Decision Making

AuthorDavid Bianco, Wendy Mason

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The essence of management is making decisions. Managers are constantly required to evaluate alternatives and make decisions regarding a wide range of matters. Just as there are different managerial styles, there are different decision-making styles. Decision making involves uncertainty and risk, and decision makers have varying degrees of risk aversion. Decision making also involves qualitative and quantitative analyses, and some decision makers prefer one form of analysis over the other. Decision making can be affected not only by rational judgment, but also by nonrational factors such as the personality of the decision maker, peer pressure, the organizational situation, and others.

Management guru Peter F. Drucker, as quoted in Association Management, identified eight "critically important" decision-making practices that successful executives follow. Each:

Ask "What needs to be done?"

Ask "What is right for the enterprise?"

Develop action plans

Take responsibility for decisions

Take responsibility for communicating

Focus on opportunities rather than problems

Run productive meetings

Think and say "we" rather than "I"


According to Ralph L. Keeney, professor at the University of Southern California's Marshall School of Business and co-author of Smart Choices: A Practical Guide to Making Better Decisions, managers commonly consider too few alternatives when making difficult decisions. When approaching a problem, decision makers need to regularly consider, starting at the outset, "Is this what I really need to decide?" In addition, the nature of the problem may change during the decision-making process, as either the situation changes or the decision maker's insights into the situation change.

By not formulating the problem correctly, decision makers risk missing a whole range of other alternatives. Decision makers can improve the chances of asking the right question by probing objectives, goals, interests, fears, and aspirations. They also need to consider very carefully the consequences of each alternative. They can devise new alternatives through brainstorming and imagining as many options as possible, keeping in mind objectives, but not necessarily being entirely practical at first. In practice, action-oriented decision makers tend to focus on solutions without considering whether they are working on the right problem. Instead of choosing from decisions selected by others, decision makers need to review what decisions they should be addressing.

Managers in a corporate setting tend to view decision making differently than entrepreneurs. Since they are typically given a fixed amount of budgeted resources to work with, managers tend to define a problem in terms of what can be done with the resources at hand. Entrepreneurs, on the other hand, will likely pose the problem in terms of an objective—"This is what I want to get done"—and then worry about finding the resources to accomplish that objective. As a result, entrepreneurial decision makers will lay out a wider range of alternatives from which to choose. They feel less constrained by a lack of resources. To develop more alternatives, decision makers should release themselves from existing constraints, think imaginatively, and brainstorm with others, all the while keeping objectives clearly in mind and being honest about what they really need or desire.


Entrepreneurs are famous for making "seat-of-the-pants" decisions, which means they make quick decisions based on a gut feeling or intuition. They are often forced to make decisions under conditions of uncertainty and without all of the necessary information. While some entrepreneurs are good decision makers, others need to be more cautious about the intuitive approach. One case against intuitive decision making comes from the credit industry. For example, some banks use scoring models for consumer and small business loans, but at times individual bankers override the automated system because they intuitively disagreed with the computer model's results. These loans, however, invariably have higher delinquency and charge off rates than loans approved by the computer model.

In some cases a person's intuition will be in conflict with the results of a more formal or systematic analysis, resulting in an uncomfortable feeling for the decision maker. What should a decision maker do then? Howard Raiffa, Harvard Business School professor emeritus, recommended in Inc.: "You should review both sides of the ledger to see if your intuition holds up when it is informed with some systematic

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analysis. And if your analysis seems wrong intuitively, don't accept the analysis, just keep on probing." The uncomfortable feeling may be sending a message to the decision maker that it's not quite time to act, that perhaps a little more thinking about the problem is required.

Emotions are one of several nonrational factors that play a role in decision making. According to Raiffa, decision makers should pay attention to emotions and feelings when making decisions. By partially committing to one alternative, decision makers can give themselves a chance to "sleep on it," which then becomes a way of testing different alternatives. In spite of practical recommendations to not let emotions play a part in decision making, emotions do come into play because the decision maker...

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