A manager is responsible for making decisions on matters falling within the scope of his authority. Moreover, decisions that can be taken at a given level should not be generally referred to as higher levels. A manager should use his skill and intelligence while deciding something because the quality of decisions made by him indicates the extent of responsibility discharged by him. Steps taken in decision-making are as follows:
(i) Identifying and Diagnosing the Real Problem: Understanding the problem intelligently is an important element in decision-making. Predetermined objectives, past acts, and decisions, and environmental considerations provide the structure for current decisions. Once this structure is laid, the manager can proceed to identify and determine the real problem. Diagnosing the real problem implies knowing the gap between what exists and what is expected to happen, identifying the reasons for the gap, and understanding the problem in relation to the higher objectives of the organization. However, sometimes symptoms are mistaken for real problems. Defining a problem is thus not an easy task. Very often it consumes a lot of time which is worth spending.
(ii) Discovery of Alternatives: The next step is to search for available alternatives and assess their probable consequences. But the number of forces reacting upon a given situation is so large and varied that management would be wise to follow the principle of the limiting factor. That is, management should limit itself to the discovery of those key factors which are critical or strategic to the decision involved. Thus, while planning for expansion of the enterprise, availability of finance or of trained staff during a short span of time might be the limiting factors. The Discovery of the limiting factors is so important to the process of decision-making that sometimes it is described as a search for the strategic factors. But the search for the limiting factor or factors is by no means easy. However, in an attempt to discover the strategic factors management should not lose sight of higher objectives of the enterprise, instead, it should analyze the limiting factors in terms of their contribution to the accomplishment of organizational objectives.
(iii) Analysis and Evaluation of Available Alternatives: Once the alternatives are discovered, the next stage is to analyze and compare their relative importance. This calls for a listing of the pros and cons of different alternatives in relation to one another. Management should consider the element of risk involved in each of them and also the resources available for their implementation. Executives should weigh each of them from the viewpoint of the accomplishment of some common goals and in relation to the effort involved and results expected. Both tangible and intangible factors should be considered while evaluating different alternatives. Tangible factors, like profits, time, money, and rate of return on capital investment can be expressed numerically. Such factors are usually evaluated and compared by projecting their effects on the income, expense, and cost structure of the enterprise. Since such factors are analyzed for the future, their evaluation is based on forecasts and estimates. It is, therefore, better if the analyst discovers the extent to which different estimates can be relied upon.
(iv) Selection of Alternatives to be Followed: Defining the problem, identifying the alternatives, and their analysis and evaluation set the stage for the manager to determine the best solution. In such matters, a manager is frequently guided by his past experiences. If the present problem is similar to the one faced in the past, the manager may have a tendency to decide on that very basis. Past experience is a useful guide for making decisions in the present. But it should not be followed blindly. Changes in the circumstances and underlying assumptions of decisions in the past should be carefully examined before deciding on a problem on the basis of experience.
(v) Communication of Decision and its Acceptance by the Organisation: Once the decision is made it needs to be implemented. This calls for laying down derivative plans and their communication to all those responsible for initiating actions on them. It will be better if the manager takes into account the beliefs, attitudes, and prejudices of people in the organization and is also aware of his own contribution to the implementation of the decision. It is further required that subordinates are encouraged to participate in the decision-making process so that they feel committed and morally bound to support the decision. At the same time management should establish effective control so that major deviation can be observed, analyzed, and incorporated in future decisions.