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Case Analysis & Methodology

Module 6: Decision-making

Content of the module

Concept of decision-making, decision making in case analysis, problem analysis

versus decision-making, decision-making process.

Introduction

Making decisions is certainly the most important task of a manager and it is often a
very difficult one. It presents the decision-analysis process for decision-making, using
different decision criteria, different types of information, and information of varying
quality. It describes the elements in the analysis of decision alternatives and choices,
as well as the goals and objectives that guide decision-making. The key issues related
to a decision-maker's preferences regarding alternatives, criteria for choice, and choice
modes, together with the risk assessment tools are presented. The case method of
instruction has been a trademark of graduate professional education at Harvard
University since it first developed at the Harvard Law School in the 19th century. It is
predicated on the belief that discussion focused on real-world situations and guided by
skilled instructors will better prepare students for professional life than would lecture
and theory alone. Cases, in other words, put students in the shoes of real-life decision-
makers in order to prepare for them for their own lives of decision-making.

"A wise man makes his own decisions; an ignorant man follows public opinion." —
Chinese Proverb

Concept of decision Making

The simplest way to view decision-making is to see a decision as an act of choice by

which an individual or organization selects one position or action from the several

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alternatives. Thus, a decision-making represents an action or series of actions chosen
from a number of possible alternatives. Decision-making is a conscious and human
process. The verb ‘decide’ is derived from the Latin prefix ‘de’ meaning ‘off’ and the
word ‘caedo’ meaning ‘cut’. The Latin root of the word decision means, "to cut off
from all alternatives". This is what you should do when you decide. Decision-making
is a process of first diverging to explore the possibilities and then converging on a
solution(s).

In this sense, some cognitive process cuts off as preferred, or selects, a particular
course of action from among a set of possible alternatives. In the other words,
Decision-making is the cognitive process of selecting a course of action from among
multiple alternatives. Decision-making can be regarded as the mental processes
(cognitive process) resulting in the selection of a course of action among several
alternatives. Every decision-making process produces a final choice. The output can
be an action or an opinion of choice.

Decision making in case analysis

A case presents a situation involving a managerial problem or issue that requires a

decision. Typically, cases describe a variety of conditions and circumstances facing an
organization at a particular time. This description often includes information regarding
the organization's goals and objectives, its financial condition, the attitudes and beliefs
of managers and employees, market conditions, competitors' activities, and various
environmental forces that may affect the organization's present or proposed marketing
strategy.

Cases can involve situations in which decisions must be made or problems solved, or
they can involve evaluation or reconsideration of existing policies, practices or
proposals. Effective cases are usually based on real events, but can be drawn from
both the present and the past, even the distant past.

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Cases require students to make choices about what theory or concepts to apply in
conducting the analysis, which is distinct from the one to one correspondence between
theory and application that they see in their textbooks or hear in lectures.

A major part of decision-making involves the analysis of a finite set of alternatives

described in terms of some evaluative criteria. These criteria may be benefit or cost in
nature. Then the problem might be to rank these alternatives in terms of how attractive
they are to the decision maker(s) when all the criteria are considered simultaneously.
Another goal might be to just find the best alternative or to determine the relative total
priority of each alternative (for instance, if alternatives represent projects competing
for funds) when all the criteria are considered simultaneously. Solving such problems
is the focus of multi-criteria decision analysis (MCDA) also known as multi-criteria
decision-making (MCDM).

Through a case study, one learns a broad range of skills and has many alternatives.
Case studies encourage the practice and attainment of analytical and communicative
skills. Case studies allow a different kind of learning. It is close to the ‘learn by doing’
approach. Cases are intended to stimulate the reality of the manager’s job. The
material in the case provides data for analysis and decision-making. Cases require the
student to make decisions about the situations presented and to defend those decisions.
In real decision-making, the student will have to persuade superiors that his analysis
and solutions are the best and hence the communication and interpersonal skills are
vital to success in management. Cases provide the opportunity to improve these skills.

Case analyst should try to seek answers to following questions to arrive at

effective decision:

1. What is actual problem involved in the case?

2. What are the relevant facts?
3. What are the crucial unknown aspects of the scene?
4. What are the major critical questions related to each specific event?

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5. In what ways can logic and reasoning be used to determine crucial inferences,
connections and relationships?
6. In what manner can contradictory facts and arguments be weighed in making
decisions?
7. What should be the proper timing of decisions?
8. In what ways can those decisions be best executed?

Problem Analysis versus Decision Making

It is important to differentiate between problem analysis and decision-making. The

concepts are completely separate from one another. Problem analysis must be done
first, and then the information gathered in that process may be used towards decision
making.

Problem Analysis

 Analyze performance, what should the results be against what they actually are
 Problems are merely deviations from performance standards
 Problem must be precisely identified and described
 Problems are caused by some change from a distinctive feature
 Something can always be used to distinguish between what has and hasn't been
effected by a cause
 Causes to problems can be deducted from relevant changes found in analyzing the
problem
 Most likely cause to a problem is the one that exactly explains all the facts

Decision Making

 Objectives must first be established

 Objectives must be classified and placed in order of importance

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 Alternative actions must be developed
 The alternative must be evaluated against all the objectives
 The alternative that is able to achieve all the objectives is the tentative decision
 The tentative decision is evaluated for more possible consequences
 The decisive actions are taken, and additional actions are taken to prevent any
adverse consequences from becoming problems and starting both systems
(problem analysis and decision making) all over again

The Decision-Making Process

Effective strategic business decisions bring together the right resources for the right
markets at the right time. A good decision can help a business gain a competitive
edge. Decisions must reflect a firm’s aims and relate to objectives. The typical process
to decision-making and problem solving involves the following steps.

1- Identifying and defining the problem.

2- Generating alternatives solutions
3- Evaluation of alternatives
4- Choice of alternative solution
5- Implementing the Solution.
6- Evaluating the results.

1. Identify and Defining the Problem

This is a stage of information gathering, information processing, and deliberation. It

often begins with the appearance of problem symptoms, which signal the presence of
a performance deficiency or opportunity. The way a problem is originally defined can
have a major impact on how it is eventually resolved. Three common mistakes may
occur at this step.

Mistake Number 1 is defining the problem too broadly or too narrowly.

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Mistake Number 2 is Focusing on symptoms instead of causes.

Mistake Number 3 is choosing the wrong problem to deal with. Managers should set
priorities and deal with the most important ones first.

2. Generating alternatives solutions

Having identified the problem, the decision-maker needs to generate appropriate

alternatives solutions for resolving the problem. An understanding of organizational
and external constraints as well as organizational resources helps in identifying the
range of feasible action alternatives open to the decision-maker. Data are the basic
input to any decision making process in a business.

The skills, which could help in discovering alternatives solutions would be holistic
and logical thinking to comprehend the situation, as well as creative skills in
generating the options, which fit the situation. Knowledge of both the internal and
external environments of the organization and the subject matter pertinent to the
problem (human relations, how scientists can be motivated, etc.) would also help in
arriving at better alternatives.

At this stage more information is gathered, data are analysed, and the pros and cons of
possible alternatives solutions are identified. The involvement of other persons is
important in order to maximize information and build commitment. Common errors in
this stage include selecting a particular solution too quickly, and choosing an
alternative solution that has damaging side effects.

3. Evaluation of alternatives

After the various alternatives are identified, the next step is to evaluate them and
select the one that will meet the choice criteria. Typical criteria for evaluating
alternatives include:
o Benefits

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o Costs
o Timeliness
o Acceptability
o Ethical soundness

The ultimate purpose of developing and specifying criteria is to evaluate alternatives

and select the best one for resolving the problem. Criteria could be economic, social or
personal. Alternatives need to be evaluated against the specified criteria in order to
resolve the problem. In addition, the outcome of choosing any alternative is not
known with certainty. Usually, any one alternative would not be uniformly superior by
all criteria. As such, prioritization of criteria could help in identifying the best
alternative. The decision-maker might explicitly consider trade-offs between
alternatives in order to select the best. Assessments of alternatives among the criteria
need to be made, given partial and limited information about the possible outcomes of
the alternatives.

4. Choice of alternative solution

This involves choosing the most appropriate option. At this point, a "decision" is
made to select a particular course of action. Just how this is done and by whom must
be resolved in each problem situation. In some situations, the best alternative may be
selected using a cost-benefit criterion; in others, additional criteria may come into
play. Once the alternatives are developed, an action plan has to be developed. This is
essentially the implementation phase. In this phase, the decision-maker needs to
decide who would do what, where, when, how, etc. The process of arriving at these
decisions is just like the steps involved in the problem solving approach, except that
the chosen alternative becomes an input to this step. This phase would require
coordination skills to properly organize a variety of resources (human, material and
fiscal) and develop a time-phased programme for implementation.

5. Implement the Solution

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After selecting the preferred solution, appropriate action plans must be established and
implemented. Nothing new can or will happen according to plan unless action is
taken. Managers need the ability and willingness to implement the
decision. Difficulties at this stage often can trace to the lack-of-participation error, or
the failure to involve those whose support is necessary.

6. Evaluate Results

The decision making process is not complete until results are evaluated. If the desired
results are not achieved, the process must be renewed to allow for corrective action.
This evaluation is a form of managerial control. In any evaluation, both the positive
and negative consequences of the chosen course of action should be examined.
Problem solving becomes a dynamic and ongoing activity within the management
process. The additional skills required in this step would be those of devising control
and feedback mechanisms.

Feedback and contingency planning

For a variety of reasons, the original decision (chosen alternative) may not work well
and the decision-maker may have to be ready with a contingency plan. This implies
devising feedback mechanisms allowing monitoring of the status of the situation,
including results of the action plan. It also implies anticipating the most likely points
of failure and devising appropriate contingency plans to handle the possible failures.

Levels of decision-making

Decisions are made at different levels in a business’ hierarchy. Decisions can be:

 Strategic – these are long-term and higher risk in their impact. They shape the
direction of the whole business and are usually made by senior managers
 Tactical – these help to implement the strategy. They are often made by middle
managers

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 Operational – these relate to the day-to-day running of the business. They are
mainly routine and can be taken by anyone.

Decisions at all levels need information. A business creates a trail of data. This
includes for example, records on sales, staff costs or payment. Financial accountants
use recorded data to prepare the accounting statements for a business. Management
accountants use internal data (such as a balance sheet) and external data (such as
market information) to identify trends. This data is used to assess effects on the
business and its strategies in order to make better choices.

Elements of an Effective Decision Making Process

According to Peter Drucker these are the 5 elements of an effective decision making
process. Here’s a quick explanation of the five elements of effective decision-making:

 Element 1. Problem rationalization. The clear rationalization that the problem

was generic and could only be solved through a decision that establishes a rule or a
principle. For this gain familiarity with the situation given in case study. Know the
problem you are solving.
 Element 2. Boundary conditions. The definition of the specifications that the
answer to the problem has to satisfy, that is, of the “boundary conditions.” Know
your range of options that will still count as success.
 Element 3. The Right Thing to Do. Before you decide what is feasible, first
figure out what the right thing to do is.
 Element 4. Action. Turn decisions into action.
 Element 5. Feedback. Get feedback on what is working and what is not.

Conclusion

Decision-making is purposeful selection from among a set of alternatives in light of a

given objective. Decision-making is not a separate function of management.

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Complexity in the modern world, along with information quantity, uncertainty, and
risk, make it necessary to provide a rational decision making framework. A decision
needs a decision maker who is responsible for making decisions. This decision maker
has a number of alternatives and must choose one of them. The objective of the
decision-maker is to choose the best alternative. When this decision has been made,
events that the decision-maker has no control over may have occurred. Each
combination of alternatives, followed by an event happening, leads to an outcome
with some measurable value. Managers make decisions in complex situations.
Business decision making is almost always accompanied by conditions of uncertainty.
Clearly, the more information the decision maker has, the better the decision will be.

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