Decision Analysis

A major tool to find out what structure is needed is an analysis of decisions. To find out the decisions that are required to be made to obtain the performance necessary to attain the objectives and the kind of decisions needed. On what level of the organizations should they be made? To find out activities that are involved in or affected by the decisions. Which managers must therefore participate in the decisions at least the extent if being consulted beforehand? Which managers must be informed after they have been made?

It may be argued that it is impossible to anticipate what kinds of decisions will arise in the future. But while their content cannot be predicted nor the way ought to be made their kind and subject matter have a high degree of predictability. In one large company it was found that well over 90% of the decisions that managers had to take over a five year period were what might be called “typical”, and fell within small number of categories. In only a few cases would it have been necessary to ask: Where does this decision belong? The problem was not thought in advance because there was no decision analysis. Almost three quarters of the decisions had to go looking for a home as the graphic phrase within the company put it, and most of them went to a much higher level of management than they should have.

It has also been argued that a breakdown of decisions must be an arbitrary measure. One president likes to make one kind of decision himself another president another kind the argument runs. Of course personalities and their preferences lay a part in any organization. The area of personal preference is small and marginal and adjustment to it is fairly easy (after all, how often do presidents change?). Furthermore what matters is not what the president lies to do but what he and every other member of management should do in the interests of the enterprise. Indeed, if personal preference rather than the objective needs of the business are allowed to control where decisions are being made, effective organization and good performance become impossible. It is no accident that the greatest single cause for the failure of businesses to consolidate their growth and for their relapse into smallness if not into bankruptcy is failure of the boss to give up making decisions which are no longer required to be made by him.

To place authority and responsibility for various kinds of decisions requires standard classification as policy decisions and operating decisions debates of a highly abstruse nature. There are some basic characteristics which determine the nature of any business decision.

First where does it commit the company? And how fast can it be reversed?

The decision whether the raw material requirements of a speculative commodity such as copper should be bought according to production schedules or according to a forecast of price fluctuations may involve a good deal of money, and a complex analysis if any factors. It may, in other words be both a difficult and an important decision. But it is almost immediately reversible; all it commits the company to is the duration of a futures contract its importance and difficulty, should therefore always be pushed down to the lowest level of management on which it can be made: perhaps the plant managers or the purchasing agent.

The second criterion is the impact a decision has on other functions, on other areas or on the business as a whole. If it affects only one function, it is of the lowest order. Otherwise will have to be made on a higher level where the impact on all affected functions can be considered; or it must be made in close consultation with the managers of the other affected functions. To use technical language: optimization of process and performance of one function or area must not be at the expense of other functions or areas; it must not be sub-optimization.

One example of a decision which looks like a purely technical one affecting one area only, but which actually has a major impact on many areas is a change in the methods of keeping the parts inventory in a mass production plant. This not only affects all manufacturing operations, but makes necessary major changes in assembly. It affects delivery to customers it might even lead to radical changes in marketing and pricing such as the abandonment if certain designs and models and of certain premium prices. And it may require substantial changes in engineering design. The technical problems in inventory keeping though quite considerable almost pale into insignificance compared to the problems in and marketing organization is not. Product businesses with a significantly lower sales volume are in danger of being understaffed, staffed with inadequate people, or actually managed by the central office.