Decision Making
The article Improving Nonprofit Decision Making amid Economic Crisis highlights the plight of Youth Horizon Inc., a non-profit making organization faced with a persistent cash flow crisis. The organization has suffered a continuous decline in financing for the last eighteen month in a row. Its core business is identifying and enrolling dropout students back to high schools that offer alternative learning programs and have low student-teacher ratios. It has been receiving favorable press coverage and registering successful results from enrolled students. Despite posting impressive results, Youth Horizon has been experiencing cash flow problems that threaten its going concern status due to poor financial decisions. The decision-making process in organizations and implementation strategies used for competitive advantage are critical for success and may be a source of failure for any organization.
Use of reliable information in the decision-making process is critical in ensuring sound decision formulation. Relying on unreliable information in making decisions result in poor decisions that can affect the organization adversely. The information used in making decision should be verified to certify that they are from credible sources. It should also be timely and complete. Previous period information cannot be used alone to make current decisions due to changes in the business environment. Similarly, old approaches to business should not always be use even if they were successful in similar previous situations (Monahan, 2000).
Lack of urgency in responding to both present and foreseeable situations can lead to more operational and business crisis. According to Monahan (2000), businesses either make urgent or panic actions. Panic actions are normally reactive and not well thought-out and tested, while urgent actions are responsive to foreseen situations and produce better results. Organizations that operate with a sense of urgency fare well in times of economic crisis than those that operate on panic mode. Creating a sense of urgency in business operations ensures that emerging situations are taken care of before a crisis develops. Proactive decisions are realized through critical data analysis to determine the possible outcome of changing business environment. For this to be possible, an organization should have less bureaucratic decision-making structures to ensure decisions are reached and implemented on time. The use of Decision Information Systems also helps in making sound and timely decisions (Rhodes, 2010). Organizations that are reactive to situations are not able to address business challenges on time.
Overconfidence by the management could also affect timely and sound decision-making process. This is especially if overconfidence is blind of current business realities. Decision makers may rely on managers who exude confidence on their proposals, estimates, and/or predictions, but fail to consider real life threats to the business environment (Anderson & Galinsky, 2006). For example, a company’s management may decide to make a huge capital investment with a view of making huge returns on investment, but later prove to be an unviable venture. Overconfidence also makes an organization fail to make provisions for contingency measures in case of emergencies. Organizations should factor in all possible business scenarios before making any decision, especially those involving large capital outlays.
Board of directors and staff should have a goal agreement of values as encapsulated in the company’s mission and vision statement. This is especially critical if the company is targeting expansion in operation, since internal goals may be diluted by external goals in the process. This reduces conflict in agreement on decisions about top priorities.
Clarity in internal authority is important for smooth execution of decisions in an organization. This will facilitate smooth implementation of decisions from the source down to individual business units. According Strőh & Jaatinen (2001), organizations may develop sound decision but lack the capacity to implement them due to poor internal authority structures. An organization with clear authority structure bestows responsibilities on individuals who have a clear mandate and authority to execute them. This averts blaming and accusing others in case of any failure.
Each of the decision making process and implementation strategy has an associated risk factor which can be low, medium or high depending on the implication. The risk of being comfortable with a good performance can be rated as low risk if other risk factors are addressed. Being comfortable may be exuding confidence and good leadership. If sound management controls and structures are implemented, the organization can afford good results despite being overly confident.
Lack of a sense of urgency potentially exposes an organization to failing to respond timely and adequately to existing and emerging challenges. This risk has both medium and high-risk effect to the organization depending on other risk factors. For example, if the organization fails in responding urgently to issues, combined with lack of reading changing business environment, then its future is uncertain. Alternatively, when an organization studies the business environment but fails to act on the findings on time, the results might not be too devastating (Rachels, 1993).
Recognizing what has changed in the business environment is also dependent on other risk factors to qualify as medium or high risk factor. Studying the environment is imperative in making sound decisions. Lack of proper analysis of the environment can lead to loss of business and finances. Knowing your starting point has the same weight as gaining insight into the business environment. This point determines the business financial portfolio and guides in developing a sound financial and business strategy to move forward.
The most significant high risk factors in the organization are agreeing on the goals, making the right decision, and having a clarified authority. The lack of these objectives renders the management ineffective in its mandate. The Board of Directors and the financial committee had each their own goals according to their individual assessments of the organization. Each tried to implement their policies independently without the others. The implementations of disintegrated policies result to financial problems in the organization.
The lack of sound decisions lead to loss of business opportunities and competitive advantage. Lack of good decision is a high risk factor since it affects the performance of an organization. Making a sound decision precedes implementation of the decision, making it the most important activity in an organization (Monahan, 2000). Business executives should make sound decisions and develop sound implementation strategies for a competitive advantage. Lack of sound decisions causes organizations to miss business opportunities and leads to financial crisis.
In conclusion, for a business to be competitive in the market, sound and prudent business decisions have to be made. Apart from losing business opportunities, organizations can also lose the goodwill they have built over time. An organization can reverse this trend by entrenching good management practices (Monahan, 2000).
References
Anderson, C., & Galinsky, A. D. (2006). Power, optimism, and the proclivity for risk.
European Journal of Social Psychology, 36, 511–536.
Barr, K. (2009). Improving Nonprofit Decision Making amid Economic Crisis. The Nonprofit
Quarterly, 28-29.
Monahan, G. (2000). Management Decision Making. Cambridge: Cambridge University Press.
Rhodes, J. (2010). The Role of Management Information Systems in Decision Making.
Retrieved from
http://www.ehow.com/facts_7147006_role-informationsystems-decision-making.html
Strőh, U., & Jaatinen, M. (2001), New approaches to communication management for
transformation and change in organizations, Journal of Communication Management, 62,
148-165.
