Right decisions in life or in business determine our future. Making decisions is one of the basic skills, either we get good results or face consequences as a result of making decisions (Hartley, 2011). Even if the results are not according to our desire, still we can derive lessons out of it for further improvement and betterment in future. However, in order to make a decision, you must have a clear objective in mind. Your objectives set a path for your decision, the method is then adopted for fulfillment of the objective. Managerial decisions require a proactive approach, smart managers need to comprehensively analyze the effects of their decisions. The focus must revolve around the benefit of the company. In this regard, long term planning skills are required (Hammond et.al).
Analysis on Prodigy’s Acquisition by SBC communication
The decision of merger made by Prodigy (Internet Service Provider) with telecommunication giant SBC proved to be rational and profitable for them at the same time. The deal saw the rise Prodigy’s subscriber base within months. Prodigy agreement to get acquired by SBC gave them $80 million dollar more than what SBC offered them in the first place. Therefore, the time taken by the committee formed by Prodigy counted greatly in terms of profit. Prodigy (ISP) provides services for both owned and managed digital and dial subscribers Prodigy has coverage at so many locations covering all the states of America. The SBC already had 42 percent stakes in Prodigy. Therefore, purchasing 58 percent of Prodigy’s outstanding common stock or 70.5 million shares at the rate of $6.60 amounted to approximately $ 465 million. In this regard, the tactics adopted by Prodigy benefited the company and its stakes. The committee first analyzed the market situation and they knew that after sometime, SBC would increase its offer which proves that decisions must be taken in haste rather a careful analysis of the whole system proves worthwhile.
Factors Included in Managerial Decision Making Process
Identification of Problem
Awareness of problem enables managers to take appropriate measures in order to resolve it. Describing and discussing the problems with authorities and with other stake holders is also the key. In this way everyone will be onboard, when different minds together help achieving better results. Creativity in defining the problems is also very important. Someone has rightly said that a well-defined problem means half of the problem is solved. The information that is relevant to the problem must be gathered thoroughly for analyzing it critically, this is the way of diagnosing the problem. Briefly, it is the responsibility of managers to look for the critical factors for the application of the choices that are available. Similarly, during identification of the problem, managers must take into account the reasons and determine whether they can be controlled or not.
Comprehensive analysis of the problem
This is the 2nd step in decision making process. A comprehensive analysis of the problem is instrumental to determine as to who will take the decision and who will be informed about the decision. Some key elements must be kept in mind while making the decision, these are as under
- Outcome of the decision
- The overall impact of the decision
- Qualitative considerations
- Distinction in terms of decision
Collection of relevant data
Identifying and analyzing the problem is followed by collection of relevant data. There is an abundance of information in the world of business with the advancement of new technology. The technology has given businesses new trends. Therefore, all the relevant available data should be employed for the effectiveness of the decision. The collection of relevant data leads to clarity in all aspects of the problems.
Preparing alternative solution
Once all the three above mentioned steps have been completed, managers have to determine as to what will the line of action next to solve the problem. For this purpose, they need to explore the best available options that can be used to solve the problem. They need to explore different options that can be used to solve the problems
Choosing the best solution
This stage is highly significant in terms of outcome as the course of actions determine the outcome. If manger has adopted right line of action, it will produce good results but if the action is not in the right direction or it is not applied correctly then company may have to face the consequences. Also, in this stage roles must be defined clearly i.e assignment of tasks to the relevant members. This is also the responsibility of manager to choose right people for the job.
Implementation of decision through actions
After completion of all the five above mentioned steps, it’s the responsibility of manager to ensure the proper implementation of decision. One of his responsibilities is to get the work done in a right way by the people who have been assigned tasks. Mangers must give confidence to his subordinates and convey to them about the importance of the decision made by him. This act of managers will serve as a morale booster for the employees who work to solve the problem. Actually, in a structured organization, different departments work to achieve the goals. Therefore, managers must collaborate with all these departments to ensure smooth operations.
Feedback is the last process in decision making process. In order to test the developments made and for further improvement, proper feedback plays a key role. Feedback can be obtained through organized reports, emails and through personal observation. It is important to know if management should stick to the same decision or some modifications are needed according to the current trends.
Every single step in decision making process is crucial and it needs proper attention by the managers(Hammond, Keeney) . This leads to accurate and effective decision making. In this regard quantitative techniques such as CPM, linear programming etc. are the tools that are helpful in effective decision making process. Decision making leaves the effect on the managerial environment as a whole. Faulty and erroneous decisions often create huge problems for the organization. That is why such irrational decisions must be avoided. Management is the process that needs frequent decision making. If all the six steps of decision making are followed. To derive maximum advantages out of the decisions, managers should make sure that the decisions are timely, rational and appropriate. Hasty decisions often results in disasters.
Rational decisions are best in a way that they often cause the expansion of business. Once the rational decisions are made within the organization, it adds to the goodwill and guarantees further prosperity in business. Rationality and good decision making are interlinked. Rational decisions should be applied to every single aspect of the organization. Rationality means proper thinking, analyzing and then implementing decisions. All the decisions related to business, economics and society must be fair and rational. It should leave an example in long run. However, on some occasions rational and fair decisions are not made and there are several reasons for that. One possibility could be that when decision was taken, it was rational but the outcome as a result of that decision was not expected that is why decision was classed faulty or irrational. Also, if the overall approach of the decision maker is not somewhat causal or indifferent, it yields irrational decision making at the end. In brief, all the businesses and managers tend to stay as much rational as possible for the purpose of effective decision making. Other reasons of irrational decision making are 1. Incomplete information- In order to make decisions rationally, right piece of information is necessary as wrong or incomplete information often causes irrational decision making. 2. Uncertainty- if the overall corporate environment is uncertain then proper decision with rationality is not possible because decision is made on the basis of different variables in terms of economy, society and politics and if information is inadequate, rational and timely decision won’t be made. 3. Limitations of decision maker- A decision should be smart enough to make the decision, he should have proper vision and be able to foresee the situation in the future that could arise as a result of the decision that is being made by him or her. Lack of such abilities and in experience are the hurdles in rational and fair decision making process. Therefore, responsibility also lies on the shoulder of the authorities to ensure the smooth and rational decision making process. 4. Involvement of personal factors- Decision maker should act neutrally all the time, their personal likings, disliking must not affect the process of rational decision making. The decision makers should be fully dedicated to work for the betterment of organization. A biased decision maker won’t do any good for the organization. 5. A rational decision cannot be independent as a whole- Some compromises are made for the rational decision making process. A decision maker gives priority to one factor while paying less attention to others, this is sort of a give and take. For example, if it is the demand of the market to reduce the price of product in that way managers or the decision makers have to compromise on the quality so that market trend can be followed to increase the volume of the sales. Actually, the ultimate goal is the benefit of the organization in the long run. This may bring a bit of irrationality in some of the decision.
Relationship between Planning and Decision Making
Relationship and planning are closely related to each other. Planning is the first step that is involved in the proper decision making process. If planning is solid, it means it had laid the foundation of rational and fair decision making. Planning is the first step to achieve the goals that have been defined and for which a particular decision is made. Planning involves careful consideration of all the factors and how the task can be completed by following certain steps. Planning must be carried out intelligently as it is an integral part in decision making process. According to Peter Drucker, the responsibility lies on the shoulders of top management to set the objective of the business related to business, finance, HR and all other matters. Proper actions cannot be taken without management decision. The managerial decisions should be accurate in all aspects to achieve sustainability in the market, therefore, risk factor is minimal in this regard.
Example (Logistic Management)
The ultimate objective of logistic management is planning and coordination of all the factors that are necessary to fulfillment of the requirement of quality and service at the best possible price i.e. being cost effective all the time. The scope of logistics ranges from management of raw material to delivery of the stock to its destination. Needs of the customers are satisfied in terms of coordination of materials and information that is derived from the market place. A logistic manager’s planning involves all the necessary elements that are required for the smooth delivery of to the supplier. He should consider all the elements for example the demand of supplier, the duration of the product delivery. He should also take into account the competitor’s strategy i.e. how competitors are approaching market, how quick is the delivery process. Based on such elements he can plan effectively to get better results. . The product is actually delivered to supplier by the company but the end user is the customer. The company actually doesn’t sell the product rather it sells the value.
In market, there is a strong competition of supply chain. The previous concept was strong brands followed by the solid marketing campaigns but this concept seems to have faded away. Many prudent organizations have now discovered that it is their competitive edge and strong decision making policies that keep them in the market. For this purpose, strong coordination among all the departments is necessary. The rational and fair decision making reflects from top to bottom. To achieve this, proper meetings should also be conducted on regular basis with all the stakeholders and expert opinions must be sought for better results and to counter the intense competition that is growing every single day.
In conclusion we can say that rational decision making is the foundation for growth and sustainability of a company as we have seen in the example of Prodigy’s merger with SBC communication. The rational decision made by Prodigy boosted its customer base and gave them $ 80 million more than what they were previously getting. Therefore, to adapt to the latest trends companies must go for the rational decision making for long term growth. Identifying and analyzing the market is also a key element.
Smart Choices by Hammond, Keeney, and Raiffa. Harvard Business School Press (2015) ISBN: 978-1633691049
Management Mistakes and Success by Robert F. Hartley. 10th Edition. Wiley Publishing (2011).