A managerial decision is the choice of one of the possible alternatives. The selection is based on an analysis of the causes of the situation to be resolved. Responsibility for them is the most important management function. The methods for developing and making managerial decisions are diverse and not similar to each other. The task of the manager is to choose the appropriate method and apply it correctly.
Stages of making management decisions
The manager, in front of whom this or that problem arises, should not rush headlong to solve it and should not clutch at one thing or the other. The process and methods of making managerial decisions are interconnected, however, when choosing any method, management theory recommends observing several stages of preparation and implementation of the choice. They can be divided into preparatory and final.
Preparatory stages
Decision Making Algorithm:
- Identify the problem. At this stage, out of the total number of tasks facing the organization, one particular one is selected, which is to be solved. At the same time, a deadline is set for solving the problem. You cannot solve everything at once, and you cannot solve one problem forever.
- Record the facts. Here, the conditions of the problem being solved are documented, and the reasons that caused this situation are also determined. So that the problem does not recur again and again, the solution must be final and address these causes.
- Search for solutions to the problem. Here managers apply the whole variety of methods for choosing alternatives. The main thing is to choose a specific method and not follow all the techniques at once. The list of alternatives should be clear and final.
- Optimization of the list of action alternatives. Narrowing down the list to two or three alternatives that satisfy the conditions of sufficiency of material, human, financial and time resources. The stage is especially important in the case of collective choice. Starting a discussion of many options will easily and permanently turn the meeting into an empty talking room. The organization of the voting procedure is becoming more complicated.
Final stages
Sequence:
At this point, one of the alternatives is selected, and the manager or collective body assumes responsibility for this choice. It must be documented, indicating the timing, responsible and allocated resources. Sometimes, as a fallback option (the so-called “Plan B”), one of the shortlisted options is recorded. This is done in difficult and emergency situations so that in case of failure of the main option, do not repeat the entire selection procedure, but immediately proceed to the solution.
- The implementation of the solution.
At this stage, the general plan of action formulated in the document is concretized and detailed. The plan is being implemented, the results are reported to the manager or collegial body.
Methods of development and management decision making
A systematic approach is also needed here. Methods of the theory of managerial decision making can be systematized:
- The composition of the group of individuals making the choice is group and individual.
- According to the applied approach - intuitive and rational.
- According to the branch of science on which the method is based - social, probabilistic, economic, etc.
Any classification is conditional, the same essentially method can belong to several classes. The task of the manager is not to delve into the classification, but to select the appropriate methods for making managerial decisions. And in the end, choose the best one from them.
Group methods
Group management decision-making methods involve the use of the synergy of several intelligences on the one hand and the distribution of responsibility on the other. Used in collegial management bodies. They can also be applied in the case of the sole implementation of the choice by the manager and used in this case as additional information.
The main expert methods for making management decisions are as follows:
- Consensus. It consists in conducting discussions, negotiations and mutual concessions until all members of the group (or their predetermined number) agree with one or another option.
- Voting. Accepted is the option for which the majority of participants qualified in accordance with a pre-approved procedure will advocate.
- Delphi. A series of closed anonymous expert surveys is being conducted. Mutual interference of experts on each other is excluded. It is used subject to the availability of sufficient time.
It should be remembered that the distribution of responsibility must be agreed in advance.
Individual methods
They are as follows:
- Franklin Method. It consists in comparing the pros and cons for each option. The option that gives the greatest benefits at the least cost of resources is selected.
- Simple prioritization. Choosing an alternative with maximum utility.
- The first method is acceptable. The options are sorted out until the first minimally acceptable one is found.
- Concession to authority or "expert."
- Flipism, or at random. A coin is thrown, consulted with astrologers, etc.
- Decision support systems. Using software support solutions.
There are other, less common approaches.
Decision-making methods in terms of approach
Another classification of methods - according to the approach used:
- Intuitive. The manager acts on the basis of personal feelings and premonitions. In real life, a well-functioning intuition is a reflection of the unconscious experience of making past decisions.
- Common sense. The choice is made by analogy on the basis of existing historical knowledge or personal experience.
- Rational methods. Based on a quantitative and / or qualitative analysis of the situation. It may contradict the experience of an individual or organization.
Mathematical Management Decision Making Methods
Relate to rational quantitative methods. They are based on a particular mathematical model of a situation in which an organization exists and in which it is necessary to make a choice. Mathematical models and methods for making managerial decisions are numerous and diverse:
- Game theory. The synthesis of military science and gambling. The method of strategic modeling of the responses of a conditional opponent in an external environment, which are sellers, buyers, competitors, etc.
- Queuing theory. Operational situational modeling of resource allocation for the best customer service according to specified criteria. Examples: minimizing customer expectations in the queue of bank customers or cars at a gas station, equipment repair plan to minimize downtime
- Inventory Management. MRP II and ERP theory of operational planning of the order, supply and expenditure of resources, optimization of stocks and accumulation of finished products.
- Simulation modeling. The behavior of a real system is predicted based on the study of behavioral variants under one or another influence of a model created with a certain degree of similarity.
- Linear programming models. Finding the best balance between resources and needs, also to optimize the disposal of equipment.
- Economic analysis. It is based on macro- and microeconomics, which describe the behavior of the market and an individual enterprise, respectively. It is used most often because it offers simple and easily scalable models and calculation algorithms in a particular enterprise and market situation. The essence of this method is to determine the conditions for the economic profitability of certain actions in a specific situation.
- Balance method. It is based on the construction of material, financial and other balances and the study of the shift in the point of their equilibrium under certain managerial influences.
- Payment Matrix. Based on risk analysis and probabilistic methods. By assessing the likelihood of risks affecting the achievement of the goal, a solution is selected with a minimum amount of risk.
- Decision tree. A schematic image is constructed (in the form of a branching tree) of action options with an indication of their financial (or other quantitative) indicators. Based on predetermined criteria, the optimal solution is selected, characterized by maximum probability and best performance.
- Forecasting. It consists in predicting the direction of change of an object or situation on the basis of accumulated experience and actual values of indicators, and in extrapolating these directions for the future.
The manager, as a rule, is not involved in the implementation of calculations and analytical calculations personally. Its role is to correctly pose the task to subordinate analysts and accept the analysis result from them.
Decision Mistakes
Many managerial errors result from the wrong choice. If an error is detected in the early stages of execution, then the chances of correcting it are high, and the costs of corrective actions are small. If the error is detected after the deadline, then the opportunity to fix it is significantly reduced, and the costs, accordingly, increase many times.
Two groups of factors influence the erroneous choice of an alternative - internal and external with respect to the leader making the choice.
Internal error factors
They are determined by the properties of the individual who made the choice:
- Skills of understanding and processing data.
- The nuances of personal development.
- Individual or group value system.
- Motivation.
An example is:
- making a trivial decision;
- inadvertent adjustment of information to the expected;
- reliance on past experience in an irrelevant setting;
- unreasonable and excessive risk;
- procrastination (deferred decision);
- incorrect assessment of the significance of this or that information, underestimation of resources, etc.
To minimize such a negative impact, the leader must develop in himself the appropriate personal qualities, and above all the ability to make independent decisions. To do this, you need to develop critical thinking in yourself, focus only on those initial data that are crucial in a particular situation.
External error factors
Determined by the negative impact of the external environment:
- False sense of duty.
- The influence of the audience.
- Lack of time.
- The effect of advertising.
- The influence of authorities.
A good manager can ignore the negative influences of the external environment, focusing entirely on the situation and the upcoming choice.
Errors caused by the lack of control over the execution of the decision
Sometimes the solution itself may be correct, but it is not possible to execute it and achieve the required results. Performance monitoring is an essential management function.
The error may lie:
- incorrect setting goals for performers;
- incorrect definition of criteria for achieving the goal;
- in the error in setting the deadlines.
The most dangerous mistake is the incorrect setting of goals for performers. A correct goal should be measurable, achievable, time-bound and relevant situation (the so-called SMART goal setting criterion).
How to avoid implementation errors
To minimize the risk of errors during the adoption and execution of decisions, the manager needs to:
- Set goals according to SMART criteria
- Clearly set criteria for making a choice.
- View only relevant information.
- Observe the timing of the decision. To do this, you need to choose the appropriate methods for making managerial decisions.
- Carry out a clear and unflagging control of execution.
- Carefully designate responsible, areas of responsibility and terms of implementation.
A mandatory analysis step after the execution of a decision will also help to avoid mistakes. Methods of analysis of managerial decision making are simple. It is necessary to determine how fully it is implemented, what was possible, and what could be done better. Such an analysis will definitely come in handy in the future.
The role of the manager in decision making
For all the variety of methods for analyzing the situation and making choices, the responsibility for it lies with the leader. The manager’s area of responsibility includes the choice of managerial decisions and management methods. Making management decisions - this is the very unique product produced by the leader. That is why he is paid a salary higher than that of his subordinates.
What methods of managerial decision-making to choose, how to select information relevant to the situation, how to determine the criteria for achieving the result? For this, the manager will need both theoretical knowledge and practical experience of many of the choices made. It is impossible to discount the difficultly formalized, but important factor that distinguishes all successful managers is luck. Business historians call this a long chain of consistently made right decisions leading the enterprise or organization to success.