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The Process of Decision Making

• satyendra
• June 9, 2013
• 1 Comment
• Decision environment, Decision making process, decisions, Operational decisions, Strategic decisions, Sven steps to decision making, Tactical decisions,

The Process of Decision Making

Decision making process is a central part of the management responsibility. It is a core element in problem solving, and important for efficient running of the organization. The important elements of a decision making process are (i) alternatives, (ii) interpersonal issues, (iii) uncertainty, (iv) complexity, and (v) high risk consequences.(Fig 1). Effective management makes timely and right decisions. The three basic issues connected with a decision making process are (i) alternatives, (ii) preferences, and (iii) information. If there are no alternatives then there is no decision to make. If there is only one issue then it needs only managing. But when there are alternatives available then there has to be a degree of uncertainty as to which alternative is best and a decision is then needed.

Fig 1 Decision making process

If a decision is needed, personal preferences and values play a significant role in the decision making process and these preferences are affected by innate personal bias and the social context of the decision makers. The social regulations are significant determinants in how the decisions are to be made. Regardless of the preferences, the decision makers internalize their environment, the roles which they play within the prevailing environment and their expected behaviour looks like within these roles. Sometimes the rules decision makers respond to are formally articulated. In many cases, they are informally established and simply reflect the operating culture such as ‘the way we do things around here’.

All too frequently, there are a number of different roles, and rules, which can be potentially relevant in a given decision making situation. Understanding of these rules, how they are developed, how they are shaped, and how they evolve is a critical factor for any decision maker. For every uncertainty, there is information, which has the potential to reduce or remove it. Without information people make a decision and find out what happens, with information people find out what is going to happen and then make a decision.

Further, information has no value at all, unless it has the potential to change the decision. The critical factor is not the amount of information available, but having the key elements of information available when needed in a useful form, which improves the awareness of the situation of the decision makers and their ability to act. Once the best possible (but typically inadequate) information has been assembled, decisions need to be made. Normally no decision is the least beneficial outcome.

The final factor to consider is the quality of the information being accessed / provided / used. No information is complete or perfect. Before making use of any information, the decision maker has to evaluate the reliability and accuracy of the information and look for any vested interests or bias on the part of the people assembling the information. All the people are biased and almost all involved in information gathering / development has an interest in the information they have helped assemble so the question has to be what effect these influences can have.

These three elements are combined within a ‘frame’ which is the way decision makers see the problem which needs the decision. This ‘frame’ creates the basis within which decision makers decide and in many situations it is open to different interpretations depending on how the problem has been described.

Decision making always involves a level of ethics and a degree of risk. Ethics frame and help differentiate, right from wrong, good from bad, desirable from undesirable, and just and fair from unjust and unfair. But there are very few situations where the best option is absolutely clear cut. One important consideration in determining the ‘best option’ is to weigh up the effect of each option being considered on the strategies and objectives of the organization. There can be a conflict between the best or easiest in the short term and the long term consequences of the decision.

Accepting that all decisions are ‘risky’ is frequently more challenging. The simple fact is if there is no uncertainty, there is no need for a decision. Where a decision is needed there are competing alternatives creating an uncertainty which matters a risk. Where a risk exists, there is a probability the right decision is made and there a probability exists the wrong decision is made. This uncertainty, particularly around the more complex decision types (dilemmas, etc.) almost inevitable gives rise to a predicament for the decision maker. While this state encourages delaying tactics, the only way out of a predicament is to take action and make the best decision under the circumstances.

While it is reasonable to expect the decision makers to act with appropriate care and diligence, this is not the same as expecting them to always get the decision correct. This is called the ‘statutory business judgement rule’ in the legal terminology. The decision makers are protected by this ‘rule’ provided they have applied appropriate care and diligence and balanced the foreseeable risk of harm against the potential benefits which can be expected to flow from the decision they have made.

Organizational decisions of necessity involve uncertainty and risk taking and this is to be encouraged to an appropriate extent. Hindsight is useful for retrospective reflection and learning but does not redefine the framework within which the decision has been made. All which can reasonably be asked of decision makers is for them to act in ‘good faith’ and apply appropriate care and diligence in the circumstances of the decision-making process.

In this regards time urgency is a critical consideration. The time the decision makers have to go through a problem solving, or information gathering, affects the process to decision making. Delay can be helpful if the value of the expected additional inputs achievable in the time outweighs the costs of delaying, but these gains need to be real. Delaying helps no-one and once time has been lost, it cannot ever be made up, whereas a less than optimum decision can frequently be adjusted in the light of better information.

The ‘window of opportunity’ associated with any decision is only open for a limited period of time. Then there is the question of trust and acceptance. The decision makers are to be trusted to make the decision. The decisions they make are to be accepted by the affected stake-holders. Trust is a precursor to acceptance and the degree of trust present, combined with the power and influence of the decision makers’ influence the best approach to decision making, where trust is not present, time is needed to negotiate and reach consensus.

Another key consideration is ‘who decides’. Escalation of every decision to the highest level is a formula for the disaster. The organizational management is to actively encourage people to accept responsibility and make decisions when appropriate. This helps the organization run more efficiently and allows individuals to grow professionally. Employees are to be encouraged to handle all of the day-to-day decisions and only escalate decisions on an exception basis.

People make decisions of varying importance every day. Studies have shown that the majority of the people are much poorer at decision making than they think. An understanding of what decision making involves, together with a few effective techniques, helps make better decisions. The importance of decision making and approach to god decision making practice is shown in Fig 2.

Fig 2 Decision making practice

Definitions and concepts

Decision making process is defined in many ways. Some of the definitions are given below.

• Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker.
• Decision making is regarded as the result of the mental processing for the selection of a course of action from several alternatives. Each decision making process results into a final choice which can be an action or an opinion.
• Decision making is the process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them.

The various components of the decision making process are as follows.

• Information -This is knowledge about the decision, the effects of its alternatives, the probability of each alternative, and so forth. A major point to make here is that while substantial information is desirable, the statement that ‘the more information, the better’ is not true. Too much information can actually reduce the quality of a decision.
• Alternatives – These are the possibilities one has to choose from. Alternatives can be identified (that is, are searched for and located) or even developed (are created where they do not previously exist). Merely searching for pre-existing alternatives result in less effective decision making.
• Criteria – These are the characteristics or requirements which every alternative is to possess to a greater or lesser extent. Normally the alternatives are rated on how well they possess each criterion.
• Goals– These are what a person wants to accomplish. Strangely enough, many people collect a bunch of alternatives and then ask, ‘which one is to choose’, without thinking first of what their goals are, and what overall objective they want to achieve. Instead of asking, ‘what is to be don’, and what is to be chosen’, people need to ask first, ‘what the goals are’. A component of goal identification is required to be included in every case of decision analysis.
• Value – Value refers to the desirable outcome of the decisions, and includes the value of the alternative, whether in money, satisfaction, or other benefit.
• Preferences – These reflect the philosophy and moral hierarchy of the decision maker. These are the decision maker’s .values’, but which can be confusing with the other use of the word, above. If people can use that word here, they say that personal values dictate preferences.
• Decision quality- This is a rating of whether a decision is good or bad. A good decision is a logical one based on the available information and reflecting the preferences of the decision maker. Here it is important to note that the quality of a decision is not related to its outcome. A  good decision can have either a good or a bad outcome. Similarly, a bad decision (one not based on adequate information or not reflecting preferences of the decision maker) can still have a good outcome.
• Acceptance –Those who are to implement the decision or who get affected by it are to accept it both intellectually and emotionally. Acceptance is a critical factor since it occasionally conflicts with one of the quality criteria. In such cases, the best thing to doo or may be to choose a lesser quality solution which has greater acceptance.

Decisions are at the heart of success, and at times there are critical moments when they can be difficult, perplexing, and nerve racking.  However, the boldest decisions are the safest. While decision making without planning is quite common, it is not desirable. The term used to describe it, is the crisis management. Decision making can be hard. All the decisions involve either some conflict or dissatisfaction. The difficult part in a decision making process is to pick a solution where the positive outcome must outweigh possible shortcomings.

A critical factor of the decision making process is that it is a non-linear, recursive process. That is, majority of the decisions are made by moving back and forth between the choice of criteria and the identification of alternatives. The alternatives available influence the criteria being applied to them, and similarly the criteria which have established influence on the alternatives being considered.

Types of decisions

There are several types of decisions which are made. These are given below.

• Decisions whether –This is the yes/no, either/or decision which is to be made before decision makers proceed with the selection of an alternative.
• Decisions which -These decisions involve a choice of one or more alternatives from among a set of possibilities, the choice being based on how well each alternative measures up to a set of pre-defined criteria.
• Contingent decisions -These are decisions which have been made but put on hold until some condition is met.
• Contingent alternatives –These are similar to contingent decisions. Contingent alternatives involve two or more choices of action, one of which is to be taken when the appropriate trigger occurs. Frequently this triggers an event or more information.

To understand the significance of a decision in order to know how much time and resources to spend on it, decisions can also be classified in the following three types.

• Strategic decisions – These are the highest level of decisions. Here a decision concerns general direction, long term goals, philosophies, and values. These decisions are the least structured and most imaginative. These are the most risky and their outcome is most uncertain, partly since these reach far into the future and partly since these are of great importance.
• Tactical decisions – These decisions support strategic decisions. These tend to be of medium range and medium significance with moderate consequences.
• Operational decision – These are every day decisions and support tactical decisions. They are often made with little thought and are structured. Their impact is immediate. These are short term, short range and normally low cost decisions. The consequence of a bad operational decision is minimal, though a series of bad or sloppy operational decisions can cause big harm. These decisions can be pre programmed, pre-made, or set out clearly in policy manuals.

Components of decision making

The components of a decision making process are as follows.

• The decision environment – Every decision is made within a decision environment, which is defined as the collection of information, alternatives, values, and preferences available at the time of the decision.An ideal decision environment includes all possible information, all of it accurate, and every possible alternative. However, both information and alternatives are constrained since the time and effort to gain information or identify alternatives are limited.
• The effects of quantity – Frequently decision makers have a tendency to seek more information than needed to make a good decision. When too much information is sought and obtained, one or more of several problems can arise. These problems can be (i) a delay in the decision occurs because of the time required to obtain and process the extra information and this delay can impair the effectiveness of the decision or solution, (ii) information overload occurs and so much information is available that decision-making ability actually declines since the information in its entirety can no longer be managed or assessed appropriately.
• Decision streams – A common mis-conception about decision making is that decisions are made in isolation from each other and that is a person gathers information, explores alternatives, and makes a choice, without regard to anything which has gone before. The fact is, decisions are made in a context of other decisions.

Approaches to decision making

There are two major approaches to the decision making in an organization, (i) the authoritarian method in which an executive figure makes a decision for the group, and (ii) the group method in which the group decides what to do.

• Authoritarian -The managers make the decision based on the knowledge they can gather. They then explain the decision to the group and gain the acceptance of it from the group.
• Group –In this approach to decision making process, the group shares ideas and analyses, and agrees upon a decision to implement. Studies show that the group frequently has values, feelings, and reactions quite different from those the manager supposes it has. No one knows the group and its tastes and preferences including the group itself.

Steps to effective decision making

Decision making is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions. Using a step-by-step decision-making process can help in making more deliberate, thoughtful decisions by organizing relevant information and defining of the alternatives. This approach increases the chances of choosing the most satisfying alternative and appropriate decision possible.

The decision making process is a nonlinear, recursive process. That is, most decisions are made by moving back and forth between the choice of criteria and the identification of alternatives. In a typical decision making situation, as people move from one step to another step, they probably find themselves moving back and forth also. There are seven steps to effective decision making namely (i) identify the decision (ii) gather relevant information, (iii) identify the alternatives, (iv) weigh the evidence, (v) choose the alternatives, (vi) take action, and (vii) review the decision and its consequences as shown in Fig 3.

Identification of the decision and its goal – When the need for making a decision is realized, then it is necessary to clearly define the nature of the decision which is to be made. The decision to be made is to be identified together with the goals it is to achieve. The scope and limitations of the decision are to be determined. When thinking about the decision, the goals are to be kept in front. This first step is an important step for effective decision making.

Gather relevant information – It is to be remembered that one cannot get all the facts. The available pertinent information is collected before the decision is made. Decision makers are to get as many facts as possible about the needed decision within the limits of time imposed on them and their abilities to process them. This is done by identifying the needed related information, the best sources of information, and how to get the information. This step involves both the internal and external work. Some information can be internal to the organization while some other information can be external which can be found on-line, in books, from other people, and from other sources.

It is to be remembered that virtually every decision is made in partial ignorance. Lack of complete information is not to be allowed to paralyze the decision. A decision based on partial knowledge is normally better than not making the decision when a decision is really needed. Any decision is better than no decision. Many decisions ultimately rely on or are influenced by intuition. Also as part of fact collection exercise, those who are to be affected by and those who have to implement the decision are to be consulted. Input from these people not only helps supply the decision maker with information and help in making the decision but it begins to produce the acceptance necessary in the implementers because they feel that they are part of the decision making process.

Identify and develop the alternatives – After the information has been collected, the next step is to identify several possible paths of action, or alternatives. This can be done by using imagination and additional information to construct new alternatives. In this step, listing is done of all the possible and desirable alternatives. A list of all the possible choices is to be made including the choice of doing nothing. Frequently a non decision is harmful. But sometimes the decision to do nothing is useful or at least better than the alternatives, so it is to be consciously included in the decision making process.

Weigh the evidence – This is the evaluation of the value of each alternative. Based on the information and emotions a scenario is to be drawn to imagine what is going to likely happen when each of the alternatives is carried out to the end. It is to be evaluated whether the need identified in the first step is going to be met or resolved through the use of each alternative. As this difficult internal process progresses then it becomes possible to begin to favour certain alternatives which seem to have a higher potential for reaching the goal. Finally, the alternatives are placed in a priority order, based upon the value system.

The negatives of each alternative (cost, consequences, problems created, time needed, etc.) and the positives of each (money saved, time saved, added creativity or happiness to the organization or the employees, etc.) are to be considered. However, it can be a possibility that the alternative which one likes best or which is the obvious choice because of the best of all possible alternatives, is not be functional in reality because of high cost, long time for implementation, or lack of acceptance by others.

Choose among alternatives – In decision making there is always some degree of uncertainty in any choice. Risks can be rated as percentages, ratios, rankings, grades or in any other form which allows them to be compared. Once all the evidence has been weighed, then the alternative which seems to be the best is to be selected. While making an individual decision, decision makers are to apply their preferences (which can take into account the preferences of others). A combination of alternatives can even be chosen. The choice in this step is very likely be the same or similar to the alternative which have been placed at the top of the list at the end of the previous step. There can be a possibility to choose none.

Take action – When the best possible alternative has been selected then it is the time to take some positive action by beginning to implement the selected alternative.

Review the decision and its consequences – In this step, the results of the decision are reviewed and evaluated to find out whether or not it has resolved the need identified in the first step. If the decision has not met the identified need, then it is necessary to repeat certain steps of the process to make a new decision. For example, this can be done by gathering more detailed or somewhat different information or by exploring additional alternatives.

 Fig 3 Seven steps to effective decision making

Strategies for decision making

Normally there are frequently many solutions to a given problem, and the task of the decision maker is to choose one of them. The task of choosing can be as simple or as complex as the importance of the decision warrants, and the number and quality of alternatives can also be adjusted according to the importance, time, and resources and so on. There are several strategies used for choosing.  Some of them are given below.

• Optimizing – This is the strategy of choosing the best possible solution to the problem, discovering as many alternatives as possible and choosing the very best. How thoroughly optimizing can be done is dependent on the importance of the problem, time available for solving it, cost involved with alternative solutions, availability of resources, knowledge and personal psychology, and values etc.
• Satisficing- In this strategy, the first satisfactory alternative is chosen rather than the best alternative. The word ‘satisficing’ had been coined by combining ‘satisfactory’ and ‘sufficient’. For many small decisions, the satisficing strategy is perfect.
• Maximax- This stands for ‘maximize the maximums’. This strategy focuses on evaluating and then choosing the alternatives based on their maximum possible payoff. This is sometimes described as the strategy of the optimist, since favourable outcomes and high potentials are the areas of concern. It is a good strategy for use when risk taking is most acceptable.
• Maximin -This stands for ‘maximize the minimums’. In this strategy, which is of the pessimist, the worst possible outcome of each decision is considered and the decision with the highest minimum is chosen. The ‘maximin’ orientation is good when the consequences of a failed decision are particularly harmful or undesirable. Maximin concentrates on the guaranteed return of the decision. The philosophy behind this strategy is reflected by the saying, ‘a bird in the hand is worth two in the bush’.

Decision making tools

There are eight decision making tools which are described below.

• Pareto analysis – It uses the Pareto principle by which one can achieve 80 % of the advantage of the entire job by doing only 20 % of the work. It helps in prioritizing the action points.
• Paired comparison analysis – It is working out the relative importance of different options. It helps a person to work out the importance of a number of options relative to each other. It is particularly useful where a person does not have objective data to base on. This analysis makes it easy to choose the most important problem to solve, or select the solution which gives the person the greatest advantage. It helps to set priorities where there are conflicting demands on the resources.
• Grid analysis – It is a useful tool for decision making and is regarding making a choice while considering several factors. It is also known as ‘Decision Matrix analysis’, ‘Pugh Matrix analysis’, or ‘MAUT’ (Multi Attribute Utility Theory). It is particularly powerful where one has a number of alternatives as well as different factors either to choose from or to consider. This makes it a good tool for use in those important decisions where there is not a clear and obvious preferred option.
• Decision tree – It is choosing by valuing different options. It provides a highly effective structure within which one can lay out options and investigate the possible outcomes of choosing those options. It also helps a person to form a balanced picture of the risks and benefits associated with each possible course of action.
• Plus minus interesting – It is regarding weighing the pros and cons of a decision. Some mind tools focus on selecting a course of action from a range of options. Before a person moves straight to action on the selected course of action, it is important to check that it is going to improve the situation. It is a useful tool for doing this.
• Force field analysis – It is analyzing the pressures for and against change. It is a useful technique for looking at all the forces for and against a decision. In fact, it is a specialized method of weighing pros and cons. By carrying out the analysis a person can plan to strengthen the forces supporting a decision and reduce the impact of opposition to it.
• Six thinking hats – It is looking at a decision from different perspectives. It is a powerful tool which helps a person to look at important decisions from a number of different perspectives. It helps the person to make better decisions by pushing him to move outside his habitual ways of thinking. If a person looks at a problem with this tool, then he is able to solve the problem using all approaches.
• Cost benefit analysis – It is for seeing whether a decision makes financial sense. The best available decision is not be of worth implementing if one has to invest a lot of time and money in implementing it. It is a relatively simple and widely used technique for deciding whether to act on the decision. It amounts to adding up the value of the benefits of a course of action, and subtracting the costs associated with it. Costs are either one time, or can be ongoing. Benefits are normally received over time. It determines the time which is built into the analysis by calculating a payback period.

Decision making techniques

The decision making techniques normally used are given below.

• The Delphi technique – It is achieving the results through consensus among experts. It is a common observation that when a person gets three experts together, he frequently ends up with four different opinions. This can lead to poor decision making. This is where this technique is needed to reach a properly thought through consensus among experts.
• Avoiding groupthink – It is avoiding errors in group decision making. Groupthink is a phenomenon which occurs when the desire for group consensus overrides one’s common sense desire to present alternatives or express an unpopular opinion. The desire for group cohesion effectively drives out good decision making. The term ‘groupthink’ was coined by Irving Janis in 1972 when he was researching why a team reaches an excellent decision one time and a disastrous one the next. What he found was that a lack of conflict or opposing viewpoints led to poor decisions, since alternatives were not fully analyzed, and hence groups did not gather enough information to make an informed decision.
• Impact analysis – It identifies the consequences of a decision. This technique is a useful brain-storming technique which helps one think through the full impact of a proposed change. It is an essential part of the evaluation process for major decisions. It gives one the ability to spot problems before they arise, so that he can develop contingency plans to handle issues smoothly.
• Inductive reasoning – It is regarding drawing good generalized conclusions. It involves making useful generalizations about the environment as a whole, based on limited number of observations. It is an important technique which people use to build the models of reality that they need to function effectively. While conclusions can be wrong if observations are faulty or are drawn from an unrepresentative sample, if properly used, inductive reasoning can be incredibly powerful. At the core of inductive reasoning, is the ability to look at outcomes, events, ideas, and observations, and draw these together to reach a unified conclusion.
• Kepner-Tregoe matrix – It is an approach regarding making unbiased, risk assessed decisions. No matter what position one holds, from a director to a messenger, one makes decisions continuously. The success is linked to the quality of the decisions one makes. Hence decision making is universally important. Some decisions clearly have a greater impact than others, but the underlying skill is the same. The difference is in the scope and depth of the process one go through to reach the decision. One reason why decision making can be so problematic is that the most critical decisions tend to be made in the least amount of time. The time pressure results in taking shortcuts, jumping to conclusions, or relying heavily on instinct to guide one’s way. Decision making is a skill which can be learned and improved on. Somewhere between instinct and over analysis is a logical and practical approach to decision making which does not need endless investigation, but helps one weigh up the options and impacts. One such approach is called Kepner-Tregoe matrix. It provides an efficient, systematic framework for gathering, organizing, and evaluating decision making information. The approach was developed by Charles H. Kepner and Benjamin B. Tregoe in the 1960s.
• The ladder of inference – This is avoiding jumping to conclusions. In the present day fast-moving world, one is always under pressure to act now, rather than spend time reasoning things through and thinking about the true facts. Not only can this lead him to a wrong conclusion, but it can also cause conflict with other people, who have drawn quite different conclusions on the same matter. One needs to make sure that his actions and decisions are founded on reality. Similarly, when one accepts or challenges other people’s conclusions, he needs to be confident that their reasoning as well as his is firmly based on true facts. The ladder of inference helps one achieve this. Sometimes known as the ‘Process of Abstraction’, this technique helps one to understand the thinking steps which can lead him to jump to wrong conclusions, and thus helps him get back to hard reality and facts.
• Nominal group technique – It is prioritizing technique to achieve consensus. It is face-to-face group process technique for gaining consensus. A typical application is in organizational planning when a group needs to agree priorities in order to assign resources and funds. The benefit of this technique is that the group shares and discusses all issues before evaluation, with each group member participating equally in evaluation. The evaluation works with each participant nominating his priority issues, and then ranking them on a scale of, say, 1 to 10.
• Prioritization – It is regarding making best use of the time and resources. Prioritization is the essential skill one needs to make the very best use of his own efforts and those of his team. It is important when time is limited and demands are many. It helps one to allocate his time where it is most needed. With good prioritization one can bring order to chaos, massively reduce stress, and move towards a successful conclusion. Without it, one flounders around, drowning in competing demands. At a simple level, one can prioritize based on time constraints, on the potential profitability or benefit of the task one is facing, or on the pressure one is under to complete a job.
• Reactive decision making – This is regarding making decisions under pressure. People tend to make decisions reactively when confronted with emergency situations or when a disaster unfolds. In these circumstances, the best decisions tend to be those which have been thought through and rehearsed ahead of time. An example is the emergency plan for evacuation in case of a fire. The normal decision making process normally involves defining of the problem, collecting of necessary information, developing options, devising a plan, executing and following-up. In reactive decision making, there is not enough time to execute the full decision making process, meaning that it is all too easy to make a bad decision when under pressure. This means that actions to be taken in an emergency are to be carefully planned before hand so that one can act appropriately when an event occurs.