempts to come up with as many alternatives as possible. A technique known as "brainstorming," whereby group members offer any and all ideas even if they sound totally ridiculous, is often used in this step.
In step 4, the alternatives are evaluated and the best one is selected. The process of evaluating the alternatives usually starts by narrowing the choices down to two or three and then choosing the best one. This step is usually the most difficult, because there are often many variables to consider. The decision maker must attempt to select the alternative that will be the most effective given the available amount of information, the legal obstacles, the public relations issues, the financial implications, and the time constraints on making the decision. Often the decision maker is faced with a problem for which there is no apparent good solution at the moment. When this happens, the decision maker must make the best choice available at the time but continue to look for a better option in the future.
Once the decision has been made, step 5 is performed. Implementation often requires some additional planning time as well as the understanding and cooperation of the people involved. Communication is very important in the implementation step, because most people are resistant to change simply because they do not understand why it is necessary. In order to ensure smooth implementation of the decision, the decision maker should communicate the reasons behind the decision to the people involved.
In step 6, after the decision has been implemented, the decision maker must follow-up on the decision to see if it is working successfully. If the decision that was implemented has corrected the difference between the actual and desired outcome, the decision is considered successful. However, if the implemented decision has not produced the desired result, once again a decision must be made. The decision maker can decide to give the decision more time to work, choose another of the generated alternatives, or start the whole process over from the beginning.
Strategic, Tactical, and Operational Decisions
People at different levels in a company have different types of decision-making responsibilities. Strategic decisions, which affect the long-term direction of the entire company, are typically made by top managers. Examples of strategic decisions might be to focus efforts on a newproduct or to increase production output. These types of decisions are often complex and the outcomes uncertain, because available information is often limited. Managers at this level must often depend on past experiences and their instincts when making strategic decisions.
Tactical decisions, which focus on more intermediate-term issues, are typically made by middle managers. The purpose of decisions made at this level is to help move the company closer to reaching the strategic goal. Examples of tactical decisions might be to pick an advertising agency to promote a newproduct or to provide an incentive plan to employees to encourage increased production.
Operational decisions focus on day-to-day activities within the company and are typically made by lower-level managers. Decisions made at this level help to ensure that daily activities proceed smoothly and therefore help to move the company toward reaching the strategic goal. Examples of operational decisions include scheduling employees, handling employee conflicts, and purchasing rawmaterials needed for production.
It should be noted that in many "flatter" organizations, where the middle management level has been eliminated, both tactical and operational decisions are made by lower-level management and/or teams of employees.
Group Decisions
Group decision making has many benefits as well as some disadvantages. The obvious benefit is that there is more input and therefore more possible solutions to the situation can be generated.
Another advantage is that there is shared responsibility for the decision and its outcome, so one person does not have total responsibility for making a decision. The disadvantages are that it often takes a long time to reach a group consen sus and that group members may have to com promise in order to reach a consensus. Many businesses have created problem-solving teams whose purpose is to find ways to improve specific work activities.
Bibliography
Boone, Louis E., and Kurtz, David L. (1999). Contemporary Business, 9th ed. Orlando, FL: Harcourt Brace College Publishers.
Bounds, Gregory M., and Lamb, Charles W., Jr. (1998). Business. Cincinnati, OH: South-Western College Publishing.
Clancy, Kevin J., and Shulman, Robert S. (1994). Marketing Myths That are Killing Business: The Cure for Death Wish Marketing. New York: McGraw-Hill.
French, Wendell L. (1998). Human Resources Management. New York: Houghton Mifflin.
Madura, Jeff. (1998). Introduction to Business. Cincinnati, OH: South-Western College Publishing.
Nickels, William G., McHugh, James M., and McHugh, Susan M. (1999). Understanding Business, 5th ed. Boston: Irwin McGraw-Hill.
Pride, William M., Hughes, Robert J., and Kapoor, Jack R. (1999). Business, 6th ed. New York: Houghton Mifflin.
Decision making is the cognitive process leading to the selection of a course of action among alternatives. Every decision making process produces a final choice. It can be an action or an opinion. It begins when we need to do something but we do not know what. Therefore, decision making is a reasoning process which can be rational or irrational, and can be based on explicit assumptions or tacit assumptions.
Common examples include shopping, deciding what to eat, when to sleep, and deciding whom or what to vote for in an election or referendum.
Decision making is said to be a psychological construct. This means that although we can never "see" a decision, we can infer from observable behaviour that a decision has been made. Therefore, we conclude that a psychological event that we call "decision making" has occurred. It is a construction that imputes commitment to action. That is, based on observable actions, we assume that people have made a commitment to affect the action.
Structured rational decision making is an important part of all science-based professions, where specialists apply their knowledge in a given area to making informed decisions. For example, medical decision making often involves making a diagnosis and selecting an appropriate treatment. Some research using naturalistic methods shows, however, that in situations with higher time pressure, higher stakes, or increased ambiguities, experts use intuitive decision making rather than structured approaches, following a recognition primed decision approach to fit a set of indicators into the expert's experience and immediately arrive at a satisfactory course of action without weighing alternatives.
Due to the large number of considerations involved in many decisions, computer-based decision support systems have been developed to assist decision makers in considering the implications of various courses of thinking. They can help reduce the risk of human errors.
Decision making style
According to behavioralist Isabel Briggs Myers (1962), a person's decision making process depends to a significant degree on their cognitive style. Starting from the work of Carl Jung, Myers developed a set of four bi-polar dimensions, called the Myers-Briggs Type Indicator (MBTI). The terminal points on these dimensions are: thinking and feeling; extroversion and introversion; judgement and perception; and sensing and intuition. She claimed that a person's decision making style is based largely on how they score on these four dimensions. For example, someone that scored near the thinking, extroversion, sensing, and judgement ends of the dimensions would tend to have a logical, analytical, objective, critical, and empirical decision making style.
Cognitive and personal biases in decision making
It is generally agreed that biases can creep into our decision making processes, calling into question the correctness of a decision. It is not generally agreed, however, which normative models are to be used to evaluate what constitutes an erroneous decision. Nor is the scientific evidence for all of the biases agreed upon. So, while it is agreed that decision making can be biased, how to tell when it is, and specific cases of biases, are often challenged. The issue in general can be quite controversial among scholars in the field. Below is a list of some of the more commonly debated cognitive biases.
Selective search for evidence(a.k.a Comfirmation Bias in psychology)(Plous, 1993) - We tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions.
Premature termination of search for evidence - We tend to accept the first alternative that looks like it might work.
Inertia - Unwillingness to change thought patterns that we have used in the past in the face of new circumstances.
Contrariness or rebelliousness - Unwillingness to share a view with a perceived oppressive authority.
Experiential limitations - Unwillingness or inability to look beyond the scope of our past experiences; rejection of the unfamiliar.
Selective perception - We actively screen-out information that we do not think is salient. (See prejudice.)
Wishful thinking or optimism - We tend to want to see things in a positive light and this can distort our perception and thinking.
Choice-supportive bias occurs when we distort our memories of chosen and rejected options to make the chosen options seem relatively more attractive.
Recency - We tend to place more attention on more recent information and either ignore or forget more distant information. (See semantic priming.)The opposite effect in the first set of data or other information is termed Primacy effect (Plouse, 1993)
Repetition bias - A willingness to believe what we have been told most often and by the greatest number of different of sources.
Anchoring and adjustment - Decisions are unduly influenced by initial information that shapes our view of subsequent information.
Group think - Peer pressure to conform to the opinions held by the group.
Source credibility bias - We reject something if we have a bias against the person, organization, or group to which the person belongs: We are inclined to accept a statement by someone we like. (See prejudice.)
Incremental decision making and escalating commitment - We look at a decision as a small step in a process and this tends to perpetuate a series of similar decisions. This can be contrasted with zero-based decision making. (See slippery slope.)
Inconsistency - The unwillingness to apply the same decision criteria in similar situations.
Attribution asymmetry - We tend to attribute our success to our abilities and talents, but we attribute our failures to bad luck and external factors. We attribute other's success to good luck, and their failures to their mistakes.
Role fulfillment(Self Fulfilling Prophecy) - We conform to the decision making expectations that others have of someone in our position.
Underestimating uncertainty and the illusion of control - We tend to underestimate future uncertainty because we tend to believe we have more control over events than we really do. We believe we have control to minimize potential problems in our decisions.
Faulty generalizations - In order to simplify an extremely complex world, we tend to group things and people. These simplifying generalizations can bias decision making processes.
Ascription of causality - We tend to ascribe causation even when the evidence only suggests correlation. Just because birds fly to the equatorial regions when the trees lose their leaves, does not mean that the birds migrate because the trees lose their leaves.
For an explanation of the logical processes behind some of these biases, see logical fallacy.
Cognitive neuroscience of decision making
The anterior cingulate cortex (ACC) and orbitofrontal cortex are brain regions involved in decision making processes. A recent neuroimaging study, Interactions between decision making and performance monitoring within prefrontal cortex, found distinctive patterns of neural activation in these regions depending on whether decisions were made on the basis of personal volition or following directions from someone else.
Another recent study by Kennerly, et al. (2006) found that lesions to the ACC in the macaque resulted in impaired decision making in the long run of reinforcement guided tasks suggesting that the ACC is responsible for evaluating past reinforcement information and guiding future action.
Emotion appears to aid the decision-making process:
Decision making often occurs in the face of uncertainty about whether one's choices will lead to benefit or harm. The somatic-marker hypothesis is a neurobiological theory of how decisions are made in the face of uncertain outcome. This theory holds that such decisions are aided by emotions, in the form of bodily states, that are elicited during the deliberation of future consequences and that mark different options for behavior as being advantageous or disadvantageous. This process involves an interplay between neural systems that elicit emotional/bodily states and neural systems that map these emotional/bodily states. [1]
Decision making in groups
Decision making in groups is sometimes examined separately as process and outcome. Process refers to the group interactions. Some relevant ideas include coalitions among participants as well as influence and persuasion. The use of politics is often judged negatively, but it is a useful way to approach problems when preferences among actors are in conflict, when dependencies exist that cannot be avoided, when there are no super-ordinate authorities, and when the technical or scientific merit of the options is ambiguous.
In addition to the different processes involved in making decisions, group decision support systems (GDSS) may have different decision rules. A decision rule is the GDSS protocol a group uses to choose among scenario planning alternatives.
Unanimity is commonly used by juries in criminal trials in the United States. Unanimity requires everyone to agree on a given course of action, and thus imposes a high bar for action.
Majority requires support from more than 50% of the members of the group. Thus, the bar for action is lower than with unanimity and a group of "losers" is implicit to this rule.
Range voting allows a group to select one option from a set by letting each member score one or more of the available options. The option with the highest average is chosen. This method has experimentally been shown to produce the lowest Bayesian regret among common voting methods, even when voters are strategic.
Consensus decision-making tries to avoid "winners" and "losers". Consensus requires that a majority approve a given course of action, but that the minority agree to go along with the course of action. In other words, if the minority opposes the course of action, consensus requires that the course of action be modified to remove objectionable features.
Gathering involves all participants acknowledging each other's needs and opinions and tends towards a problem solving approach in which as many needs and opinions as possible can be satisfied. It allows for multiple outcomes and does not require agreement from some for others to act.
Sub-committee involves assigning responsibility for evaluation of a decision to a sub-set of a larger group, which then comes back to the larger group with recommendations for action. Using a sub-committee is more common in larger governance groups, such as a legislature. Sometimes a sub-committee includes those individuals most affected by a decision, although at other times it is useful for the larger group to have a sub-committee that involves more neutral participants.
Less desirable group decision rules are:
Plurality, where the largest block in a group decides, even if it falls short of a majority.
Dictatorship, where one individual determines the course of action.
See also: groupthink
Plurality and dictatorship are less desirable as decision rules because they do not require the involvement of the broader group to determine a choice. Thus, they do not engender commitment to the course of action chosen. An absence of commitment from individuals in the group can be problematic during the implementation phase of a decision.
There are no perfect decision making rules. Depending on how the rules are implemented in practice and the situation, all of these can lead to situations where either no decision is made, or to situations where decisions made are inconsistent with one another over time.
Principles
The ethical principles of decision making vary considerably. Some common choices of principles and the methods which seem to match them include:
the most powerful person/group decides
method: dictatorship or oligarchy
everyone participates in a certain class of meta-decisions
method: parliamentary democracy
everyone participates in every decision
direct democracy, consensus decision making
There are many decision making levels having a participation element. A common example is that of institutions making decisions that affect those for whom they provide. In such cases an understanding of what participation level is involved becomes crucial to understand the process and power structures dynamics.
Decision making in one's personal life
Some of the decision making techniques that we use in everyday life include:
listing the advantages and disadvantages of each option, popularized by Benjamin Franklin
flipping a coin, cutting a deck of playing cards, and other random or coincidence methods
accepting the first option that seems like it might achieve the desired result
prayer, tarot cards, astrology, augurs, revelation, or other forms of divination
acquiesce to a person in authority or an "expert"
Calculating the expected value for each option. For example, a person is considering two jobs. At the first job option the person has a 60% chance of getting a 30% percent raise in the first year. And at the second job option the person has a 80% chance of getting a 10% raise in the first year. The decision maker would calculate the expected value of each option, calculating the probability multiplied by the increase of value. (0.60*0.30=0.18 [option a] 0.80*0.10=0.08 [option b]) The person deciding on the job would chose the option with the highest expected value, in this example option a.
An alternative may be to apply one of the processes described below, in particular in the Business and Management section.
Decision making in healthcare
In the health care field, the steps of making a decision may be remembered with the mnemonic BRAND, which includes
Benefits of the action
Risks in the action
Alternatives to the prospective action
Nothing: that is, doing nothing at all
Decision
Decision making models
"Economic men and women" is a mathematical model used for human behavior. This model is used to describe three things:
Decision makers are informed on all possible options for their decisions and know of all possible outcomes
Decision makers are infinitely sensitive to the small distinctions among their different options. They are capable of knowing all the differences between their options, regardless of how small they are.
Decision makers are rational in their choices. They are capable of making a choice to maximize or increase value.
Subjective expected theory. This is the goal of human action to seek happiness and avoid pain.
Subjective utility. The prospects are based on an individual’s values rather than on objective criteria.
Subjective probability. The prospects are based on an individual’s estimates of likelihood rather than mathematical equations.
Using the example in Decisions for One’s Personal life, a person would use the subjective expected theory to take into account comfort of the job, how the long hours can affect personal time with family and friends, as well as possible job relocation. This theory also people to take into account the many subjective variables.
Path dependency
Main article: path dependency
It is perhaps pertinent to note that the cost of making no decision at all itself is a factor, and that the benefit of making some decision, even a random choice, can be beneficial in the longer term. Thus the reversibility of an action may be a good way to judge whether or not an action or process is beneficial. A resource can also be viewed as something expendable, or bearing a cost, rather than the implication of selecting something irrevocably.
Even life and death decisions have been priced this way, as in the insurance industry.
Decision making in business and management
In general, business and management systems should be set up to allow decision making at the lowest possible level.
Several decision making models for business include:
SWOT Analysis - Evaluation by the decision making individual or organization of Strengths, Weaknesses, Opportunities and Threats with respect to desired end state or objective.
Analytic Hierarchy Process - procedure for multi-level goal hierarchy
Buyer decision processes - transaction before, during, and after a purchase
Complex systems - common behavioural and structural features that can be modelled
Corporate finance:
The investment decision
The financing decision
The dividend decision
working capital management decisions
Cost-benefit analysis - process of weighing the total expected costs vs. the total expected benefits
Decision trees
Program Evaluation and Review Technique (PERT)
critical path analysis
critical chain analysis
Force field analysis - analizing forces that either drive or hinder movement toward a goal
Grid Analysis - analysis done by compairing the weighted averages of ranked criteria to options. A way of comparing both objective and subjective data.
Linear programming - optimization problems in which the objective function and the constraints are all linear
Min-max criterion
Model (economics)- theoretical construct of economic processes of variables and their relationships
Monte Carlo method - class of computational algorithms for simulating systems
Morphological analysis - all possible solutions to a multi-dimensional problem complex
optimization
constrained optimization
Paired Comparison Analysis - paired choice analysis
Pareto Analysis - selection of a limited of number of tasks that produce significant overall effect
Satisficing - In decision-making, satisficing explains the tendency to select the first option that meets a given need or select the option that seems to address most needs rather than the “optimal” solution.
Scenario analysis - process of analyzing possible future events
Six Thinking Hats - symbolic process for parallel thinking
Strategic planning process - applying the objectives, SWOTs, strategies, programs process
Ubiquitous command and control is a concept for dynamic decision making based on "agreement between an individual and the world", and "agreements between individuals"
Decision-makers and influencers
In the context of industrial goods marketing, there is much theory, and even more opinion, expressed about how the various `decision-makers' and `influencers' (those who can only influence, not decide, the final decision) interact. Decisions are frequently taken by groups, rather than individuals, and the official buyer often does not have authority to take the decision.
Miller & Heiman, for example, offered a more complex view of industrial buying decisions (particularly in the area of `complex sales' of capital equipment). They see three levels of decision making:
'Economic buying influence' - the decision-maker who can authorize the necessary funds for purchase
'User buying influences' - the people in the buying company who will use the product and will specify what they want to purchase
'Technical buying influence' - the `experts' (including, typically, the buying department) who can veto the purchase on technical grounds
Webster and Wind, in a similar vein, identify six roles within the `buying centre':
'Users' - who will actually use the product or service
'Influencers' - particularly technical personnel
'Deciders' - the actual decision-makers
'Approvers' - who formally authorize the decision
'Buyers' - the department with formal authority
'Gatekeepers' - those who have the power to stop the sellers reaching other members of the `buying centre'
Styles and methods of decision making
Positional and combinational styles
Styles and methods of decision making were elaborated by the founder of Predispositioning Theory, Aron Katsenelinboigen. In his analysis on styles and methods Katsenelinboigen referred to the game of chess, saying that “chess does disclose various methods of operation, notably the creation of predisposition—methods which may be applicable to other, more complex systems.” [1] In his book Katsenelinboigen states that apart from the methods (reactive and selective) and sub-methods (randomization, predispositioning, programming), there are two major styles – positional and combinational. Both styles are utilized in the game of chess. According to Katsenelinboigen, the two styles reflect two basic approaches to the uncertainty: deterministic (combinational style) and indeterministic (positional style). Katsenelinboigen’s definition of the two styles are the following.
The combinational style is characterized by
a very narrow, clearly defined, primarily material goal, and
a program that links the initial position with the final outcome.
In defining the combinational style in chess, Katsenelinboigen writes:
The combinational style features a clearly formulated limited objective, namely the capture of material (the main constituent element of a chess position). The objective is implemented via a well defined and in some cases in a unique sequence of moves aimed at reaching the set goal. As a rule, this sequence leaves no options for the opponent. Finding a combinational objective allows the player to focus all his energies on efficient execution, that is, the player’s analysis may be limited to the pieces directly partaking in the combination. This approach is the crux of the combination and the combinational style of play. [1]
The positional style is distinguished by
a positional goal and
a formation of semi-complete linkages between the initial step and final outcome.
“Unlike the combinational player, the positional player is occupied, first and foremost, with the elaboration of the position that will allow him to develop in the unknown future. In playing the positional style, the player must evaluate relational and material parameters as independent variables. (… )The positional style gives the player the opportunity to develop a position until it becomes pregnant with a combination. However, the combination is not the final goal of the positional player—it helps him to achieve the desirable, keeping in mind a predisposition for the future development. The Pyrrhic victory is the best example of one’s inability to think positionally.” [2]
The positional style serves to
a) create a predisposition to the future development of the position;b) induce the environment in a certain way;c) absorb an unexpected outcome in one’s favor;d) avoid the negative aspects of unexpected outcomes.
The positional style gives the player the opportunity to develop a position until it becomes pregnant with a combination. Katsenelinboigen writes:“As the game progressed and defense became more sophisticated the combinational style of play declined. . . . The positional style of chess does not eliminate the combinational one with its attempt to see the entire program of action in advance. The positional style merely prepares the transformation to a combination when the latter becomes feasible.” [3]
References
Katsenelinboigen, Aron. The Concept of Indeterminism and Its Applications: Economics, Social Systems, Ethics, Artificial Intelligence, and Aesthetics Praeger: Westport, Connecticut, 1997, p.6)
Ulea, The Concept of Dramatic Genre and The Comedy of A New Type. Chess, Literature, and Film. Southern Illinois University Press, 2002, p.p.17-18])
Selected Topics in Indeterministic Systems Intersystems Publications: California, 1989, p. 21
R. B. Miller and S. E. Heiman, 'Strategic Selling ' (Kogan Page, 1989)
F. E. Webster and Y. Wind, 'Organizational Buying Behavior ' (Prentice-Hall, 1972)
D. Mercer, ‘Marketing’ (Blackwell, 1996)
S. Plous The Psychology of Judgement and Decision Making, (Mcgraw-Hill, 1993
Decision Making
Decision making, also referred to as problem solving, is the process of recognizing a problem or opportunity and finding a solution to it. Decisions are made by everyone involved in the business world, but managers typically face the most decisions on a daily basis. Many of these decisions are relatively simple and routine, such as ordering production supplies, choosing the discount rate for an order, or deciding the annual raise of an employee. These routine types of decisions are known as programmed decisions, because the decision maker already knows what the solution and outcome will be. However, managers are also faced with decisions that can drastically affect the future outcomes of the business. These types of decisions are known as nonprogrammed decisions, because neither the appropriate solution nor the potential outcome is known. Examples of nonprogrammed decisions include merging with another company, creating a newproduct, or expanding production facilities.
Decision making typically follows a six-step process:
Identify the problem or opportunity
Gather relevant information
Develop as many alternatives as possible
Evaluate alternatives to decide which is best
Decide on and implement the best alternative
Follow-up on the decision
In step 1, the decision maker must be sure he or she has an accurate grasp of the situation. The need to make a decision has occurred because there is a difference between the desired outcome and what is actually occurring. Before proceeding to step 2, it is important to pinpoint the actual cause of the situation, which may not always be obviously apparent.
In step 2, the decision maker gathers as much information as possible because having all the facts gives the decision maker a much better chance of making the appropriate decision. When an uninformed decision is made, the outcome is usually not very positive, so it is important to have all the facts before proceeding.
In step 3, the decision maker attempts to come up with as many alternatives as possible. A technique known as "brainstorming," whereby group members offer any and all ideas even if they sound totally ridiculous, is often used in this step.
In step 4, the alternatives are evaluated and the best one is selected. The process of evaluating the alternatives usually starts by narrowing the choices down to two or three and then choosing the best one. This step is usually the most difficult, because there are often many variables to consider. The decision maker must attempt to select the alternative that will be the most effective given the available amount of information, the legal obstacles, the public relations issues, the financial implications, and the time constraints on making the decision. Often the decision maker is faced with a problem for which there is no apparent good solution at the moment. When this happens, the decision maker must make the best choice available at the time but continue to look for a better option in the future.
Once the decision has been made, step 5 is performed. Implementation often requires some additional planning time as well as the understanding and cooperation of the people involved. Communication is very important in the implementation step, because most people are resistant to change simply because they do not understand why it is necessary. In order to ensure smooth implementation of the decision, the decision maker should communicate the reasons behind the decision to the people involved.
In step 6, after the decision has been implemented, the decision maker must follow-up on the decision to see if it is working successfully. If the decision that was implemented has corrected the difference between the actual and desired outcome, the decision is considered successful. However, if the implemented decision has not produced the desired result, once again a decision must be made. The decision maker can decide to give the decision more time to work, choose another of the generated alternatives, or start the whole process over from the beginning.
Strategic, Tactical, and Operational Decisions
People at different levels in a company have different types of decision-making responsibilities. Strategic decisions, which affect the long-term direction of the entire company, are typically made by top managers. Examples of strategic decisions might be to focus efforts on a newproduct or to increase production output. These types of decisions are often complex and the outcomes uncertain, because available information is often limited. Managers at this level must often depend on past experiences and their instincts when making strategic decisions.
Tactical decisions, which focus on more intermediate-term issues, are typically made by middle managers. The purpose of decisions made at this level is to help move the company closer to reaching the strategic goal. Examples of tactical decisions might be to pick an advertising agency to promote a newproduct or to provide an incentive plan to employees to encourage increased production.
Operational decisions focus on day-to-day activities within the company and are typically made by lower-level managers. Decisions made at this level help to ensure that daily activities proceed smoothly and therefore help to move the company toward reaching the strategic goal. Examples of operational decisions include scheduling employees, handling employee conflicts, and purchasing rawmaterials needed for production.
It should be noted that in many "flatter" organizations, where the middle management level has been eliminated, both tactical and operational decisions are made by lower-level management and/or teams of employees.
Group Decisions
Group decision making has many benefits as well as some disadvantages. The obvious benefit is that there is more input and therefore more possible solutions to the situation can be generated.
Another advantage is that there is shared responsibility for the decision and its outcome, so one person does not have total responsibility for making a decision. The disadvantages are that it often takes a long time to reach a group consen sus and that group members may have to com promise in order to reach a consensus. Many businesses have created problem-solving teams whose purpose is to find ways to improve specific work activities.
Bibliography
Boone, Louis E., and Kurtz, David L. (1999). Contemporary Business, 9th ed. Orlando, FL: Harcourt Brace College Publishers.
Bounds, Gregory M., and Lamb, Charles W., Jr. (1998). Business. Cincinnati, OH: South-Western College Publishing.
Clancy, Kevin J., and Shulman, Robert S. (1994). Marketing Myths That are Killing Business: The Cure for Death Wish Marketing. New York: McGraw-Hill.
French, Wendell L. (1998). Human Resources Management. New York: Houghton Mifflin.
Madura, Jeff. (1998). Introduction to Business. Cincinnati, OH: South-Western College Publishing.
Nickels, William G., McHugh, James M., and McHugh, Susan M. (1999). Understanding Business, 5th ed. Boston: Irwin McGraw-Hill.
Pride, William M., Hughes, Robert J., and Kapoor, Jack R. (1999). Business, 6th ed. New York: Houghton Mifflin.
Decision making is the cognitive process leading to the selection of a course of action among alternatives. Every decision making process produces a final choice. It can be an action or an opinion. It begins when we need to do something but we do not know what. Therefore, decision making is a reasoning process which can be rational or irrational, and can be based on explicit assumptions or tacit assumptions.
Common examples include shopping, deciding what to eat, when to sleep, and deciding whom or what to vote for in an election or referendum.
Decision making is said to be a psychological construct. This means that although we can never "see" a decision, we can infer from observable behaviour that a decision has been made. Therefore, we conclude that a psychological event that we call "decision making" has occurred. It is a construction that imputes commitment to action. That is, based on observable actions, we assume that people have made a commitment to affect the action.
Structured rational decision making is an important part of all science-based professions, where specialists apply their knowledge in a given area to making informed decisions. For example, medical decision making often involves making a diagnosis and selecting an appropriate treatment. Some research using naturalistic methods shows, however, that in situations with higher time pressure, higher stakes, or increased ambiguities, experts use intuitive decision making rather than structured approaches, following a recognition primed decision approach to fit a set of indicators into the expert's experience and immediately arrive at a satisfactory course of action without weighing alternatives.
Due to the large number of considerations involved in many decisions, computer-based decision support systems have been developed to assist decision makers in considering the implications of various courses of thinking. They can help reduce the risk of human errors.
Decision making style
According to behavioralist Isabel Briggs Myers (1962), a person's decision making process depends to a significant degree on their cognitive style. Starting from the work of Carl Jung, Myers developed a set of four bi-polar dimensions, called the Myers-Briggs Type Indicator (MBTI). The terminal points on these dimensions are: thinking and feeling; extroversion and introversion; judgement and perception; and sensing and intuition. She claimed that a person's decision making style is based largely on how they score on these four dimensions. For example, someone that scored near the thinking, extroversion, sensing, and judgement ends of the dimensions would tend to have a logical, analytical, objective, critical, and empirical decision making style.
Cognitive and personal biases in decision making
It is generally agreed that biases can creep into our decision making processes, calling into question the correctness of a decision. It is not generally agreed, however, which normative models are to be used to evaluate what constitutes an erroneous decision. Nor is the scientific evidence for all of the biases agreed upon. So, while it is agreed that decision making can be biased, how to tell when it is, and specific cases of biases, are often challenged. The issue in general can be quite controversial among scholars in the field. Below is a list of some of the more commonly debated cognitive biases.
Selective search for evidence(a.k.a Comfirmation Bias in psychology)(Plous, 1993) - We tend to be willing to gather facts that support certain conclusions but disregard other facts that support different conclusions.
Premature termination of search for evidence - We tend to accept the first alternative that looks like it might work.
Inertia - Unwillingness to change thought patterns that we have used in the past in the face of new circumstances.
Contrariness or rebelliousness - Unwillingness to share a view with a perceived oppressive authority.
Experiential limitations - Unwillingness or inability to look beyond the scope of our past experiences; rejection of the unfamiliar.
Selective perception - We actively screen-out information that we do not think is salient. (See prejudice.)
Wishful thinking or optimism - We tend to want to see things in a positive light and this can distort our perception and thinking.
Choice-supportive bias occurs when we distort our memories of chosen and rejected options to make the chosen options seem relatively more attractive.
Recency - We tend to place more attention on more recent information and either ignore or forget more distant information. (See semantic priming.)The opposite effect in the first set of data or other information is termed Primacy effect (Plouse, 1993)
Repetition bias - A willingness to believe what we have been told most often and by the greatest number of different of sources.
Anchoring and adjustment - Decisions are unduly influenced by initial information that shapes our view of subsequent information.
Group think - Peer pressure to conform to the opinions held by the group.
Source credibility bias - We reject something if we have a bias against the person, organization, or group to which the person belongs: We are inclined to accept a statement by someone we like. (See prejudice.)
Incremental decision making and escalating commitment - We look at a decision as a small step in a process and this tends to perpetuate a series of similar decisions. This can be contrasted with zero-based decision making. (See slippery slope.)
Inconsistency - The unwillingness to apply the same decision criteria in similar situations.
Attribution asymmetry - We tend to attribute our success to our abilities and talents, but we attribute our failures to bad luck and external factors. We attribute other's success to good luck, and their failures to their mistakes.
Role fulfillment(Self Fulfilling Prophecy) - We conform to the decision making expectations that others have of someone in our position.
Underestimating uncertainty and the illusion of control - We tend to underestimate future uncertainty because we tend to believe we have more control over events than we really do. We believe we have control to minimize potential problems in our decisions.
Faulty generalizations - In order to simplify an extremely complex world, we tend to group things and people. These simplifying generalizations can bias decision making processes.
Ascription of causality - We tend to ascribe causation even when the evidence only suggests correlation. Just because birds fly to the equatorial regions when the trees lose their leaves, does not mean that the birds migrate because the trees lose their leaves.
For an explanation of the logical processes behind some of these biases, see logical fallacy.
Cognitive neuroscience of decision making
The anterior cingulate cortex (ACC) and orbitofrontal cortex are brain regions involved in decision making processes. A recent neuroimaging study, Interactions between decision making and performance monitoring within prefrontal cortex, found distinctive patterns of neural activation in these regions depending on whether decisions were made on the basis of personal volition or following directions from someone else.
Another recent study by Kennerly, et al. (2006) found that lesions to the ACC in the macaque resulted in impaired decision making in the long run of reinforcement guided tasks suggesting that the ACC is responsible for evaluating past reinforcement information and guiding future action.
Emotion appears to aid the decision-making process:
Decision making often occurs in the face of uncertainty about whether one's choices will lead to benefit or harm. The somatic-marker hypothesis is a neurobiological theory of how decisions are made in the face of uncertain outcome. This theory holds that such decisions are aided by emotions, in the form of bodily states, that are elicited during the deliberation of future consequences and that mark different options for behavior as being advantageous or disadvantageous. This process involves an interplay between neural systems that elicit emotional/bodily states and neural systems that map these emotional/bodily states. [1]
Decision making in groups
Decision making in groups is sometimes examined separately as process and outcome. Process refers to the group interactions. Some relevant ideas include coalitions among participants as well as influence and persuasion. The use of politics is often judged negatively, but it is a useful way to approach problems when preferences among actors are in conflict, when dependencies exist that cannot be avoided, when there are no super-ordinate authorities, and when the technical or scientific merit of the options is ambiguous.
In addition to the different processes involved in making decisions, group decision support systems (GDSS) may have different decision rules. A decision rule is the GDSS protocol a group uses to choose among scenario planning alternatives.
Unanimity is commonly used by juries in criminal trials in the United States. Unanimity requires everyone to agree on a given course of action, and thus imposes a high bar for action.
Majority requires support from more than 50% of the members of the group. Thus, the bar for action is lower than with unanimity and a group of "losers" is implicit to this rule.
Range voting allows a group to select one option from a set by letting each member score one or more of the available options. The option with the highest average is chosen. This method has experimentally been shown to produce the lowest Bayesian regret among common voting methods, even when voters are strategic.
Consensus decision-making tries to avoid "winners" and "losers". Consensus requires that a majority approve a given course of action, but that the minority agree to go along with the course of action. In other words, if the minority opposes the course of action, consensus requires that the course of action be modified to remove objectionable features.
Gathering involves all participants acknowledging each other's needs and opinions and tends towards a problem solving approach in which as many needs and opinions as possible can be satisfied. It allows for multiple outcomes and does not require agreement from some for others to act.
Sub-committee involves assigning responsibility for evaluation of a decision to a sub-set of a larger group, which then comes back to the larger group with recommendations for action. Using a sub-committee is more common in larger governance groups, such as a legislature. Sometimes a sub-committee includes those individuals most affected by a decision, although at other times it is useful for the larger group to have a sub-committee that involves more neutral participants.
Less desirable group decision rules are:
Plurality, where the largest block in a group decides, even if it falls short of a majority.
Dictatorship, where one individual determines the course of action.
See also: groupthink
Plurality and dictatorship are less desirable as decision rules because they do not require the involvement of the broader group to determine a choice. Thus, they do not engender commitment to the course of action chosen. An absence of commitment from individuals in the group can be problematic during the implementation phase of a decision.
There are no perfect decision making rules. Depending on how the rules are implemented in practice and the situation, all of these can lead to situations where either no decision is made, or to situations where decisions made are inconsistent with one another over time.
Principles
The ethical principles of decision making vary considerably. Some common choices of principles and the methods which seem to match them include:
the most powerful person/group decides
method: dictatorship or oligarchy
everyone participates in a certain class of meta-decisions
method: parliamentary democracy
everyone participates in every decision
direct democracy, consensus decision making
There are many decision making levels having a participation element. A common example is that of institutions making decisions that affect those for whom they provide. In such cases an understanding of what participation level is involved becomes crucial to understand the process and power structures dynamics.
Decision making in one's personal life
Some of the decision making techniques that we use in everyday life include:
listing the advantages and disadvantages of each option, popularized by Benjamin Franklin
flipping a coin, cutting a deck of playing cards, and other random or coincidence methods
accepting the first option that seems like it might achieve the desired result
prayer, tarot cards, astrology, augurs, revelation, or other forms of divination
acquiesce to a person in authority or an "expert"
Calculating the expected value for each option. For example, a person is considering two jobs. At the first job option the person has a 60% chance of getting a 30% percent raise in the first year. And at the second job option the person has a 80% chance of getting a 10% raise in the first year. The decision maker would calculate the expected value of each option, calculating the probability multiplied by the increase of value. (0.60*0.30=0.18 [option a] 0.80*0.10=0.08 [option b]) The person deciding on the job would chose the option with the highest expected value, in this example option a.
An alternative may be to apply one of the processes described below, in particular in the Business and Management section.
Decision making in healthcare
In the health care field, the steps of making a decision may be remembered with the mnemonic BRAND, which includes
Benefits of the action
Risks in the action
Alternatives to the prospective action
Nothing: that is, doing nothing at all
Decision
Decision making models
"Economic men and women" is a mathematical model used for human behavior. This model is used to describe three things:
Decision makers are informed on all possible options for their decisions and know of all possible outcomes
Decision makers are infinitely sensitive to the small distinctions among their different options. They are capable of knowing all the differences between their options, regardless of how small they are.
Decision makers are rational in their choices. They are capable of making a choice to maximize or increase value.
Subjective expected theory. This is the goal of human action to seek happiness and avoid pain.
Subjective utility. The prospects are based on an individual’s values rather than on objective criteria.
Subjective probability. The prospects are based on an individual’s estimates of likelihood rather than mathematical equations.
Using the example in Decisions for One’s Personal life, a person would use the subjective expected theory to take into account comfort of the job, how the long hours can affect personal time with family and friends, as well as possible job relocation. This theory also people to take into account the many subjective variables.
Path dependency
Main article: path dependency
It is perhaps pertinent to note that the cost of making no decision at all itself is a factor, and that the benefit of making some decision, even a random choice, can be beneficial in the longer term. Thus the reversibility of an action may be a good way to judge whether or not an action or process is beneficial. A resource can also be viewed as something expendable, or bearing a cost, rather than the implication of selecting something irrevocably.
Even life and death decisions have been priced this way, as in the insurance industry.
Decision making in business and management
In general, business and management systems should be set up to allow decision making at the lowest possible level.
Several decision making models for business include:
SWOT Analysis - Evaluation by the decision making individual or organization of Strengths, Weaknesses, Opportunities and Threats with respect to desired end state or objective.
Analytic Hierarchy Process - procedure for multi-level goal hierarchy
Buyer decision processes - transaction before, during, and after a purchase
Complex systems - common behavioural and structural features that can be modelled
Corporate finance:
The investment decision
The financing decision
The dividend decision
working capital management decisions
Cost-benefit analysis - process of weighing the total expected costs vs. the total expected benefits
Decision trees
Program Evaluation and Review Technique (PERT)
critical path analysis
critical chain analysis
Force field analysis - analizing forces that either drive or hinder movement toward a goal
Grid Analysis - analysis done by compairing the weighted averages of ranked criteria to options. A way of comparing both objective and subjective data.
Linear programming - optimization problems in which the objective function and the constraints are all linear
Min-max criterion
Model (economics)- theoretical construct of economic processes of variables and their relationships
Monte Carlo method - class of computational algorithms for simulating systems
Morphological analysis - all possible solutions to a multi-dimensional problem complex
optimization
constrained optimization
Paired Comparison Analysis - paired choice analysis
Pareto Analysis - selection of a limited of number of tasks that produce significant overall effect
Satisficing - In decision-making, satisficing explains the tendency to select the first option that meets a given need or select the option that seems to address most needs rather than the “optimal” solution.
Scenario analysis - process of analyzing possible future events
Six Thinking Hats - symbolic process for parallel thinking
Strategic planning process - applying the objectives, SWOTs, strategies, programs process
Ubiquitous command and control is a concept for dynamic decision making based on "agreement between an individual and the world", and "agreements between individuals"
Decision-makers and influencers
In the context of industrial goods marketing, there is much theory, and even more opinion, expressed about how the various `decision-makers' and `influencers' (those who can only influence, not decide, the final decision) interact. Decisions are frequently taken by groups, rather than individuals, and the official buyer often does not have authority to take the decision.
Miller & Heiman, for example, offered a more complex view of industrial buying decisions (particularly in the area of `complex sales' of capital equipment). They see three levels of decision making:
'Economic buying influence' - the decision-maker who can authorize the necessary funds for purchase
'User buying influences' - the people in the buying company who will use the product and will specify what they want to purchase
'Technical buying influence' - the `experts' (including, typically, the buying department) who can veto the purchase on technical grounds
Webster and Wind, in a similar vein, identify six roles within the `buying centre':
'Users' - who will actually use the product or service
'Influencers' - particularly technical personnel
'Deciders' - the actual decision-makers
'Approvers' - who formally authorize the decision
'Buyers' - the department with formal authority
'Gatekeepers' - those who have the power to stop the sellers reaching other members of the `buying centre'
Styles and methods of decision making
Positional and combinational styles
Styles and methods of decision making were elaborated by the founder of Predispositioning Theory, Aron Katsenelinboigen. In his analysis on styles and methods Katsenelinboigen referred to the game of chess, saying that “chess does disclose various methods of operation, notably the creation of predisposition—methods which may be applicable to other, more complex systems.” [1] In his book Katsenelinboigen states that apart from the methods (reactive and selective) and sub-methods (randomization, predispositioning, programming), there are two major styles – positional and combinational. Both styles are utilized in the game of chess. According to Katsenelinboigen, the two styles reflect two basic approaches to the uncertainty: deterministic (combinational style) and indeterministic (positional style). Katsenelinboigen’s definition of the two styles are the following.
The combinational style is characterized by
a very narrow, clearly defined, primarily material goal, and
a program that links the initial position with the final outcome.
In defining the combinational style in chess, Katsenelinboigen writes:
The combinational style features a clearly formulated limited objective, namely the capture of material (the main constituent element of a chess position). The objective is implemented via a well defined and in some cases in a unique sequence of moves aimed at reaching the set goal. As a rule, this sequence leaves no options for the opponent. Finding a combinational objective allows the player to focus all his energies on efficient execution, that is, the player’s analysis may be limited to the pieces directly partaking in the combination. This approach is the crux of the combination and the combinational style of play. [1]
The positional style is distinguished by
a positional goal and
a formation of semi-complete linkages between the initial step and final outcome.
“Unlike the combinational player, the positional player is occupied, first and foremost, with the elaboration of the position that will allow him to develop in the unknown future. In playing the positional style, the player must evaluate relational and material parameters as independent variables. (… )The positional style gives the player the opportunity to develop a position until it becomes pregnant with a combination. However, the combination is not the final goal of the positional player—it helps him to achieve the desirable, keeping in mind a predisposition for the future development. The Pyrrhic victory is the best example of one’s inability to think positionally.” [2]
The positional style serves to
a) create a predisposition to the future development of the position;b) induce the environment in a certain way;c) absorb an unexpected outcome in one’s favor;d) avoid the negative aspects of unexpected outcomes.
The positional style gives the player the opportunity to develop a position until it becomes pregnant with a combination. Katsenelinboigen writes:“As the game progressed and defense became more sophisticated the combinational style of play declined. . . . The positional style of chess does not eliminate the combinational one with its attempt to see the entire program of action in advance. The positional style merely prepares the transformation to a combination when the latter becomes feasible.” [3]
References
Katsenelinboigen, Aron. The Concept of Indeterminism and Its Applications: Economics, Social Systems, Ethics, Artificial Intelligence, and Aesthetics Praeger: Westport, Connecticut, 1997, p.6)
Ulea, The Concept of Dramatic Genre and The Comedy of A New Type. Chess, Literature, and Film. Southern Illinois University Press, 2002, p.p.17-18])
Selected Topics in Indeterministic Systems Intersystems Publications: California, 1989, p. 21
R. B. Miller and S. E. Heiman, 'Strategic Selling ' (Kogan Page, 1989)
F. E. Webster and Y. Wind, 'Organizational Buying Behavior ' (Prentice-Hall, 1972)
D. Mercer, ‘Marketing’ (Blackwell, 1996)
S. Plous The Psychology of Judgement and Decision Making, (Mcgraw-Hill, 1993
posted by mwesigye herbert at 11:09 AM
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