How Entrepreneurs Can Improve Their Decision Making in Their Businesses

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By: Site Engineer, Staff

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Decision-making is the process through which managers identify organizational problems and attempt to resolve them.

The importance of decision-making in any organization underscores the imperative of the entrepreneur’s knowledge of it. The reason has been this, decision-making is one of the most crucial activities of management.

The necessity to decide is the everyday preoccupation of management in all types of organizations whether small, medium, large enterprises or multi-national corporations. No matter how large or small the decision, each contributes to the fundamental success or failure of the organization. Making quality decisions is difficult because the content within which managers make decisions is complex and changing.

Decision-making may be defined as the conscious selection of a course of action from among available alternatives to produce the desired result.

Generally, managerial decision situations fall into two categories:

  • Programmed, and
  • Non-programmed.

Programmed decisions are those that occur infrequently and because of differing variables, they require a separate response each time.

In business, there are absolutely no right or wrong decisions but an intelligent choice. What one considers a right decision in a particular time frame may turn out to be an unintelligent decision if the circumstances change.

The Entrepreneur as Decision Maker

For the fact that the decisions that managers make have a profound impact on the success of the organization, managerial approaches to decision making have been the subject of considerable curiosity and research.

In this article, we describe two major types of models regarding how managers make decisions:

1. The Rational Model

This is a decision taken after exhaustive study and understanding of all information relevant at the time of taking the decision. Such relevant information includes possible alternatives and all potential outcomes.

2. Non-Rational Model

Decision-making is very simple if, from the planning stage, the entrepreneur sets the boundaries within which the business is to operate that is, by defining objectives.

The objectives can be set in the following areas:

  • The growth process to pursue, that is, whether the firm should pursue internal growth by re-investing profits, or seek external growth by mergers and acquisitions.
  • Policies to govern its relationship with customers, employees, shareholders and government officials and agencies.
  • The nature of the company’s product and its quality.
  • The market the firm intends to serve. That is the target market.
  • The profit level and return on investment required.

In order to utilize this objective, the entrepreneur should realize that the objective should be realistic, bearing in mind the limitations placed by the available resources of the firm, especially in terms of men, money, and materials.

Above all, the entrepreneur should take government regulations and policies into consideration when setting objectives.

Steps to Take in Effective Decision Making

Even though do not have control over many factors affecting the success of their decisions; they do have substantial control over the process that they use to make decisions.

Below is the five-step effective decision-making process:

Step I: Identifying the Problem

The first step in the decision-making process is identifying the problem. Part of identifying the problem, of course, is recognizing that a problem even exists. Organizational problems are discrepancies between a current state and condition and what is desired.

This step has three general stages:

  • Scanning the environment for changing circumstances,
  • Categorizing the situation as a problem (or non-problem), and
  • Diagnosing the problem’s nature and causes.

Step II: Generating Alternative Solutions

The second step in the decision-making process is developing at least alternatives. This practice usually leads to higher quality solutions, particularly when the situation calls for creative and innovative ones.

The development of alternatives can often be facilitated through brainstorming, a technique for enhancing creativity that encourages group members to generate as many original ideas as possible on a given topic without evaluating them.

There are four principles involved:

  • Offer as Many Ideas as Possible: Pushing for a higher volume of ideas increases the probability that some of them will be an effective solution.
  • Combine and Improve on Ideas That Have Been Offered: Often the best ideas come from combinations of the ideas of others.
  • Don’t Criticize Ideas While Generating Possible Solutions: Criticism during the idea generation stage inhibits thinking. Also, because discussion tends to get bogged down when early ideas are criticized, only a few ideas are generated.
  • Freewheel: Offer even seemingly wild and outrageous ideas. Although they may never be used, they may trigger some useable ideas from others.

Step III: Evaluating and Choosing Alternatives

This step involves carefully considering both the advantages and disadvantages of each alternative before choosing one of them.

Each alternative should be evaluated systematically according to six general criteria: feasibility, quality, acceptability, costs, reversibility, and ethics.

  • Feasibility: The feasibility criterion refers to the extent to which an alternative can be accomplished within related organizational constraints, such as time, budgets, technology, and policies.
  • Quality: The quality criterion refers to the extent to which an alternative effectively solves the problem under consideration.
  • Acceptability: This criterion refers to the degree to which the decision makers and others who will be affected by the implementation of the alternative are willing to support it.
  • Cost: The cost criterion refers to both the resource levels required and the extent to which the alternative is likely to have undesirable side effects.
  • Reversibility: This criterion refers to the extent to which the alternative can be reversed, if at all.
  • Ethics: The ethics criterion refers to the extent to which an alternative is compatible with the social responsibilities of the organization and the ethical standards of its managers.

Step IV: Implementing the Chosen Solution

For the decision-making process to be successful, managers must give considerable thought to the implementation of the chosen solution. It is possible to make a “good” decision in terms of the first three and still have the process fail because of difficulties at this final step. Successful implementation usually depends on two main factors, sure as, careful planning and sensitivity to those involved in the implementation and/or affected by it.

Step V: Monitoring the Solution

Entrepreneurs need to monitor decision implementation to make sure that things are progressing as planned and also that the problem that triggered the decision-making process has been resolved. The more important the problem is, the greater the effort that needs to be expended on appropriate follow-up mechanisms.

Overcoming Barriers to Effective Decision-Making

The common with decision-making is that entrepreneurs usually do not allow the five-step (process just outlined above). Despite the fact that this general approach is endorsed by a number of decision experts, entrepreneurs may not be aware of the expert’s recommendations. In addition, the entrepreneur faces several barriers to effective decision-making.

There are five ways of overcoming key decision-making barriers:

(i) Accepting the Problem Challenge

There are four basic reactive patterns that characterize the behavior of individuals when faced with a legitimate problem in the form of difficulty or an opportunity.

The first three, complacency, defensive avoidance, and panic represent barriers to effective decision-making. The fourth, deciding to decide, constitutes a more viable approach for decision-makers to follow.

  • Complacency: This is a condition in which individuals either do not see the sign of danger or opportunity or ignore them.
  • Defensive Avoidance: With defensive avoidance, individuals either deny the importance of a danger or an opportunity or deny responsibility for taking action. Defensive avoidance can take three different forms: rationalization (“It can’t happen to me”) procrastination (“It can be taken care of later”) or buck-passing (“It is someone else problem”).
  • Panic: With panic or panic-like reactions, individuals become so upset that they frantically seek a way to solve a problem.
  • Deciding to Decide: With the deciding-to-decide response, decision-makers accept the challenge of deciding what to do about a problem and follow an effective decision-making process. Deciding to decide is an important reaction to a legitimate problem situation. Some guidelines for deciding to decide are presented below.
  • Appraise Credibility of Information: Is it the source in a position to know the truth? If so, is the source likely to be honest? Is there any evidence, and how good is it?
  • Ascertain Importance of Threat or Opportunity How: Is it a real danger or opportunity? If a threat, how severe might the losses be? If an opportunity, how great might the gains be?
  • Determine the Need for Urgency: Is it the threat or opportunity likely to occur soon? Will it develop gradually, or is sudden change likely? If some action is urgent, can the part be done now and the rest later?

(ii) Searching for Sufficient Alternatives

For many decision situations, particularly non-programmed decisions, it is unrealistic for decision makers to collect enough information to identify all potential alternatives and assess all possible pluses and minuses.

(iii) Recognizing Common Decision-Making Biases

Some biases that characterize the way decision makes process information are framing, representatives, availability, anchoring, and adjustment.

(iv) Avoiding the Decision Escalation Phenomenon

When an entrepreneur makes a decision, it is often only one decision in a series of decisions about a particular issue. Further decisions may be necessary, depending on the results of a previous decision. For example, suppose that you decide to hire a new employee because you expect that the person will be an excellent performer.

However, after several months on the job, it is apparent that the person is not performing at an acceptable level. Should you take steps to terminate the worker? Of course, at this point, you have invested considerable time and money in training the new employee, and it is possible that the individual is still learning the job.

So you decide to spend more time helping the worker, and you line up some further training. Even with these additional inputs, 2 months later the worker is still not performing at the necessary level. What do you decide now? Although you have more reason to “cut your losses”, you also have even more invested in making the individual product. When do you discontinue your “investment”?

Decision situations like this one present difficult dilemmas for managers/entrepreneurs. Substantial costs have already been incurred because of an earlier decision. On the other hand, further actions have the potential of either reversing the situation or compounding the initial losses.

Such situations are sometimes referred to as escalation situations because they signal the strong possibility of escalating commitment and accelerating losses. Other barriers like lack of time and lack of information could affect effective decision making in organizations. Entrepreneurs deal with three types of problems: crisis, non-crisis, and opportunity. Opportunity problems are major vehicles for organizational innovation because opportunities involve ideas that could be used, rather than difficulties that must be resolved.

Group Decision-Making

In organizations, more than one person most often makes major decision-making. Group decision-making has several advantages over individual decision making. Despite its advantages group decision-making also has several potential disadvantages when contrasted with individual decision-making.

These advantages and disadvantages are summarized below:

Advantages

  1. An increased number of alternatives can be developed
  2. Individual members of the group are more likely motivated to carry out the decision because they participated
  3. More information and knowledge is focused on the issue
  4. Group interaction result in greater creativity because of different viewpoints of the individual
  5. Members develop knowledge and skills for further use.

Disadvantages

  1. The discussion may be dominated by one or a few group members
  2. It is usually more time-consuming
  3. Group decisions may result in a situation in which no one is responsible and buck-passing results.
  4. Disagreement may delay decisions and cause hard feelings.
  5. Group decision making is very costly as the group must be maintained.

Creativity in Decision-Making

Entrepreneurs should always endeavor to create an ideal environment that is supportive of and promotes creative thinking where individuals should challenge their imagination.

Many organization has in their midst individuals of great inventiveness and the unusual ability to create new ideas. It is the realization that some people are more creative than others that committees are often used in the solution of some vital organizational problems.

Creativity is the cognitive process of developing an idea, concept, commodity, or discovery that is viewed as a novel by its creator or a target audience. In fact, creativity is not the quality of a person; it is a quality of ideas, or behaviors, or products. Creativity is crucial to solving problems in ways that result in important organization innovations.

Stages of Creativity

There are some stages involved in creative thinking as summarized below:

  • Preparation: This stage involves gathering initial information, defining the problem or task requiring creativity, generating alternatives, and seeking and carefully analyzing further data relating to the problem. At this stage, the individual becomes thoroughly immense in every relevant aspect of the problem. For complex technical problems, this stage may take months or even years.
  • Incubation: This stage of the creative process involves mainly sub-conscious mental activity and divergent thinking to explore unusual alternatives. During this stage, the individual generally does not consciously focus on the problem. This allows the subconscious to work on a solution.
  • Illumination: At this stage, a new level of insight is achieved, often through a sudden breakthrough which the creative thinker could now shout “I have found it”.
  • Verification: This stage involves testing the ideas to determine the validity of the insight. This is a period of refinement; at this point, convergent, logical thinking is needed to evaluate the solution. If the solution does not prove feasible, it may be necessary to cycle back through all or some of the previous stages.

 

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