Proper Decision Making Procedures Managers Should Know

Managers make many different kinds of decisions, such as hours of work, which employees to hire, what products to introduce, and what price to charge for a product. Decision making is important in all management functions and levels, whether the decisions are on strategic, tactical, or operational level. A systematic approach using these six steps usually leads to more effective decisions making:

1. Recognizing and defining the decision situation

2. Developing options to resolve the situation

3. Analyzing the options

4. Selecting the best option

5. Implementing the decision

6. Monitoring the consequences of the decision

The first step in decision making is recognizing and defining the situation. The situation may be negative-for example, huge losses on a particular product-or positive-for example, an opportunity to increase sales.

Situations calling for small-scale decisions often occur without warning. Situations requiring large-scale decisions, however, generally occur after some warning signals. Effective managers pay attention to such signals. Declining profits, small-scale losses in previous years, inventory buildup, and retailers' unwillingness to stock a product are signals that may warn of huge losses to come. If managers pay attention to such signals, problems can be contained.

Once a situation has been recognizes, management must define it. Huge losses reveal a problem-for example, a failing product. One manager may define the situation as a product quality problem; another may define it a change is consumer preference. These two definitions may lead to vastly different solutions to the problem. The first manager, for example, may seek new sources of raw materials of better quality. The second manager may believe that the product has reached the end of its lifespan and decide to discontinue it. This example emphasizes the important of carefully defining the problem rather than jumping to conclusions.