Decision Management (SD) is a set of processes for optimizing actions. Its goal is to improve the management method, using all available information to increase accuracy, consistency and efficiency. Tools such as business rules, business intelligence (BI), continuous improvement (Kaizen), artificial intelligence (AI), and predictive analytics are used to implement it. To successfully manage a company, you need to know all about the factors that influence the process of making a managerial decision.
Decision system
It is the basis of managerial action. It is a continuous cycle of functioning an important component of a holistic leadership process. To decide is to come to a certain conclusion for the right choice from many alternatives.
The adopted version of the team’s actions is necessary for organizational and planning management, monitoring and staff selection. The study of factors affecting the process of making managerial decisions is a mandatory stage of management.
Top management is responsible for all strategic stages, such as business goals, capital expenditures, operational events, staff training and other management elements. Without such SD, no actions can be taken, and the resources expended will become unproductive. Solutions must be as accurate as possible. In today's business space, they require a scientific approach.
Oxford terminology and modernity
In the Oxford Dictionary, the term "decision making" is defined as "action for implementation or implementations." It means choosing two or more alternative courses. For any business problem, there are alternative ways with their own factors influencing the management decision-making process.
Managers are considering these alternatives and choosing the best option. For actual implementation, managers should consider the available business environment and choose a promising alternative plan. When making a decision, it is necessary to critically consider various options and choose from the best. An alternative can be right or wrong, but the assessment will be given in the future, based on the actual results obtained from its implementation.
Stages of work of the head
Decision making consists of a series of steps that are selected in a logical way. This is a rational process that requires a lot of time and provides some rules and guidelines on how to take them, including many organized actions.
Peter Drucker was the first to support the scientific approach in the world-famous book, Management Practices, published in 1955. In it, he clearly identified all the factors affecting the process of making managerial decisions, and recommended a scientific method using the following steps:
- Definition of a real business problem. Information relevant to it should be collected in such a way that its critical analysis is possible. It is necessary to clearly distinguish between problems and symptoms that can obscure the real cause. The manager should look for a critical factor, consider all failures and find out whether they are subject to control or not.
- Analysis of the situation. Classify this parameter in order to determine the circle of managers, decision-makers, and persons for whom mandatory information is required. Factors in the process of making managerial decisions taken into account in the analysis: future stage, scope of influence, number of arguments involved and their uniqueness.
- Collection of problem data. In the business world, there is a powerful information flow, provided by the latest developments in the field of information technology. All available profile information is fully used to analyze the problem, which allows us to explain all its aspects.
- Development of alternatives. The manager is obliged to determine the available alternatives that can be used to solve this problem. In the process of making and implementing management decisions, only realistic alternatives need to be considered. It is equally important to consider the time and cost limitations, as well as the psychological barriers that inhibit them.
- The optimal choice of solution is the most rational option. The alternative chosen in this way is brought to the knowledge of those who may influence the implementation.
- Converting a solution into action. Without this, it will remain only a declaration of good intentions. The team must implement it fully, according to the plan approved by the management, received taking into account all factors of the management decision-making process.
- Providing feedback. The manager should take measures to provide feedback using continuous testing of real developments in order to meet expectations from the implementation of the action plan. Feedback is possible in the form of organized information, reports and personal observations. It is necessary to decide whether to continue the plan that has already been adopted or to adjust it in the light of changed circumstances.
Tiered factors
Decision making is an important aspect of modern management, as they determine the organizational actions of the company. This is the main function of managing. It can be defined as a course of action that is deliberately chosen from a set of alternatives to achieve the desired result.
Some factors are more important at the highest levels of administration, others at lower levels. There are various types of solutions:
- programmed;
- non-programmable;
- input data;
- prejudice;
- cognitive limitations.
Programmable ones are defined in the process of making and implementing managerial decisions under the assumed conditions, when managers have clear parameters and criteria, when problems are well structured, and alternatives are clearly defined. Difficulties must be resolved through established guidelines and procedures.
Unprogrammable - a consequence of unique circumstances, and their results are often unpredictable. Managers face poorly structured issues that require user response. They are usually handled by top management.
The input data is important because it is necessary to have adequate and accurate information about the situation in order to make a decision, otherwise its quality will suffer.
Prejudice and prejudice arise when making management decisions. In the management process, due to the peculiarities of human perception of the world, ineffective options can be selected. Since the perception is selective, the manager receives information from the outside world through filtering his feelings. In addition, the subjective attitude distorts the data in accordance with pre-established beliefs, attitudes and values.
Cognitive limitations also influence problem solving. The human brain, which is the source of thinking and creativity, is limited in its ability to adopt a complex version of the many fragmented structural elements for several reasons. For example, human memory is short-lived, capable of simultaneously retaining only a few ideas, words and symbols. That is why it is difficult to simultaneously compare all possible alternatives and make a choice when making managerial decisions.
Management Process and Risks
Decisions are formed in a person through certain personal qualities and organizational characteristics. The risk variables are affected by the following variables:
- The mind of the developer. A higher level of intelligence usually leads to very conservative views, such individuals make low-level decisions.
- The expectation of success. People with a high level of expectations, as a rule, are very optimistic and are ready to draw a conclusion even with less information. Managers who take action with low-level success will need more information in the process of making managerial decisions in the organization.
- Time limit. In the modern world there are situations when, for a number of personal reasons (family, household, for health reasons), the performer needs more time to make a rational decision. Nevertheless, there is a category of workers who work better in less time and can quickly produce ideas.
- Heuristic approach. Most people in the absence of time rely on this approach based on satisfactory rather than optimal options. Such actions limit the search for additional information, consider fewer alternatives, without focusing on the causes of deviations. This approach can also be used when the cost of collecting information and evaluating it is too high.
Personal habits and social influence
The personal habits of managers are formed as a result of social influences of the environment and processes of personal perception, occupy an important place in the main processes of making managerial decisions. They need to be studied in order to provide for a personal leadership style.
Some people adhere only to their opinion, even if it is not optimal for the production situation. Others cannot admit that they were mistaken, and continue to act, ignoring clear evidence indicating the need for change. There are managers who explain failure by external factors, rather than their own mistakes. These personal habits have a big impact on organizational operations and efficiency.
Social and group norms also have a significant impact on decision making. Experts define the social norm as a rating scale and indicate the permissible and undesirable breadth for behavioral activity, events, beliefs, or any object that worries members of a social group.
In other words, a social norm is a standard and generally accepted way of making judgments. Similarly, cultural education and its various aspects have a profound influence on leadership style. For example, in the Japanese organizational system, a person makes a decision in agreement with other participants. This style is culturally oriented and greatly facilitates the implementation, as each team member is involved in this process.
Management decision making process analysis
This is an important stage and perhaps the most difficult. Managers must identify the strengths and weaknesses of each alternative and weigh them in the light of various situations before making a final plan.
Alternatives development methods:
- Brainstorm when a team works together to generate ideas and alternative solutions.
- The nominee group technique is a method that involves the use of a highly structured meeting with an agenda. This model limits discussion or interpersonal communication in the process.
- The Delphi technique, when the participants do not meet, but the team leader uses written methods in the process of making managerial decisions and evaluating alternatives.
Alternatives can be evaluated in a variety of ways:
- Qualitative and quantitative measurements.
- Cost-benefit analysis for each alternative.
- Margin Analysis.
After the alternatives have been analyzed and evaluated, the manager should choose the best option that gives the most preference in fulfilling all the necessary criteria. Sometimes the choice is simple with obvious benefits, but usually the best solution is to combine several alternatives. In cases where the best alternative may not be obvious, the manager uses probability assessment, research and analysis based on his experience and judgment.
The work of managers does not end with decision making. Managers are responsible for obtaining positive results from the implemented plan, the effectiveness of which is checked using evaluation systems that provide feedback to monitor the quality of the improvement.
The main group of factors
A number of factors can influence the definition of managerial decision making.
They are divided into three main groups:
- Perception problems. This can be described as a way for participants to interpret their environment. A person's perception can influence how he solves problems. For example, when it is necessary to collect information about a problem, this feeling affects where the information is searched.
- Organizational policy refers to the behavior of individuals and groups that will influence other executives of the company's plans.
- Environmental problems. They are external factors affecting the organization. Types of external factors - this is the market in which the company operates, the economy, state legislation, customer reactions to the products and services of the organization.
Executive style
The development of managerial decision-making process largely depends on the personality and approach to solving problems. Each leader or manager has his own individual style, complemented by experience and personal abilities. There are several styles of management personnel:
- Legitimate or autocratic action. Managers who adhere to this style, evaluate several alternatives, use limited information. They do not consider it important to consult with others, to seek more complete and reliable information.
- Analytical action. Managers who use this style would like to get more information and consider a number of alternatives before finalizing decisions. They search for relevant information from their sources, find and study it in detail, using all possible resources. Such managers are cautious people, they are able to adapt and cope in unique situations.
- Behavioral decision making. Leaders who adhere to this model believe in joint management, take into account the opinion and experience of subordinates, and always listen to them.
- Conceptual decision making. Managers using this style are intuitive in their thinking and tolerant of uncertainty. They study many alternatives and focus solely on long-term prospects.
Technology
The sequence of the management decision-making process includes various technological types. Information technology provides support for DSS business solutions and AI. The combination of these systems helps to create a database through the online analytical OLAP process to facilitate a procedure that requires considerable effort and analysis, which simplifies the process of making management decisions.
The level of technology at the enterprise provides the formation of a plan for the implementation of the selected option:
- Data processing capabilities increase with the introduction of technologies that help you quickly make business decisions, providing the ability to process huge amounts of information using data mining tools.
- Providing the speed of technology for the management decision-making process, processing huge arrays and complex processing models, helps to create useful information.
- Technologies support group decision making; a team of employees can use a group support system for a fast-moving process.
- GDSS decision support system is a type of system that facilitates the formulation of problems by the group, the adoption of team plans through integration, teamwork, DSS capabilities and telecommunications. The more complex and less structured the decision the team must make, the more GDSS can help.
Flexible interactive systems
In order to make quick and important decisions in the organization, modern technology is used:
- Decision Support Systems DSS is a very flexible and interactive IT system designed to support the process when the problem is not structured.
- The GDSS Decision Support Group is a system that facilitates the formulation of group problems.
- Geographic Information Systems (GIS) are systems specifically designed for spatial information.
- Artificial Intelligence (AI) is the science of creating machines that mimic human thinking and behavior.
- Expert systems are artificial intelligence systems that use the power of logic to draw conclusions.
- A neural network is an intelligent system that can learn to distinguish patterns.
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It provides a concrete form for broad decisions of business goals adopted by a top manager. This process with continuous control function. Leaders at all levels make decisions within their job responsibilities. Continuity of the process is mandatory for all managers and management personnel.
Further action is not possible if no decisions are made. They need to be formed on a regular basis, as new problems, difficulties and failures develop in the business. This may be due to changes in the environment. New products, competitors may appear on the market, and government policy may change. All this leads to environmental changes around the business structure.
This is a delicate and responsible work. Managers must make quick and correct decisions in the exercise of their responsibilities. In fact, they are paid for their maturity and ability to be responsible. Management activity is possible only if appropriate plans are adopted. The right actions provide opportunities for growth, and the wrong ones lead to losses and instability for the company.
General management errors
Many factors that influence decision making can lead to errors. The leader of the group, who is timely and fully aware of all possible types of errors and their causes of errors, is in a better position. Some common mistakes and their types in the process of making managerial decisions:
- Avoiding a personality template. Each person has their own unique set of advantages or prejudices that lead to a particular leadership style. The best way to deal with this problem is to try to be open to information within the control system.
- Excessive trust in other people's information. Managers often rely on other people's opinions. However, if they do not directly participate in a problem situation, they cannot have the necessary level of awareness for decision-making.
- Ignoring information received from team members. This problem can easily arise in a team situation. In many cases, company employees are the people who are most closely related to the problem. If you do not listen to their opinion, there is a general team failure. The best way to resolve this problem is to ensure that all members of the organization participate in this process.
- Ignoring intuition. In many cases, people act correctly on a subconscious level. Unfortunately, they often tend to ignore their intuition, after which they commit the wrong actions.
Top Management Tips
There are strategies that you can use to avoid common mistakes and hone your managerial skills. Making better and faster decisions will help the team take advantage of business opportunities and avoid pitfalls:
- Rethink the problem. When a team encounters an obstacle in an activity, it is necessary to study its full context and see the problem from the maximum possible point of view. This will help to ignore one aspect or neglect others. You need to find at least 3 different ways to address the problem.
- Make informed decisions. The goal of management is to use scientific evidence when making plans, and not just rely on intuition.
- Apply performance data to support solutions.
- Get the most current and complete information from your business environment.
- Challenge your inner feelings and find objective evidence to support them.
- Listen to the opinions of others.
- Be open-minded.
- Find ways to encourage company information sharing.
- Be open to conversation and create an atmosphere in which people can be direct even when an unpleasant truth is revealed.
- Develop a sense of risk.
- Forget past mistakes. People tend to make choices that justify past experiences, even if the previous decision didn't work. They also tend to spend time and money correcting past problems when it would be more beneficial to admit a mistake and move on.
- Be honest with yourself.
- Be decisive.
Thus, it is clear that decision-making is an important aspect of modern management and it is better to do it professionally.