The Decision Process in Operations

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Abstract

The paper explores the concept of decision-making as it applies in a business organization or any other organization. The meaning of decision-making as well as the necessary steps that are taken to ensure effective decision-making process is also tackled. Some typical situations that may require an effective decision-making are also described alongside practical examples that involve effective decision-making.

In addition, a case study is given on how effective decision making enabled an automobile company to recover from its loss of market share and is currently set to beat competitors. The paper also discusses problems that can be faced in the process, as well as some decisions that can be made, and some tools that are applicable in the decision-making process.

Introduction

Decision-making is an essential task in any organization. Whether it is a business or not-for-profit organizations, the management of the organization is often faced with situations that would call for choice of appropriate option from a collection of many possible options available.

Regardless of the type of organization considered, the main factors that will influence decision-making process are the associated costs and time. These two scarce factors need to be minimized in any decision to be taken. Often, the management would want an activity to be completed within the shortest time and at the lowest cost possible.

It is worth acknowledging that it may not be practical to minimize both cost and time. In real instances, if one attempts to reduce time required for a particular activity, then the cost would rise; the converse is also true. Thus, in such decision-making processes, the approach would be to have a trade-off between time and cost until an optimal point is reached.

What this means is that, a manager would first establish the time it requires to complete a particular task using the available resources, and then, considering the possibility of reducing time, the manager would decide to put in more resources so that the task is completed in a shorter period. This process is continued, with the outcome being evaluated until it will be uneconomical to increase the cost further.

That will be the optimal point and the decision will be drawn from that point. This is just one scenario that involves decision-making process. The same could be witnessed in other scenario, with different factors like labour availability. However, the objective will always be to have the best option from several alternatives, and the best alternative will always be one that minimizes the total operation costs and time.

Definition

Decision-making can be regarded as a set of criteria aimed at selecting a course of action from the possible alternatives available. In a business setting, decision-making is a cognitive procedure that requires brainstorming of all economic forces affecting the operations and influencing the process.

McGuigan, Moyer, and Harris (2002) pointed out that “the ability to make good decisions is the key to successful managerial performance” (p5). The decisions to be made can be as simple as deciding on the price to charge for a product or the quantity of a product to be produced. However, the real business setting often comprises situations that are more complex.

Steps in decision-making process

The principles in operations management should be applied by every manager faced with decision-making (Horváthová 2010, p3). The decision-making process includes several steps most of which are common to all sectors in which the process is required. A typical structure would entail the following steps.

Problem definition

The initial step in any decision-making is defining the problem upon which a decision is to be made. Ideas that are developed here will be carried forward to the latter stages and thus, it should be carried out with care. Depending on the nature of the decisions that are to be made, there will always be a need to brainstorm general situations prevailing and come up with various appropriate ideas.

If a decision has to be made following the sequence of events that had been witnessed in the past, coming up with ideas may not be a very demanding task. However, the situation is quite demanding if the decision follows an abnormal trend, yet a completely fresh decision has to be made.

Nevertheless, a better cognitive understanding of the whole environment will enable the management to come up with ideas that are less prone to risk (McLucas 2003, p4).

Gathering the relevant information

This is also an essential step since the information to be obtained will form the basis upon which a decision has to be made. It requires a lot of expertise to ensure that the right information is obtained. If the decision has to be made in relation to previous experiences, data recorded in the previous cases can be retrieved.

However, much more effort needs to be put in developing a course of action that had not been taken before. For instance, obtaining the response from the public concerning use of a product to be introduced into the market requires a lot of accuracy and precision.

Formulating the objectives

Having obtained relevant information, the next move is to formulate the objectives to be fulfilled in relation to the assessments that have been done. It has been noted that ‘the failure to identify organizational objectives correctly can result in the complete rejection of an otherwise well-conceived and well-implemented plan’ (McGuigan, Moyer & Harris 2002, p5).

The existing forces that could be identified are defined here as constraints that will govern the decision making process. This will include factors such as the available capital, labor that can be provided, or time to complete a task.

As Li (2009) reported, “constraints are regarded as high-priority objectives, which must be satisfied in the process of generating alternatives.” These constraints will depend on the context in which a decision is to be made.

Developing the strategies

There is a need to develop strategies that can be used to realize response objectives laid out. The theories that are derived from economics will enable managers to set up the objective functions, as well as constraints involved in the decision process (McGuigan, Moyer & Harris, 2002, p.5).

The process also includes developing the techniques that will be used to ensure that the strategies that have been formed are implemented. Usually, the problems will be defined as numerical expression.

The decision-maker needs to ensure a correct expression is given that describes the problem set. The implications of the results that will be realized should also be clear. Therefore, there is need for procedure that checks if the optimality has been attained.

Checking the feasibility of the solution

Having developed strategies to ensure attainment of an optimal solution to the problem, there is need to check if the solution is compatible with all factors that had been given. The feasibility of the developed strategies is evaluated according to the forces that are acting within the organization and from outside. There is need to evaluate how other emerging factors may eventually affect the steps to be taken.

Some decisions like site location are very crucial and should be carefully planned (Horváthová 2010, p4). First, identify, at this point, the advantages and disadvantages that may be encountered when these strategies are actually implemented.

This will remove the guilt from the decision-maker if something unexpected happens in the end. There is also a need to check if the steps are actually practical and can be implemented. It may not be the case that all that has been proposed can be put into practice. Thus, should there be a deviation from what was expected, then, there is need to revise the strategies where necessary.

However, it should be noted that most of the problems encountered would require solutions, some of which may be conflicting. The best approach is to adopt a multiple optimization technique that will come closer to satisfying most of the key constraints that are given (Li 2009, p3).

Developing an implementation plan

The strategies that have been developed will finally need to be put into practice. Thus, the next step is to develop the action plan that will ensure that the above goals are realized. The plan will include results that were realized in examining the feasibility and the practicality of the strategies developed. It will give an outline of courses of action to be taken and the associated costs or time as appropriate.

Seeking permission

Decision-making in an organization will differ from that made on an individual basis. If an operations manager makes a particular decision independently, then the consequences that follow from such decisions will be solely bestowed on him/her. Thus, the best approach is to seek the final say from relevant authority, as this will remove the fear of failure or procrastination.

Implementation of the procedures

The final step is to put the procedures that had been laid down into practice. Efforts should be made to ensure that the procedures are correctly implemented as had been designed. This could be achieved through constant monitoring and evaluation of the implementation processes (McGuigan, Moyer & Harris 2002, p6).

Situations requiring decision-making

As human beings, we are always faced with situations where we have to choose from the alternatives that are available depending on our abilities. To satisfy the basic human needs, we are faced with decisions-making situations that need fulfillment depending on the economic constraints available. Owing to the scarcity in resources that we always have, we would always want to have our needs fulfilled as cheaply as possible.

We would always want the services to be given to us as fast as possible. A similar scenario is witnessed in the decisions to be made in an organization, whether it is a business organization or not-for-profit organization. The time and cost factors will be common to every organization. Some few situations that require effective decision-making processes in an organization are described below.

Consider a manager who wants to assign duties to different employees within a department in an organization. There is a project that comprises seven tasks to be performed and fortunately, seven employees are available, each of whom can handle any of the tasks. However, the employees have different abilities of performing each of the tasks, while the management wants the whole project completed within the shortest possible time.

There is also information about time that each employee can take when performing a particular task. The manager here is charged with a duty to assign these employees to the task to minimize the total time that will be taken to complete the whole activity.

A beverage production company produces and distributes to various retail warehouses; this company has four production sites and six warehouses to be served. These production sites and warehouses are all linked and any site can supply to any warehouse. The cost of transportation from one site to a warehouse is dependent on the distance to be covered and the quantity of items transported.

The capacities of each warehouse, the production ability of each site, and the cost of transport of given units of items from the different sites to warehouses are all known. The problem is to come up with a system that will ensure that all the warehouses are supplied with the products from the sites such that the total transportation cost is minimized. This will call for an effective decision-making.

The real business setting will have complex versions of the problem; for instance, it can further be noted that the road connecting site Q and warehouse D is not currently passable due to an upgrading process that is underway. This additional constraint needs to be considered in solving the problem.

A company A that provides mobile services has been dominating a market for a long period. Suddenly, another service provider B emerges with reduced call rates alongside other benefits and he is providing very stiff competition in the market. The company A has noticed the sudden decrease in sales and the total revenue that has been recorded in the recent past and he has felt that something needs to be done.

It has the options of reducing the call rates, increasing the advertisements, incorporating sales promotion techniques like offers, coming up with other attractive services within the network, as well as entering into partnership with companies that deal in mobile devices.

The management has to come up with a model that is most appropriate in solving the problem that has emerged. All these alternatives have associated costs and benefits. A decision will be made that include one or more of the objectives following an extensive cost-benefit analysis

Typical decision-making process

Example 1

A 50ha farm is to be used for growing beans and maize. The manager of the farm has noted that the capital that is available to carry out the activity is $1800. It has also been reported that to cultivate a hectare of beans costs $45 while that of maize costs $30.

A hectare can produce 50 bags of maize or 30 bags of beans. A bag of maize costs $25 while that of beans costs $40. The farm has been subdivided into 50 manageable subunits and it is desired that no unit contain a mixture of the two crops. The problem is to allocate the farm to the two crops so that a maximum return is obtained.

Now, the manager has identified the problem and stated that the objective is to have maximum returns. The return will depend on the proportion of the farm allocated to each of the crops. From the given data, a hectare of maize will return $1250 while that of beans will return $1200. Let B represents the hectares allocated for beans and M represents those allocated for maize. Then mathematically, the objective can be stated as:

Maximize P= 1200B +1250M

The next move is to identify the forces from within and from without that may affect the decision variables. Mathematically, the variables M and B cannot assume negative values.

Then, the expenditure cannot exceed the amount that is available to be used. Lastly, the total number of hectares cannot exceed what is at hand. There is also a condition that B and M must not be fractions. Thus, we have a set of constraints that the above objective function must satisfy as follows:

B, M>= 0

B+M<= 50

45B+30M<= 1800, B and M are integers.

The application of linear programming techniques on the above problem will give the optimal solution as B=0 and M=50. This implies that it will be more profitable to cultivate maize in the whole farm. The overall return, which is $62500, is the highest return that can be received given the restrictions.

Effective Decision-making at Ford Motors Company: A case study

Ford Motors Company is the fourth largest manufacturer of automobiles in the world. It is based in the United States and has operations in other foreign countries as well. The company lost the market share steadily in the period 1995-2009. On the hand, the company recorded an increase in share of its operations in the European nations.

The difference was caused by the increase in the cost of the manufacturing facilities and increased wages in the United States and the increased cost of healthcare and the pension schemes that were practiced in the US. The company therefore developed certain strategies to improve its operations.

The management adopted a strategic plan referred to as ‘ONE Ford’ plan. This characterized by a spirit of One Team, One Plan, and One Goal. This included restructuring its operations so that it could still gain profit despite the decrease that was observed in the demand for such automobiles.

As a move to reduce the cost, the company dismissed some of its employees and closed down some seven factories in the United States. It also shifted from manufacturing of large tracks and settled on a single line of small automobiles that have less fuel consumption. The management was responding to the energy crisis that was being experienced and the political wave that was advocating for vehicles with less fuel consumption.

This showed the management’s ability to identify and respond to external economic forces. Through the One Team plan, the management has succeeded in including all the stakeholders in the management process. There is a room for the opinions from the employees at the lower level. Other incentives like healthcare and employee benefit schemes were also put in place.

The company also initiated programs that would give services back to the community like the Ford Motor Company Fund and Community services. This was a way of building its reputation among the customers. Ford Motor Credit Company was a scheme started to offer loans and leases on cars.

Effective decision-making has helped Ford Motor Company regain their lost share in the global automobile market. A strategic plan that was developed has improved the operations and sales of the company. The strategies that were adopted by Ford Company have seen the company increases its sales and surpass the other competitors like Toyota since FY2009.

An Annual Report of FY2009 showed that the net income was $2.7 billion, the best result to be recorded since 2005 (para1). An increase of $7.3 billion was also observed in the pre-tax operating profit from the figure in 2008. The company is set to penetrate deeper into the market as it is set to more new quality product.

Problems facing managerial decision-making process

There are certain factors that threaten the process of decision-making, and which make it the most challenging task to the operations managers. However, most of these challenges can be eliminated by following the right decision-making procedures.

Besides, the personnel that are to be involved in operation management need to be conversant with the necessary management techniques and their relevance to the particular organizations they serve in.

Procrastination

This refers to a situation where a decision has been made and a course of action taken that is of lower benefit to the organization. It refers to a failure to give higher priority to procedures that would benefit the organization the most and instead major on the low priority activities.

For instance, it occurs when the management of an organization wanted to introduce a new product to replace an existing product. If proper prior analysis is not taken, it may turn out that the new deal is less productive than the previous one. The managers will then bear the blame for having misguided the organization.

In order to prevent this, the operations managers should seek permission from the other top management concerning the course of action to be taken. This is one of the key steps involved in risk management. The manager must just accept the fact that his/her single opinion and knowledge may not be sufficient in managing risk.

Instead, there is need for the manager to seek the understanding of the other managers on the matter that requires decision-making (McLucas, 2003, p7). The other managers could have gained a longer working experience and they are thus better placed to handle the situation.

In effect, the top management will also be responsible for any negative effects that the decision could have on the operations of the organization. Besides, adopting the right decision-making procedures would help reduce the possibility of such cases.

Lack of appropriate approach

The decision-making process could be a nightmare if the personnel involved do not have the technical expertise that is required in formulating and implementing the procedures. If incompetent personnel is deployed anywhere in the process, then the process is deemed to fail and this will stigmatize the process.

For instance, the problem can be well defined by the management. However, when it comes to gathering the relevant information, there may be no proper personnel to do the job. What will follow are decision-making procedures being carried out based on wrong data.

Lack of clarity

This is caused by the inability of the management personnel to give view clear of the problem to be solved. This often occurs when the manager is faced with a complex decision-making process. To ensure clarity, the manager should be able to break the complex problems down to simpler units and explain the implications of each decision procedure.

In many cases, the objectives of a solving a problem will be described a mathematical expression. Firstly, there should be a clear conversion of the problem into a numerical expression. Then the personnel should be able to give the implications of the mathematical expression to other members of the organization who are also included in the process. Everyone should be conversant with the model before contributing to the process.

Fear of failure of the course of action taken

There are time when then mangers are forced to make decisions amidst some unknown conditions. The general constraints that determine the course of action may not be available. The managers would then make the decisions but with a fear that they would probably. A typical approach to do away with such fear is to include the top management in the decision process.

They should identify the risks and uncertainties that may impede the realization of the goals and objectives the have been set. Then there should be an analysis of a possibility of failure.

A good implementation plan will include the likelihood/probability that such a program might fail following the examination of the situations that had been experienced in the past. The advantages and disadvantages that are associated with such a decision should be outlined so that it should not be a surprise if anything negative happens.

Types of decision-making

The decisions that are made in an organization can be categorized in different ways. The decisions can be considered in terms of the parties that were involved and the degree of freedom that was given to the parties.

It can also be categorized according to the information that was available during the decision-making procedures. The decisions can also be grouped according to the lifetime of the course of action to be taken and the period within which such a course of action is to be taken.

In terms of the parties involved, the decisions can be categorized as being authoritative, consultative, facilitative, or delegative. A decision is authoritative if the decision-maker, e.g. the operations manager, has the sole mandate of making the decisions. The other members of the organization have to follow the action plan that has been designed.

This type of decision-making requires that the leader have the expertise that is required; otherwise, the decisions reached will not be beneficial to the organization. However, it has the advantage that the process does not take much time. In a facilitative decision-making, the principle decision-maker only leads the process and the other lower-level members of the organizations are involved.

This is a typical of what can be termed as participatory management (McLucas 2003, p5). It has the advantage that the leader might get assistance from his/her juniors who might be better placed in handling certain emerging issues that may be addressed.

Its odds are experienced when involving the junior staff brings in more ideas making the situation too complex to deal with. It also involves many people; therefore, much more time and resources need to be spent as compared to the authoritative decision-making process. Besides, some of the staff may not be willing to share their views in the matter (McLucas 2003, p5).

Consultative decision-making is similar to facilitative except that here the final decision still rests on the principle leader. It might as well be disadvantageous especially if the leader is not very competent. The consultations will require more time and resource just as the facilitative decision process.

In delegative decision-making, the principle power distributes the decision tasks to the junior staff. This requires that the junior staff be conversant with the contents of the problems that need to be addressed. If the junior staff given such responsibilities are competent enough, then the delegative decision-making process will be faster and more reliable the others.

Depending on the lifetime and implementation period, we could have quick decisions, permanent/irreversible decisions, temporary decisions, delayed decisions, conditional decisions, and experimental decisions. The permanent decisions are those that are made with a final ruling.

They cannot be revised and they are to stay in the organization for a very long period. Such decisions will only be revised if other external forces eventually find their way into the operations of the organization. In many, permanent decisions are used when there were no alternatives from which the management could make a choice.

On the other hand, the temporary decisions are made when there were several equivalent alternatives from which the choice could be made. They are subject to corrections in case the course of action that was taken is yielding any fruit. Delayed decisions have the same approach. A decision is arrived at, but the implementation is delayed for some period.

During this period, the odds that can be associated with such a decision will be identified and the necessary reinforcement can be done before it is finally implemented. If the odds are found to be extreme, then it can be revised and other alternatives be examined. The conditional decisions are made when the alternatives that could be chosen are left open.

The performance of the course of action taken is evaluated with respect to the other alternatives and further judgment can be made. The right course of action may not be clear to the management even though the destination may be visible.

A typical approach would be to experiment on a particular objective and evaluate the results. If it turns out that the action are beneficial and can be implemented, then they are considered for implementation. Such an initial decision is experimental.

Depending on the information that is available at the time of decision-making, the decisions categorized as decisions with certainty, decisions under risks, decisions under uncertainty, or decisions under unknowingness (McGuigan, Moyer & Harris 2002, p49). A decision is under certainty if each of the possible alternatives is known to yield a particular pattern.

The decision is under risk if the alternatives are known to one of the many known outcomes with a given likelihood measure. The decision is under uncertainty if the above probabilities cannot be given. Finally, the decision is under unknowingness if the outcomes of the course of action taken cannot be known. The first two can be grouped as programmed decisions and the last two as non-programmed decisions.

The programmed decisions are those that are regularly made. The managers can often relate the situations that had been experienced in the past and the decisions that were made to solve the problems. They are usually decisions that had been made in the previous cases and the management has set out procedures to be followed when similar situations are expected to occur.

A course of action can then be developed from the experiences. For instance, the number of visitors to some beach hotel is known to increase during holidays. The manager can decide to increase inventory as well as the workers in order to be able meet the foreseen demand. The decisions here will be guided by the results that had been recorded in the past. It is not completely void of risk.

Some of the conditions that prevailed in the past may have changed and so there may be a deviation of what occurs from what was expected. However, the risks involved can be estimated and evaluated against the consequences of the current situations. On the other hand, the non-programmed decisions are those that the management of an organization is forced to make following the external forces that are prevailing.

They are not planned and do not follow a predefined guidelines. This is particularly because the causative factors may not follow a predictable pattern and so they are not based on any experience.

Besides, the decisions do have an impact on the running of organizations since they usually involve an introduction of a completely different course of action. An example can be seen when the product of company loses fame in the market and the sales have reduced remarkably. The management has decided to abandon the product and deal in another one that is thought to be doing better in the market.

Such decisions will only depend on the ability of the managers to react to complex and urgent situations arising in business. Much of it will rely on the intuition of the managers and their ability in making judgments. These decision-making processes are subject to many risks and should only be used when there is a need for it.

Some techniques and tools used in decision-making process

Effective decision-making process will require the application of various methods and tools. The decision-maker will be better placed in handling the process if he/she has a wide knowledge of these techniques.

Cost-benefit analysis

All the decisions that are to be made have associated costs and benefits. A good understanding of the techniques involved will help come up with a strategy (strategies) that has (have) the lowest costs and highest benefits.

Decision trees

This helps in identifying the relationships between different options

Grid analysis

The techniques here are applicable in a situation that deals with many alternatives. It helps choose an alternative from the many possible ones.

Force Field Analysis

This will help in identifying the forces that are for and against a course of action to be taken. Each force will have a weight, which will indicate its direction and strength in relation to the possible alternatives.

Conclusion

The concept of decision-making is an essential element in the management of every organization. It requires that the decision-maker be conversant with the various areas that would involve such decisions otherwise wrong decisions may be reached.

There is also need to have decision-making process that includes a number of the stakeholder of the organization. Individual decision-making may pose problems to the manager should the initiative land the organization into a ditch.

References

Horváthová, P. (2010). The Use of Operations Management Procedures in Order to Increase Organizations Competitiveness under the Conditions of Growing Pressures of Globalization. An International Journal from Global Business and Management Research, Vol. 2, No. 1, 2010 pp. 33-40

Li, D. (2009). Relative Ratio Method for Multiple Attribute Decision-making Problems. International Journal of Information Technology & Decision Making World Scientific Publishing Company, Vol. 8, No. 2 (2009) 289–311.

McGuigan, J., Moyer, R. and Harris, F. (2002). Managerial economics: Applications, Strategy and Tactics. Ninth edition. Cincinnati: Thomson Learning.

McLucas, A. (2003). Decision-making: risk management, systems thinking, and situation awareness. Canberra: Argos Press.

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