Decision Making - a Guide for Small Businesses

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Introduction
This guide has been compiled to assist small businesses in making better, informed decisions. It will outline the basic differences between information and knowledge and explore the types and sources of information and knowledge that are available. The need for identifying and analysing relevant information and knowledge when making decisions is highlighted through examples. The guide also aims to give small businesses a better understanding of the conditions under which decisions are made. Decision making is a key role of management and this guide will briefly explain the importance of information and knowledge in the decision making process (DMP). The impact of judgement and intuition on decisions is also noted. Whyte (1991, cited in Tiernan et al 2006) argues that while any decisions can suffer adversely much decision failure can be attributed to the DMP.

Decision Making Process
➢ Identify and Diagnose Problem
➢ Identify Alternatives
➢ Evaluate Alternatives
➢ Choose Alternative
➢ Implement Decision
➢ Evaluate Decision

Decision making is the selection of a course of action from among alternatives (Fahy 2011 a). Brainstorming is an excellent method of identifying alternatives. It involves groups of people expressing ideas and opinions, which also leads to new idea’s been generated. The brainstorming ethos is that no suggestion/idea is bad.

Decision Environments
Decisions are made on a daily basis throughout all businesses ranging from small to significant and complicated; all are made under various conditions. Some decisions will be routine and well structured; however, others are made which lack information and are poorly structured. Huber (1980) makes the distinction between decisions made under these conditions as programmed and non-programmed.

Programmed v Non-Programmed Decisions
|Programmed |Non-Programmed | |Well structured | | |Routine |Poorly structured | |Information available |New | |Taken at lower levels |Little information | |Short time frame |Taken at higher levels | |Decision rules and set procedures used |Long time frame | | |Judgement and creativity used |

(Fahy 2011 a)

Certainty Vs Uncertainty
In general there are three different types of conditions under which managers take decisions (Huber 1980, cited in Tiernan et al. 2006; 159), namely: ➢ Certainty
➢ Risk
➢ Uncertainty

Fahy (2011 a) observes the attributes to each of these conditions as follows: ➢ Certainty – available alternative, costs and benefits are known and definite outcomes possible. ➢ Risk – alternatives, costs and benefits are known; outcome sometimes in doubt. Probability can be used to help determine what the outcome may be. ➢ Uncertainty – most difficult decisions which requires intuition and judgement; available alternatives and outcomes unknown.

Fahy (2011 a) also acknowledges there are barriers to making good decisions and that the same outcome could be viewed as a gain or a loss depending on the perception and reference point used. For example:

An employee receives a €1,000 bonus, everyone else receives €2,000 bonus. Should this be perceived as a gain or a loss? The answer depends on the individual and whether the reference point: ➢ Is with the employee’s original salary – Gain

➢ Is it compared with others – Loss

Tiernan et al (2006) identify four main approaches to decision making; these vary depending on perspective, these are: ➢ The concept of rational approach –...
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