Decision Making

Decision Definition:

In many respects a business is a series of decisions linked by implementation. As a manager, you make decisions every day. Some are straightforward, such as determining which of your subordinates should be assigned to a particular project. Others are complex, such as selecting a new supplier. Consider these two examples:
The finance department is moving into new quarters, and Samantha, the department head, needs someone to represent finance on a companywide space-allocation team. For Samantha, this is a straightforward delegation decision: which of her subordinates will be most effective in representing her department? That person must be assertive, must know how to work effectively with others, and must understand the space requirements of the finance department. Samantha knows her people and their capabilities very well. She also knows who can take on added responsibility. So tapping George for the job is an easy decision, and he is eager to accept the assignment. There will be consequences, of course. George will have less time to carry out his regular duties, but neither he nor his manager sees this as a major problem.

Not all decisions are that easy. Some involve trade-offs, risks, and the interplay of various factors, such as the risk and cost of failure. Consider the following, more complex situation:

Precision Interiors designs and builds passenger seats and interiors for auto manufacturers in Europe and North America. To remain competitive, it must continually improve its designs and incorporate materials that improve passenger comfort and safety within cost and durability constraints. In that spirit, one of its teams has been talking with FiberFuture, a small supplier that has developed a new material called Zebutek, which resists flames, cushions impact, and absorbs road noise better than all available alternatives. “If we used Zebutek in the interior roof and door linings,” speculates one engineer,“it could give us a real advantage. It costs more than the material we’re now using, but customers would certainly recognize its value. ”

The decision to adopt the new material, however, is not simple. There are many trade-offs and risks. The engineer makes the following list:

• FiberFuture is a small, relatively new company. Will it be capable of delivering the volume of material we need? Can we count on it to deliver on schedule? Will quality be consistent?
• What will happen if FiberFuture goes out of business? We’d have to scramble to find a different supplier.
• Can our current manufacturing processes work with Zebutek, or will new equipment be needed?
• Our customers, the automakers, are struggling to hold the line on costs. Can we pass on the higher cost of this new material to them, or will they resist? Or should we absorb the additional cost and thereby gain market share?
• Our current supplier of interior materials has been a reliable and collaborative partner for many years. What will happen to that relation- ship if 20 to 30 percent of the business is shifted to FiberFuture?
• Is there some other supplier on the brink of developing a material that’s even better than Zebutek?

Business decisions are difficult when they involve uncertainty, present many alternatives, are complex, and raise interpersonal issues.
Alternative courses of action can be equally troubling when each alternative has its own uncertainties and unknowable outcomes. Complexity, too, makes decision making difficult. For example, the acquisition of another firm involves complex legal, accounting, and valuation issues. Decisions also involve interpersonal issues that are difficult to measure and assess but often determine the success or failure of the actions taken. Over the years, people have developed techniques for dealing with these difficulties, techniques that are part of a logical decision process. This chapter provides an overview of a five-step decision process.

The decision process
• Establish a context for success.
• Frame the issue properly.
• Generate alternatives.
• Evaluate the alternatives.
• Choose the alternative that appears best