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Decision Making

Conventional Decision Making

 This mini-module consists of three pages:
• Conventional Decision Making (this page)
Pitfalls of Conventional Decision Making
A Gallery of Atrocious Decisions (The Facts)

This discussion summarizes the main points of the traditional decision-making process. Let's begin with a widely accepted definition for the term decision :

Decision — the act or process of choosing one course of action from among several alternatives

This definition equates decision making with choice: the act of selecting one option from among two or more possibilities. There are four basic ways to approach the problem of choice:

  1. Inactive approach — the decision maker does nothing of consequence to make a thoughtful choice. In effect, the choice is to let the problem resolve itself. This approach —let the chips fall where they may— is quite common in everyday decision making. It cannot, however, be considered rational, for little or no reasoning is actually done. From a strategy viewpoint, it is not rational because the decision maker is forgoing opportunities to favorably influence the outcome. There may well be perfectly good reasons to avoid influencing the outcome (such as a desire to remain neutral in the resolution of an issue) but still, little reasoning is actually done about the content of the decision itself.
  2. Reactive approach — the decision maker opts for a course of action by reacting, possibly unawares, to the choices made by other stakeholders of the problem. Again, this approach is rather common in ordinary decision making. At times, choosing reactively may give the impression of being a rational act in a given set of circumstances, but beware: reacting to the actions of others without first analyzing the overall situation can easily expose the decision maker to unforeseen perils. It is a risky approach which, as history shows, is repeatedly exploited by military strategists and chess masters to their advantage. Clearly, reacting without the benefit of a careful analysis is neither a rational nor an advisable approach.
  3. Proactive approach — the decision maker opts for a course of action by first carefully analyzing the problem situation within its relevant context (the environment in which the problem situation is embedded — see System Concepts), then devising and evaluating prospective measures that increase the likelihood of accomplishing the decision maker’s strategic goal or tactical objectives while complying with all applicable constraints, and only then making the choice. This is the normative approach to decision making in professional management. Since it is based on careful reasoning, the use of available or procurable information, and mindful of previously defined goal, objectives and constraints, it is a rational approach.

  4. Interactive approach — the decision maker probes the underlying problem by experimenting with tentative courses of action before making the final choice. In effect, the decision problem itself is used as a test bed to explore the feasibility and desirability of possible alternative solutions. Although there is some rational validity to this approach —it is, after all, experimental in nature— it is laden with flaws. For one, many problems do not admit of multiple solution attempts: once an alternative is tested, that's it; there are no subsequent opportunities to interact with the problem under the original conditions. But even when repeated testing is possible, the costs and/or risks of doing so may be unacceptable. Ethical issues also arise when the testing affects other people. Modeling provides an effective way to proceed in such cases: probing and testing is conducted on a model, leaving the original problem intact until a definitive course of action is finally settled on.

[In this Website, goals are fundamental ends or ultimate results aimed at by decision makers. Goals are basically strategic in nature: achievements demanding considerable effort that are deemed of crucial importance in the long term, which can be open-ended. Objectives, on the other hand, are somewhat less demanding results one seeks to achieve in the short to medium term, the actual time frame usually being explicit. Objectives tend to be quantified; alternatively, they are categorized discretely such that attainment can be unequivocally determined. Goals may not always lend themselves to precise quantification or distinct categorization; proxy metrics would then be required to assess goal attainment or degree of progress towards attainment. Objectives are sometimes strung together into sequences as means of working towards complex goals. Finally, one can have many objectives, but goals should be kept to a minimum. One must be selective when setting goals if one is serious about accomplishing them.]

Rationality refers to conduct that is in agreement with reason and logic. In the context of decision making, rationality implies three things:

1. Purpose: the decision maker has a well-defined goal and/or objective(s).

2. Intent: all relevant actions taken by the decision maker (and his or her agents) are intended to bring about attainment of the stated goal or objective(s).

3. Coherence: all actions taken by the decision maker do in fact contribute to the attainment of the stated goal or objective(s).

Thus, when rationality is brought to the forefront, a better definition of decision might be:

Decision — an irrevocable commitment of resources intended to accomplish a goal

That is Ronald Howard's definition for decision. And going along with his conception, in this Website if a so-called "decision" is subsequently revoked, it was never a true decision to begin with. Genuine decisions imply concomitant action.

The following procedure provides a way to conduct decision making rationally:

  1. Recognize and define the problem
This refers to the process of correctly identifying and making explicit the actual problem or opportunity faced by the decision maker. To do so, one must first become aware that a problem or opportunity exists and then define the goal and/or objective(s) to be pursued along with the set of constraints that must be satisfied. Defining the problem allows the decision maker to pose the all-important question: What must be done to solve this particular problem? Thus, proper problem definition will help focus the decision maker's attention on possible action alternatives that should, in principle, lead to attainment of the desired results.

  2. Gather information
Information gathering strives to ascertain relevant facts related to the decision problem. This often reduces to a search problem. Typical sources of information are published articles and reports, internal company records, market surveys and intelligence, personal views and opinions of various stakeholders culled by interviews or questionnaires or even informal conversations, professional consultations, and direct observation by the decision maker of actual problem-related factors within or outside the organization.

  3. Identify action alternatives
Creativity is the key in this phase of the decision process. As the decision maker gathers information, s/he begins crystallizing possible solution alternatives. Traditional decision making draws heavily on subjective criteria based on intuition, experience and personal judgment in order to generate action alternatives. More structured methods may also be invoked, such as brainstorming, focus groups and quality circles. The emphasis at this point should be on generating possible courses of action, not on criticizing or evaluating the alternatives. The celeberated catchphrase here is: Think outside the box (don't be constrained by conventional thinking).

  4. Determine the evaluation criteria
In order to evaluate the action alternatives, the decision maker must first determine the evaluation criteria and the relative importance of each criterion. Clearly, the criteria and weighting chosen for the evaluation will determine which alternative is selected. Therefore, the decision maker must try to be as objective as possible in determining the composition and relative weighting of the evaluation criteria so as to guard against personal, organizational and cultural biases that may invalidate the correctness of the decision.

  5. Evaluate the alternatives
The decision maker compares the pros and cons of each action alternative in accordance with the evaluation criteria. Benefits and costs are estimated, and each alternative's potential for attaining the stated goal/objectives is assessed. Weak alternatives are winnowed out and a minimal set of preferred options is determined, often consisting of two or three main contenders.

  6. Select the best alternative
This is the classic decision-making point: choice. By now, goes the traditional argument, the decision maker should be clear on which alternative offers the best course of action. Consequently, the decision is made based on personal judgment. However, even in moderately complex problems, the best alternative may not be readily apparent. Or worse, an inferior alternative might spuriously seem optimal due to errors of subjective evaluation. These errors are very difficult to detect because of a dearth of objective elements with which to cross-check the subjective judgments. Modeling can be extremely useful in identifying optimal alternatives that fail to be perceived by the unaided mind.

  7. Implement the chosen alternative
The decision maker sets in motion a course of action that involves the customary managerial tasks: planning, organizing, leading and controlling. It is at this point that the functional business specialties come into play: production/operations, logistics, marketing, sales and service, accounting, finance, and human resource management. Note that just about all of what constitutes the typical business school curriculum comes into play after the decision has been made. If the decision is a poor choice, nothing that follows will be able to overcome that initial error. Determining the right decision is the most important aspect of any managerial problem.

  8. Evaluate the results
Learn from both your successes and your mistakes.

There is nothing intrinsically wrong with the conventional decision-making procedure. By and large, it tends to produce reasonably effective decisions within stable economic environments. Unfortunately, it also tends to mask potentially serious hazards which can —and frequently do— cause humongous problems, some of which are discussed on the next page.

Making Decisions

Hoffberg & Korver:

Hoffman & Yates:

Kowalski-Trakofler, Vaught & Scharf:

Kansas State University:

Minnesota State University - Mankato:

Pennsylvania State University:

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