The Decision Making Process

The decision making process
The decision-making process Most models of decision making include six essential steps that it is
recommended managers should follow when making decisions.
1. Identify and diagnose the problem.
2. Identify alternative solutions.
3. Evaluate alternatives.
4. Choose an alternative.
5. Implement the decision.
6. Evaluate the decision.
Step 1: Problem identification and diagnosis The first stage of the decision-making process is recognising
that a problem exists and that action has to be taken. A problem is a discrepancy between the current
state of affairs and a desired state of affairs. Unless the problem is identified in precise terms, solutions
are very difficult to find. In seeking to identify a problem, managers can use a variety of sources of data,
including comparing organisational performance against historical performance, against the current
performance of other organisations/departments or against future expected performance. Problem
identification must be followed by a willingness to do something to rectify the situation. Before taking
action the problem needs accurate diagnosis. Diagnosis involves assessing the true cause of the problem
by carefully selecting all relevant material and discarding information which is not relevant to the problem
at hand. Sometimes decisions need to be made when a problem does not exist: for example, a
organization might want to grow rapidly to capitalise on market opportunities and will have to decide on
what route to take.
Step 2: Identification of alternatives Having identified and diagnosed the problem, the next step for an
organisation is to identify a range of alternatives to solve the problem. Managers should try to identify as
many alternatives as possible in order to broaden options for the organisation. In generating alternatives,
the organisation may look toward ready-made solutions that have been tried before, or custom-made
solutions that have to be designed specifically for the problem at hand. In today’s business environment
more and more organisations are applying custom-made solutions to enhance competitive advantage.
Returning to the previous example of an organisation seeking growth opportunities, identifying all the
alternatives is critically important when making a choice about a certain course of action. Some of the
alternatives are:
• growth through acquisition

• growth through establishing an overseas facility
• using an agent to market and distribute the product abroad
• growth through diversification of the existing product line.
With such a decision the organisation has to design its own individual custom-made solution. While the
organisation might be guided by previous decisions it has taken, or by what competitors have done, this
decision is unique and therefore requires new solutions.
Step 3: Evaluation of alternatives Having identified the available alternatives, a manager needs to evaluate
each alternative in order to choose the best one. Consideration should be given to the advantages and
disadvantages as well as the costs and benefits associated with each option. Most alternatives will have
positive and negative aspects and the manager will have to try to balance anticipated outcomes.
Depending on the situation, evaluation of alternatives may be intuitive (based on gut feeling) or based on
scientific analysis. Most organisations try to use a combination of both. When evaluating alternatives,
managers may consider the potential consequences of alternatives under several different scenarios. In
doing so they can develop contingency plans which can be implemented with possible future scenarios in
mind. When evaluating the range of alternatives available to the organisation to handle growth, a number
of different criteria can be applied. The organisation will consider the cost associated with each option as
well as the time taken to complete each alternative. The chances of success of each of the options will
also have to be considered, as will the impact of any decision on employees, training and culture.
Step 4: Choice of alternative Having evaluated the various alternatives, the next step is to choose the most
suitable one. If for some reason none of the options considered is suitable, the manager should revert
back to Step 2 of the process and begin again. When there are suitable alternatives and Steps 2 and 3
have been conducted skilfully, selecting alternatives may be relatively easy. In practice, however,
alternatives may not differ significantly in terms of their outcomes and therefore decisions will be a matter
of judgement. In coming to a decision the manager will be confronted by many conflicting requirements
that will have to be taken into account. For example, some trade-offs may involve quality versus
acceptability of the decision, and political and resource constraints. Returning to our example, using the
evaluative criteria in Step 3 the organisation will make a decision about which alternative to choose for
future growth. Based on an analysis of the market and the organisation’s capabilities they decide to
purchase a small organization with a strong market presence in a geographical region presently unserved
by the organisation.
Step 5: Implementation Once the decision has been made it needs to be implemented. This stage of the
process is critical to the success of the decision and is the key to effective decision making. The best
alternative is worth nothing if it is not implemented properly. In order to successfully implement a
decision, managers must ensure that those who are implementing it fully understand why the choice was
made, why it is being implemented, and are fully committed to its success. Decisions often fail at the
implementation stage because managers do not ensure that people understand the rationale behind the
decision and that they are fully committed to it. For this reason, many organisations are attempting to
push decision making further down the organisation to ensure that employees feel some sense of
ownership in the decisions that are made. To implement the decision to acquire another smaller business
in a different country requires good conceptual skills and could prove challenging. In addition to legal and
competitive issues the organization will have to deal with assimilating aspects of the new business into
their current operations.
Step 6: Evaluation Once the decision is implemented, it needs to be evaluated to provide feedback. The
process of evaluation should take place at all managerial levels. This step allows managers to see the
results of the decision and to identify any adjustments that need to be executed. In almost all cases some
form of adjustment will be made to ensure a more favourable outcome. Evaluation and feedback are not
one-off activities, however, and they should form part of an ongoing process. As conditions change,
decisions should be re-evaluated to ensure that they are still the most appropriate for the organisation.
This also helps managers to learn about making sound decisions taking past experience into account.
Evaluation of the acquisition of a new business will be measured on the success and profitability of the
venture. As the primary goal of the decision was to increase growth opportunities, the organisation should
carefully monitor growth rates. The organisation, having acquired a new business, will feed back its
experiences into the next decision-making process with which it is faced.

The Decision Making Process

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The decision making process

1. Identify and diagnose the problem.

2. Identify alternative solutions.

5. Implement the decision.

6. Evaluate the decision.

• growth through acquisition

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