The Decision-Making Process

Decision-Making

• The whole process starts with finding out what the problem is and ends with an analysis of the solutions you chose for it.

• You know the steps:

• 1. Identify the problem

• 2. Generate/evaluate alternative solutions

• 3. Choose a course of action (ethics “double-check”)

• 4. Implement the decision

• 5. Evaluate results.

Ajax Company

On December 31, the Ajax Company decided to close down its Murphysboro plant. Market conditions were forcing layoffs, and the company could not find a buyer for the plant. Of 172 employees, some had been with the company as long as 18 years, others as little as 6 months. All were to be terminated. Under company policy, they would be given severance pay equal to one week’s pay per year of service. Top management faced a difficult problem: how to minimize the negative impact of the plant closing on employees, their families, and the small town of Murphysboro.

Identify and Define the Problem

• Gather information, process it, figure out what the problem(s) is(are).

• Be specific with goals. It is easier to evaluate progress this way.

Common Mistakes

• 1. Defining the problem too broadly or specifically.

• Build a better mousetrap (too narrow)

• Get rid of the mice (Better)

Common Mistakes

• 2. Focusing on symptoms instead of causes.

• Symptoms SHOW that there is a problem. (drop in performance)

• Should try to treat the problem (not encouragement). Maybe more training is needed.

Common Mistakes

• 3. Choosing the wrong problem to deal with.

• Set priorities and deal with the most important first.

• Closing the Ajax plant will put a large number of people from the small community of Murphysboro out of work. The unemployment created will have a negative impact on individuals, their families, and the community as a whole. The loss of the Ajax tax base will also hurt the community. The local financial impacts of the plant closing will be great. The problem for Ajax management is how to minimize the adverse impact of the plant closing on the employees, their families, and the community.

Create and Evaluate Courses of Action

• Information needs to be gathered for problem solving.

• “What is known?”

• “What needs to be known?”

• Stakeholder Analysis has input from different stakeholders on courses of action

• Cost-benefit Analysis looks at the cost and benefits of different courses of action.

Create and Evaluate Course of Action

• Benefits: What are the benefits?

• Costs: What are the costs? Not just money, but what you are giving up…I.B. anyone?

• Timeliness: How quickly will the benefits happen?

• Acceptability: Is the alternative accepted by those who have to work with it?

• Is it ethical?

Create and Evaluate Course of Action

• JUST BECAUSE A COURSE OF ACTION IS CONVENIENT DOES MEAN IT IS THE BEST.

• Do not rush this process…think of everything.

• The Ajax plant is going to be closed. Among the possible options that are considered are:

• 1. Close the plant on schedule and be done with it.

• 2. Delay the plant closing until all efforts have been made to sell it to another firm.

• 3. Offer to sell the plant to the employees and/or local interests.

• 4. Close the plant and offer transfers to other Ajax plant locations.

• 5 Close the plant, offer transfers, help the employees find jobs in and around Murphysboro.

Decide on a Preferred Course of Action

• Pick the best course of action for you, the company, and the stakeholders.

• Classical Decision Model – sees the manager facing a clearly defined problem and knows all alternatives and their consequences.

• Optimizing Decisions give the absolute best solution to the problem

• This is rare…we usually never have all the information that we need.

Decide on a Preferred Course of Action

• The behavioural decision model assumes that we can only process so much information. There is a limit to our understanding.

• Satisficing decisions are the first satisfactory option that comes to your attention.

• When do you think you would see these most often?

• …risky and uncertain conditions.

•Management in Ajax decided to follow alternative five as described earlier. They would close the plant, offer transfers to company plants in another city, and offer to help displaced employees find new jobs in and around Murphysboro.

Implement the Decision

• We cannot just choose an action without doing it. Action must be taken.

• Major problems in this step come from lack-of-participation error. Managers must involve everyone who will be impacted.

• This means they will understand and things will move better and quicker.

• Ajax ran an ad in the local and regional newspapers for several days. The ad called attention to an “Ajax skill bank” composed of “qualified, dedicated, and well-motivated employees with a variety of skills and experiences.” Interested employers were urged to contact Ajax for further information.”

Implement the Decision

• Self-confidence is very important for this step. You have to be happy with your ability to get things done and make the right choice.