Analyzing Alternatives

The third step in decision making is that of analyzing and evaluating each alternative in terms of its possible consequences and impact on goal attainment. Generally, managers can never be sure of the actual outcome of each alternative. Consequently, evaluating alternatives requires managers to call on present knowledge, past experience, foresight, and scientific acumen. A discussion of the probability decision model that considers the three relationships of certainty, risk, and uncertainty between alternatives and outcomes is presented in Appendix. 

Seeking  strategic factors

The astute decision maker must recognize the strategic or limiting factors creating a problem. Strategic factors refer to those that are most important in determining the action to be taken in solving a given problem. Identifying such factors in the right form, place, and time is, therefore, crucial in decision making.

In situations where a sequence of sub decisions is required to reach an overall goal, a determination of new strategic factors is necessary for each decision. Thus, several strategic factors may be present present in making complex decisions, and the role of the manager is to recognize such limiting factors. When they are not considered, the chances of selecting an optimum course of action diminish rapidly.

To illustrate the role of strategic factors, we can consider the case of a computer that suddenly fails to operate. Several alternative courses of action could be followed to get the equipment working. These might include checking various electronic systems, reevaluating the program, or checking the sequence of  inputs. Only when the decision makers discover that a circuit breaker is open (the strategic factor) will they be able to determine the course of action to be taken-reactivating the breaker to restore power. Thus, if strategic factors cannot be properly isolated, an analysis of alternatives will be faulty and may result in the delection of an inappropriate course of action.

Organizing strategic factors is also important in analyzing alternative course of action. For example, a problem may lend itself to an organization of strategic factors under the classification of quality, quantity, time, and cost. Or, the who, what , why, where, when, and how approach might be appropriate. Regardless of how the factors are organized, a systematic approach must be followed in the analysis of alternatives. In this way, the probability of making a more rational selection from among alternative courses of action increased.

Irrelevance of past decisions   

Without a consideration of present and future conditions, past decisions are quite irrelevant in the decision-making process. For example, the original cost an asset may have little significance on present or future decisions. Consider the manager who plans to sell an old truck for its current market value of $5.000. Since the truck is no longer needed, the fact that it originally cost $25,000 may be interesting but not relevant to the present decision. Picture an investor who purchased XYZ Corporation stock  for $100 a share and now holds it at $25 a share due to a general decline in the stock market, it may be logical to sell and invest the funds in a more active issue. Under these conditions, the fact that XYZ stock cost $100 is only one of several factors to consider in deciding to sell the stock.

The concept of utilizing past decisions appropriately is referred to as the principle of sunk cost which emphasizes that the past is only an uncertain approximation of the present. Therefore, managers should not rely on past decisions except as they can be of value in estimating the future. For any organization, the important costs are those that have not been incurred since decision making is concerned with the future, rather than with the past.