Managerial Decision-Making Framework

Steps in the Decision-Making Process


  • ·        This general framework of decision making can be used in many situations, including incremental analysis. 


  • o       Identify the Decision Problem – One must identify the actual problem, and not just the symptom.  You make require brainstorming among groups or extensive process analysis to get to the root problem.  This could also be discerned from six sigma root cause analysis.


  • o       Determine the Decision Alternatives – Once managers have identified the problem, the next step is to determine the possible solutions or decision alternatives.  This is a critical step because the remainder of the decision process hinges on the decision alternatives identified here.  One may have to gather more data in order to assign probability outcomes and the likelihood of loss in order to choose the best decision alternatives.


  • o       Evaluate the costs and benefits of the alternatives – The primary focus in this chapter is the third step of the decision making process.  For short term decision making, we use incremental analysis (also called relevant costing).


  • o       Make the decision and execute the actions required to make the decision a reality – Once managers have evaluated the costs and benefits of the decision alternatives, they are ready to make the decision.  The decisions are not based on just numerical analysis but a variety of other factors, such as strategic considerations, quality, legal and ethical issues, and so on.  One does a quantitative analysis to determine the best decisions via the numbers, then apply qualitative analysis to determine factors that might come into play to influence a manager’s decision making process.  Once the decision is made, a manager will to author and execute a plan to accomplish a decision which is made.


  • o       Review the results of the Decision Making Process – Once managers have made the decision based on the relevant costs and benefits identified, they must then review and evaluate the results of the decision-making process to determine if management made the correct decision, or whether they should use a different decision-making approach in the future.