Elements of Decision making

Elements of Decision making

One of the important tasks of an executive is the decision making. It generally takes a small fraction of his time. Nevertheless the decision making is a very important aspect of his work since the decisions he makes by virtue of his position, knowledge or experience have significant impact on the entire organization, its performance, and the results. Hence, executives to be effective are to make wise decisions. They are to make the decisions as a systematic process with clearly defined elements and in a distinct sequence of steps.

For an effective decision making, the executive is to normally concentrate on those important and strategic decisions which have big impact for the organization. These strategic decisions need to have the highest level of conceptual understanding. The executive is required to find the constants in a situation and is to apply his skill to manipulate a great many variables arising out of the chaotic thinking in order to make an effective decision. He is to know what the decision is all about and what the underlying realities are which the decision is required to satisfy. The executive is to look out for impact rather than the technique. He is to ensure that the decision he makes needs to be sound rather than clever.

An executive while making a decision is required to know whether the decision is to be based on principle or it is to be made on the merits of the case and logically. He is to be aware that the trickiest decision is the one which is between the right and the wrong compromise he has to make and he is to be able to judge one from the other. Further, the executive is to be aware that the most time-consuming step in the decision making process is not making the decision but putting the decision into effect. Unless a decision has ‘degenerated into the work’ it is not a decision and it is at best a good intention. This means that, while the effective decision itself is based on the highest level of conceptual understanding, the action to carry it out need to be as close as possible to the working level and as simple as possible.

Very important aspects of the decision making by the executives for highly specific solutions irrespective of the entirely different problems to be handled are (i) the problem is to be tackled at the highest conceptual level of understanding, (ii) a thinking by the executive about what the decision is all about before trying to develop a principle for dealing with it, (iii) the decision needs to be strategic, rather than adaptation to the apparent needs of the moment, and (iv) the decision is  to be innovative even if it becomes highly controversial because the decision may directly opposes to what ‘everybody know’ at the time of the decision making.

The important features of the decision also known as ‘elements of decision’ (Fig 1) which the executive makes are neither their novelty nor their controversial nature. Instead these elements are (i) the clear realization that the problem is generic and can only be solved through a decision arrived by an established rule or a principle, (ii) the definition of the specifications which the answer to the problem had to satisfy, that is, of the ‘boundary conditions’, (iii) the thinking through what is ‘right’, that is, the solution which fully satisfies the specifications before attention is given to the compromises, adaptations, and concessions needed to make the decision acceptable, (iv) the building into the decision of the action to carry it out, and (v) the ‘feedback’ which tests the validity and effectiveness of the decision against the actual course of events. These are the five basic elements of the effective decision making process.

Fig 1 Elements of effective decision making process

The first question which the effective decision maker asks is whether the situation is of a generic nature or is of an exceptional nature. Whether it is something which is occurring frequently or the occurrence is a unique event which needs to be dealt with as such. The generic nature problem is always to be dealt through a rule or a principle while the exceptional nature problem is to be handled as such and as it comes.

Many a times, executives are to distinguish between four, instead between two, different types of occurrences. These are described below.

  • There is the one which is the truly generic of which the individual occurrence is only a symptom. Most of the problems which occur in the course of the executive’s work are of this nature. For example, inventory decisions are not decisions in a sense, they are adaptations. The problem is generic. This is even more likely to be true in case of process of production. Typically, executives engaged in production handle a large number of problems in the course of a period. The great majority of these problems are just symptoms which are the manifestations of underlying basic situation. The individual executive who works in one area usually cannot see this. As an example, he may have a few problems each month with the couplings in the pipes that carry steam or hot liquids. But only when the total workload of the group over several months is analyzed does the generic problem appear. Then one sees that temperatures or pressures have become too great for the existing equipment and that the couplings, holding different lines together, need to be redesigned for greater loads. Until this is done, executive spends a good amount of getting the leaks fixed without ever getting control of the situation.
  • The second type of situation can be that there is the problem which, while being a unique event for certain executive, but the same is actually generic. The situation can be non-recurrent situation as far as the executive is concerned, but it is a generic situation which generally occurs all the time. In such situation some general rules need to be followed. In such a case, the executive can take guidance from the experience of others.
  • The third type of situation is of the truly exceptional and truly unique event. The probability of such an event can be one in a million or one in ten million. This type of situation/malfunctions is as unlikely ever to recur again. Truly unique events are rare. However, whenever one appears the executive need to ask whether the event is a true exception or only the first manifestation of a new kind.
  • The fourth type of situation is the early appearance of a new generic problem, with which the decision making process deals. The first occurrence of malfunction in spite of advanced technology is likely to become fairly frequent unless generic solution is found.

All the above cases except the truly unique one require a generic solution. They need a rule, a policy, and a principle. Once the right principle has been developed all appearances of the same generic situation can be handled rationally by the adaptation of the rule to the concrete circumstances of the case. Truly unique cases, however, are to be treated individually since in such cases rules cannot be developed.

The effective executive, while making the decision, spends time to determine with which of the above four situations he is dealing. He is to be aware that he is likely to make a wrong decision if he classifies the situation wrongly. The most common mistake he can make is to treat a generic situation as if it consists of a series of unique events, that is, to be rational when one lacks the generic understanding and principle. This inevitably leads to frustration and futility.

Equally common is the mistake of treating a new problem as if it is just another example of the old problem to which, therefore, the old rule is to be applied. Also it is common to make the mistake of the likely but erroneous definition of the fundamental problem. Further, it can be possible to have the definition of the problem which may be incomplete. The incomplete explanation is generally more dangerous than the totally wrong explanation. It is this usual human tendency to confuse results into the executive making a mistake which is even hard to correct.

The effective decision-maker, therefore, always assumes initially that the problem is generic. He always assumes that the problem which needs his attention is in reality a symptom. He looks for the true problem. He is not content with treating the symptom alone. And if the problem is truly unique, the experienced decision maker suspects that this represents a new underlying problem and that what appears as unique is likely to turn out to be simply the first sign of a new generic situation. This also explains why the effective decision-maker always tries to put his solution on the highest possible conceptual level. He does not solve the immediate problem but he looks into the requirements which are expected in the foreseeable future and he invents or designs a new kind of solution which takes care of a situation that does not yet exist. As an example, one of the most obvious facts of social and political life is the longevity of the temporary. The effective decision-maker knows this. He too improvises, of course. But he asks himself every time that if he is to live with this for a long time then what is required to be done. He keeps on working to find a more general, a more conceptual, a more comprehensive solution which establishes the right principle.

As a result, the effective executive does not make many decisions. But the reason is not that he takes too long in making a decision. In fact, a decision on principle does not, as a rule, take longer than a decision on symptoms and expediency. The effective executive does not need to make many decisions. Because he solves generic situations through a rule and policy, he can handle most events as cases under the rule normally by adaptation.

An executive who makes many decisions is both lazy and ineffectual. The decision-maker also always tests for signs that something abnormal, something unusual, is happening. He always checks whether the reasons explain the observed events and whether they explain all of them. He always writes out what the solution is expected to make happen and then tests regularly to see if this really happens. Then finally, he goes back and thinks the problem through again when he sees something abnormal, when he finds the phenomena his explanation does not really explain, or when the course of events deviates, even in details, from his expectations. These are in essence of the rules laid down for medical diagnosis more than 2,000 years ago. They are the rules for scientific observation framed and reaffirmed over 300 years ago. These are old, well-known, time-tested rules, which one can learn and systematically apply.

The second major element in the decision making process is the clear specifications as to what the decision has to accomplish and what are the objectives which the decision has to reach. Also, the specifications are to indicate the minimum goals the decision has to attain as well as the conditions it has to satisfy. These are known as ‘boundary conditions’ which the decision needs to satisfy to be effective. The decision needs to be adequate to its purpose. The more concisely and clearly the boundary conditions are stated, the greater is the likelihood that the decision is indeed an effective one and is likely to accomplish what it is set out to do. Conversely, any serious shortfall in defining the boundary conditions is almost certain to make a decision ineffectual, no matter how brilliant it may seem. The boundary conditions are usually explored for finding out what is the minimum needed to resolve the problem and whether they can satisfy the needs.

It is not always easy to find the proper boundary conditions and intelligent people do not necessarily agree on them. The effective executive knows that a decision which does not satisfy the boundary conditions is ineffectual and inappropriate. It may be worse indeed than a decision that satisfies the wrong boundary conditions. Both are wrong, of course. But one can salvage the appropriate decision for the incorrect boundary conditions. It is still an effective decision. One cannot get anything but trouble from the decision which is inadequate to its specifications. In fact, clear thinking about the boundary conditions is needed so that one knows when a decision has to be abandoned.

The clear thinking about the boundary conditions is also needed to identify the most dangerous of all possible decisions that is the one which may work if nothing goes wrong. Such decisions always seem to make sense. But when one thinks through the specifications which the decisions have to satisfy, one always finds that they are essentially incompatible with each other. That such a decision may succeed is not impossible but it may be simply grossly improbable. The trouble with miracles is not, after all, that they happen rarely, but it is that one cannot rely on them.

The mistake of the executive making decision is normally the failure to think through clearly the boundary conditions which the decision is to satisfy, and his refusal to face up to the unpleasant reality that a decision which may have to satisfy two different and incompatible specifications is not a decision but a prayer for a miracle. Also, defining the specifications and setting the boundary conditions cannot be done on the ‘facts’ for any decision of importance. It always has to be done on interpretation. It is risk taking judgment. Everyone can make the wrong decision and in reality executives do sometimes make a wrong decision. But no one needs to make a decision which, on its face, falls short of satisfying the boundary conditions.

One has to start out with what is right rather than what is acceptable (let alone who is right) precisely because one always has to compromise in the end. But if one does not know what is right to satisfy the specifications and boundary conditions, one cannot distinguish between the right compromise and the wrong compromise and ends up by making the wrong compromise.

There are generally two different types of compromises. One type is expressed in the old saying that ‘half a loaf is better than no bread’. The second type is explained by the expression ‘half a baby is worse than no baby at all’. In the first case, the boundary conditions are still being satisfied. The purpose of bread is to provide food, and half a loaf is still food. Half a baby, in the second case, however, does not satisfy the boundary conditions since half a baby is not half of a living and growing child. It is one part of the body which is not alive.

It is futile and a waste of time to worry about what is acceptable and what one has better not say so as not to evoke resistance. The things one worries about never happen. And objections and difficulties no one has thought about suddenly turn out to be almost insurmountable obstacles. One gains nothing in other words by starting out with thinking ‘what is acceptable’ and in the process of finding an answer for the thinking, one gives away the important things, as a rule, and loses any chance to come up with an effective, let alone with the right, answer.

Converting the decision into action is the fourth major element in the decision process. While thinking through the boundary conditions is the most difficult step in decision-making, converting the decision into effective action is usually the most time-consuming one. It is well known that a decision does not become effective unless the action commitments have been built into the decision from the start.

In fact, no decision has been made unless carrying it out in specific steps has become someone’s work assignment and responsibility. Until then, there are only good intentions.

This is the trouble with so many policy statements, especially in various organizations. The policy statements do not contain any action commitment. To carry them out is no one’s specific work and responsibility. Hence, the people in the organization tend to view these statements skeptically, if not, as declarations of what top management in reality, not going to do.

Converting a decision into action requires meeting of several demands such as who has to know this decision, what action is required to be taken, who is to take it, and what does the action have to be so that the people who have to do it are able to do it. The first and the last of these are too often overlooked with dismal outcomes.

A story that has become very popular shows the importance of the demand ‘who has to know of this decision’. A large manufacturing organization of industrial equipment decided many years back to discontinue one model. For years it had been standard equipment on a line of machine tools, many of which were still in use. Hence, it was decided to sell the model to present owners of the old equipment for another three years as a replacement, and then to stop making and selling it. Orders for this particular model which had been going down for a good many years, suddenly improved as the former customers reordered to cover their future requirement since the model was not going to be available in future. In the organization no one had taken car, however, to satisfy the demand ‘who needs to know of this decision’. Due to this reason, the person in the purchasing department who was in charge of buying the parts from which the model itself was being assembled, was not aware of the decision. He continued to buy parts in a given ratio to current sales as per the laid down procedure which remained unchanged. When the time came to discontinue further production of the model, the organization had in its warehouse enough parts for another eight to ten years of production, parts which were to be written off at a considerable loss.

The action must also be appropriate to the capacities of the people who have to carry it out. All this becomes doubly important when people have to change behaviour, habits, or attitudes if a decision is to become effective action. Here one has to make sure not only that responsibility for the action is clearly assigned and that the people responsible are capable of doing the needful. One has to make sure that their measurements, their standards for accomplishment, and their incentives are changed simultaneously. Otherwise, the people may get caught in a paralyzing internal emotional conflict.

An example is the failure of a brilliant chairman and chief executive to make effective a new organization structure and new objectives in an old, large, and proud organization. Everyone agreed that the changes are needed. The organization, after many years as leader of its industry, has shown definite signs of aging in almost all major fields and newer, smaller, and more aggressive competitors are able to outmaneuver it. But to gain acceptance for the new ideas, the chairman promoted the most prominent spokesmen of the old school into the most visible positions. This presented only one thing to the people in the organization that the leadership does not really mean it. If the greatest rewards are given for behaviour contrary to that which the new course of action requires, then everyone concludes that this contrary behaviour is what the people at the top really want and are going to reward.

Though it is ideal to build the execution of the decisions into the decision itself, yet people can think the action commitments a specific decision requires, the work assignments follow from it, and the people are available to carry it out.

Finally, a feedback has to be built into the decision to provide a continuous testing, against actual events, of the expectations that underlie the decision. Decisions are made by people. People are fallible and at their best their works do not last long. Even the best decision has a high probability of being wrong. Even the most effective one eventually becomes obsolete. Hence, there is a need to document.

The reason for given decisions do not get implemented if there is nothing organized in the system with respect to the feedback check for the execution of the decision. Further, the feedback is to be reliable. Reports, which the decision maker is normally able to mobilize, are not of much help. In this respect, the executive is to look himself for the evidence that the decision is being implemented. Not that he distrusts the subordinate, but he has not to depend too much on the normal channels of communications. With the computerized working, this has become even more important for the decision-maker, since he in all likelihood, be even further removed from the scene of action. Unless he accepts, as a matter of course, that he had better go out and look at the scene of action, he is increasingly detached from the reality. All the computer can handle are perceptions. And perceptions can be relied on only if they are constantly checked against the concrete. Otherwise, they are certain to mislead.

To go and look for oneself is also the best for testing whether the assumptions on which a decision which has been made are still valid or whether the assumptions are becoming obsolete and need to be thought through again. And one always has to expect the assumptions to become obsolete sooner or later. Failure to go out and look is the typical reason for persisting in a course of action long after it has ceased to be appropriate or even rational. This is true for organizational decisions as well as for the policies. It explains in large measure the failure of many policies. Hence, one needs organized information for the feedback. One needs reports and figures. But unless one builds one’s feedback around direct exposure to reality and unless one disciplines oneself to go out and look, he condemns himself to a strict rigidity and with it to ineffectiveness.