The business must decide or lose as it faces opportunities and problems daily. Facing critical conditions that require optimizing for higher gains or negative situations that must be minimized through appropriate decisions to reduce loss poses challenges to the business. It is challenging because most decisions face a high level of uncertainty. The managers do not know the future, but they have to make the decisions all the same.
There are businesses today that emerged from difficult decisions taken in the past. In 2006, Mark Zuckerberg, the CEO of Facebook Incorporated, turned down the sum of $1billion offered by Yahoo Incorporated to buy the company. The offer was tempting, but Zuckerberg refused to sell Facebook. Today, the company is worth billions of dollars.
The rational decision-making process helps to simplify the difficult task of decision making for the business owner. It involves a sequence of guidelines which we will examine below:
Recognize decision circumstance (step one)
In making a rational decision, the first step is to realize that a decision is needed. The realization is often motivated by a positive or negative event that precedes it. And, part of this process is the need to define the cause of the event and how it could affect other business issues.
A business owner who, for example, achieves surplus revenue could recognize the decision circumstance as enhancing the level of performance that produces the surplus funds. This condition is a positive one. It could be a critical one that requires an appropriate decision for a solution. The business owner now proceeds to the next level of the rational decision-making process.
Identify the alternatives (step two)
The decision-maker, at this point, has to identify alternative ways of action for effective results and be aware of the limiting factors of each alternative in the process. Examples of such limiting factors are customers’ preferences, economic factors, inadequate information, current technology, legal constraints and social norms. Besides, the more critical decision should receive more time and resources. Thus, the decision-maker should be creative.
Here, the decision-maker could identify three alternatives to enhance the level of performance that produces the surplus funds: (a) producing more product units of the same quality and increasing employee salaries
(b) producing the same product units of low quality and maintaining the same level of staff salaries or
c) (producing more product units of the same quality and employing more staff
Evaluate the alternatives (step three)
At this stage, the decision-maker should evaluate each alternative. It involves weighing up each of the alternatives concerning its effects, possibility and suitability. Therefore, the decision-maker adopts the alternative that meets the three criteria more than the other competing alternatives.
The evaluations reveal different results: The first alternative will be possible and suitable. But, it has critical effects on staff capacity and productivity. The second alternative is possible and suitable. But, it has critical effects on consumers’ choices and sales. Finally, the third alternative favourably meets all the decision criteria. Then, the decision-maker proceeds to step four.
Select the best alternative (step four)
The business owner at this stage is to select the best alternative that meets the decision criteria. The third alternative is the best, as revealed in step three. That is producing more product units of the same quality and employing more staff.
The decision-maker should therefore adopt the third alternative and proceed to step five.
Apply the selected alternative (step five)
The business will implement the selected alternative at this level. It includes allocating the resources and developing the operational plans necessary for successful implementation. Finally, the decision-maker proceeds to the last step.
Appraise the outcome (step six)
Appraising is the final stage where the business should keep monitoring the alternative that is adopted. The goal is to see whether the decision taken is producing the desired results or not. For example, the decision-maker will expect the business to be making surplus funds after the decision.
However, if the outcome is below expectation, the business has a lot of options to try. It could go to step five and adopt the second-best alternative to monitor for effective results, give the current decision more time to produce positive results or restart the exercise altogether.
Therefore, the business should use apply good timing when monitoring the alternative for results. It should avoid passing judgments too early or too late on the situation it is assessing. For example, terminating a decision that could have worked too soon or allowing a decision that could have failed too much time will both amount to resources wastage.
The rational decision-making model gives the business clear decision guidelines that lead to logical and result-oriented decisions. The business should have proper timing in monitoring the selected alternative to avoid the hasty or delayed judgment that could cause wastage.
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