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Steps in Decision Making

The aim of the decision-making process is to help managers closely examine all the alternatives available and then make the most beneficial choice for the firm. So decision making is a very pervasive function which is needed in all managerial functions. Let us study the steps in decision making.

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Steps in Decision Making Process

One of the core functions of any manager, at any level and in any firm is decision making. Every function of the manager (planning, directing, controlling etc) involves taking decisions. So it is important that the process is done in an efficient and stepwise manner.

In general, there are certain defined steps in decision making. They provide a framework for the manager so that the whole process is more efficient. These steps in decision making help the manager make informed decisions that help the organization achieve its goals. Let us take a look.

Steps in Decision Making

Identify the Problem

The first step is defining the problem, or in some cases identifying the opportunity. The symptoms of the problem must not be confused with the real problem. So this step requires careful attention, investigation and time.

After successful identification, we can move onto diagnosis. This involves understanding the problem, and seeing how it affects the long term and short term objectives of the firm.

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Identifying Alternatives

Once you have an in-depth understanding of the problem or the opportunity, it is now time to identify some alternative courses of actions and their possible consequences.

The problem is that there are generally too many options and alternatives. The management cannot waste resources and money. So it must only consider strategic factors when identifying probable alternatives.

Analyzing the Alternatives

Now the next logical step will be analyzing all the possible alternatives for their pros and cons. There are tangible and intangible factors to consider when weighing the choices.

Tangible factors include profit, the rate of return, time value etc. And then there are intangible factors like reputation, employee morale, PR etc.

After evaluating the feasibility and acceptability of all alternatives, the manager must make his choice. A valued second opinion is always welcome as it gives a fresh perspective.

Choosing the Best Alternative

After you have identified the alternatives available to you, it is now time to make the decision. It is important that the manager understands the risk factor of all their choices and the impact it will have on the firm. Certain times he can even decide to choose some combination of two or more alternatives if he feels it is in the best interest of the firm.

The basis of the decision that the manager takes can be based on two things,

  • Experiments: Here the manager will take his decision on the basis of some experimentation. This has the advantage of being somewhat foolproof, as it also incorporates intangible factors. But the method is significantly expensive and time-consuming.
  • Research: The other option is that the manager decides on the basis of research done by him. A lot of research techniques found in economics and financial analysis apply in the decision-making process as well. The method does not involve practical application but is considerably cheaper.

Communication and Action

Once we choose the best alternative we must initiate the implementation. Firstly, the managers must communicate the decision to all those involved with its implementation. And the manager must ensure that his team have fully accepted and embraced the choice and are completely behind it.

Solved Question for You

Q: All decisions taken in the firm are of equal importance. True or False?

Ans: The statement above is false. Generally, different decisions of a firm have varying importance. The lesser important decisions are taken by lower management and are taken on the basis of simple analysis or past decisions. The more important decisions involve the higher management and very detailed analysis or experimentation.

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