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Decision Making Process
As stated previously, management is decision making, or more precisely, it is determining which alternative will most likely allow the decision maker to achieve their goals. But as this page describes, decision making is more complex than that simple description. The purpose of this page is to consider whether a person can enhance their decision making or managerial skills by thoroughly exploring how decisions are made and implemented.
Decision making Process
Decision making is a process; it involves steps. For example:
- Identify and define the problem or opportunity;
- Identify alternative solutions;
- Collect data and information;
- Analyze the alternatives and make a decision;
- Implement the decision;
- Monitor and evaluate the results;
- Accept responsibility
Where do you find information about your business? What type of production and financial records are needed? This question is revisited throughout the course.
- A long-time employee of a major agribusiness firm recently stated that "despite what we want, in many situations decisions need to be made with incomplete information; managers need to learn how to recognize what is the most important information for a decision and focus on that."
- Where do you find information about the industry? Some information about the industry will be private and some will be public.
- How is the decision making process impacted by whether the information is public or private?
How does a manager make the decision? We have already discussed the role of goals in decision making. But what about the other steps in decision making? For example,
- How does a manager "evaluate the results?" Is there any relationship between the step of "evaluating the results" and the manager's goals?
- Is there another step after "monitor and evaluate" other than "accept responsibility?" If yes, what is it and what role does it have in the overall decision making process?
- HINT -- it has already been suggested that the functions of management are "planning, deciding, implementing, controlling;" how does controlling relate to "monitor and evaluate?"
- What does it mean to "accept responsibility?" Why is this step important in the decision making process? Does this step relate to risk?
A decision making process -- again
The following list suggests an alternative description for a decision making process. Do these steps align with the steps in yoru decision making?
A frequent response to this multiple-step decision making process is that "a manager does this without taking the time to consider each item", or "there is not enough time to consider of item in this list". Those observations are accurate but as a person who may have only limited decision making experience, consider slowing your thought process (yes, slow your thought process), consider each step, and only after you have achieved an understanding of each, accelerate your thought process. Without taking the time to understand the process, you could overlook an important step and reach an "incorrect" decision. Make sure you understand your decision making process, then speed up your thinking.
- Briefly describe or consider the current situation.
- Review long-term or overall business/career/professional and personal goals; for example, consider how personal interests and desired level of risk exposure influence goals.
- Assess whether the current situation is "on track" to achieve long-term goals. If yes, there may be no need for a change at this time. If no, this may be an appropriate time to consider alternatives.
- Identify or summarize why the current situation appears to be "not on track" to meet long-term goals; that is, why the current situation will not achieve the goals. How does reviewing the current situation that is considered "not on track" relate to the concept of "effective," as introduced earlier?
- Also, recognize that the current situation could be "on track" to achieve the long term goals, but an alternative could achieve those goals in less time or with fewer resources. How does this relate to the concept of "efficient," as introduced earlier?
- State reasons why change may be needed at this time; e.g., goals have been changed/revised; conditions or circumstances have changed or are expected to change; an alternative could achieve the goals more efficiently.
- Specifying reasons for wanting to review an alternative should/will help clarify the thought process throughout the review process. That is, if thoughts become confused while reviewing alternatives, refer to the reasons why the review is needed.
- If change appears necessary: identify alternatives; determine why these are legitimate alternatives; specify what the alternatives are to accomplish, that is, state goals for the alternatives. Consider how the goals for the alternatives align with long-term or overall goals.
- Concisely state the decision that needs to be made, for example, "will purchasing this new item of equipment increase the business' profit?"
- Specify criteria for deciding whether to implement an alternative, that is, what is the minimum the alternative must be projected to accomplish before it will be implemented
- Long-term goals as well as goals for the alternatives will likely consider objectives other than "maximizing profit."
- Concisely state the decision criterion, for example, "the business will purchase this new item of equipment if the analysis projects that it will increase annual profit by $2,000."
- If none of the alternatives are projected to accomplish their respective minimums, the current situation may be the best possible strategy at this time.
- Identify an appropriate method to analyze the alternative (e.g., enterprise analysis, partial budget, whole-firm); briefly state why this analytical method is appropriate for the analysis.
- Does the analysis include "bouncing the idea" off of confidants? Do we have a network of peers or colleagues to share and discuss ideas without concern that they may use our idea in a way that would harm us?
- Identify data needed to complete the analysis; consider sources for the data; review how the data will be used in the analysis and decision process.
- What assumptions are being made? What is the implication of the assumptions, for example, if the assumptions are changed, would it alter the decision? If yes, the assumptions must be addressing important facts and probably warrant additional effort to gather information to replace or verify the assumption.
- Conduct the analysis, assess the outcome of the analysis; make a decision about implementing the alternative based on the outcome of the analysis and the goals for the alternative (that is, the decision criterion); develop a brief explanation for the decision.
- There is no one correct answer for all situations. Even people in what appears to be similiar situations are likely to arrive at different decisions due to different goals, different information, different assumptions, and different resources.
- Whether the decision is to implement an alternative or continue the current practice, develop a plan of action or implementation; identify the steps needed to implement the decision, establish a timeline for each step. establish benchmarks by which to measure whether progress is acceptable; recognize how benchmarks relate to goals for the alternative as well as long-term or overall goals.
- Implement the plan (assemble necessary resources, dispose of unnecessary resources)
- Monitor progress (gather data about the performance of the business as the plan is being implemented, compare performance against benchmarks or goals), revise implementation practices; that is, control the business.
Note the numerous decisions that are embedded throughout this decision process. For example, the decision maker needs to decide in the first step which situation needs to be reviewed at this time, and needs to decide in the second step what personal and professional goals to pursue. Each step in the decision making process could be described as a "mini" decision.
Where does risk fit into this decision making process? Is assessing risk a component of each step in the decision making process?
- Is there a difference between analysis of risk, assumption of risk, and management of risk?
- What is the difference between capacity/ability to assume risk and willingness to assume risk? How does one's capacity to assume risk change over time and how does one's willingness to assume risk change over time? What is the practical implication of these two trends?
- More on risk in a subsequent section.
What is your decision making process?
Brief Introduction to Strategic Planning
Strategic planning is discussed in another section, but you will observe that decision making and strategic planning both are processes. For example, several basic questions can be used to begin describing strategic planning:
- where are we,
- where do we want to go, and
- how do we get there.
A brief reflection on these questions reveal that they are not much different than the questions addressed in the decision making processes described above.
In summary
- Management is decision making
- Goals are the criteria used to make a decision
- Decision making is a process or series of steps
- Long term or strategic planning provides a framework or structure within which to make decisions in an effort to achieve the specified goals.
Now that we have introduced management as decision making, we can shift our attention to our understanding of agriculture: that is, "what does agriculture mean to you" or "how would you describe agriculture"?
Last Updated August 30, 2010
Email: David.Saxowsky@ndsu.edu
This material is intended for educational purposes only. It is not a substitute for competent professional advice. Seek appropriate advice for answers to your specific questions.
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