A Decision Problem

The decision making process begins with the identification of a problem 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 Hyderabad based FMCG company Big Bazaar. 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 managers 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 he 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 the 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 organizations. 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?

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.

In our vehicle buying example the product manager assess the factors that are relevant in her decision which might include price, model (hatchback, SUV, or sedan) size (small or mid sized) manufacturer Indian, Japanese, Korean, or American), optional equipment (automation transmission, stereo system, leather interior), and service centers. These criteria reflect what she thinks is relevant in her decision. Every decision maker has a criteria whether it is explicitly stated or not that guides his or her decision. Note that  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 does not influence his 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 above is a personal problem of the manager. Let us take case of a functional problem. In the FMCG Big Bazaar store there are several food items. The manager suddenly found that a Big Bazaar store on the other side of the city  is selling the same item at a lower price. On inquiring and interacting with his counterpart it was found that the same manufacturer is selling the same product at a lower price to one of the Big Bazaar’s. The manufacturer’s rep was called and he apologized for the mistake and then both the Big Bazaars in the city got the item at a lower price.

In the above example several decision problems were involved. But the concerned manager proceeded in the right direction and transparently to sort out the matter amicably.

In another case a manager evolved a fool proof system of stock taking by making the salesman responsible for it.

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