DECISION

MAKING
PART TWO
 Objectives:

Students should be able to:

•Discuss the process of decision-making in business

organizations in terms of the stages of decision making
•Describe the factors affecting decision making
 STAGES IN THE DECISION MAKING
PROCESS

There are six stages in the decision making

process that are relevant to most business
decisions. This is the case whether the decision is
big or small
 DEFINITION OF THE PROBLEM OR
OPPORTUNITY

The first step of the decision-making process is to identify the problem to be

solved or the objective to be achieved. The problem may be identified by
thoroughly searching through the firm’s annual reports or financial statements
or from customers’ feedback, among other sources. When the problem is
identified, it is imperative that it is clearly defined so as to prevent the business
from going in the wrong direction. Problems that are unambiguous will save
time and possibly cost
 DATA COLLECTION
Having identified the problem, the firm must now decide how and from what sources the
data will be collected. The data needed may be collected from primary and/ or secondary
sources.

‘Primary data’ refers to original information collected specifically in response to the

problem. This may be collected through observation, interviews and questionnaires.
Primary data must be collated and analysed in order to have some value based on the
problem defined in the first stage.

‘Secondary data’ represents information collected from other sources, such as

newspapers, textbooks, internet sources or other work of a similar nature that was compiled
for previous research. This form of data will be reprocessed and reused in an attempt to
solve the problem identified or to clarify the opportunities identified
 ANALYSIS & EVALUATION OF THE
DATA

The data must be thoroughly examined to determine its

appropriateness and applicability/practicality as well as its
significance and value in selecting the alternative strategies that
will be developed. The decision maker should consider its
adequacy to address the problem.
 DEVELOPING ALTERNATIVE
STRATEGIES

After analyzing the data, the next step is to develop a list of

possible actions that can be taken. Weigh up the pros and cons of
each alternative to select a strategy. These alternatives should be
geared toward solving the problem or achieving objectives outlined
 SELECTING & IMPLEMENTING

Here, the decision maker selects the best course of action to solve
the problem and carries out the chosen decision.
 EVALUATING

The final stage is the evaluation of the option(s) that were

implemented. Here, the decision maker needs to assess how
effective the decision is and what improvements can be made.
These results are compared with the original objectives or problem
to ascertain whether they were achieved or solved. The results are
often presented in a report. Having assessed the report, it may be
necessary to modify the course of action or to start the process of
decision making over again
 FACTORS AFFECTING DECISION
MAKING

Managers cannot take important strategic decisions in a ‘vacuum’ without considering the business environment in
which their firm operates. There are many outside influences that shape the decisions that a business makes. It is
important for firms to analyse the external environment on a regular basis to identify changes that will impact on
decision making. Businesses often use PESTLE analysis to do this. The following factors are taken into account:

oPolitical, Governmental and Legal factors

oEconomic factors
oSocial, demographic and Cultural
oTechnological
oEcological/Environmental
oHuman and Natural Constraints
FACTORS AFFECTING DECISION
MAKING
 POLITICAL, GOVERNMENT & LEGAL
FACTORS

The government and legislature are important influences on business. Governments

create the legal and regulatory framework in which businesses operate. Legal factors are
often included as a ‘political factor’ because a change in administration can lead to
different policies for the business.

In the Caribbean there are currently a number of laws governing the behaviour and
operation of businesses. These include:

Employment laws which govern contracts, recruitment, termination of employment,

redundancy, health and safety in the workplace, unionisation, dispute resolution
minimum wage payments.
 POLITICAL, GOVERNMENT & LEGAL
FACTORS

Laws to promote competition in business

Governments have enacted laws to promote free and fair competition between
businesses which benefit consumers. Laws have enacted laws revoking previous
monopoly licences and liberating some of these markets in order to foster
competition. These laws may also prevent mergers and limit uncompetitive
practices among firms. For example, the St. Lucian telecommunications market
was liberalised in 2003 to allow other firms to enter the industry. A number of
other Caribbean territories have also liberated their telecommunication markets
 POLITICAL, GOVERNMENT & LEGAL
FACTORS

Consumer rights which protect consumers from exploitation and unfair practice in business.

Consumers may obtain redress from the Consumer Affairs Commission, the Bureau of Standards and the Fair
Trading Commission. The Sale of Goods Act is also important, as it stipulates the conditions under which goods
are sold: There are three main conditions of these Acts:

oGoods and services should be fit to sell-they should be safe and have no defects in them that would make them
unsafe if they were used in the ways intended.

oThey are suitable for the purpose for which they were bought

oThey perform in the way described.

 POLITICAL, GOVERNMENT & LEGAL
FACTORS

Environmental laws

With the emphasis that is being placed on global warming in recent times,
firms now have to be more careful about their impact on the environment.
Governments are also becoming more vigilant in the enforcement of
environmental protection laws. For example, firms in the food services
industry have to be mindful of offseason fishing and other firms have to limit
their pollution of the air, water or land.
 ECONOMIC FACTORS
Business make decisions on a daily basis and these decisions may be
influenced by different forces in the economy. The government has to make
macroeconomic decisions which will impact on the business community.
These macroeconomic policies may aid or discourage business and decision
makers must be aware of this. Macroeconomics policies include such things as
inflation, the unemployment rate, interest rates, exchange rates, economic
growth and the balance of payments.
 SOCIAL, DEMOGRAPHIC & CULTURAL
FACTORS

Society and culture change over time. The structure of the population or society's buying patterns
and lifestyles change. This affects the way we live, work, produce and consume. The changes
occurring in many countries include:

oAn ageing population (low birth rates)

oChanging role of women (seek employment)

oEarly retirement in western countries (more leisure time)

oIncreasing divorce rate creating more single parent households

oHighly educated workforce

 SOCIAL, DEMOGRAPHIC & CULTURAL
FACTORS

Culture

Businesses must also be aware of the culture of the market in which

they are entering or operating. ‘Culture’ is defined as a combination of
beliefs, values, rituals and practices that shape one’s behaviour over
time. Culture plays a critical role in some markets in terms of
language, food, dress religion and music. In business, the decision
maker must be aware of this and guide his/her decision likewise
 TECHNOLOGICAL FACTORS

The modern world is characterized by rapidly changing technologies which influence business
decision making. Technology has changed the way we do business. Such changes include:

oModes of transport for example, low cost air transport and the development of electric and solar-
powered cars.
oInformation technology (lap top and computers)
oMethods of production (for example, automatic robotic production lines)
oCommunication (social networks, WhatsApp, email etc. also used to promote products)
oEcommerce
oPayment of goods and services (using credit cards)
 ECOLOGICAL/ENVIRONMENTAL
FACTORS

Ecological or environmental factors deal with how businesses treat the

environment in which they operate. Businesses are being urged to be more socially
responsible and laws have been enacted to monitor their behaviour. For example,
there are laws prohibiting firms from dumping their wastes inappropriately, cutting
down large numbers of trees and damaging coastlines. Decision makers must be
aware of the implications of making decisions that are bad for our environment.
 HUMAN & NATURAL CONSTRAINTS

It is important to recognize that decision making is limited by the ability of individuals to make decisions. Decision
making maybe distorted by emotional influences, differences in thought, ability and attitude or a lack of
information which may result in poor decisions being made. The decision maker should be aware of the following
factors:

oThe skill level of employees,

oThe willingness of staff to accept change

oSize and composition of the labour force is also vital

oThe level of motivation of the workforce

oThe number and strength of trade unions represented in the business

 HUMAN & NATURAL CONSTRAINTS

Natural factors’ refers to the natural resources that

are used as inputs into production. These include
land, labour, capital and entrepreneurship. A firm
experiencing a shortage of these resources will find
it difficult to produce its product in large
quantities.