Therefore, in this article I shall describe the sequence of steps involved in the decision-making process. Classifying the problem. Is it generic? Is it exceptional and unique? Or is it the first manifestation of a new genus for which a rule has yet to be developed? Specifying the answer to the problem. What will fully satisfy the specifications before attention is given to the compromises, adaptations, and concessions needed to make the decision acceptable?
Building into the decision the action to carry it out. What does the action commitment have to be? Who has to know about it? Testing the validity and effectiveness of the decision against the actual course of events.
How is the decision being carried out? Are the assumptions on which it is based appropriate or obsolete? The effective decision maker asks: Is this a symptom of a fundamental disorder or a stray event? The generic always has to be answered through a rule, a principle. But the truly exceptional event can only be handled as such and as it comes.
Strictly speaking, the executive might distinguish among four, rather than between two, different types of occurrences. First, there is the truly generic event, of which the individual occurrence is only a symptom.
The problem is generic. This is even more likely to be true of occurrences within manufacturing organizations. For example:. A product control and engineering group will typically handle many hundreds of problems in the course of a month.
Yet, whenever these are analyzed, the great majority prove to be just symptoms—and manifestations—of underlying basic situations.
The individual process control engineer or production engineer who works in one part of the plant usually cannot see this.
Only when the total workload of the group over several months is analyzed does the generic problem appear. Then it is seen that temperatures or pressures have become too great for the existing equipment and that the couplings holding the various lines together need to be redesigned for greater loads. Until this analysis is done, process control will spend a tremendous amount of time fixing leaks without ever getting control of the situation.
The second type of occurrence is the problem which, while a unique event for the individual institution, is actually generic. The company that receives an offer to merge from another, larger one, will never receive such an offer again if it accepts. This is a nonrecurrent situation as far as the individual company, its board of directors, and its management are concerned. But it is, of course, a generic situation which occurs all the time. Thinking through whether to accept or to reject the offer requires some general rules.
For these, however, the executive has to look to the experience of others. The huge power failure that plunged into darkness the whole of Northeastern North America from St.
Lawrence to Washington in November was, according to first explanations, a truly exceptional situation. So was the thalidomide tragedy which led to the birth of so many deformed babies in the early s. The probability of either of these events occurring, we were told, was one in ten million or one in a hundred million, and concatenations of these events were as unlikely ever to recur again as it is unlikely, for instance, for the chair on which I sit to disintegrate into its constituent atoms.
Truly unique events are rare, however. Whenever one appears, the decision maker has to ask: Is this a true exception or only the first manifestation of a new genus? And this—the early manifestation of a new generic problem—is the fourth and last category of events with which the decision process deals. We know now that both the Northeastern power failure and the thalidomide tragedy were only the first occurrences of what, under conditions of modern power technology or of modern pharmacology, are likely to become fairly frequent occurrences unless generic solutions are found.
All events but the truly unique require a generic solution. They require a rule, a policy, or a principle. Once the right principle has been developed, all manifestations of the same generic situation can be handled pragmatically—that is, by adaptation of the rule to the concrete circumstances of the case. Truly unique events, however, must be treated individually. The executive cannot develop rules for the exceptional. The effective decision maker spends time determining which of the four different situations is happening.
The wrong decision will be made if the situation is classified incorrectly. By far the most common mistake of the decision maker is to treat a generic situation as if it were a series of unique events—that is, to be pragmatic when lacking the generic understanding and principle. The inevitable result is frustration and futility. This was clearly shown, I think, by the failure of most of the policies, both domestic and foreign, of the Kennedy Administration.
For all the brilliance of its members, the Administration achieved fundamentally only one success, and that was in the Cuban missile crisis. Otherwise, it achieved practically nothing. Equally common is the mistake of treating a new event as if it were just another example of the old problem to which, therefore, the old rules should be applied:. This was the error that snowballed the local power failure on the New York—Ontario border into the great Northeastern blackout.
The power engineers, especially in New York City, applied the right rule for a normal overload. Yet their own instruments had signaled that something quite extraordinary was going on which called for exceptional, rather than standard, countermeasures. By contrast, the one great triumph of President Kennedy in the Cuban missile crisis rested on acceptance of the challenge to think through an extraordinary, exceptional occurrence.
As soon as he accepted this, his own tremendous resources of intelligence and courage effectively came into play.
Once a problem has been classified as generic or unique, it is usually fairly easy to define. But only the truly effective decision makers are aware that the danger in this step is not the wrong definition; it is the plausible but incomplete one. The American automobile industry held to a plausible but incomplete definition of the problem of automotive safety.
It was this lack of awareness—far more than any reluctance to spend money on safety engineering—that eventually, in , brought the industry under sudden and sharp Congressional attack for its unsafe cars and then left the industry totally bewildered by the attack.
It simply is not true that the industry has paid scant attention to safety. On the contrary, it has worked hard at safer highway engineering and at driver training, believing these to be the major areas for concern. That accidents are caused by unsafe roads and unsafe drivers is plausible enough. Indeed, all other agencies concerned with automotive safety, from the highway police to the high schools, picked the same targets for their campaigns. These campaigns have produced results.
The number of accidents on highways built for safety has been greatly lessened. Similarly, safety-trained drivers have been involved in far fewer accidents. But although the ratio of accidents per thousand cars or per thousand miles driven has been going down, the total number of accidents and the severity of them have kept creeping up. It should therefore have become clear long ago that something would have to be done about the small but significant probability that accidents will occur despite safety laws and safety training.
This means that future safety campaigns will have to be supplemented by engineering to make accidents themselves less dangerous. The meetings we had lacked focus and wasted time," Alligood said, which led her to introduce the decision tree and Pareto analysis methods into her decision-making meetings. This helped. A formal decision-making process can also prevent your company from being guided by fallacy — often the result of gut decisions or a lack of planning.
In the field of behavioral decision theory , which examines the separation of objectively rational decision-making and often irrational intuitive decision-making, these fallacies fall into the latter category. One example of this is sunk cost bias, in which irretrievable investments are used to justify future decisions, only to cause further harm think of the U. Stephens gave the example of a client who was selling their business to cover the debt and investment they had put into it.
They were selling it based on expected performance rather than actual market value. The price was too high, and no one was willing to buy. Another example is extrapolation bias, in which current trends — such as a rise in housing prices — are expected to continue in the same direction, a fallacy that Stephens often observes in finance.
The field of behavioral economics is rife with examples of how common misconceptions lead to enormous financial loss — Stephens outlined several more in this blog post.
While financial decisions can be weighed objectively, unfortunately, there's no economic model for morally guided decision-making. This becomes even trickier when employees must act as decision-making agents, where they're more likely to act on personal financial incentive rather than what's best — morally or financially — for the company as a whole. This is where instituting a decision-making best practice can be useful. Stephen Schwartz, CEO of Varfaj Partners, referred to it in his company as a "pseudo-Kantian framework for decision-making around the office.
Siri Hedreen. Tackle your trickiest decisions with purpose. When it comes to long-term decision-making, SWOT analyses and other techniques provide a popular way for business owners and managers to organize their thoughts. Formal decision-making methods can also help leaders avoid common fallacies like extrapolation or sunk cost bias. We've outlined decision-making techniques that will help you weigh your options.
This may sound like a no-brainer for personal goals, but for business goals , the more stakeholders, the more likely your goals are going to be misaligned. Gather relevant information. This includes identifying courses of action, identifying alternatives and researching both. Evaluate your options. At this point, decision-makers must weigh the evidence. But sustained research attention to business decision making has developed only in recent years.
Contemporary advances in the field include progress in such elements of decision making as the problem context; the processes of problem finding, problem solving, and legitimation; and procedural and technical aids. All decisions are about problems, and problems shape context at three levels. The macrocontext draws attention to global issues exchange rates, for example , national concerns the cultural orientations toward decision processes of different countries , and provincial and state laws and cultures within nations.
The mesocontext attends to organizational cultures and structure. The microcontext addresses the immediate decision environment—the organization's employees, board, or office. Decision processes differ from company to company.
But all companies need to take these three context levels into consideration when a decision needs to be made. Fortunately, economical ways to obtain this information are available and keep the cost of preparing for decisions from becoming prohibitive.
An important difficulty in decision making is failure to act until one is too close to the decision point—when information and options are greatly limited. Organizations usually work in a "reactive" mode. Problems are "found" only after the issue has begun to have a negative impact on the business. Nevertheless, processes of environmental scanning and strategic planning are designed to perform problem reconnaissance to alert business people to problems that will need attention down the line.
Proactivity can be a great strength in decision making, but it requires a decision intelligence process that is absent from many organizations. Moreover, problem identification is of limited use if the business is slow to heed or resolve the issue. Once a problem has been identified, information is needed about the exact nature of the problem and potential actions that can be taken to rectify it.
Unfortunately, small business owners and other key decision makers too often rely on information sources that "edit" the data—either intentionally or unintentionally—in misleading fashion. Information from business managers and other employees, vendors, and customers alike has to be regarded with a discerning eye, then. Another kind of information gathering reflects the array and priority of solution preferences.
What is selected as possible or not possible, acceptable or unacceptable, negotiable or non-negotiable depends upon the culture of the firm itself and its environment.
A third area of information gathering involves determining the possible scope and impact that the problem and its consequent decision might have. Knowledge about impact may alter the decision preferences. To some extent, knowledge about scope dictates who will need to be involved in the decision process.
Problem solving—also sometimes referred to as problem management—can be divided into two parts—process and decision. The process of problem solving is predicated on the existence of a system designed to address issues as they crop up. In many organizations, there does not seem to be any system. In such businesses, owners, executives, and managers are apparently content to operate with an ultimately fatalistic philosophy—what happens, happens. Business experts contend that such an attitude is simply unacceptable, especially for smaller businesses that wish to expand, let alone survive.
The second part of the problem management equation is the decision, or choice, itself. Several sets of elements need to be considered in looking at the decision process. One set refers to the rationales used for decisions. Others emphasize the setting, the scope and level of the decision, and the use of procedural and technical aids.
Organizational decision makers have adopted a variety of styles in their decision making processes. For example, some business leaders embrace processes wherein every conceivable response to an issue is examined before settling on a final response, while others adopt more flexible philosophies.
The legitimacy of each style varies in accordance with individual business realities in such realms as market competitiveness, business owner personality, acuteness of the problem, etc. The latter owners will be much more likely to include findings of meetings, task forces, and other information gathering efforts in their decision making process.
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