Methods of making managerial decisions and their characteristics

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Management decision is the choice of one of the possible alternatives. The choice is made on the basis of an analysis of the causes of the situation to be resolved. Responsibility for them is the most important function of management. The methods of developing and making managerial decisions are diverse and not similar to each other. The task of the manager is to choose the appropriate method and apply it correctly.

Stages of managerial decision-making

A manager facing this or that problem should not rush headlong into solving it and should not clutch at one thing after another. The process and methods of making managerial decisions are interconnected, however, when choosing any method, management theory recommends following several stages of preparing and making a choice. They can be conditionally divided into preparatory and final.

Preparatory steps

Acceptance algorithmsolutions:

1. Identify the problem. At this stage, from the total number of tasks facing the organization, one specific one is selected, which needs to be solved. At the same time, a deadline is set for solving the problem. You can’t solve everything at once and you can’t solve one problem forever.
2. Fix the facts. Here, the conditions of the problem being solved are documented, and the reasons that caused this situation are determined. To prevent the problem from reoccurring again and again, the solution must be final and eliminate these causes.
3. Search for solutions to the problem. Here, managers use the whole variety of methods for choosing alternatives. The main thing is to choose a particular method and not follow all the methods at once. The list of alternatives should be clear and concise.
4. Optimization of the list of action alternatives. Narrowing the list to two or three alternatives that meet the conditions of sufficiency of material, human, financial and time resources. The stage is especially important in the case of a collective choice. Starting a discussion of many options will easily and permanently turn the meeting into an empty talking shop. The organization of the voting procedure is also becoming more complicated.

Final steps

Sequence:

Decision making

At this point, one of the alternatives is selected and the manager or collective body assumes responsibility for that choice. It must be documented, indicating the timing, responsible and allocated resources. Sometimes as a fallback (so-called "Plan B")one of the options included in the short list is fixed. This is done in difficult and emergency situations so that in case of failure of the main option, not to repeat the entire selection procedure, but immediately go to the solution.

Implementation of the solution

At this stage, the general plan of action formulated in the document is concretized and detailed. The plan is executed, the results are reported to the manager or collegial body.

Methods of developing and making managerial decisions

A systematic approach is also needed here. Methods of the theory of managerial decision-making can be systematized:

• According to the composition of the group of persons making the choice - group and individual.
• In the approach used - intuitive and rational.
• According to the branch of science on which the method is based - social, probabilistic, economic, etc.

Any classification is conditional, one and the same method can belong to several classes. The manager's task is not to delve into the classification, but to select the appropriate methods for making managerial decisions. And in the end, choose the best one from them.

Group methods

Group methods of making managerial decisions imply the use of synergy of several intellects on the one hand and the distribution of responsibility on the other. Used in the work of collegial governing bodies. They can also be used in the sole implementation of the choice by the manager and be used in this case as an additionalinformation.

The main expert methods for making managerial decisions are as follows:

• Consensus. It consists in conducting discussions, negotiations and mutual concessions until all members of the group (or a predetermined number of them) agree with one or another option.
• Vote. The option that the majority of participants qualified according to a pre-approved procedure will speak for is accepted.
• Delphi. A series of closed anonymous surveys of experts is being conducted. Mutual influence of experts on each other is maximally excluded. Applicable subject to sufficient time available.

It should be remembered that the distribution of responsibility must be agreed in advance.

Individual methods

They are:

• Franklin method. It consists in comparing the pros and cons for each option. The option that provides the greatest benefits with the least expenditure of resources is selected.
• Simple prioritization. Choosing an alternative with maximum utility.
• The first acceptable method. The options are sorted out until the first minimum acceptable one is found.
• Succumbing to authority or "expert".
• Flipizm, or at random. A coin is tossed, astrologers are consulted, etc.
• Decision support systems. Use of decision support software.

There are other, less common approaches.

Decision-making methods in terms of approach

Another classification of methods - according to the approach used:

1. Intuitive. The manager acts on the basis of personal feelings and premonitions. In real life, a well-functioning intuition is a reflection of the unconscious experience of making past decisions.
2. Common sense. The choice is made by analogy on the basis of available historical knowledge or available personal experience.
3. Rational methods. Based on a quantitative and / or qualitative analysis of the situation. May conflict with past experience of the individual or organization.

Mathematical methods for making managerial decisions

Relate to rational quantitative methods. They are based on one or another mathematical model of the situation in which the organization exists and in which it is necessary to make a choice. Mathematical models and methods for making managerial decisions are numerous and varied:

1. Game theory. Synthesis of military science and gambling. A method of strategic modeling of countermeasures of a conditional enemy in the conditions of the external environment, which are sellers, buyers, competitors, etc.
2. Theory of queuing. Operational situational modeling of resource allocation for the best customer service according to specified criteria. Examples: minimizing customer waiting in a bank queue or cars at a gas station, equipment repair plan to minimize downtime
3. Stock management. MRP II and ERP theories of operational order planning,supply and consumption of resources, optimization of stocks and accumulation of finished products.
4. Simulation. The behavior of a real system is predicted based on the study of behavior options under one or another influence of a model created with a certain degree of similarity.
5. Linear programming models. Finding the best balance between resources and needs, also to optimize equipment disposal.
6. Economic analysis. Based on macro- and microeconomics, which describe the behavior of the market and the individual enterprise, respectively. It is used most often, since it offers simple and easily scalable models and calculation algorithms in the conditions of a particular enterprise and market situation. The essence of this method is to determine the conditions for the economic profitability of certain actions in a particular situation.
7. Balance method. It is based on the construction of material, financial and other balances and the study of the shift in their equilibrium point under certain managerial influences.
8. Payment matrix. Based on risk analysis and probabilistic methods. By assessing the probability of risks affecting the achievement of the goal, a solution with a minimum amount of risks is selected.
9. Decision tree. A schematic representation (in the form of a branching tree) of action options is constructed with an indication of their financial (or other quantitative) indicators. According to predetermined criteria, the optimal solution is selected, characterized by the maximum probability and the best performance.



10. Forecasting. It consists in predicting the direction of change in an object or situation based on accumulated experience and current values of indicators, and in extrapolating these directions for the future.

A manager, as a rule, does not personally perform calculations and analytical calculations. His role is to correctly set the task for his subordinate analysts and accept the result of the analysis from them.

Mistakes in decision making

Many managerial mistakes stem from bad choices. If an error is detected in the early stages of execution, then the chances of its correction are high, and the cost of corrective actions is low. If an error is detected after the deadline, then the possibility of correcting it is significantly reduced, and the costs, accordingly, increase many times over.

The erroneous choice of an alternative is influenced by two groups of factors - internal and external in relation to the manager making the choice.

Internal error factors

Determined by the properties of the individual who made the choice:

• Data understanding and processing skills.
• Nuances of personal development.
• Individual or group value system.
• Motivation.

An example would be:

• making a trivial decision;
• unintentional fitting of information to the expected;
• reliance on past experience irrelevant setting;
• unreasonableand excessive risk;
• procrastination (postponing a decision);
• incorrect assessment of the significance of this or that information, underestimation of resources, etc.

To minimize such a negative impact, the leader must develop the appropriate personal qualities, and above all the ability to make independent decisions. To do this, you need to develop critical thinking in yourself, focusing only on those initial data that are crucial in a particular situation.

External error factors

Determined by the negative influence of the external environment:

• A misunderstood sense of duty.
• Influence the audience.
• Lack of time.
• The impact of advertising.
• Influence of authorities.

A good manager is able to abstract from the negative influences of the external environment, focusing entirely on the situation and the upcoming choice.

Errors caused by insufficient control over execution of the decision

Sometimes the decision itself may be right, but it is not possible to execute it and achieve the required results. Performance control is the most important management function.

Mistake may lurk:

• in the incorrect setting of goals for performers;
• in the wrong definition of criteria for achieving the goal;
• in an error in setting deadlines.

The most dangerous mistake is the wrong setting of goals for performers. A valid goal should be measurable, achievable, time-bound and relevant to the situation (the so-called S. M. A. R. T. goal-setting criteria).

How to avoid implementation errors

To minimize the risk of errors in the course of making and executing a decision, the manager must:

• Goal-setting to implement in accordance with the criteria of S. M. A. R. T.
• Clearly define selection criteria.
• Only consider relevant information.
• Comply with decision deadlines. For this, it is necessary to choose the appropriate methods for making managerial decisions.
• Exercise clear and unrelenting control over execution.
• Prudently assign responsible persons, areas of responsibility and implementation deadlines.

The obligatory stage of analysis after the execution of the decision will also help to avoid mistakes. Methods for analyzing managerial decision-making are simple. It is necessary to determine how fully it is implemented, what was successful, and what could have been done better. Such an analysis will definitely come in handy in the future.

The role of the manager in decision making

With all the variety of methods for analyzing the situation and making a choice, the responsibility for it lies with the leader. The responsibility of the manager includes the choice of management decisions, management methods. Making managerial decisions is the very unique product produced by the manager. That is why he is paid a higher salary than his subordinates.

What management decision-making methods to choose, how to select information relevant to the situation, how to determine the criteria for achieving results? To do this, the manager will need boththeoretical knowledge, as well as practical experience of many choices made. It is impossible to discount and difficult to formalize, but an important factor that distinguishes all successful managers - luck. Entrepreneurship historians call this a long chain of consistently correct decisions that lead a business or organization to success.