The main focus of this paper is about different approaches in making decisions in a business or company. Followed by insight into the process of making decision, and some influential factors. Finally, an assessment of manager approaches to risk and uncertainty in decision making is included too.
Decision- making approachs
The literature is rich in theories regarding decision making. Three main theories will be discussed and explained . they are as follow: the rational approach, naturalistic approach, and multiple-perspectives approach.
- The rational approach.
In this theory the manager is expected to be fully aware about the whole situation before taking decision and at the same time to be rational (Turpin and Marais 2006). There are few elements must be available to facilitate the rational decision-making process (Turpin and Marais 2006). These elements are given by Simon ( 1997) :
- Intelligence : picking the right moment to take a decision.
- Design: creating, carrying out, and deep analyzing for all actions possibilities.
- Selecting : picking one choice from all available choices.
- Reviewing : analyzing possible consequences of the chosen course. (Simon 1960).
In typical rationality, it is expected that the decision maker is aware of all possible choices, outcomes, have clear vision and methodology in prioritizing the outcomes, and be able to compare the outcomes and selecting the best (Kreitner, Kinicki et al. 2001). During the choice process, each possibility is linked to numerical value and the possibility with the highest value is determined to be the best choice (Turpin and Marais 2006).
- Naturalistic decision- making approach
The concept of this theory is to put everything in its natural context before understanding and analyzing anything (Turpin and Marais 2006). What makes this theory unique from similar descriptive approaches is its empirical background (Turpin and Marais 2006). Recognition –Primed Decision (RPD) (Klein 1998) approach is the latest update of this theory. The RPD has been introduced by Gary Klein. He analyzed around six hundreds decisions taken in critical situations by ordinary and specialized people like doctors, military generals etc.. (Turpin and Marais 2006).
IN RPD, experiences plays major role and the situation evaluation ability increases with the more experience the decision maker posses (Klein 1998). Based on his own previous experience the decision maker can assess the situation and what direction thing can take and then determines which choice to take. Once the plan has been implemented and things take unfamiliar course , the decision maker could collect new information and modify his decision (Turpin and Marais 2006).
- multiple-perspectives approach
this approach has been presented by Mitroff and Linstone (1993) as an attempt to study a problem from all available perspectives (Mitroff and Linstone 1993). This approach has used Singer and Churchman’s (1971) idea of unbounded systems thinking, which considers any conflict is not isolated from any other conflicts (Churchman 1971, Turpin and Marais 2006).
Perspectives in this approach are being categorized into three main areas. These areas are: technical, individual, and organizational (Turpin and Marais 2006). Technical refers to information collecting process in order to understand the system (Turpin and Marais 2006). Although some projects could be seen as rational or objective assumption of the situation, variety of technical perspectives could be obtained as a result of diverse analysts (Turpin and Marais 2006). Thus, it is highly recommended to develop and generate several technical perspectives of a system. Analyzing of major key-players and stakeholder to maximum limit is required to guarantee a comprehensive coverage of all possible organizational and individual aspects or perspectives (Turpin and Marais 2006).
Despite of some decisions appears to be as brilliant and marvelous decisions , ethically these decisions are not accepted. Thus, In addition to three categories mentioned above, ethical perspectives should be always calculated (Mitroff and Linstone 1993).
Decision-making process in depth
Decision making process is a formula composed of two phases. The first phase is or expansive and the second is convergent (Russo and Schoemaker 2002). The first phase focuses on gathering and studying all possible decisions. The second phase is about eliminating some choices and coming up with one final decision (Russo and Schoemaker 2002, Turpin and Marais 2006). Decision makers usually the follow several different strategies. For example, creating several teams; within the company; with different approaches to coordinate and communicate , and come up with possible solutions. Another strategy is intuitive (Turpin and Marais 2006). Is this scenario, the subconscious plays vital role in the developing of some solutions. There are some similarities between the expansive stage and the design phase of the rational model of Simon’s (1977) and Mitrov and Linstones (1993) model of multiple perspectives style (Turpin and Marais 2006).
In the divergent phase there are two possible scenarios. The first is when the person who is going to take the decision is reluctant and does not have the decisiveness or enough courage to live with uncertainties of his decision. Then the phase will be put on hold to the last second. The second scenario is when the decision maker is confident enough the convergent phase will not take long time and the decision is taken on the spot. However, there is very important factor in the convergent phase which is the balance factor. The balance factor means to be ready to receive and act accordingly to any new information. These information might not delay the speed of making the decision necessarily, even if they could influence it. On the other hand , in certain situations the balance factor might cause some disturbance in the convergent factor and lead the decision maker back to the expansive phase again.
The decision making process is under the influence of many variables. For example , the sophistication of the conflict, limited time available, and surrounding environment (Turpin and Marais 2006). For instance, in dynamic and continuously changing environment such business the exploratory and convergent stages might be squeezed into one phase due to the time limit.
Decision making influential factors
These factors are as follow (Turpin and Marais 2006):
- full and comprehensive evaluation of the situation
understanding the situation and putting everything thing in its context. Categorizing company processes into established frameworks, and appreciation of the value systems of people.
- Presenting data
Overloading any decision maker with information could result in putting him/her in chaos. Effective organizing in of the information in elegant style could save the decision maker time and fasten the process .
- Implementing technology
Nowadays, technology provides useful tools that can lead straight to the point and helps in analyzing the situation.
Managerial Decision Making Under Risk and Uncertainty
Risk in definition is a ( threat to success)(Chapman and Ward 2007). Risk importance comes from the fact it is inseparable part of any project or business plan and can be either positive or negative (March and Shapira 1987, RIPLOVÁ 2007) . While negative risk mean too low chances in success, positive risk equals great chances in getting successful results. Risk management main duty is to decrease risk possibilities in any project or business plan through systemic approach (RIPLOVÁ 2007).
Attitudes to risk
Attitudes to risk can be classified into three areas. These attitudes are neutral, in favor of, and overter (Boehlje and Eidman 1984). Averse risk person prefers to lose some possible revenue or gain in order to reduce risk probabilities. On the other hand, Risk pron- person has the attitude of accepting higher risk potential to gain extra. The risk neutral person has one main target or goal which is not to make huge outcome, but to establish sustainable gain on the long run. This person does not have that much worry about huge losses as long he is getting what he wants (Kaan 2002). to achieve successful decision planning and making , the decision maker must understand his own risk attitude and utilize it along other capabilities he has (Kaan 2002).
Risk management is well established method of how to identify the risk , analysis risk probabilities, track and assess risk continuously, and come out with best solutions to control the risk and reduce its influence or impact (Leonard 1999, RIPLOVÁ 2007). Leonard (1999) has divided the risk management process into 4 stages. These phases are as follow:
Includes putting strategy; aim and targets, evaluating process, executing, and supervising actions; locating recourses, activates, and duties; setting up a criteria to track risk elements; and continuous and regular documentation and organize information (Leonard 1999).
- Risk assessment:
The aim of risk assessment is to identify and analysis ; continuously, all possible risks linked to the system, as long the system is being active.
The main purpose of risk identifying is recognize risks of concern. That could be achieved through identifying potential uncertainty/risk causes. Then converting uncertainty to risk. After that, quantifying risk ,creating probabilities, and prioritizing risk factors (Leonard 1999). Once identifying process is finished, the analyzing process starts.
Risk analyzing process goal is to locate risk causes, evaluate the risk consequences, and what is the best substitutes. In addition to that, selecting which risk to be followed and what criteria to overcome that risk (Leonard 1999).
- Risk handling
Risk mitigation is to follow planning and assessing risk. That can be done through many ways, such as, avoiding risk, controlling risk, and transferring risk (Leonard 1999).
- Monitoring and feedback:
Supervising the progress of the risk assessment and collecting feedback about possible emerging risks. The outcome is yet to be informed to all participated facilities, so the integrity and smooth of the whole process is protected from risks (Leonard 1999).