Decision-making: Six basic steps

Managers are the primary decision-makers for any organization. In carrying out management functions such as planning, organizing, motivating and controlling, a manager will be continually making decisions.

Often managers are known as “good” or “bad” managers because of the decisions that they make. Although the terms “good” or “bad” are not the most accurate, they indicate that managers are evaluated by the consequences of their decisions. End results often are used as a criterion in evaluating a manager’s decision-making skills even though factors beyond the manager’s control may contribute to the final results. Decision-making responsibility, more than any other factor, distinguishes managers from nonmanagers.

Decision-making is the process through which managers identify organizational problems and attempt to resolve them. For example, an advertising manager must decide what media, theme, and costs are needed for promoting a new dog food product. A manufacturing supervisor must decide whether to shut down a packaging machine for preventive maintenance. A personnel director must decide to hire one person instead of another. A systems manager must decide whether to purchase some new computer software.

Six basic steps in decision-making.

The process of making decisions can be divided into six basic steps. The first step is defining the problem. In practice, it is not so easy.

The second step is determining the objective. In most private sector decisions, the principal objective of the firm - and barometer of its performance – is profit: the difference between the firm’s total revenues and its total costs. Sometimes the manager focuses on the narrower goal of minimizing costs.

After addressing the question “What do we want?” it is natural to ask, “What are our options?” So, the third step is exploring the alternatives. The ideal decision-maker, if such a person exists, would lay out all the available courses of action and then choose the one that would best achieve his or her objective. Unfortunately, decision-makers cannot identify and evaluate all possible options.

After assessing the options the manager tries to predict the consequences. It is the fourth step in decision-making. Sometimes elementary arithmetic suffices. In more complicated situations decision-maker often must rely on a model. A model focuses on a few key features of a problem to examine carefully how they work while ignoring other complicating and less important factors.

Having considered the advantages and disadvantages of each course of action the manager comes to the fifth step – making a choice. Of course, the decision-maker selects the alternative that best meets the objective.

The last step is performing sensitivity analysis. Sensitivity analysis considers how an optimal decision would change if key economic facts or conditions were altered.

Do you know these words?

to make a decision	принять решение
accurate	точный, правильный
to indicate	указывать, показывать
to evaluate	оценивать
consequences	последствие
responsibility	обязанность, ответственность
to distinguish	отличать
preventive maintenance	профилактический ремонт
to purchase	покупать
computer software	программное обеспечение
performance	работа, интенсивность работы
revenues	доходы, доходные статьи
costs	издержки
option	предмет выбора, вариант
to explore	исследовать
available	доступный, имеющийся в распоряжении
to assess	оценивать
to suffice	быть достаточным
to rely on	полагаться на …
to meet the objective	соответствовать цели
sensitivity analysis	анализ чувствительности
to alter	изменяться

1. Answer these questions:

1. What is used as a criterion in evaluating a manager’s decision-making skills?

2. What is one of the most important factors distinguishing managers from nonmanagers?

3. What is decision-making?

4. What steps in the process of making decisions divided into?

5. What is the principal objective of a firm in most private sector decisions?

6. What does a decision-maker use to predict the consequences?

7. What does a model focus on?

8. What alternative does the decision-maker select?

9. What is the last step in decision-making?