By any measure, decision making is a vital management skill. An indecisive manager or waffling supervisor can quickly erode a corporate culture with employee frustration, loss of momentum, a dip in team morale, and there can be bottom-line consequences. On the other hand, having a manager prone to making impulsive decisions based on emotion or without the necessary facts can have similar negative consequences for a company.
In this article, we reveal the strategies leaders can employ in effective management decision making.
What Is Management Decision Making?
Management decision making is choosing a course of action after considering different options to accomplish an organization’s goals. Management involves problem-solving, budgeting, coaching, planning, organizing, staffing, controlling. Therefore, the process that goes into management decision making serves as a continuous, dynamic check and balance system to steer an organization to sustained success.
Why Decision Making Matters
Making informed, sound, and collaborative decisions can help build a solid organizational direction and have a favorable impact on costs.
What Is the Decision Making Process?
When making a decision, the following steps compiled by UMass and Dartmouth can help organize your thoughts and go about decision making more deliberately and thoughtfully:
- Step 1: Identify the decision – Define the problem and determine if a decision is required.
- Step 2: Gather relevant information – This step involves gathering internal and external data. Gather internal information with self-assessment and consider your motivations. Capture external information colleagues, online, books, and other resources.
- Step 3: Identify the alternatives – Identify and list all possible courses of action as they arise.
- Step 4: Weigh the evidence – Visualize the possible consequences of taking each course of action, drawing on your information and emotions. Consider if the situation in Step 1 would be addressed or solved with each alternative. Rank your possible decisions based upon your value system.
- Step 5: Choose among alternatives – Select the best course of action to take. It may even be a combination of other options.
- Step 6: Take action – Implement your decision.
- Step 7: Review your decision and its consequences - Last, evaluate the results of your decision and determine if it addressed the issue identified in Step 1.
Decision Making Techniques and Tools
Up to this point, we’ve merely mentioned the need for research in coming up with alternatives for management decision making. The following is a list of techniques and tools a manager can use to explore different options to land upon a chosen decision:
Marginal analysis helps organizations allocate resources to increase profitability and benefits and reduce costs. An example from indeed.com is if a company has the budget to hire an employee, a marginal analysis may show that hiring that person provides a net marginal benefit because the ability to produce more products outweighs the increase in labor costs.
This tool helps a manager study a situation in four quadrants:
- Strengths: Where does the organization excel compared to its competition? Consider the internal and external strengths.
- Weaknesses: What could the organization improve?
- Opportunities: How can the organization leverage its strengths to create new avenues for success. How could addressing a specific weakness provide a unique opportunity?
- Threats: Determine what obstacles prevent the organization from achieving its goals.
A decision matrix can provide clarity when dealing with different choices and variables. It is like a pros/cons list, but decision-makers can place a level of importance on each factor. According to Dashboards, to build a decision matrix:
- List your decision alternatives as rows
- List relevant factors as columns
- Establish a consistent scale to assess the value of each combination of alternatives and factors
- Determine how important each factor is in choosing a final decision and assign weights accordingly
- Multiply your original ratings by the weighted rankings
- Add up the factors under each decision alternative
- The highest-scoring option wins
The Pareto Principle helps identify changes that will be the most effective for an organization. It’s based on the principle that 20 percent of factors frequently contribute to 80 percent of the organization’s growth. For example, suppose 80 percent of an organization’s sales came from 20 percent of its customers. A business can use the Pareto Principle by identifying the characteristics of that 20 percent customer group and finding more like them. By identifying which small changes have the most significant impact, an organization can better prioritize its decisions and energies.
Decision Making Pitfalls
Taking a systematic approach to decision making helps managers avoid making quick decisions without adequately considering the consequences to the organization or their reputation. Some of the pitfalls of decision making include:
- Consultation ambiguity – This can be a scenario where a group of employees all feel like they have a vote in a decision or when a manager asks for input but doesn’t consider a group’s views. It’s important for a manager to solicit feedback but to make sure that contributors understand it’s the manager’s final decision.
- Avoiding discomfort – Sound management decision making requires leaders who do not confuse their need for comfort with making the best decision. Some of the most effective decisions involve a degree of discomfort for the manager.
- Appearing indecisive – Sometimes, a systematic decision making process has a downside. Being too rigorous in evaluating every possible angle can draw out the process and open the risk of appearing indecisive. Keep stakeholders informed about the timeline for a decision.
- Blind spots – People have particular perspectives and ways of thinking that can create blind spots, which may be important for an effective decision but cannot be readily apparent. It can be helpful to seek input from trusted colleagues to provide a different perspective.
- Groupthink – This occurs when a group’s members want to minimize conflict and reach a comfortable decision at the expense of a critical evaluation of other ideas and viewpoints. It’s important to explore alternatives a group may not have considered.
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