DECISION MAKING IN MANAGEMENT

By : Widiananda Prabowo

1. Defining Decision Making

Decision making is the mental process of choosing from a set of alternatives. Every decision-
making process produces an outcome that might be an action, a recommendation, or an
opinion. Since doing nothing or remaining neutral is usually among the set of options one
chooses from, selecting that course is also making a decision.

2. Difference Between Problem Analysis and Decision Making

While they are related, problem analysis and decision making are distinct activities.
Decisions are commonly focused on a problem or challenge. Decision makers must gather
and consider data before making a choice. Problem analysis involves framing the issue by
defining its boundaries, establishing criteria with which to select from alternatives, and
developing conclusions based on available information. Analyzing a problem may not result
in a decision, although the results are an important ingredient in all decision making.

3. Steps in Decision Making

Decision making comprises a series of sequential activities that together structure the
process and facilitate its conclusion. These steps are:

 Establishing objectives
 Classifying and prioritizing objectives
 Developing selection criteria
 Identifying alternatives
 Evaluating alternatives against the selection criteria
 Choosing the alternative that best satisfies the selection criteria
 Implementing the decision
4. Analysis of Alternatives

Pict 1 : Too many choices increase the difficulty of making a decision.

A major part of decision making involves the analysis of a defined set of alternatives against
selection criteria. These criteria usually include costs and benefits, advantages and
disadvantages, and alignment with preferences. For example, when choosing a place to
establish a new business, the criteria might include rental costs, availability of skilled labor,
access to transportation and means of distribution, and proximity to customers. Based on
the relative importance of these factors, a business owner makes a decision that best meets
the criteria.

The decision maker may face a problem when trying to evaluate alternatives in terms of
their strengths and weaknesses. This can be especially challenging when there are many
factors to consider. Time limits and personal emotions also play a role in the process of
choosing between alternatives. Greater deliberation and information gathering often takes
additional time, and decision makers often must choose before they feel fully prepared. In
addition, the more that is at stake the more emotions are likely to come into play, and this
can distort one’s judgment.

5. Why Decision-making Matters

Decision-making is a truly fascinating science, incorporating organizational behavior,

psychology, sociology, neurology, strategy, management, philosophy, and logic. The ability
to make effective decisions that are rational, informed, and collaborative can greatly reduce
opportunity costs while building a strong organizational focus. As a prospective manager,
effective decision-making is a central skill necessary for success. This requires the capacity to
weigh various paths and determine the optimal trajectory of action.
6. Decision-making Styles

There are countless perspectives and tactics to effective decision-making. However, there
are a few key points in decision-making theory that are central to understanding how
different styles may impact organizational trajectories. Decision-making styles can be
divided into three broad categories:

 Psychological: Decisions derived from the needs, desires, preferences, and/or values of the
individual making the decision. This type of decision-making is centered on the individual
deciding.
 Cognitive: This is an integrated feedback system between the individual/organization making
a decision, and the broader environment’s reactions to those decisions. This type of decision-
making process involves iterative cycles and constant assessment of the reactions and
impacts of the decision.
 Normative: In many ways, decision making (particularly in groups, such as within an
organization) is about communicative rationality. This is to say that decisions are derived
based on the ability to communicate and share logic, using firms premises and conclusions to
drive behavior.

a. Cognitive Theories

While the above styles give a general sense of the logic that drives choices, it is more useful
to recognize that each of these three styles can play a role in any individual’s decision-
making process. From the cognitive perspective, there are a few specific stylistic models
that are useful to keep in mind:

b. Optimizing vs. Satisficing

Decision-making is limited to the finite amount of information an individual has access to.
With limitations on information, true objectivity is impossible. Decisions are therefore
intrinsically flawed. A satisficer will recognize this necessary imperfection, and prefer faster
but less perfect decisions while a maximizer will take a longer time trying to find the optimal
choice. This can be viewed as a spectrum, and each decision (depending on the risk of a
mistake) can be viewed with varying levels of perfection.

c. Intuitive vs. Rational

Daniel Kahneman puts forward the idea of two separate minds that compete for influence
within each of us. One way to describe this is a conscious and a subconscious perspective.
The subconscious mind (referred to as System 1) is automatic and intuitive, rapidly
consolidating data and producing a decision almost immediately. The conscious mind
(referred to as System 2) requires more effort and input, utilizing logic and rationale to
make an explicit choice.
d. Combinatorial vs. Positional

This relationship was put forward by Aron Katsenelinboigen based on how the game of
chess is played, and an individual’s relationship with uncertainty. A combinatorial player has
a final outcome, making a series of decisions that try to link the initial position with the final
outcome in a firm, narrow, and concrete way (i.e. certainty). The positional decision-making
approach is ‘looser’, with a sense of setting up for an uncertain future as opposed to
pursuing a concrete object. Each move from this type of player would maximize options as
opposed to pursue an outcome.

Consensus Flowchart: Regardless of perspective or style, all leaders must make decisions that create consensus. This
model underlines how a manager or leader can discuss various options within a group setting, make proposals for
action, and iterate until agreement is reached.

7. Types of Decisions

Three approaches to decision making are avoiding, problem solving and problem seeking.

Every decision-making process reaches a conclusion, which can be a choice to act or not to
act, a decision on what course of action to take and how, or even an opinion or
recommendation. Sometimes decision making leads to redefining the issue or challenge.
Accordingly, three decision-making processes are known as avoiding, problem solving, and
problem seeking.
 Avoiding

One decision-making option is to make no choice at all. There are several reasons why the
decision maker might do this:

1. There is insufficient information to make a reasoned choice between alternatives.

2. The potential negative consequences of selecting any alternative outweigh the
benefits of selecting one.
3. No pressing need for a choice exists and the status quo can continue without harm.
4. The person considering the alternatives does not have the authority to make a
decision.

One example of avoiding a decision occurs routinely at the Supreme Court of the United
States (as well as other appellate courts). The Supreme Court will decline to hear a case
because, in their judgment, the issues have not been sufficiently considered in lower courts.

 Problem Solving

Most decisions consists of problem-solving activities that end when a satisfactory solution is
reached. In psychology, problem solving refers to the desire to reach a definite goal from a
present condition. Problem solving requires problem definition, information analysis and
evaluation, and alternative selection.

 Problem Seeking

On occasion, the process of problem solving brings the focus or scope of the problem itself
into question. It may be found to be poorly defined, of too large or small a scope, or missing
a key dimension. Decision makers must then step back and reconsider the information and
analysis they have brought to bear so far. We can regard this activity as problem seeking
because decision makers must return to the starting point and respecify the issue or
problem they want to address.
8. 4 Decision-Making and Problem Solving Examples in the Workplace

- Whole Foods and Collaborative Decision Making

In an interview with Big Think, Whole Foods CEO John Mackey talked about how he made
major decisions at Whole Foods—decisions that helped grow the company into a $13.7
billion organization that attracted the attention of Amazon.

During the interview, Mackey said that he “tries to make major decisions at Whole Foods by
trying to come to a consensus among the top minds in the company. When disagreements
get expressed through the decision-making process,” he says, “you generally end up making
better decisions.” Mackey also noted that “while it takes longer to make the decision, once
you begin [to] implement it, it goes a lot faster because there isn’t sort of resistance and
sabotage that works its way through the organization.”

In other words, by bringing others into the decision-making process and encouraging them
to share their dissenting opinions, he could find and address the flaws in a particular
solution or decision more easily. This let Mackey address these issues and get buy-in from
the rest of the leadership at Whole Foods at the same time—minimizing delays from
internecine quibbles after the decision was made and the solution implemented.

So, your own organization might benefit from using a collaborative process on major
internal decisions—one where participants are actively encouraged (and expected) to share
their comments and concerns so that the final decision will have the best possible impact.

- Clearing Out Time to Make Creative Decisions

Tim Ferriss, author of the book Tools of Titans, has interviewed many entrepreneurs and
established business owners for his podcast and for his writing research. In one Big Think
article, Ferriss talks about some of the important insights he’s gleaned from these business
owners over the years.

As it turns out, to make the best and most creative decisions, people sometimes need to
create what Ferriss calls “empty space.” As Ferriss notes in the video interview:

“Three to five hour uninterrupted blocks of time are extremely critical if you want to connect
the dots, if you want to have the space to allow yourself to have original ideas or at least
original combinations of ideas you really need to block out that time and protect it at least
once a week. So, in Tools of Titans, there are many people who do this, Remet Set, for
instance, who has a very, very successful multi, multimillion-dollar business that he built out
of a blog he started long ago in college, which was very, very niche in its focus, he blocks out
I believe it’s every Wednesday for three to five hours of time he’ll block it out for learning.
Noah Kagan, another entrepreneur, does the same thing… Because as soon as you go into
bullet dodging or, like Wonder Woman, bullet blocking mode with everyone else’s agenda
for your time, which is very often the inbox or text messages, you’re DOA, you’re done.”

This frees time to think, learn, and concentrate without having to worry about emails,
phone calls, texts, and other interruptions gives these business leaders the ability to focus
 and think more creatively about their businesses. This has helped them make more
successful enterprises that grow and enable others to excel.

Having to split focus among the concerns of every other member of the team can be
detrimental to decision-making and problem solving. So, for some, creating an empty block
of space in the schedule to learn or think about specific issues without interruption can be
an effective tool.

- Decision-Making After a Break

Even just taking a break from a task to do something else can help improve decision-making
and creativity, as highlighted in a Big Think article about how unconscious thinking can help
with problem solving tasks.

One of the studies discussed in the article, “gave 112 university students two minutes to
generate creative solutions that could improve the experience of waiting in line at a cash
register. Ritter created two groups: half tackled the problem right away, while the others
played a video game for two minutes.” The groups were later asked to pick which of their
ideas were the most creative. Surprisingly, the videogame group seemed to have better
ideas, and to be better at identifying the best ideas.

As the article noted:

“while those in the conscious condition only picked their most innovative concepts about 20
percent of the time – they confused their genius with their mediocrity – those who had been
distracted located their best ideas about 55 percent of the time. In other words, they were
twice as good at figuring out which concepts deserved more attention.”

Although not an example of decision-making in the workplace, this study does highlight an
interesting concept—giving people the time away from a problem can help them be better
at solving it when they come back to it.

So, giving employees a little leeway to back away from a difficult task and come back to it
later can help them be more insightful and creative—leading to better decisions.

- Asking for Advice: Robert S. Kaplan

Robert S. Kaplan, the President and Chief Executive of the Federal Reserve Bank of Dallas,
has a significant piece of advice for business owners who want to improve the way they
make decisions: “Burst your own bubble and ask for advice.”

In his article, Kaplan describes a common problem that gets in the way of leaders finding
ways to improve: the power imbalance between leaders/managers and their teams. This
imbalance of power, as Kaplan puts it, is that “you control their lives, you set their
compensation. If they have future aspirations in their career you’re the person they’re
relying on. You have all the power.” And, this power can make employees fearful of giving
feedback.
So, as a leader, Kaplan says that “you’ve got to ask them for advice.” Kaplan personally
recommends using one-on-one sessions to help make employees just a little more
comfortable sharing their advice because “no one wants to criticize you in front of others.
They’re not going to do that unless they’re suicidal, but most people are not.”

Creating one-on-one sessions with employees to evaluate your areas for improvement as a
leader can be difficult. However, it’s vital to get an outside perspective if you’re going to
correct blind spots in your decision-making processes and see things from a different angle.