Most descriptions of management or business decision making processes have too few steps because they view decisions as similar, ordinary, discrete and quickly executed steps. It is not clear whether this is because textbooks do the same or whether there is some intrinsic appeal to steps such as setting goal, collecting data, considering options and making the decision. However, it is clear this simplicity has three adverse consequences. It avoids the complexity of needing to build understanding
of the problem. It does not allow time to build commitment to a course of action. It does not recognize that the managerial accountant deals with such a broad field of decisions that this process is incomplete. The extended stepwise decision process is proposed to address these shortcomings. A major advantage is its ability to handle non-programed decisions. Programed decisions are standard decisions that always follow the same routine; once established, they can be codified into an easy-to- follow sequence. Non-programmed or unstructured decisions are non-standard and non-routine, so each decision is different from prior decisions, despite apparent similarities. Another advantage of the extended stepwise decision process is its applicability to decisions with a variety of characteristics and circumstances including:
Structured or unstructured5 Short or long-term horizon Routine and uncertain elements Strategic or tactical
Immediate or deferrable
Controls and feedback to trigger further decisions, and monitor and report on their status
Table 7-2 proposes an extended stepwise decision process. It incorporates the preliminary tasks such as problem solving and allows for creativity. It highlights some processes as iterative, such as clarifying goals and developing the criteria for making the decision. It allows for the ranking of options to be reviewed and considers implementation. While the extended stepwise decision process is not guaranteed to eliminate the effect of heuristics, cognitive biases or the behavioral consequences of decisions, it can mitigate them by replacing the immediate decision with a process that ensures due consideration. Although the setout of Table 7-2 is linear, there is scope for iterations, extended review and looping back where new information changes what has been settled in previous steps. The completion of a phase in the table identifies a review checkpoint.
The issue always confronting the managerial accountant is that any given problem with given information can yield many different results and thus give managers choices to select the course of action they prefer. So not only does the extended stepwise decision process need to incorporate additional steps, but it also needs to emphasize the last step in each phase is an automatic review of the conclusions from the preceding phase. This ensures there is thorough scrutiny and opportunities to question information and any intermediate conclusions and anticipates the effect of heuristics and biases. Thus, commitment is provisional and subject to review allowing for sunk costs to be recognized. As noted in Table 7-2, cognitive heuristics and biases operate at all times and thus require attention.
Table 7-2 Extended stepwise decision process highlighting the scope tor cognitive bias and the review checkpoints.
Phase Task
Step Task6 Commentary or Subtasks Scope for Cognitive Bias
Decision
domain 1 Identify decision maker
Determine whether individual,
representative or committee.
Determine where finalization and ratification rests.
In selecting the individual, composing the team or delegating the committee
Problem analysis
2 Problem recognition
Specifically
describe the symptoms of the
problem or
opportunity.
State whether the problem is fully or only partly manifested.
Identify whether the matter urgent, important or both.
In recognizing the phenomena as a problem,
as well as overlooking risk
3 Problem formulation
State the problem in terms of root causes and prior attempts at resolution.7
Identify any uncertainties.
Estimate
contingency and risk.
Perceiving the kind of problem, its character and
the success of the candidate remedy
4
Make predictions about the future to determine the
impact of the problem.
Consider influences
external to the organization.
Consider
Overlooking contributing factors Under- or over- weighting those factors
Data collection
influences
internal to the organization.
5
Obtain information8 allowing for delays in availability and time for
checking.
Although some information is available, some information may continue to be uncertain or unavailable.
Specify
assumptions and reconsider
contingency and risk.
Determining where to search Determining when
to stop searching
Creatively establish and
evaluate options
6
Identify and devise as many reasonable options
as possible.9
Start with the basic options: ‘do it’, or ‘don’t do it’.
Use creativity to identify
additional options and structure them into different classes.
Identify options that are equally attractive.
Determining what is a relevant option Determining how many
options ought to be formulated (particularly
suppressing search for additional options)
7
Create logical evaluation criteria before commencing any evaluation considering
characteristics, performance and
implementation.
Weigh the
options.
Review the
relative weights.
Examples of criteria to rank options: Decision
Matrix, a
Determining what criterion to include and
how they should be weighted Determining how to handle information
that does not fit the criterion
SWOT10 Analysis as template or 2 x 2 matrix
Determine approach
8 Eliminate all the options that are low ranked.
If two or more options are high ranked, re- examine their evaluation.
Check inputs and make changes.
Eliminating information that does not fit the
criteria Creating additional criterion that is poor Modifying the criteria
9
Review all the details of the remaining high- ranked
close options.
Amend criteria if rankings are anomalous
Overlooking information that might now be eligible
for�inclusion Changing the criteria to
favor an option
10
Select the preferred option (the highest ranked
option).
Review the
reasonableness of the final choice.
Consult with others.
Adding a late additional criterion. Selecting features of the information
to support the choice.
Implementation 11
Detail the implementation plan from the criteria and implemented; reconsider the (rejected) options; and
allocate resources.
Review decision history.
Review feasibility.
Review risks or sacrifices.
Review tangible costs.
Review tangible benefits.
Review broader long-term
consequences.
Explain the decision to those
Overlook consequences of the process, announcement
or implementation conditions.
involved and affected.
12
Determine the method or implementation (sequenced, staged, parallel or simultaneous).
Reconfirm commitments.
Prioritize stages.
Obtain resources.
Ensure clear accountabilities.11
Under- or over-state the time, effort, quality and
risk.
Monitor and evaluate
13 Follow up.
Ensure the
implementation
‘sticks’.
Realize benefits on which the decision was based.
Use new criteria or find additional favorable
features.
14
Evaluate decision or project processes and
performance (lessons learned for future organizational decision
making).
Document the lessons to be learned.
Independently identify any benefit
overestimation
and cost
underestimation.
Demand for a report that is positive or negative.
Conceal embarrassing information.
15 Conclude or terminate the implementation
Transfer into routine
operations.
Overlook consequences of making the arrangements
permanent.