Managerial decision making is one of the principal concepts of modern practical management. Effective decision making has a great impact on organizational performance, and there is a great deal of historical episodes, when brilliant strategic managerial decisions helped known successful organizations to survive and avoid bankruptcy. Some management theorists treat the model of decision making as an act of choosing the most attractive solution or decision from a number of alternatives. However, decision making must be understood as a complex step-by-step process, a course of actions which leads to making an effective decision and solving a managerial problem.
Step 1. Identification of a problem. This stage includes analyzing the situation and recognition of a discrepancy or a problem, which is considered to be an obstacle on the way to achieving a certain organizational goal or objective. This stage is a key point of the whole process, because if the problem is not identified correctly, then the final decision will be erroneous. In order to analyze the situation more effectively, it is very important to collect all available facts and data. Also, on this stage of a decision-making process managers have to avoid subjectivity and evaluate the situation from short-term and long-term perspectives, as well as be sure that the problem was not simplified and all hidden aspects of it were clarified.
Step 2. Identification of decision criteria. The next stage of the process means finding an answer to the question, what criteria must be taken into account when choosing alternatives and making the final decision. In other words, managers must identify the factors, which are relevant to possible problem solution and must be considered when developing the alternatives. For example, if a decision must be made about buying a car for the company’s needs, such decision criteria as the model of the car, reputation of the manufacturer, price and payment options, gas consumption, accessories and extra items, safety system of the vehicle, and other related criteria should be taken into consideration.
Step 3. Allocation of weight of criteria. When a list of decision criteria is created, the next step of a decision-making process is evaluation of the importance of every single criterion for final decision. Undoubtedly, some criterion are of more importance (for our particular example those can be price and manufacturer of the vehicle), and some are of less importance (for example, color of the car or its interior design). It is recommended to evaluate the weight of every criterion by giving the highest mark to the most important one, the lowest mark to the least important one, and ranking the rest of the criteria according to their importance for the final decision.
Step 4. Development of alternatives. This stage is connected with cultivation and development of various solutions, actions or alternatives for resolving the problem and achieving certain organizational goals. On this stage, it is important to develop as many alternatives or ideas as possible. Sometimes it can be helpful to involve experts or other group members into the process of idea cultivation and use known effective creativity techniques, such as brainstorming, etc. At that, all impractical and unrealistic ideas should be ignored and only feasible, rational and effective alternatives must be considered.
Step 5. Analysis of alternatives. After all alternatives have been developed, it is necessary to analyze and evaluate every one of them. Managers have to choose a logical approach to evaluating the alternatives and use some effective evaluation techniques, including SWOT Analysis (considering strengths, weaknesses, opportunities and threats related to every alternative) or a Decision Matrix (the assessment of every alternative taking into account its rank on the basis of every chosen criteria). These evaluation techniques can be of a great assistance for managers in making mathematically correct assessment, receiving an objective picture of the situation and considering all relevant data. In some situations, it can be also necessary to evaluate the risks connected with every alternative and possible outcomes of every alternative.