Effective Decision-Making: Strategies and Techniques
Decision-making is the selection of a course of action among alternatives. The process leading to decision-making can be viewed as:
- Establishment of premises
- Identification of alternatives
- Evaluation of alternatives in terms of the proposed goal
- Choice of an alternative, i.e., making a decision
Limited or Bounded Rationality
Limited information, time, and certainty restrict rationality. Satisficing is the process of selecting a course of action that is satisfactory or acceptable under certain circumstances.
Development of Alternatives and the Limiting Factor
A limiting factor is something that gets in the way of the fulfillment of a desired goal. The principle of the limiting factor is to select the best alternative course of action, identifying and overcoming the factors that most strongly oppose meeting a goal.
Evaluation of Alternatives
The next step in planning is to evaluate and select those alternatives whose contributions are ideal for meeting the target.
- Quantitative Factors: These can be measured in numerical terms (time, various fixed and operating costs).
- Qualitative or Intangible Factors: These are difficult to measure numerically (quality in industrial relations, risk of technological change).
Marginal Analysis
This involves comparing the additional revenue produced with additional costs. If the additional income from a larger quantity outweighs its additional costs, higher profits will be obtained if there is more.
Cost-Benefit Analysis
This seeks the lowest proportion of benefits and costs. It helps determine the least costly means to fulfill a goal or to obtain the highest value given certain expenses.
Selecting an Alternative
You can use three basic approaches:
- Experience: A person carefully examines their experience, rather than being led blindly by it, and derives from it the fundamental reasons for their successes or failures. Experience can be useful as a basis for decision analysis.
- Experimentation: A method for deciding between alternatives is to try one of them to see what happens. This technique should be used only after considering other alternatives.
- Research and Analysis: One of the most effective techniques for the selection of alternatives, this method involves solving a problem through deep foreknowledge. One of the most important steps of the research and analysis method is the development of a model for the simulation of the problem.
Scheduled and Unscheduled Decisions
A programmed decision applies to structured or routine problems (applies to routine or repetitive tasks). Unprogrammed decisions apply to innovative and unstructured situations, vaguely defined and non-recurring in nature (apply at the strategic level). Most decisions are not fully programmed but a combination of both.
Decision-Making Under Certainty, Uncertainty, and Risk
In a situation where certainty is present, there is reasonable assurance of what will happen after taking a decision. Available information is considered reliable, and the cause-and-effect relationships are known.
In a situation of uncertainty, however, there is only a fragile information base. It is unknown whether or not it is reliable, and there is a high degree of uncertainty about the probability that the situation will change or not.
Creativity and Innovation
Creativity refers to the ability to develop new ideas. Innovation means using new ideas.
Creative Process
- Unconscious exploration
- Insight
- Discernment
- Logical formulation
Unconscious Exploration
This involves the abstraction of a problem whose mental determination is likely to be very vague.
Intuition
This is a link between the unconscious and consciousness. This stage may involve a combination of concepts that seem contradictory at first sight.
Discernment
For individuals, this involves identifying new combinations and integrating various concepts and ideas. Discernment may result from the merger of ideas on issues other than the problem in question.
Formulation or Logical Verification
Discernment must be submitted to the test of logic or experimentation.
Brainstorming
The purpose of this method is to encourage problem-solving by finding new and unusual solutions.