Concept of Decision Making

Decision making is a cognitive process that results in the selection of a course of action among several alternative
scenarios.
Decision making is a daily activity for any human being. There is no exception about that. When it comes to business
organizations, decision making is a habit and a process as well.
Effective and successful decisions make profit to the company and unsuccessful ones make losses. Therefore,
corporate decision making process is the most critical process in any organization.
In the decision making process, we choose one course of action from a few possible alternatives. In the process of
decision making, we may use many tools, techniques and perceptions.
In addition, we may make our own private decisions or may prefer a collective decision.
Usually, decision making is hard. Majority of corporate decisions involve some level of dissatisfaction or conflict with
another party.
Let's have a look at the decision making process in detail.
Decision Making Process:
Following are the important steps of the decision making process. Each step may be supported by different tools and
techniques.

STEP 1: IDENTIFICATION OF THE PURPOSE OF THE DECISION:
In this step, the problem is thoroughly analysed. There are a couple of questions one should ask when it comes to
identifying the purpose of the decision.
What exactly is the problem?
Why the problem should be solved?
Who are the affected parties of the problem?
Does the problem have a deadline or a specific time-line?
STEP 2: INFORMATION GATHERING:
A problem of an organization will have many stakeholders. In addition, there can be dozens of factors involved and
affected by the problem.
In the process of solving the problem, you will have to gather as much as information related to the factors and
stakeholders involved in the problem. For the process of information gathering, tools such as 'Check Sheets' can be
effectively used.
STEP 3: PRINCIPLES FOR JUDGING THE ALTERNATIVES:
In this step, the baseline criteria for judging the alternatives should be set up. When it comes to defining the criteria,
organizational goals as well as the corporate culture should be taken into consideration.
As an example, profit is one of the main concerns in every decision making process. Companies usually do not make
decisions that reduce profits, unless it is an exceptional case. Likewise, baseline principles should be identified
related to the problem in hand.
STEP 4: BRAINSTORM AND ANALYSE THE DIFFERENT CHOICES:
For this step, brainstorming to list down all the ideas is the best option. Before the idea generation step, it is vital to
understand the causes of the problem and prioritization of causes.
For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool. Cause-and-Effect diagram helps
you to identify all possible causes of the problem and Pareto chart helps you to prioritize and identify the causes with
highest effect.
Then, you can move on generating all possible solutions (alternatives) for the problem in hand.
STEP 5: EVALUATION OF ALTERNATIVES:
Use your judgement principles and decision-making criteria to evaluate each alternative. In this step, experience and
effectiveness of the judgement principles come into play. You need to compare each alternative for their positives
and negatives.
STEP 6: SELECT THE BEST ALTERNATIVE:
Once you go through from Step 1 to Step 5, this step is easy. In addition, the selection of the best alternative is an
informed decision since you have already followed a methodology to derive and select the best alternative.
STEP 7: EXECUTE THE DECISION:
Convert your decision into a plan or a sequence of activities. Execute your plan by yourself or with the help of
subordinates.
STEP 8: EVALUATE THE RESULTS:
Evaluate the outcome of your decision. See whether there is anything you should learn and then correct in future
decision making. This is one of the best practices that will improve your decision-making skills.
Process and Modeling in Decision Making
There are two basic models in decision making:
Rational models
Normative model
The rational models are based on cognitive judgments and helps in selecting the most logical and sensible
alternative.Examples of such models are: decision matrix analysis, Pugh matrix, SWOT analysis,Pareto analysis and
decision trees, selection matrix etc.
A rational decision making model takes the following steps:
Identifying the problem
Identifying the important criteria for the process and the result
Considering all possible solutions
Calculating the consequences of all solutions and comparing the probability of satisfying the criteria
Selecting the best option
The normative model of decision making considers constraints that may arise in making decisions, like, time,
complexity, uncertainty and inadequacy of resources.
According to this model, decision making is characterized by:
Limited information processing - a person can manage only a limited amount of information.
Judgmental heuristics - a person may use shortcuts to simplify the decision making process.
Satisficing - a person may choose a solution that is just "good enough".
Dynamic Decision Making
Dynamic decision-making (DDM) is synergetic decision making involving interdependent systems, in an environment
that changes over time either due to the previous actions of the decision maker or due to events that are outside of
the control of the decision maker.
These decision makings are more complex and real-time.
Dynamic decision making involves observing how people used their experience to control the system's dynamics and
noting down the best decisions taken thereon.
Sensitivity Analysis
Sensitivity analysis is a technique used for distributing the uncertainty in the output of a mathematical model or
system to different sources of uncertainty in its inputs.
From business decision perspective, the sensitivity analysis helps an analyst to identify cost drivers as well as other
quantities to make an informed decision. If a particular quantity has no bearing on a decision or prediction, then the
conditions relating to quantity could be eliminated, thus simplifying the decision making process.
Sensitivity analysis also helps in some other situations, like:
Resource optimization
Future data collections
Identifying critical assumptions
To optimize the tolerance of manufactured parts
Static and Dynamic Models
STATIC MODELS:
show the values of various attributes in a balanced system
work best in static systems
do not take into consideration the time-based variances
do not work well in real-time systems however, may work in a dynamic system when it is in equilibrium
involves less data
easy to analyze
gives faster results
Dynamic models:
Consider the change in data values over time
Consider effect of system behavior over time
Re-calculate equations as time changes
Can be applied only in dynamic systems
Simulation Techniques
Simulation is a technique that imitates the operation of a real-world process or system over time.Simulation
techniques can be used to assist management decision making,where analytical methods are either not available or
cannot be applied.
Some of the typical business problem areas where simulation techniques are used are:
Inventory control
Queuing problem
Production planning
Operations Research Techniques
Operational research (OR) includes a wide range of problem-solving techniques involving various advanced
analytical models and methods applied. It helps in efficient and improved decision-making.
It encompasses techniques like simulation, mathematical optimization, queuing theory, stochastic-process models,
econometric methods, data envelopment analysis, neural networks, expert systems, decision analysis, and the
analytic hierarchy process.
OR techniques describe the system by constructing mathematical models of it.
Heuristic Programming
Heuristic programming refers to a branch of artificial intelligence. It consists of programs that are self-learning in
nature.
However, these programs are not optimal in nature, as they are experience-based techniques for problem solving.
Most basic heuristic programs would be based on pure 'trial-error'methods.
Heuristics take a 'guess' approach to problem solving, yielding a 'good enough' answer, rather than finding a 'best
possible' solution.
Group Decision Making
In group decision making, various individuals in a group take part in collaborative decision making.
Group Decision Support System (GDSS) is a decision support system that provides support in decision making by a
group of people. It facilitates the free flow and exchange of ideas and information among the group members.
Decisions are made with a higher degree of consensus and agreement resulting in a dramatically higher likelihood of
implementation.
Following are the available types of computer based GDSSs:
Decision Network: This type helps the participants to communicate with each other through network or through a
central database. Application software may use commonly shared models to provide support
Decision Room:Participants are located at one place i.e. the decision room. The purpose of this is to enhance
participant's interactions and decision making within a fixed period of time using a facilitator.
Teleconferencing: Groups are composed of members or sub groups that are geographically dispersed;
teleconferencing provides interactive connection between two or more decision rooms. This interaction will involve
transmission of computerized and audio visual information

How Good is Your Problem Solving?

Use a systematic approach.
iStockphoto/RBFried
Good problem solving skills are fundamentally important if you're going to be successful in your career.
But problems are something that we don't particularly like.
They're time-consuming.
They muscle their way into already packed schedules.
They force us to think about an uncertain future.
And they never seem to go away!
That's why, when faced with problems, most of us try to eliminate them as quickly as possible. But have you ever
chosen the easiest or most obvious solution and then realized that you have entirely missed a much better
solution? Or have you found yourself fixing just the symptoms of a problem, only for the situation to get much worse?
To be an effective problem-solver, you need to be systematic and logical in your approach. This quiz helps you
assess your current approach to problem solving. By improving this, you'll make better overall decisions. And as you
increase your confidence with solving problems, you'll be less likely to rush to the first solution which may not
necessarily be the best one.
Once you've completed the quiz, we'll direct you to tools and resources that can help you make the most of your
problem-solving skills.
How Good Are You at Solving Problems?
Instructions:
For each statement, click the button in the column that best describes you. Please answer questions as you actually
are (rather than how you think you should be), and don't worry if some questions seem to score in the 'wrong
direction'. When you are finished, please click the 'Calculate My Total' button at the bottom of the test.
16 Statements to Answer
Not
at All
Rarely
Some
times
Often
Very
Often


1
Once I choose a solution, I develop an
implementation plan with the sequence
of events necessary for completion.

2
After a solution has been implemented,
I immediately look for ways to improve
the idea and avoid future problems.

3
To avoid asking the wrong question, I
take care to define each problem
carefully before trying to solve it.

4
I strive to look at problems from
different perspectives and generate
multiple solutions.

5
I try to address the political issues and
other consequences of the change Im
proposing so that others will understand
and support my solution.

6
I evaluate potential solutions carefully
and thoroughly against a predefined
standard.

7
I systematically search for issues that
may become problems in the future.

16 Statements to Answer
Not
at All
Rarely
Some
times
Often
Very
Often

8
When I decide on a solution, I make it
happen no matter what opposition I
may face.

9
I find that small problems often become
much bigger in scope, and thus very
difficult to solve.

10
I ask myself lots of different questions
about the nature of the problem.

11
After my solution is implemented, I
relax and focus again on my regular
duties.

12
I focus on keeping current operations
running smoothly and hope that
problems dont appear.

13
I evaluate potential solutions as I think
of them.

14
When I need to find a solution to a
problem, I usually have all of the
information I need to solve it.

15
When evaluating solutions, I take time
to think about how I should choose
between options.

16
Making a decision is the end of my
problem-solving process.



Total = 0
Score Interpretation
Score Comment
Score Comment
16-36
You probably tend to view problems as negatives, instead of seeing them as
opportunities to make exciting and necessary change. Your approach to
problem solving is more intuitive than systematic, and this may have led to
some poor experiences in the past. With more practice, and by following a
more structured approach, you'll be able to develop this important skill and
start solving problems more effectively right away. (Read below to start.)
37-58
Your approach to problem solving is a little "hit-and-miss." Sometimes your
solutions work really well, and other times they don't. You understand what
you should do, and you recognize that having a structured problem-solving
process is important. However, you don't always follow that process. By
working on your consistency and committing to the process, you'll see
significant improvements. (Readbelow to start.)
59-80
You are a confident problem solver. You take time to understand the problem,
understand the criteria for a good decision, and generate some good options.
Because you approach problems systematically, you cover the essentials each
time and your decisions are well though out, well planned, and well
executed. You can continue to perfect your problem-solving skills and use
them for continuous improvement initiatives within your organization. Skim
through the sections where you lost points below, and sharpen your skills still
further! (Read below to start.)
Answering these questions should have helped you recognize the key steps associated with effective problem
solving.
This quiz is based on Min Basadur's Simplex problem-solving model. This eight-step process follows the circular
pattern shown below, within which current problems are solved and new problems are identified on an ongoing basis.
Figure 1 The Simplex Process

Below, we outline the tools and strategies you can use for each stage of the problem-solving process. Enjoy exploring
these stages!
Step 1: Find the Problem
(Questions 7, 12)


Some problems are very obvious, however others are not so easily identified. As part of an effective problem-solving
process, you need to look actively for problems even when things seem to be running fine. Proactive problem
solving helps you avoid emergencies and allows you to be calm and in control when issues arise.
These techniques can help you do this:
PEST Analysis helps you pick up changes to your environment that you should be paying attention to. Make sure too
that you're watching changes in customer needs and market dynamics, and that you're monitoring trends that are relevant
to your industry.
Risk Analysis helps you identify significant business risks.
Failure Modes and Effects Analysis helps you identify possible points of failure in your business process, so that you
can fix these before problems arise.
After Action Reviews help you scan recent performance to identify things that can be done better in the future.
Where you have several problems to solve, our articles on Prioritization and Pareto Analysis help you think about
which ones you should focus on first.
Step 2: Find the Facts
(Questions 10, 14)


After identifying a potential problem, you need information. What factors contribute to the problem? Who is involved
with it? What solutions have been tried before? What do others think about the problem?
If you move forward to find a solution too quickly, you risk relying on imperfect information that's based on
assumptions and limited perspectives, so make sure that you research the problem thoroughly.
Step 3: Define the Problem
(Questions 3, 9)


Now that you understand the problem, define it clearly and completely. Writing a clear problem definition forces you
to establish specific boundaries for the problem. This keeps the scope from growing too large, and it helps you stay
focused on the main issues.
A great tool to use at this stage is CATWOE . With this process, you analyze potential problems by looking at them
from six perspectives, those of its Customers; Actors (people within the organization); the Transformation, or
business process; the World-view, or top-down view of what's going on; the Owner; and the wider organizational
Environment. By looking at a situation from these perspectives, you can open your mind and come to a much sharper
and more comprehensive definition of the problem.
Cause and Effect Analysis is another good tool to use here, as it helps you think about the many different factors that
can contribute to a problem. This helps you separate the symptoms of a problem from its fundamental causes.
Step 4: Find Ideas
(Questions 4, 13)


With a clear problem definition, start generating ideas for a solution. The key here is to be flexible in the way you
approach a problem. You want to be able to see it from as many perspectives as possible. Looking for patterns or
common elements in different parts of the problem can sometimes help. You can also use metaphors and analogies
to help analyze the problem, discover similarities to other issues, and think of solutions based on those similarities.
Traditional brainstorming and reverse brainstorming are very useful here. By taking the time to generate a range of
creative solutions to the problem, you'll significantly increase the likelihood that you'll find the best possible solution,
not just a semi-adequate one. Where appropriate, involve people with different viewpoints to expand the volume of
ideas generated.
Tip:
Don't evaluate your ideas until step 5. If you do, this will limit your creativity at too early a stage.
Step 5: Select and Evaluate
(Questions 6, 15)


After finding ideas, you'll have many options that must be evaluated. It's tempting at this stage to charge in and start
discarding ideas immediately. However, if you do this without first determining the criteria for a good solution, you risk
rejecting an alternative that has real potential.
Decide what elements are needed for a realistic and practical solution, and think about the criteria you'll use to
choose between potential solutions.
Paired Comparison Analysis , Decision Matrix Analysis and Risk Analysis are useful techniques here, as are many
of the specialist resources available within our Decision-Making section. Enjoy exploring these!
Step 6: Plan
(Questions 1, 16)


You might think that choosing a solution is the end of a problem-solving process. In fact, it's simply the start of the
next phase in problem solving: implementation. This involves lots of planning and preparation. If you haven't already
developed a full Risk Analysis in the evaluation phase, do so now. It's important to know what to be prepared for as
you begin to roll out your proposed solution.
The type of planning that you need to do depends on the size of the implementation project that you need to set up.
For small projects, all you'll often need are Action Plans that outline who will do what, when, and how. Larger
projects need more sophisticated approaches you'll find out more about these in the Mind Tools Project
Management section. And for projects that affect many other people, you'll need to think about Change
Management as well.
Here, it can be useful to conduct an Impact Analysis to help you identify potential resistance as well as alert you to
problems you may not have anticipated. Force Field Analysis will also help you uncover the various pressures for
and against your proposed solution. Once you've done the detailed planning, it can also be useful at this stage to
make a final Go/No-Go Decision , making sure that it's actually worth going ahead with the selected option.
Step 7: Sell the Idea
(Questions 5, 8)


As part of the planning process, you must convince other stakeholders that your solution is the best one. You'll likely
meet with resistance, so before you try to sell your idea, make sure you've considered all the consequences.
As you begin communicating your plan, listen to what people say, and make changes as necessary. The better the
overall solution meets everyone's needs, the greater its positive impact will be! For more tips on selling your idea,
read our article on Creating a Value Proposition and use our Sell Your Idea Bite-Sized Training session.
Step 8: Act
(Questions 2, 11)


Finally, once you've convinced your key stakeholders that your proposed solution is worth running with, you can
move on to the implementation stage. This is the exciting and rewarding part of problem solving, which makes the
whole process seem worthwhile.
This action stage is an end, but it's also a beginning: once you've completed your implementation, it's time to move
into the next cycle of problem solving by returning to the scanning stage. By doing this, you'll continue improving your
organization as you move into the future.
Key Points
Problem solving is an exceptionally important workplace skill.
Being a competent and confident problem solver will create many opportunities for you. By using a well-developed model like
Simplex for solving problems, you can approach the process systematically, and be comfortable that the decisions you make are
solid.
Given the unpredictable nature of problems, it's very reassuring to know that, by following a structured plan, you've done
everything you can to resolve the problem to the best of your ability.