Evaluating Decision Making Processes
Decision-making is the process of identifying and selecting alternatives or courses of action based on the preferences and values of the decision maker (Nutt & Wilson, 2010). Coming up with a decision means that there exist alternatives that have to be considered, in such an instance, a decision maker must not only identify as many alternatives as possible but also select the best alternative that best fits with his objectives, goals, values, desires among others. Further, when attempting to make a good decision, an individual must weigh the negatives and the positive of each alternative and also take into consideration all the other alternatives (Maroun, 1991). For decision-making that is effective, an individual must have the ability to forecast the result of each alternative as well as determine which alternative is best suited for that particular situation. While the basic steps in the decision-making process might be the same, there are many different tools and techniques that can be utilized when attempting to make a decision. Just like many other areas, effective decision-making can benefit from the addition of structure and focus. Although these tools are not completely perfect; they support the decision making process through assisting in surveying the available alternatives as well as collecting and evaluating the data or information that is needed in selecting the most appropriate course of action (Maroun, 1991). The discussion below is a description of how these decision-making processes work and where each one of them is best-suited when trying to arrive at a decision
Cost Benefits Analysis
In some cases, a firm may decide to undertake a new project; when such a project is highly involving and complex in nature, employees or workers may be unable to keep up with the increased workload. Consequently, the organization manager must consider whether to employ a new team member or worker. When such a decision has to be made, the benefits of employing a new worker must significantly outweigh the associated costs. It is in this kind of a situation where the cost-benefit analysis is most appropriate. The concept of cost-benefit analysis was first introduced in the 1930s by a French engineer called Jules Dupuit. In the 1950s, the concept gained popularity as a simple way of evaluating a project costs and benefits in order to determine whether to venture into a project (Nutt & Wilson, 2010). As the name suggests, the cost-benefit analysis involves summing up the benefits of a particular alternative or course of action and then comparing these benefits with the costs associated with the course of action (Basili & Zappia, 2008). The outcome of the cost benefit analysis is mainly expressed as a payback period. A payback period refers to the time taken for a project’s benefits to repay its costs (Nutt & Wilson, 2010). When choosing between different alternatives, decision makers utilizing this process select a project that can pay back in a specific period. There are many other situations where the cost-benefit analysis can be used, for instance, when evaluating a new project, deciding whether to employ new workers or when determining a capital project feasibility. It is good to note that the cost-benefit analysis is best suited for making simple and quick financial decisions.
Matrix Analysis
Decision matrix analysis is an important technique in decision-making. Particularly, this tool is most appropriate in situations where a number of good courses of action to choose from exist, and when many different factors have to be taken into consideration (Nutt & Wilson, 2010). This makes the decision matrix analysis a great technique to utilize in almost any critical decision where obvious and clear options do not exist. For instance, an organization may need to get new outsourced IT supplier, having identified a number of different suppliers; the firm has to select one of them. The organization may decide to select a low-cost alternative; however, it may not want to consider the cost alone-factors like underlying technology, service level and contract length need to be taken into consideration. This is the kind of scenario where decision matrix analysis is most appropriate; it helps the decision maker to take decisions rationally and confidently. The technique works by getting the decision maker to list his options or alternatives as rows on a table and the factors that need consideration as columns (Maroun, 1991). The decision maker then proceeds to score each alternative/factor combination, weigh this score in terms of the factor relative importance, and finally sum up these scores in order to get an overall score for each alternative.
Paired Comparison Analysis
This decision-making process is an appropriate means of weighing up or evaluating the relative importance of various different alternatives (Silverstein, Samuel, & DeCarlo, 2013). It is helpful where priorities are competing in importance or are not clear. Paired comparison analysis offers a framework for comparing each alternative against all others, and assists in displaying the difference in terms of importance between factors (Silverstein, Samuel, & DeCarlo, 2013). Further, the technique assists in working out the importance of various alternatives relative to each other. Paired comparison analysis is particularly helpful when the objective data does not exist. This makes it simple to select the most vital problem to solve or choose the remedy that will offer the greatest advantage. In addition, the technique assists in setting of priorities especially in instances where the demands on resources are conflicting (Silverstein, Samuel, & DeCarlo, 2013). The tool is also appropriate for comparing totally different alternatives, for example, when deciding whether to invest in a new system of IT, marketing or a new kind of machinery. A problem where an entrepreneur has limited resources and has to select between various different investment options can be best-solved using the paired comparison analysis.
Conjoint Analysis
Conjoint analysis is a method utilized to assess the relative importance that individuals place different features of a particular product. The analysis normally involves displaying a set of features to respondent and requesting them to indicate the level at which they prefer or like the different attributes of that product (Rao, 2014). Conjoint analysis is the best technique to use when making decisions that relate launching new products or changing existing one in the market. In order to launch a new product, a business can conduct a market research in order to reduce risks-this eliminates the risk of producing a product that will end up being rejected by customers. Although producing the perfect product for the market involves a lot of variables, functionality is the most obvious attribute (Rao, 2014). However, other elements also play a significant role in influencing the final purchase decision e.g. promotion, packaging, materials and sometimes the place of manufacture. Further, the decision of a consumer to buy a product depends on many other factors; for instance, a car buyer may consider styling, fuel consumption, color, and reliability. While any of these attributes may the main selling feature, individuals make the purchase decision based on all features of the product. Since getting all these attributes in the perfect combination is very difficult, conjoint analysis offers decision makers with a means of evaluating services and goods by considering their attributes jointly (Rao, 2014).
Analytic Hierarchy Process
Decisions entail various intangibles that require to be traded off. In order to do this, they have to be measured along with tangibles whose measurement must also be evaluated depending on how well they serve the decision maker objectives. AHP (analytic hierarchy process) is a technique of measurement that utilizes pairwise comparisons and depends or relies on experts or individuals judgment in order to derive priority scales. It is through these scales that intangibles are measured in relative terms. Pairwise comparisons are made through the use of a scale of absolute judgments that represent the extent at which one element or factor dominates another with regards to a given attribute. Analytic hierarchy process is an ideal technique in making decisions that need subjective evaluation and personal judgment (when alternatives and variables cannot be quantified) (Maroun, 1991). When selecting different jobs offers, AHP is the ideal decision-making process.
All of the above decision-making processes are formal processes; this is because they are executed in a laid down, step by step procedure. Informal decision-making processes do not have a specified method or procedure i.e. how these decisions are made depend on the decision maker (Nutt & Wilson, 2010). Each of the above-mentioned processes appears to be unique; the only similarity that they share is that they involve choosing between different alternatives.
References
Basili, M., & Zappia, C. (2008). Shackle and Modern Decision Theory. London: Blackwell Publishing Ltd.
Maroun, J. (1991). Decision Making in Business. London: Oxford University Press.
Nutt, P., & Wilson, D. (2010). Handbook of Decision Making. New York: John Wiley & Sons.
Rao, V. (2014). Applied Conjoint Analysis. New York: Springer.
Silverstein, D., Samuel, P., & DeCarlo, N. (2013). The Innovator’s Toolkit: 50+ Techniques for Predictable and Sustainable Organic Growth. New York: John Wiley & Sons.
