The Decision Making Process

Example: The Ajax case

On December 31, the Ajax Company decided to close down its Murphysboro
plant. Market conditions were forcing layoffs, and the company could not find
a buyer for the plant. Some of the 172 employees had been with the company
as long as 18 years; others as little as 6 months. All were to be terminated.
Under the company policy, they would be given severance pay equal to one
week’s pay per year of service.
Step 1 Step 2 Step 3 Step 4 Step 5

Identify Generate Choose a Implement Evaluate

and define and evaluate preferred the decision results
the alternative course of
problem solutions action

Double check ethical reasoning

Decision Making Process

Step 1. Identify and define the problem.

● Information gathering and deliberation are critical in this

stage.
● The way a problem is defined can have a major impact on
how it is resolved, and it is important to clarify exactly what
a decision should accomplish.
● The more specific the goals, the easier it is to evaluate the
results after the decision is actually implemented.
3 Common Mistakes

Mistake No.1 is defining the problem too broadly or too

narrowly.
Example: “build a better mousetrap”
“get rid of the mice”

● Managers should define the problems in ways that

give them the best possible range of problem-solving
options.
Mistake No. 2 is focusing on symptoms instead of causes.

Symptoms are indicators that problems exist, but should

not be mistaken for the problems themselves.
Example: drop in performance of workers

● Managers should be alert to spot the problem symptoms

but they should dig deeper to address root causes.
Mistake No. 3 is choosing the wrong problem to deal with a
certain point in time.

Example: 3 problems to address first on a busy workday

Problem 1. An email message from your boss is requesting a proposal
“as soon as possible” on how to handle employees’ complaints about
lack of flexibility in their work schedules.
Problem 2. One of your best team members has just angered another
by loudly criticizing her work performance.
Problem 3. Your working spouse has left a voice mail message that your
daughter is sick at school and the nurse would like her to go home for
the day.
Example: The Ajax case
Closing the Ajax plant will put a substantial number of
people from the small community of Murphysboro out of
work. The unemployment will have a negative impact on
individuals, families, and the town as a whole. The loss of
Ajax tax base will further hurt the community. The local
financial implications of the plant closure will be great.

The problem of Ajax management is how to minimize the

adverse impact of the plant closing on the employees, their
families, and the community.
Step 2. Generate and evaluate alternative courses of action

●This is where we clarify exactly what is known and what

needs to be known.

● Extensive information gathering should identify alternative

courses of action, as well as their anticipated consequences.

● Key stakeholders shall be identified and the effects of

possible courses of action on each of them shall be
considered.
Example: The Ajax case
The plant is going to be closed. Possible alternative
approaches that can be considered are
1. Close the plant on schedule and be done with it.
2. Delay the plant closing until all efforts have been
made to sell it to another firm
3. Offer to sell the plant to the employees and/or local
interests
4. Close the plant and offer transfer to other ajax plant
locations
5. Close the plant, offer transfers and help the
employees find new jobs
Cost-Benefit Analysis
● Cost-benefit analysis is a useful approach for evaluating alternatives.
It compares what alternative will cost in relation to the expected
benefits.
● The benefits of an alternative should be greater than its costs and
should be ethically sound.

Useful criteria in evaluating alternatives:

Costs: What are the costs of implementing the alternative, including
resource investments as well as potential negative side effects?
Benefits: What are the benefits of using the alternative to solve a
performance deficiency or take advantage of an opportunity?
Timeliness: How fast can the alternative be implemented and a
positive impact be achieved?

Acceptability: To what extent will the alternative be accepted

and supported by those who must work with it?

Ethical soundness: How well does the alternative meet

acceptable ethical criteria in the eyes of the various
stakeholders?
Step 3. Choose a preferred course of action
This is the point where an actual decision is made to
select a preferred course of action.

Management Theory on Decision Making

1. Classical decision model
2. Behavioral decision model

Classical decision model views the manager as acting

rationally in a certain world. The assumption is that a
rational choice of the preferred course of action will
be made by a decision maker who is fully informed of
all possible alternatives.
Behavioral decision model assumes that people act with
only partial knowledge about the available action
alternatives and their consequences.

The first alternative that appears to give satisfactory

resolution of the problem is likely to be chosen.
Differences in Classical and Behavioral Decision- Making models

Classical Model Behavioral Model

•Structured problem Rationality • Unstructured problem

• Clearly defined acts in perfect world • Not clearly defined
• Certain environment • Uncertain environment
• Complete information • Incomplete information
Manager as
• All alternatives and • Not all alternatives and
decision maker
consequences known consequences known

Optimizing Decision Bounded rationality Satisfying Decision

Choose the alternative acts with cognitive Chooses the first satisfactory
giving the absolute best limitations alternative that comes to
solution to the problem ones attention
Example: The Ajax Case
Ajax executives decided to close the plant, offer
transfers to company plants in another state, and offer
to help displaced employees find new jobs.
Step 4. Implement the decision
Once a decision is made, actions must be taken to fully
implement it. Nothing new can or will happen unless
action is taken to actually solve the problem.
● Managers not only need the determination and creativity
to arrive at a decision, they also need the ability and
willingness to implement it.

Example: The Ajax case

Ajax ran ads in the local and regional newspapers. The ad
called attention to an “Ajax skill bank” composed of
qualified, dedicated and well motivated employees with a
variety of skills and experiences”. Interested employers
were urged to contact Ajax for further information.
Step 5. Evaluate results
● The decision making process is not complete until the results
are evaluated. If the desired outcomes are not achieved or if
undesired side effects occur, corrective action should be taken.
● Evaluation is a form of managerial control. It involves
gathering data to measure performance results and compare
them against goals. If results are less than what was desired, it is
time to reassess and return to earlier steps.
● In this way, problem solving becomes dynamic and on-going
activity within the management process.
● Evaluation is always easier when clear goals, measurable
targets, and timetables were established to begin with.
Example: The Ajax case
How effective were Ajax’s decisions?
(we don’t know)

But after the advertisement ran for 15 days, the plant’s

industrial relations manager said “ I’ve been very pleased
with the results”.

You can look back on the case as it was described and judge
for yourself. Perhaps you would have approached the
situation and the five steps in decision making somewhat
differently.
Check Ethical Reasoning

In all steps in the decision making process it should be linked

with ethical reasoning.

Choices often have moral dimensions that might easily be

overlooked. Like the Ajax case, it might not be sufficiently
considered for the implications on the affected person, their
families, and the community.
So take special care to stay tuned to virtues like fairness,
kindness, compassion and generosity.
Also guard against vices like greed, anger, lust and ignorance.

Decisions should test positive on these 4 ethics criteria;

1. Utility- Does the decision satisfy all constituents or
stakeholders?
2. Rights- Does the decision respect the rights and duties of
everyone?
3. Justice- Is the decision consistent with the canons of
justice?
4. Caring- Is the decision consistent with my responsibilities to
care?
Thank you