Decision Making: Meaning and Characteristics

Meaning of Decision Making

Decision Making is a process of selection from a set of alternative courses of action, which is thought to fulfill the objectives of the decision problem more satisfactorily than others. It is a course of action, which is consciously chosen for achieving a desired result. A decision is a process that takes place prior to the actual performance of a course of action that has been chosen. In terms of managerial decision making, it is an act of choice, wherein a manager selects a particular course of action from the available alternatives in a given situation. Managerial decision making process involves establishing of goals, defining tasks, searching for alternatives and developing plans in order to find the best answer for the decision problem.

Decision Making in Strategic Management

The essential elements in a decision making process include the following:

  1. The decision maker,
  2. The decision problem,
  3. The environment in which the decision is to be made,
  4. The objectives of the decision maker,
  5. The alternative courses of action,
  6. The outcomes expected from various alternatives, and
  7. The final choice of the alternative.

These stages explain how decision making should take place logically. In practice, the influence of various behavioral issues cannot be overlooked. Moreover, the four steps, instead of occurring sequentially, may overlap. And in many cases, decision making takes place in iterative fashion, accepting things that work and rejecting those that do not. Three key factors that are an impediment to good decisions are information quality, human filters and resistance to change. Information may not be accurate, complete, consistent or available on a timely basis. Managers have selective attention, various biases and focus on some dimensions of the problem while ignoring others. Last, but not the least, people are resistant to change. So, decisions often tend to be a balancing of the firm’s various interest groups rather than the most optimal solution.

The way people think, both as individuals and in groups, affects the decisions that they make. Bad decisions take place when the alternatives are not clearly defined; the right information is not collected and the costs and benefits are not accurately weighed. Sometimes the fault lies not in the decision-making process, but in the mind of the decision-maker. Managers often do not realize the various traps that exist while taking decisions. Some common traps include:

  1. The anchoring trap. Managers tend to give disproportionate weight to the first piece of information they receive.
  2. The status quo trap. People like to maintain the status quo, even when better alternatives exist.
  3. The sunk-cost trap. Companies often perpetuate the mistakes of the past because they have invested so much in an approach or decision that they find it difficult to alter course.
  4. The confirming-evidence trap. Managers tend to seek information to support an existing tendency and discount opposing information.
  5. The overconfidence trap. Most people have an exaggerated belief in their ability to understand situations and predict the future.
  6. The framing trap. People’s roles in an organization influence the way problems are framed. So often a problem or situation is incorrectly stated.

Characteristics of Decision Making

  1. It is a process of choosing a course of action from among the alternative courses of action.
  2. It is a human process involving to a great extent the application of intellectual abilities.
  3. It is the end process preceded by deliberation and reasoning.
  4. It is always related to the environment. A manager may take one decision in a particular set of circumstances and another in a different set of circumstances.
  5. It involves a time dimension and a time lag.
  6. It always has a purpose. Keeping this in view, there may just be a decision not to decide.
  7. It involves all actions like defining the problem and probing and analyzing the various alternatives, which take place before a final choice is made.

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