GENERAL MANAGEMENT
CHECK POINT 5: LEAN MANAGEMENT
Please Select Any Topic In Check Point 5 Below And Click. |
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DO I NEED TO KNOW THIS CHECK POINT?
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1. IMPORTANCE OF THE DECISION-MAKING PROCESS |
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IMPORTANCE OF THE DECISION-MAKING PROCESS |
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Business owners and managers must be fully aware about the importance of the decision-making process which is generally recognized as the most critical factor in the overall managerial activity.
As a business owner or manager, you are constantly required to make Decisions throughout the process of planning, organizing, leading, and controlling your company.
The more important decisions deal with Strategic Issues related to your organization and involve finding out what the existing situation is and how to change it. Other managerial decisions relate to Operational Activities and necessitate evaluation of the existing resources and their most effective application within the organization.
The Decision-Making Process concerns the development and selection of a suitable course of action toward meeting the organizational objectives in the most cost-effective manner. |
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2. KEY QUESTIONS IN THE DECISION-MAKING PROCESS |
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THE COMMON ERROR IN MANAGEMENT DECISIONS |
The most common error in management decision-making process is the emphasis on finding correct answers rather than searching for correct questions.
Typical questions which you should be asking yourself and key members of your management team are presented below.(12) |
KEY QUESTIONS IN THE DECISION-MAKING PROCESS |
Activity |
Question |
Planning
Activity |
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- What is the basic mission of our company?
- What should be our company's short- and long-term objectives?
- What are the buying trends in the marketplace?
- What are the competition trends in the marketplace?
- How will these trends affect our company in the future?
- What strategies should be adopted to reach our objectives?
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Organizing Activity |
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- How should we allocate work within our company?
- How should we organize the working units?
- How can we coordinate working units to ensure harmony?
- What decisions should employees be allowed to make?
- What should be changed within our company's structure?
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Leading
Activity |
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- How can we provide a better leadership to our employees?
- What specific needs do our employees have?
- How are these needs being satisfied through working toward the organization's objectives?
- What are the reasons for decreased productivity of employees?
- How can we increase the productivity and motivation of our employees?
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Controlling Activity |
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- How should we measure our company's performance?
- How often should we measure our company's performance?
- How close are we in meeting our company's objectives?
- What are the reasons for not meeting the planned objectives?
- What corrective measures should we take to improve our company's performance?
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3. SEVEN STEPS IN THE DECISION-MAKING PROCESS |
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A typical Decision-Making Process, outlined below, entails seven steps and may apply to a broad range of business situations. |
THE DECISION-MAKING PROCESS |
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Step 1: Analyze The Existing Situation.
Step 2: Define The Problem.
Step 3: Develop Alternative Solutions.
Step 4: Select The Most Suitable Solution.
Step 5: Implement The Decision.
Step 6: Evaluate The Results.
Step 7: Repeat The Process As Necessary. |
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4. ANALYZE THE EXISTING SITUATION |
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STEP 1: ANALYSIS OF THE EXISTING SITUATION
Analysis Of The Existing Situation represents the first step in the rational decision-making process.
When conducting a situational analysis of your company you need to ask specific questions, as outlined below. Several examples that follow are designed to clarify each step in the decision-making process. |
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THE SITUATION ANALYSIS QUESTIONS |
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Question |
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What is the existing situation? |
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What happened in the recent past? |
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What has been the trend so far? |
4. |
What may happen in the near future if the same trend continues? |
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5. SMALL BUSINESS EXAMPLE
ANALYZE THE EXISTING SITUATION |
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STEP 1: ANALYZE THE EXISTING SITUATION |
Consider, for example, Mr. President, who examines the performance of his* company.
Information provided by the financial department indicates that the company earned net income of
$240,000 in 2012. Thereafter, Mr. President turns to financial statements for the three preceding
fiscal periods, and finds the following information regarding the net income:
• $270,000 for 2011
• $300,000 for 2010
• $330,000 for 2009
The Trend Analysis of the company's net income indicates an average 10% -12% deterioration of performance during the last three years. Hence, if the same trend continues, the company's net income in the year 2013 may drop again by about 10%. This obviously constitutes an undesirable condition and presents a potential problem which should be prevented.
* Note:
Any reference to gender means "he" or "she" throughout this program. |
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6. DEFINE THE PROBLEM |
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STEP 2: DEFINE THE PROBLEM
In order to avoid any undesirable conditions, it is essential to get to the root of a particular problem. Problem Definition, therefore, represents the second step in the rational decision-making process.
Complete identification of a problem often represents a difficult task since all parts of organizational activities are closely interrelated. It is helpful, therefore, to break the overall problem into smaller segments and to identify and subsequently solve each segment separately. This type of approach is frequently used by engineers and usually provides effective results.
Another very effective management process of identifying problems has been developed by Taiichi Ohno, former Toyota Motor vice president. This process, known as “The Five Why?” Process, can be used by businesses of all sizes, and it plays a very important role in identifying the real sources of a wide range of problems in various operational situations.
Note:
“The Five Why?” Process is described in detail in Tutorial 5. |
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7. SMALL BUSINESS EXAMPLE
DEFINE THE PROBLEM |
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STEP 2: DEFINE THE PROBLEM |
Continuing with the decision-making process, Mr. President proceeds with Identification Of Reasons which may have caused the deterioration of his company's earnings. This entails detailed examination of the company's performance in such areas as general administration, human resources, finance and accounting, operations, marketing and sales.
Moreover, Mr. President needs to be familiar with relevant management principles and set appropriate standards of performance in the aforementioned areas. Subsequently, the company's existing situation can be examined in terms of the corresponding standards of performance. As a result of the detailed examination of all operational activities, Mr. President identifies a number of problems in the following areas as illustrated below. |
SUMMARY OF OPERATIONAL PROBLEMS WITHIN A COMPANY |
Area Of Activity |
Description Of Problems |
General
Management |
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- Unclear delegation of duties, responsibilities, and authority.
- Inefficient operational planning.
- Poor communication between departments.
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Human Resources
Management |
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- Absence of job descriptions and job specifications.
- Inefficient performance and high turnover of employees.
- Poor planning of human resources requirements.
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Financial
Management |
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- Absence of a budgeting procedure.
- Poor credit control.
- Inaccurate management accounting reports.
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Operations
Management |
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- Inefficient plant layout.
- Inaccurate cost estimating.
- Irregular production scheduling.
- Poor inventory control.
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Marketing And Sales
Management |
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- Absence of a clear marketing plan.
- Ineffective coverage of sales territories.
- Poor product knowledge by sales people.
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8. DEVELOP ALTERNATIVE SOLUTIONS |
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STEP 3: DEVELOP ALTERNATIVE SOLUTIONS
Once the specific problem is identified, it is necessary to determine what kind of action is required to rectify the problem. Thus, the third step in the rational decision-making process entails Development Of Alternative Solutions. These solutions may be generated by one individual or by a group of employees within the organization, depending on the nature of a particular problem. |
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9. SMALL BUSINESS EXAMPLE
DEVELOP ALTERNATIVE SOLUTIONS
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STEP 3: DEVELOP ALTERNATIVE SOLUTIONS
Mr. President, from the previous example, continues with the decision-making process. This entails a Search For Alternative Solutions to improve the company's level of earnings.
It is apparent from the problem identification stage that there are several interrelated problems which have to be solved in order to upgrade the company's performance. Hence, it is necessary to Select Alternative Courses Of Action in various areas of the company's activities and Evaluate Each Option in terms of its consequences.
In performing the Evaluation Of Consequences, Mr. President must provide answers to such questions as:
- Does the alternative action help the company to achieve its objective?
- Does the alternative action carry any undesirable consequences or negative side effects?
- Can the company afford a particular alternative action?
If the answer to any of these questions is unsatisfactory, there is a strong indication that a particular course of action is unacceptable. Thus, alternatives need to be found to secure an effective solution in a specific area of the company's activities. This leads to the next step in the decision-making process: Selection Of The Most Suitable Solution. |
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10. SELECT THE MOST SUITABLE SOLUTION |
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STEP 4: SELECT THE MOST SUITABLE SOLUTION
Once the manager succeeds in defining a particular problem in developing a set of alternative courses of action and in evaluating consequences of each option, then the decision itself may become a relatively easy task.
Managers usually consider a number of factors and often consult with other members of the management team prior to reaching a final decision. Selection Of The Most Suitable Solution is often based on a "trade off" between various positive and negative consequences in relation to future activities of the organization. This, in turn, requires a delicate balancing of the proposed solution and a "diplomatic" approach by the manager to the decision-making process. |
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11. SMALL BUSINESS EXAMPLE
SELECT THE MOST SUITABLE SOLUTION |
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STEP 4: SELECT THE MOST SUITABLE SOLUTION |
The next step in the decision-making process requires Mr. President to Evaluate A Number Of Alternative Solutions together with his management team. Each alternative course of action is examined in detail in terms of its consequences and influence on the company's performance. Finally, Mr. President selects the most suitable solutions and prepares a Plan Of Action as illustrated below. |
SUMMARY OF THE COMPANY'S PLAN OF ACTION |
Area Of Activity |
Description Of Problems |
General
Management |
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- Revision of the organizational chart.
- Accurate formulation of duties, responsibilities, and authority for each position
- Preparation of detailed operational plans.
- Development of effective communication between departments.
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Human Resources
Management |
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- Preparation of job descriptions and job specifications.
- Execution of regular employee performance appraisals.
- Introduction of new employee training and development methods.
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Financial Management |
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- Preparation of the company's budget.
- Introduction of new credit control procedures.
- Development of new management accounting reporting systems.
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Operations Management |
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- Revision of plant layout.
- Development of new cost estimating procedures.
- Preparation of regular production schedules.
- Maintenance of an effective inventory control system.
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Marketing And Sales Management |
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- Development of a clear marketing plan.
- Redesign of sales territories.
- Introduction of new training programs for sales people.
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12. IMPLEMENT THE DECISION |
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STEP 5: IMPLEMENT THE DECISION
The next step in the decision-making process entails a thorough Implementation Of Decisions undertaken by management. It is essential, therefore, that managers "sell" their plans of action to each member of the management team in order to ensure effective implementation. Acceptance By Subordinates of a particular plan of action enhances its chances for a successful implementation and improves cooperation among employees. |
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13. SMALL BUSINESS EXAMPLE
IMPLEMENT THE DECISION |
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STEP 5: IMPLEMENT THE DECISION |
In accordance with information from the previous example, Mr. President proceeds with the Implementation Of The Plan Of Action. This entails allocation of the following responsibilities within the organization as illustrated below. |
ALLOCATION OF RESPONSIBILITIES |
Area Of Activity |
Description Of Problems |
General
Management |
Responsibility of the president. |
Human Resources
Management |
Responsibility of the president or vice-president, human resources. |
Financial
Management |
Responsibility of the vice president, finance. |
Operations
Management |
Responsibility of the vice president, operations. |
Marketing And Sales
Management |
Responsibility of the vice president, marketing and/or sales. |
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14. EVALUATE THE RESULTS |
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STEP 6: EVALUATE THE RESULTS
The final stage of the rational decision-making process entails Evaluation Of Results obtained during and after the implementation of the previously selected decisions. Managers, therefore, need to collect data pertinent to the company's activities in a particular area, to evaluate actual results, and to compare these results with the corresponding projections. The evaluation of results represents a prime element of the Management Control Function, which is discussed in detail in Tutorial 1. |
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15. SMALL BUSINESS EXAMPLE
EVALUATE THE RESULTS |
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STEP 6: EVALUATE THE RESULTS
Returning to the previous example, Mr. President proceeds with the Evaluation Of The Company's Performance and Implementation Of The Plan Of Action.
Provided that all members of the management team carry out their individual responsibilities, significant improvement in the company's performance may be expected. This, in turn, may lead to an effective solution to the original problem and subsequently generate higher net income. |
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16. REPEAT THE PROCESS AS NECESSARY |
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STEP 7: REPEAT THE PROCESS AS NECESSARY |
As a business owner or manager, you should never "rest on your laurels".
It is of a paramount importance that you continue evaluation of your company's performance on a regular basis to ensure that there are no surprises in the future. This is essential regardless of the company’s level of profitability. You must be prepared, therefore, to repeat the above decision-making steps to ensure successful performance of your company.
Remember, that in life you may have at least three possibilities: "up", "down", or "steady" (no status change). However, in business you have only two possibilities: "up" or "down".
If your business continues to perform on a “steady” or "no-status change" basis, this actually means "down", because when your competition "goes up", it will outperform you in the marketplace. |
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17. FOR SERIOUS BUSINESS OWNERS ONLY |
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ARE YOU SERIOUS ABOUT YOUR BUSINESS TODAY? |
Reprinted with permission. |
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18. THE LATEST INFORMATION ONLINE |
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LESSON FOR TODAY:
You Must Decide Today To Be Decisive Tomorrow! |
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