What does “decision-making” mean?
Consumers of goods and services want more and better services at lower prices, and companies need to cover their costs and make profits.
The basis of decision-making by managers is to find a balance between interests and opportunities. In any case, they should consider the interests of consumers, because the operation of a business depends primarily on demand for the goods and services it offers. This contrasts, for example, with governmental or political decisions made by administrative methods that allow the interests of citizens to be temporarily ignored.
What then is the essence of decision-making? It is a cognitive process of choosing between several alternatives.
We are all aware that making a considered decision is not easy. A decision about an important issue must be made in several stages
- Evaluation of the situation.
- Problem definition.
- Designing the solution.
- The right decision.
- Implementation of the decision.
Evaluation of the situation
Activity 1 of decision making – evaluation of the situation. In this first phase, the situation should be analyzed: Is it typical or “out of the picture”? For typical situations, standard solutions are optimal if they have proven to be effective. For non-standard problems, you need to look for a non-standard solution.
The goal formulation phase involves analyzing the situation, defining the problem, formulating the goal, and establishing criteria to show that the goal has been successfully achieved. In this phase, the following questions must be answered:
- What is the purpose of this decision?
- What is the desired outcome?
- How will we know that we have achieved the result?
Only when these questions are answered can we move forward.
Designing the solution
After analyzing the situation and understanding what the decision is intended to achieve, various options are considered. Recall that decision-making is a process of choosing from a set of alternative options.
The right decision
After all, the options have been considered, it is necessary to decide which is the best option in the given situation. The choice is influenced by the priority system, as each decision represents a balance of resources and options.
Implementation of the decision
The implementation phase is about clarifying organizational issues, monitoring the progress of the decision, and making timely corrections if “something goes wrong.” One of the most important prerequisites for the success of this activity is the personal commitment and motivation of everyone involved in the process. It is important that the personal goals of the people involved in the implementation of the decision are in line with the company’s goals, or at least do not contradict them.
These are the basic steps and processes of decision-making. In the literature, there are other more or less detailed variants of the steps. However, the essence and sequence of activities are the same. In principle, the search for the necessary information can be considered as a separate point, but it belongs to the situation analysis, which is carried out at the stage of problem formulation.
The implementation of the solution can also be divided into separate sub-items, such as the implementation itself, the monitoring of the implementation, and the evaluation of the result. However, this depends entirely on the decision of the decision maker. In general, the steps and sequence of activities in DM are clear. However, all these points – situation analysis, task definition, and others – have their content, methodology, and approaches to do all this.
Methods of decision making
I wish there was a simple and clear guide to decision-making, analogous to the instructions for using household appliances: plug in, push the button, and get the result. There are so many guides that you don’t even know which one to choose and which one to follow to make the right decision.
That’s why we’re going to introduce you to the most common methods that have stood the test of time when it comes to an important issue. Remember that today we are talking about managerial decision-making, so we are mostly interested in corporate DM and serious companies.
The 3 most popular methods:
- SWOT analysis.
- Ishikawa diagram.