The decision-making process is influenced by factors that reflect the characteristics of the manager who makes the decision, the characteristics of the external environment, including the conditions of certainty, risk or uncertainty, as well as the negative consequences associated with them, information restrictions, interdependence and interdependence of decisions made and other factors.
The personal assessments of a leader may contain a subjective ranking of importance, quality or good, due to the fact that all managerial decisions (and not just those related to issues of social responsibility and ethics) are built on the foundation of someone else’s value system. Each person has their own value system, which determines their actions and influences the decisions they make.
behavioral restrictions. Many factors that impede interpersonal and intraorganizational communications affect managerial decision-making. The existence and severity of the problem may also be perceived differently. Due to information overload and current problems, managers may not perceive the opportunities that are opening up. A manager may feel that a superior will be annoyed if they are told about a real or potential problem. That is, depending on the method of exchanging information between the leader and subordinates, the behavior of subordinates largely depends. There may be a point of view that “the problem is bad”, since it is much more important to “look good”. The leader may reject this or that alternative due to preferences, sympathies or antipathies towards someone, etc.
decision making environment. When making managerial decisions, it is always important to take into account the risk related to the level of certainty with which results can be predicted, since the manager must predict results in different circumstances and conditions. These circumstances are traditionally classified as conditions of certainty, risk or uncertainty, including negative consequences.
The decision is made under certainty , when the manager knows the result of each of the alternative choices (for example, investing in certificates of deposit). Situations with complete certainty are usually called deterministic (and the results evaluated under these conditions are called deterministic). Under conditions of certainty, there is one alternative.
Decisions made under risk include those decisions whose results are not certain, but the probability of each of them is known. Management must consider the level of risk as a critical factor. The sum of the probabilities of all alternatives in this case should be equal to 1. The desired way to determine the probability is objectivity. At the same time, the probability is objective when it can be determined by mathematical methods or by statistical analysis of accumulated experience. The probability will be determined objectively if enough information is available for the prediction to be statistically reliable.
In many cases, an organization cannot obtain reliable information to objectively assess the likelihood, but management’s experience allows it to determine with high certainty what is likely to happen. In this situation, the manager can use a judgment about the possibility of accomplishing alternatives with one or another subjective or implied probability.
The decision is made under conditions of uncertainty , when it is impossible to assess the likelihood of potential outcomes that reflect the possible positive and negative consequences of the occurrence of events associated with these uncertainties. This happens when the factors to be considered are so new and complex that sufficient relevant information cannot be obtained about them. In practice, very few management decisions have to be made under conditions of complete uncertainty. When faced with uncertainty, there are two possibilities:
1) Get additional relevant information and re-analyze all available information. This very often reduces the novelty and complexity of the problem.
2) Act in accordance with past experience, judgment or intuition and assume the likelihood of events.
Time and the Changing Environment . The passage of time usually changes the situation, so decisions should be made and implemented as long as the information and assumptions on which decisions are based remain relevant and accurate regarding the organization and its environment.
Accounting for negative consequences . Management decision making is, in many ways, the art of finding effective compromises where gains in some outcomes lead to losses in others. The problem of the decision-making process in the face of possible negative consequences is to compare the disadvantages of a particular decision with its advantages in order to obtain the greatest overall gain. When criteria are chosen for decision making, negative consequences should be interpreted and used as constraints.
Information restrictions . Information is data taken for specific people, problems, goals, and situations. Information is needed to rationally solve problems.
Interdependence of decisions. In an organization, all decisions are interconnected. Major decisions have implications for the organization as a whole, not just for a particular activity. The ability to see how decisions in a management system line up and interact becomes increasingly important as a leader moves up the hierarchy of power. Managers who are at the bottom of the hierarchy in the organization, but who show the ability to see the interdependence of decisions, often become candidates for promotion.
Decision making is a step-by-step process. The main stages of this process are: diagnosing the problem and formulating the goals of the decision being made, formulating restrictions and criteria for evaluating the choice when making a decision, identifying alternative options for a possible solution, evaluating them and choosing a rational solution. The process of making a rational decision, taking into account these basic elements, can be represented by a simplified algorithm shown in Fig. 2.
Fig.2. A simplified algorithm for making a rational decision.
a) Diagnosing a problem is the first step towards solving it. Diagnostics allows you to determine the essence of the problem. In this case, fundamentally, problems can be of two types: the problem of a possible deviation from the desired result (in the present or future) or the search for and use of new opportunities. In the first case, the solution is in the nature of eliminating the cause of non-fulfillment of the goal (or failure to achieve the desired result in the future), in the second case, the problem can be considered as a potential opportunity, and the solution itself will be proactive management. Determining the essence of the problem allows us to formulate a specific goal (goals) of decision-making.
b) The formulation of constraints and decision criteria is a necessary step for the formation of possible solutions that can be implemented. Many possible solutions to an organization’s problems may not be realistic (i.e., they cannot be implemented) because a particular manager or the organization as a whole may not have sufficient resources to solve this problem. In addition, the causes of this problem may be outside the organization, which the manager has no power to change. Restrictions in decision-making narrow the possibilities of a decision. Therefore, it is necessary to determine the essence of such restrictions. In addition to the identification of constraints, it is necessary to define the criteria (standards) by which alternative options will need to be evaluated when choosing a solution.
c) The definition of alternatives is a necessary condition for making a rational decision. To select the optimal or close to it solution, it is necessary (if possible) to formulate all technically feasible alternatives that could eliminate both the causes of the problem and the problem itself. The reduction of alternatives can lead to the case when the best alternative is not considered. The assessment of alternatives is carried out for the subsequent choice of a rational management decision.
To determine the model of the decision-making process, let us consider in more detail the main stages of the formation and adoption of a rational decision.
The analysis of the problem and the formation of decision-making goals are carried out in two stages due to the fact that in the organization all its components are interconnected, and it is often difficult to completely determine the entire problem by the identified symptoms. The main content of the work at each stage can be formulated as follows:
The first stage involves the performance of work related to the awareness and identification of symptoms of difficulties or opportunities. The most common symptoms are: low profits, falling sales, insufficient productivity and quality, high costs, conflicts and high employee turnover. Usually the various symptoms complement each other. Identifying them allows you to define and describe the problem in a general way. This, in turn, makes it possible to limit the number of factors for further and more detailed consideration of the problem. Symptom management should also be avoided.
The second stage includes work on a more detailed analysis of the causes and determination of the essence of the manifestation of all the symptoms identified at the first stage. To do this, additionally collect and analyze the necessary information (internal and external). Increasing the amount of additional information does not necessarily improve the quality of the formulated solution. Therefore, it is necessary to isolate and study information on a specific problem that is directly related to the onset and development of the symptoms in question, as well as on the specific goal or time period of a possible solution to the problem (highlight relevant information). Based on the results of such an analysis, taking into account relevant information, it is necessary to formulate the problem in the form of a goal to achieve the desired result when implementing the solution.
The formation of constraints and decision criteria also contains its own stages of work. First, it is necessary to identify and highlight the general constraints for decision making (available resources and time, insufficient number of workers to solve the problem, the need for technology that has not yet been implemented, legislation, intense competition and other restrictions) that may affect the feasibility of that or any other possible option. Secondly, it is necessary to identify and formulate the limitations of a particular leader who makes a decision and ensures its implementation (his powers and real opportunities). Thirdly, to determine the criteria for evaluating alternatives, allowing you to choose the best of them.
The definition and evaluation of alternatives, as well as the choice of a solution (the best option from the presented alternatives) constitute the most time-consuming and responsible part of the work on making a managerial decision. In practice, the decision maker (DM) rarely has sufficient knowledge or time to formulate and evaluate every possible alternative. Therefore, the manager tends to limit the number of alternatives for serious consideration in order to resolve the problem faster. At the same time, the more complex the problem, the wider the range of possible solutions should be. For this purpose, an in-depth analysis of complex problems is carried out, including the definition of consequences.
The assessment of alternatives is carried out in two stages: a preliminary assessment during the formation of an alternative and a more detailed assessment after a preliminary selection of alternatives that remove the problem.
It should be kept in mind that the number and quality of alternatives increases when the identification of these alternatives is separated from the evaluation itself. Therefore, in the case of complex problems, it is advisable to independently generate the most complete range of ideas for a possible solution and their possible implementation. This is usually done using expert methods, including brainstorming.
Before making a final decision, one should additionally evaluate the predicted results of its implementation, since without feedback the problem may not be removed. The general model of the managerial decision-making process is shown in Figure 3.
Fig.3. General model of the rational decision making process.