V. Formal Decision-Making in Organizations

A. Introduction

Although decision making is a varied sport, it is important to learn a logical method of accomplishing this vital managerial task. Other topics will expand on this topic and discuss other decision-making techniques and conditions.

This is an eight-step process that includes a feedback loop. To effectively achieve a logical decision, each step must be taken in sequence. Skipping steps results in a poorer decision.

B. Identifying a Problem

This step could just as easily be titled "Identifying an Opportunity to Exploit." Problem solving isn't limited to fixing those things that are broken but can also be used to determine which potential courses of action are superior.

This step is the most critical, the most difficult, and the most frequently glossed over. If a manager doesn't use sufficient thought at the start of the process, he may end up with an elegant solution to the wrong problem!

George Edward Moore, in his Principia Ethica, when describing the problems in the field of ethics beautifully pointed this out:

"It appears to me that in Ethics, as in all other philosophical studies, the difficulties and disagreements, of which history is full, are mainly due to a very simple cause: namely, to the attempt to answer questions, without first discovering precisely what question it is which you desire to answer."

The effort expended at this point in the process more than pays for itself at the end when a manager has a validated solution to the problem instead of the "difficulties and disagreements" created by answering a different problem than the one upper management wanted answered!

The simpler and clearer the problem statement is drawn, the easier the rest of the process becomes. One typical means of achieving such a statement is to define what condition exists at present in the organization, then define the desired state, finally describe the discrepancy between the two as your problem statement. This technique is called the "real-ideal process," in that it is moving from where you are (the real) to where you wish to be (the ideal).

Before moving further into this formal problem solving process, a manager has to answer two questions: 1) do I control sufficient resources to do something about this problem and 2) is there any pressure (e.g., excessive customer complaints) for me to act? If the answers to these questions are "no" formal problem solving will simply become an exercise in futility and a waste of your time.

C. Identification of Decision Criteria

Before rushing into a particular answer, a smart manager will think about just "what" makes a good solution. Thus, the second step is determining what criteria will be used to judge the quality of the decision. A list of characteristics should be chosen that are important in the final outcome. They could include: price, operating cost, training cost, service life, or even ethical issues such as how many people will be laid off. Any key criteria left out at this step will not be addressed, so give this some thought.

D. Allocation of Weights to Criteria

Not all decision criteria are created equal. If the cost of the decision is going to be key to the quality of the solution, that needs to be indicated as such. The way this is done is by assigning a point value to each criterion. These act as multipliers. So, if the value of "cost" is a "4" while "ease of use" is a "1", then in making this decision you are saying that the cost is four times as important to the quality of the decision as the ease of use is.

E. Selection of an Alternative

Now the center of the decision matrix has been filled in, all that is left is to punch the "calculate" button! For every alternative, each criterion value will be multiplied by the weighed value of that criteria and the sums made for each alternative. That sum is the overall score (or solution value) of each alternative. All the manager has to do is pick the alternative with the highest score. If all the proceeding steps were done accurately, this is the best solution.

F. Implementation of the Alternative

Just choosing is insufficient. The alternative must be bought, started, created, or whatever is necessary to implement it. If the formal decision making process stops at the proceeding step, it was only an exercise. But intelligent managers do not walk away after implementing a decision. They realize that mistakes might have been made, alternatives overlooked, criteria mis-weighed, or entirely missing. In order to verify the process and to improve the next decision, the smart manager moves to the last step. So, in our example, we have to go to lunch!

G. Evaluation of Decision Effectiveness

This is the feedback loop. How well did the alternative perform? Was the problem solved or opportunity fully exploited? What was missed? What worked well? Did the alternative live up to the expectations of it created during the analysis stage?

If the alternative works and the problem is solved, the feedback stops. The learning of formal problem solving is carried on to the next problem. If the alternative does not solve the problem, the process is begun over. This loop continues until the problem is solved.

So, we have to ask ourselves, "how was lunch?"

H. Afterward

This process is time-consuming, but a very logical approach to big problems. Smaller or less critical managerial decisions don't need this level of commitment. The next section will explain other decision-making conditions.


Copyright Information
Title: Formal Decisions- Making In Organizations (Lecture Notes)
Author: John Anderson  (Instructor)
University: National University
Course: MGT 409C- Principles of Management and Organization
Date: June 1, 2002 (Received)

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