Decision Making In Business

Decision Making

Decision making is defined as the selection of a course of action from among alternatives; it is at the core of planning. A plan cannot be said to exist unless a decisionвЂ"a commitment of resources, direction, or reputationвЂ"has been made. Until that point, there are only P1anning studies and analyses. Managers sometimes see decision making: as their central job because they must constantly choose what is to be done, who Is to do it, and when, where, and occasionally even how it will be done. Decision making is, however, only a step in planning. Even when It is done quickly and with little thought or when it Influences action for only a few minutes, it Is part of planning. It is also part of everyone’s daily life. A course of action can seldom be judged alone because virtually every decision must be geared to other plans.

The Importance and Limitations of Rational Decision Making

In the discussion of the steps in planning In Chapter 4, decision making was considered a major part of planning. As a matter of fact, given an awareness of an opportunity and a goal, the decision-making process is really the core of planning. Thus, in t1is context, the process leading to making a decision might be thought of as (1) premising, (2) identifying alternatives, (3) evaluating alternatives in terms of the goal sought, and (4) choosing an alternative, that is, making a decision.

Although this chapter emphasizes the logic and techniques of choosing a course of action, the discussion will show that decision making is really one of the steps in planning.

Rationality in Decision Making

It is frequently said that effective decision making must be rational. But what is rationality? When is a person thinking or deciding rationally? People acting or deciding rationally are attempting to reach some goal that cannot be attained without action they must have a clear understanding of alternative courses by which a goal can be reached under existing circumstances and limitations. They also must have the information and the ability to analyze and evaluate alternatives in light of the goal sought. Finally, they must have a desire to come to the best solution by selecting (1w alternative that most effectively satisfies goal achievement.

People seldom achieve complete rationality, particularly in managing.’ In the first place, since no one can make decisions affecting the past, decisions must operate for the future, and the future almost invariably involves uncertainties In the second place, it is difficult to recognize all the alternatives that might be followed to reach a goal; this Is particularly true when decision making Involves doing something that has not been done before. Moreover, in most instances, not au alternatives can be analyzed, even with the newest analytical techniques and computers available.

Limited, or “Bounded,” Rationality

A manager must settle for limited or bounded rationality In other words, limitations of information, time, and certainty limit rationally even it a manager tries earnestly to be completely rational Since managers cannot be completely rational In practice, they sometimes allow their dislike of riskвЂ"their desire to “play It safe”вЂ"to Interfere with the desire to reach the best solution under the circumstances. Herbert & Simon called this satisfying, that is picking a course of action that is satisfactory or good enough under the circumstances Although many managerial decisions are made with a desire to “get by” as safely as possible most managers do attempt to make the best decisions they can within the limits of rationality and in light of the degree and nature of the risks involved.

We will now consider the steps of the decisionвЂ"making process in detail.

Development of Alternatives and the Limiting Factor

Assuming that we know what our goals arc and agree on clear planning premises, the first step of decision making is to develop alternatives. There are almost always alternatives to any course of action; indeed, if there seems to be only one way of doing a thing that-way is probably wrong. If we can think of only one course of action, clearly we have not thought hard enough.

The ability to develop alternatives is often as important as being able to select correctly from among them On the other hand, ingenuity research and common sense will often unearth so many choices that none of them can be adequately evaluated. The manager needs help in this situation, and this help, as well as assistance in choosing the best alternative is found in the concept of the limiting or strategic lector,

A limiting factor is something that stands In the way of accomplishing a desired objective. Recognizing the limiting factors in a given situation makes it possible to narrow the search for alternatives to those that will overcome the limiting factors. The principle of the limiting factor states that, by recognizing and overcoming those factors that stand critically In the way of a goal, the best alternative course of action can be selected.

The Decision to Speed up the Decision-making Process at Granite Rock Co

The Granite Rock Company is a Watsonville, California, company that produces rocks, sand, gravel aggregates, and a variety of other products. The company was the 1992 winner of the much-coveted Malcolm Baldrige award, which recognizes outstanding performance in quality improvement.

Established in 1900, the company’s focus was on the “bottom line.” Employees knew It. and so did customers, who also felt that It was an Inflexible, centralized, bureaucratic firm. Bruce Woolpert, the company’s president and chief executive, recognized that it took too long to make decisions; indeed, it was felt that bureaucracy was killing the company. That started to change with the 1986 decision to turn the, organization chart upside down. Traditional organization charts show the president at the top and the customer contact people at the bottom. The change put the customers In. charge and on top. Three things turned the company around. First, all its employees discussed the current operation, and It was decided that special requests from customers would be granted, with the exception of illegal or immoral requests. Second,