Decision making plays a significant role in an organization. It is the function of managers of company. The failure or success of a company or any other organization primarily depends on management quality which drives the organization. It is the responsibility of managers to make decisions for moving the organization upwards on the path of success and for achievement of goals. Decision-making is a continuous and dynamic activity which impacts all the other activities of organization.There are various techniques employed for purposes of decision making and the techniques used depends on the subject on which decision is required to be taken and the level of manager by whom decision is taken. In the current fast-growing era, it is important to take the decisions after considering various factors that may influence the decision or its implementation. The decision makers must ensure that they do no spend much time on decision making but must take effective decisions which would practically deliver best outcomes. All the actions of management of company relates directly to their decision-making processes.
The term ‘decide’ refers to arriving at a conclusion or resolution as to what the company and its members are expected to do in upcoming circumstances. The process of decision making is a requisite part of life of manager wherein he is required to take decisions on almost everyday basis to ensure the success of organization and for achieving its objectives. The process of decision making is not limited to taking decision as to what is to be done but also its implementation. The application of organizational strategies requires decisions at each level and the successful implementation of strategies is a result of effective decision making on part of managers and supervisors. Similarly, the failure of effective implementation of organizational strategy is also a result of decisions made by managers and supervisors. Thus, the process of decision-making forms the basis for all the organization strategies and managerial activities in an organization.
The aim of this report is to discuss the importance of decision making in an organization while outlining the key aspects of management decision making. The report offers an analytical study of the impact of decision making on functions of company. It covers three important factors that can affect the decision-making of people. The report elaborates the heuristics that can speed up the decision-making, the common biases and their role in decision-making, and last is social influences and how they impact the decision-making of people.
The term ‘Heuristic’ is a Greek word which means ‘to discover’. It is an approach for solving the problems which considers an individual’s personal experiences. It is a mental shortcut which helps individuals in solving their problems and make judgements efficiently and quickly. It is also known as ‘rule of thumb’. This strategy shorten the time of decision-making and allow people to functionwithout making them stop constantly for thinking about their consequent actions. These are very helpful in most situations but at times also lead to cognitive biases.
Different theories have been suggested by psychologists as to why an organization rely on heuristics. These are as follows:
Heuristics plays an important part in both decision making and problem solving. When there is a need to solve a problem or take a decision, then the individuals with the task in hand move to the mental shortcuts as they need quick solutions. The brains are not capable of processing all the information available in the world and if each and every aspect is analysed, then one would never reach a possible outcome. Therefore, for coping up with the tremendous amount of information available and to speed-up the processes of decision making, the brain relies on the available mental strategies so that there remains no need to spend endless hours to analyse the detail. Heuristics allows the individuals to think the possible outcomes of problems for which they have to take decisions and help them in arriving at a solution.
Types of Heuristics
The most common types of heuristic are discussed as under:
Heuristics tend to make life easier and make quick decisions which are mostly correct and accurate. However, it is important to be aware that the way in which heuristics work may introduce potential biases to the decisions. These may further help in making more accurate and better decisions.
Topic: What is a heuristic?
Source: Cherry, 2018.
Biases in decision making may lead to erroneous judgements and failed business outcomes. The decision making in a business is impacted by the available data to a great extent. The available data do not guarantee its relevancy and therefore it may lead to biased decisions. Further, there are several factors which may impact the data negatively or positively and therefore, its reliability may fluctuate from time to time. As a result, it becomes crucial for the decision makers to use that data and draw the inferences from them.
The various types of cognitive and data bias that most commonly challenge the decision-making processes of an organization are as follows:
These biases are impediment to the accurate decision making can therefore can lead to ineffective outcomes. The business leaders and mangers must remain alert to this parament.
It is one of the debating topic that whether or not the decision-making is affected by the social environment. Many a time, people ignore their opinion and take decisions by getting influenced by other’s opinions. In an organisation, people follow the judgments of others even if they gives inappropriate decisions. This is a very common case when economic decisions are made.There are both directly and indirectly influencing elements, such as social interactions through social media, cultural norms, and mass media (Solomon, et.al, 2014). The influence of these factors are collectively known as social influence. These can be of two category, namely direct and indirect. If an individual directly affects the decision-making of other, then it comes under direct social influence. This can be done either by persuasion or coercion. On the other hand, the indirect social influence is one of the subtle and prime psychological process that is associated with amount of information available related to other’s course of action. The impact of social influences is very huge in the field, such as political polls, stock markets, aid campaigns, cultural market, panic stampedes, etc. For instance, the herding attitude of any financial actor can cause financial bubble. They can control the whole system and manoeuvre it in a positive direction like increase in the tax compliance rate (Pettigrew, 2014).
It is considered that a person make opinions by being a part of an interaction network that is characterised by social acquaintances. In one of the study published in the Journal of Social, Cognitive, and Affective Neuroscience highlighted the extent to which the social norms influences the decision-making. The mass media is the major source of information for people as well as for society. It has some great powers to influence individual’s attitudes, behaviours, and attitudes can be changed. When an organisation changes its equipment and old practices, and employ new techniques, these can be communicated to the target market by making use of mass media. It can provide necessary information and skills to change people’s opinion. Furthermore, the social media platforms, such as YouTube, Facebook, etc., have made the world closer and smaller (Papadakis, et.al, 2014). It has converted the whole world into a big global village. Organisations can advertise their products and services in different countries at the same time, thereby by influencing the consumer’s buying decision. This can have a negative impacts as well. In case a company fails to deliver the required quality of product, then the negative reviews posted by the customers can affect the sales. Recently, Tesla Motors loses $3 billion market value after its CEO’s smoking picture got viral.
There are many researchers who have given their views on the effects of social influences, such as social media, cultural norms, and mass media on people’s decision making. In 1967, George Gerbner in his research argued that people who are in prolonged influence of TV or radio absorb images, dominant symbols, and messages of mass media. If a person is persistently in the exposure of the mass media, then he/she may cultivate a common perception about the world. In addition to this, social influencers can teach and educate readers or listeners about the organisation or the world. Most importantly, the research argues how people can make a common understanding of the world just by observations alone. Furthermore, Maxwell McCombs in his work highlighted that if a news is presented to the audience consistently and frequently, then they will start believing that the news is true and significant (Bourgeoisand Brodwin, 2014). In one of the research work, it was highlighted that people actively and willingly come in the exposure of media by themselves and media cannot influence those who has nothing to do with the media. Hence, one can conclude that the social influences are dependent on perception, ethical values, culture, beliefs, interest, and selectivity of the people.
Mostly, the managers are required to make decisions in environments which are uncertain and with limited information available. In addition to this , there are time constraints due to pressures of competition. Each and every decision within an organisation is associated with a particular problem that an organisation faces and that affects the performance of the organisation. The ultimate motive behind every decision is to achieve the overall goals and objectives of the company. There are many factors that can affect the final decision-making process in an organisation. In this report three of such major factors were discussed in detail. The first and foremost was the “heuristics.” This can affect the speed of the decision-making process by reducing the overall efforts and substituting certain attributes.When there is a need to solve a problem or take a decision, then the individuals with the task in hand move to the mental shortcuts as they need quick solutions. The second factor was common biases that can skew the decision-making process. These included anchoring effect, conceptual biases, etc. The leaders in the organisation must remain aware of these challenges as these biases are impediment to the accurate decision making can therefore can lead to ineffective outcomes. The third and the last factor is social influence that consisted of social media, cultural norms, and mass media. These social influences are very huge in the field, such as political polls, stock markets, aid campaigns, cultural market, panic stampedes, etc. They can control the whole system and manoeuvre it in a positive direction like increase in the tax compliance rate.
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