Management Decision-Making

Decision-making can be defined as the process of selecting the most appropriate course of action from various alternatives in order to achieve targets and objectives (Anderson et al., 2015). Decision-making constitutes the centre of all managerial functions. Whereas other functions of the managers such as organising, controlling and implementing, depends heavily on the decision-making. According to numerous researches, majority of everyday decisions are made based on intuitions; however, crucial and complex decision cannot be taken based on intuition alone (Aragonés-Beltrán et al., 2014).

In recent times, successful organisations implements rich decision-making process, that is, they not only collect and process data, but also take decisions with the help of state-of-the-art decision methods. Decision-making acts as the foundation of every organisation and thus they must take proper decisions in order to achieve and maintain a competitive advantage.

This report firstly examines the concept of sound decision-making and the factors associated with it. Secondly, it explores the various techniques used in order to ascertain the appropriate course of action. Thirdly, the report deals with a complex process of decision-making in a group and identified the tools and techniques that best suits the decision-making process.

Management Decision-Making:

Irving Janis, in his book ‘Crucial Decisions’ has provided evidence, which proves that a poor quality decision-making process results in undesirable results. He also emphasised that if crucial decisions are taken based on simplistic strategy then it will definitely lead to disastrous outcomes due to gross miscalculations and misconceptions (Bouyssou et al., 2013). Making a decision becomes difficult and complex, when it involves various competing objectives. It can be said that the complexity of a decision depends on the increasing number of objectives. Evidence from researches conducted suggest that it becomes difficult for an individual to take a decision when numerous objectives are involved and therefore it has been recommended to provide some structured methods in order to help them to “think through their choices” (Chai, Liu & Ngai, 2013).

BOGSAT (a bunch of old guys and gals sitting around talking) is the most frequently used decision-making method in recent times. However, there are numerous problems attached with this method though it involves various preparations like gathering information, detailed analysis and others (Eastin et al., 2015). According to Peter Beck, BOGSAT sessions are mostly dominated by leaders and are hardly facilitated. Here the leader leads the group and even if he is wrong, the other group members rarely challenge him (Ferrell & Fraedrich, 2015). However, with changing times, most organisations are abandoning the BOGSAT method and are adapting other effective methods.

Analytic Hierarchy Process (AHP)

Analytic Hierarchy Process (AHP) is a widely successful method that has been formulated after years of researches and studies conducted on decision-making process (Goetsch & Davis, 2014). Thomas Saaty, a world-renowned mathematician, developed Analytic Hierarchy Process in order to help ordinary individuals make complex decisions (Kaner, 2014). It emphasises on the achievement of objectives, which in turn leads to rational decisions. A rationale decision can be defined as one, which best achieves the multiple objectives of the decision maker. It primarily focuses on objectives rather than on criteria, alternatives and attributes (Martinez-Legaz, & Soubeyran, 2016).

Analytic –  can be defined as the function of separating any material or abstract entity into its constituent elements. On the other hand, unlike analysis, synthesis helps in combining or putting together parts into whole.

Hierarchy – L.L.Whyte in his book “Hierarchical Structures”, has defined hierarchy as the most powerful method of categorization adapted by humans for forming an order of entities, experience, information and observations (Monghasemi et al., 2015).

Process – process can be defined as a series of activities, functions or changes that brings about a result or an outcome.

Decision-Making and Problem Solving:

Better problem solving skill not only results in less worry, but it also leads to more successful problem solving. Thomas Kayser, in his book ‘Building Team Power’, suggests six steps for accomplishing successful problem solving. These steps are as follows (Pérez et al., 2014) –

1. Defining and Selecting the Problem – here the problem is viewed as a difference or gap between the current situation (as is) and some future situation (what should be). However, neither the extent of the problem nor its causes are specified. Simple voting tools and Brainstorming is found to be helpful, but other elaborate methods like AHP with objectives such as control, difficulty, importance, time, resources, and return on investment are found to be helpful in prioritizing the conditions(Pettigrew, 2014).
2. Analysing the Problem – this involves identifying, gathering and analysing data in order to confirm the reality of the problem. Here the applications of AHP model and fishbone diagrams are found to be helpful.
3. Generating Potential Solutions – this can be done in numerous ways, which includes research (primary and secondary), brainstorming and design activities. However, here it is always advised to generate two or more potential solutions, rather than a single solution.
4. Selecting and Planning the Solution – the decision regarding the selection of appropriate solution should depend on the achievement of objectives. The use of AHP is found to be instrumental in this case.
5. Implementing the Solution – this step involves underlying decision process such as formulating potential ways to implement a solution and choosing an implementation alternative depending on the achievement of objectives.
6. Evaluating the Solution – this evaluates various aspects related to problem solving such as whether the problem has been effectively solved or not, the reasons behind the failure to solve the problem and the areas that were neglected while undertaking the problem solving process.

Decision-making forms a crucial part of most human endeavours. It is not only connected to problem solving and is related to other managerial functions such as setting a new target or a new standard of performance and others. Most managerial activities such as strategic planning, problem solving and allocation of resources involve one or more components of the decision making process. According to Herbert Simon, the decision-making process can be categorised into three phases (Lunenburg, 2011) –

The Intelligence phase involves the identification of problem or opportunity. This includes a wide variety of functions such as listening to customers, employees, suppliers and others, performing SWOT analysis, brainstorming the differences between the current situation and the future situation and scanning of the environment for enquiring the internal and external databases (Rosemann & vom Brocke, 2015). There are individuals who perceive the current situation as an opportunity rather than a problem; however, this does not affect the operational functions. In addition to this, it is often useful to provide a concise problem statement, that will include the main symptoms of the problem, however, the cause and alternative solution of the problem should not be specified over here.

Decision-Making and Problem Solving

The Design phase involves the identification or structuring of alternative solutions or courses of action for the problem or opportunity. There are various methods to generate alternative solutions, this include

• Brainstorming
• Reviewing the literature
• Conducting research
• Benchmarking both within one’s industry and across industries
• Issuing a request for proposals for alternative solutions

Choice involves selection of one or a combination of alternatives. Choosing or selecting the ‘best’ alternative or a combination of alternatives is perhaps the most difficult part of the decision-making process. Until recently, choice has been made based on intuitions; however, with the development of Analytic Hierarchy Process the scenario has changed. In this step, AHP helps in systematically identifying the best solution from the various alternatives.

The Process of Decision-Making:

Process can be defined as a series of activities, changes and functions that helps in bringing about an end or a result. Decision-making process evolves over time and mostly involves repetition (Solomon, 2014). There are three phases that very well portrays the real world complexities involved in the decision-making process.

Analysis vs. Synthesis – most organisations has managers, technicians and experts assigned at various level of the operational function, who are capable of analysing one or two aspects of a complex decision. However, few organisations or companies are capable of performing a synthesis of all these analysis. An organisation must be able to synthesise in order to make a rational decision that helps in achieving their multiple objectives.

Quantitative vs. Qualitative – all decisions involve both qualitative and quantitative factors such as performance, customer satisfaction, cost and employee morale. Decision-makers must have the capability to synthesis quantitative benefit-cost analysis with their qualitative aspects. This would help them to capitalize on both the information gathered from benefit-cost analysis and their experience and knowledge about the qualitative aspects. Thus, it is extremely important for an organisation to be able to synthesise both quantitative and qualitative factors.

Objectivity vs. Subjectivity – most important decisions involve more than one objective, in such a case the relative importance or value of one or more objectives influences the choice or selection of the best alternative. Moreover, since the relative importances of the objectives are subjective in nature, therefore every important decision can be termed as subjective. According to the creator of Analytic Hierarchy Process, Thomas Saaty, objectivity can be defined as agreed upon subjectivity (Tayal, 2013).

Linear vs. Non-Linear – another aspect of decision-making process that has often been ignored is the need to take into considerations non-linearities. While evaluating various alternatives in order to find the best solution one must consider the utility of each alternative that is related to each objectives. Another important aspect that must be taken into account is that utilities must always be non-linear.

The Process of Decision-Making

Problem Solving as an Individual Employee:

Here I am about to describe a challenging situation that needs to be tackled urgently and in an effective manner. Given below are the steps required in order to assess the problem, the related objectives and to choose the correct alternative that would solve the problem efficiently.

Scenario – I am the manager of a fast food restaurant that is located in a commercial area with lots of offices and industries around it. Hence, the lunch hours are the busiest time of the day when a large number of office goers come in order to have snacks and a light meal. It is during lunch hours that the restaurant makes maximum profit. However, a new fast food restaurant is opening up next to my restaurant. How do I retain my customers and thus prevent financial losses?

1. Defining the Problem – How can I prevent losing my lunchtime customers to this new competitor?
2. Determining Possible Solutions – as a manger of the restaurant it is my responsibility to determine certain possible solutions that will help in the overcoming the challenge faced by my employees and the restaurant as a whole. While determining the various alternatives or course of action, I must choose the most appropriate solution or combination of solutions that will best solve the problem.  Some of the possible solutions can be lowering the prices of the food items, advertising the restaurant, providing special offers and discounts, lunch specials, arranging for some other related entertainments and office and home delivery.
3. Determine Factors to Evaluate Solutions – as the manger of the restaurant that is facing competition and challenges  from a new competitor, the first and most important factor that I must take into consideration is retaining my existing customers, secondly, gaining new customers and thirdly, to expand the existing business. These three factors will help me determining the most appropriate course of actions that will best fulfil the objectives of my restaurant.
4. Examining Each Solution – the most appropriate options that best solves the three challenges faced by the restaurant have been rated accordingly;

Retaining the existing customer: – firstly, lowering the prices of the food items; secondly, providing lunch specials and thirdly, arranging office and home delivery.

Gaining new customers :– here the course of action that must be implemented by the restaurant in order to attract new customers and thus increase their profit margins are as follows, firstly, promoting the restaurant through advertisements; secondly, giving office and home delivery; thirdly, arranging for extra entertainment such as television with sports channel.

To expand the existing business: – this third objective if achieved successfully will help both in retaining the existing customer and in attracting new customers. In addition to this, entering into new ventures will also increase the profit level to a large extent. The alternatives that best accomplish the goal are as follows; firstly, arranging for extra entertainments such as screens with sports channel including indoor games such as billiard and chess. Such an arrangement will provide the customers with the facilities of an restaurant along with sports bar. Secondly, letting people know about this dose of extra entertainment through advertisement; thirdly, along with sports entertainment they can also include new food items in their menu.

1. The Most Appropriate Solution – as mentioned in the previous steps, among the three factors the most important factor or challenge that needs urgent solution is the challenge of retaining the existing customers of the restaurant and thus prevent reduction in the profit margin of the restaurant. Among the three most appropriate solutions, lowering the price of food items will definitely give the restaurant a competitive advantage. This will encourage the customer to choose my restaurant rather than my competitor’s because they will get the same quality and quantity of food in a cheaper price. The second alternative solution is to provide the customers with a special meal or snack in the same price range. The restaurant can also arrange for an elaborate lunch menu on a specific day each week. This will grab the attention of the food lovers, which in turn will increase the sale of the restaurant on that particular day thereby increasing their profit margin. The third alternative depends on the sale and profit of the restaurant, which are directly related with each other. If the sale of the restaurant is high, then the manager can   definitely think of other ways to increase his profit margin. One such way is to provide office and home delivery to customers who are not interested or is not able to come to restaurants for having lunch. This way the restaurant will be able to reach out to a large number of customers sitting at home or offices, which in turn will strengthen the existing business as well as help in gaining new customers.

If the restaurant is successful in overcoming the first challenge, then as a manager I will definitely venture into other areas in order to strengthen the foundation of my business. This can be achieved by entering into new areas and undertaking new ventures. Depending on the profit level, the restaurant can be modified by incorporating some extra entertainments for the customers. It can provide their customers with sports entertainment such as by arranging for indoor sports like chess and billiards and putting up screens presenting various kinds of sports. These innovative techniques will take the business on a larger scale and will provide it with a competitive advantage thus enabling it to overcome greater challenges in the future.

Conclusion:

Thus it can be concluded by saying that decision-making is a crucial aspect of most human endeavors. Decision-making process involves a series of steps or functions.  Various models has been developed by eminent philosophers in order to assess the decision-making process which in turn helps the decision makers to take the appropriate steps in order to solve the problem or challenge in an effective manner. 

References:

Anderson, D. R., Sweeney, D. J., Williams, T. A., Camm, J. D., & Cochran, J. J. (2015). An introduction to management science: quantitative approaches to decision making. Cengage learning.

Aragonés-Beltrán, P., Chaparro-González, F., Pastor-Ferrando, J. P., & Pla-Rubio, A. (2014). An AHP (Analytic Hierarchy Process)/ANP (Analytic Network Process)-based multi-criteria decision approach for the selection of solar-thermal power plant investment projects. Energy, 66, 222-238.

Bouyssou, D., Dubois, D., Prade, H., & Pirlot, M. (Eds.). (2013). Decision Making Process: Concepts and Methods. John Wiley & Sons.

Chai, J., Liu, J. N., & Ngai, E. W. (2013). Application of decision-making techniques in supplier selection: A systematic review of literature. Expert Systems with Applications, 40(10), 3872-3885.

Eastin, M. S., Kahlor, L. A., Liang, M. C., & Abi Ghannam, N. (2015). Information?Seeking as a Precaution Behavior: Exploring the Role of Decision?Making Stages. Human Communication Research, 41(4), 603-621.

Ferrell, O. C., & Fraedrich, J. (2015). Business ethics: Ethical decision making & cases. Nelson Education.

Goetsch, D. L., & Davis, S. B. (2014). Quality management for organizational excellence. Upper Saddle River, NJ: pearson.

Kaner, S. (2014). Facilitator’s guide to participatory decision-making. John Wiley & Sons.

Lunenburg, F. C. (2011). Decision making in organizations. International journal of management, business and administration, 15(1), 1-9.

Martinez-Legaz, J. E., & Soubeyran, A. (2016). Convergence in a sequential two stages decision making process. Bulletin of the Iranian Mathematical Society, 42, 25-29.

Monghasemi, S., Nikoo, M. R., Fasaee, M. A. K., & Adamowski, J. (2015). A novel multi criteria decision making model for optimizing time–cost–quality trade-off problems in construction projects. Expert systems with applications, 42(6), 3089-3104.

Pérez, I. J., Cabrerizo, F. J., Alonso, S., & Herrera-Viedma, E. (2014). A new consensus model for group decision making problems with non-homogeneous experts. IEEE Transactions on Systems, Man, and Cybernetics: Systems, 44(4), 494-498.

Pettigrew, A. M. (2014). The politics of organizational decision-making. Routledge.

Rosemann, M., & vom Brocke, J. (2015). The six core elements of business process management. In Handbook on business process management 1 (pp. 105-122). Springer Berlin Heidelberg.

Solomon, M. R. (2014). Consumer behavior: Buying, having, and being (Vol. 10). Engelwood Cliffs, NJ: Prentice Hall.

Tayal, S. P. (2013). Engineering design process. International Journal of Computer Science and Communication Engineering, 1-5.