What defines a Decision Problem?

Problem: A discrepancy between an existing and a desired state of affairs.

The decision making process begins with the identification of a problems (step 1) or, more specifically a discrepancy between an existing and a desired state of affairs. Let’s develop an example that illustrates this point to use throughout this article. For the sake of simplicity, we’ll make the example something to which most of us can relate: the decision to buy a vehicle. Take the case of a new product manager for the Ghaziabad based FMCG company Dabur. The manager spent nearly Rs 50,000 on auto repairs over the past few years and now the car has a blown engine. Repair estimates indicate that it is not economical to repair the car. Furthermore, convenient public transportation is unavailable.

So now we have a problem that results from the disparity between the manager’s need to have a functional vehicle and the fact that her current one isn’t working. Unfortunately, this example doesn’t tell us much about how manager identify problems. In the real world, most problems don’t come with neon signs identifying that as such. A blown engine is a clear signal to the manager that she needs a new vehicle but few problems are so obvious. Instead, problem identification is subjective. Furthermore, the manager who mistakenly solves the wrong problem perfectly is just as likely to perform poorly as the manager who fails to identify he right problem and does nothing. Problem identification is neither a simple nor an unimportant part of the decision making process. How do managers become aware that they have a discrepancy? Managers have to make a comparison between their current state of affairs and some standard. What is that standard? It can be past performance, previously set goals, or the performance of some other unit within the organization or in other organization. In our vehicle buying example, the standard is a previously set goal –a vehicle that runs.

Examples of Planning Decisions:

1) What are the organization’s long term objectives?
2) What strategies will best achieve those objectives?
3) What should the organization’s short term objectives be?
4) What is the most efficient means of completing tasks?
5) What might the competition be considering?
6) What budgets are needed to complete department tasks?
7) How difficult should individual goals be?

What is relevant in the decision making process?

Decision criteria: factors that are relevant in a decision.

Once a manager has identified a problem that needs attention, the decision criteria that will be important in solving the problem must be identified (step 2).

In our vehicle buying example the product manager assess the factors that are relevant in her decision which might include such as price, model (hatchback, SUV, or sedan) size (small or mid sized) manufacturer Indian, Japanese, Korean, or American), optional equipment (automation transmission, stereo system, lather interior), and services centers. These criteria reflect what she thinks is relevant in her decision. Every decision maker has criteria whether explicitly stated or not that guide his or her decision. Note that in step in the decision making process, what is not identified is as important as what is. If the product manager doesn’t consider fuel economy to be a criterion then it not influence her choice of vehicle. Thus, if a decision maker does not identify a particular factor in this second step, then it is treated as if it were irrelevant to the decision maker.

The decision making process begins with the identification of a problem. Management of DaimlerChrysler AG began a decision making process base on a discrepancy of vehicle ales of its US based Chrysler Group. Chrysler lost $ 1.5 billion in 2006 following an operating profit of $ 2 billion in 2005. This plunge in sales resulted from a drop in demand for Chrysler Group brands including it Jeep Grand Cherokee.