Decision-making process in crisis situations.

Vrdoljak Raguz, Ivona

Abstract: In crises situations there is a little time and information available for detailed analyses so managers have to make decisions based on paradigms that differ from traditional rational decision making models. The aim of this article is to emphasise the role of emotions in an intuitive decision process in crisis situations. The emotion is necessary variable in a rational decision analysis and it might be the key element in a manager's successful utilization of tacit knowledge and intuitive decision making strategies.

Key words: management, decision-making process, crisis situations

1. INTRODUCTION

Managers, especially top managers every day have to make decisions in crisis situations. In today business characterised with the dynamic nature of the global economy and the unpredictable, uncertain nature of today's business environments, quick decisions under crisis circumstances have become commonplace for many enterprises.

The amount of information transfer available through the Internet and other electronic media sources further intensify the scene.

Very much of the development of decision theory has been based on the rational, cognitive and behavioral aspects of decision under normal conditions but the management literature has not been so productive when is about the emotional aspects of the decision process, specifically in crises situations.

The article is organized in two directions: first briefly reviewing the literature on traditional and emerging decision theories and at the end by proposing the descriptive model of decision making process in crisis situations.

2. LITERATURE REVIEW

Emotion has been largely banished from the predominant philosophies and theories of decision, reason and management for over 400 years.

The ideal decision-maker was understood like a person which decisions must come from only rational, cognitive processes while emotions have no place in rational concept. So that was the case in decision theory in business developed by classical economists.

But later, neoclassical economists disavowed utility's psychological underpinnings and began to expunge the emotional content from the utility construct.

Emotions play a part in more basic functions, such as feeling fear when escaping a dangerous situation. But this is also true for higher cognitive and moral functions, like complex decision-making and ethical reasoning (Gaudine & Thorne, 2001).

With respect to crisis situations, the use of tacit knowledge and intuitive decision processes may be the only feasible strategy when the decision-maker is pressed for time.

It can also be an ideal option when a thorough analysis is not possible and the manager must move quickly to another possible solution if a familiar pattern is recognized.

In this article, the attempt was to forward these developments in decision theory by introducing the role that emotions have in intuitive decision-making.

Most of the concepts of crisis theory supplement those from decision theory to provide a theoretical framework for the proposed model.

In this article, the definition of crisis as a decision situation that may equate to an endangerment of the organization's survival is being discussed.

In crisis situations decisions have to be taken rapidly and most of these situations are everyday field for taking routinely decisions.

Crisis, however, can be interpreted in two ways first in a positive way such as change and growth of the organization where the enterprise takes place or strengthens of the organization.

In a negative way crisis can be viewed also as a decision opportunity that, despite its potential for damage, can also lead to constructive growth if managed well.

This article started with the aim that today's manager must increasingly demonstrate the ability to make decisions in a fastpaced, uncertain, turbulent, dynamic and changing environment.

Recent literature has postulated that top managers in various industries and organizational sectors often perceive their environment as turbulent (McKinley & Scherer, 2000).

3. DECISION-MAKING PROCESS IN CRISIS SITUATIONS

Decision making is fundamental part of every task in which managers are involved. In that process managers have to respond to the opportunities and threats by analyzing the options and making determinations or decisions about specific organizational goals.

Appropriate goals result with good decision and that is the one way to increase the performance.

Decision making is done through models. Limiting factor of using any kind of model according J. Byrd and L. T. Moore are following attitudes of decision makers (Sikavica, 1999.):

* Decision making models are very complex--But, in practice very simple models are also very successful;

* Decision making models eliminate the intuition of decision makers--The value of intuition of skilful and experienced decision makers is very high, and using decision making model should not and does not have to exclude using that intuition;

* Decision making models are designed for using only quantitative criteria in decision making - But models can include qualitative criteria very successfully as well;

* Decision making models needs very expensive computers to be solved--This argument lost its strength because of radical decrease of prices of computers that have abilities to solve any kind of models that could be used in corporation;

* Experts for modelling do not have business skills but only technical skills for model developing--But many successful models were developed by people that were working in business and administration.

Following limitations of models are stated in literature as objective obstacles for using decision making models:

* Some models could be expensive and they need lots of time for development and tests;

* Because of insufficient skills in a field of IT and math, models could be used in a wrong and unprofessional way;

* Models are based on prerequisites that are to far from reality and because of that the solutions that are reached with models could be useless.

What is meant by manager experience? Manager experience like education and training influenced on creation of explicit knowledge, tacit knowledge and emotional memory.

The focus of discussion is on intuitive decision but it has to be said that, for rational decision making the explicit knowledge is necessary.

Tacit knowledge is the practical knowledge learned informally and is often associated with intuition and can be described as an accumulated knowledge through experience and memories, which are filtered through one's beliefs and values that were inherited from one's family.

The tacit knowledge insures the linkages between related experiences in memory which provides the ability to make quick and effective decision for the present situation.

Our emotions allow us to learn from our mistakes, even if we do not realize them in the very decision moment.

Without emotions we would not be capable to learn from the past (Loewenstein, 2000).

Perception of the crisis situations is influenced by explicit as well as tacit knowledge.

The way in which manager sees the crisis situation will impact the entire decision process.

If the manager views the situation as a threat, they may choose defensive or protective strategy.

If the situation is perceived as a challenge, the manager may think about some innovative strategy but if the managers view the event as a loss they may choose not to response.

Manager can believe that the situation is predictable, then he might more likely perceive the situation as a challenge, rather than a threat but if his perception is that situation is less predictable, the manager's perceptions and result of decisions may be affected accordingly

The intuitive decision making process is the smooth automatic performance of learned behaviour sequences and often can short-circuit a step-wise decision-making, thus allowing an individual to know almost instantly what the best course of action is (Khatri and Ng 2000).

Manager remembers only the emotion associated with past experiences during decision-making in crisis situations, and it is not necessary to recall the details and contexts of the experiences which may occurs during no critical decision situations (Ford & Goia 2000).

The emotions experienced in situation of crisis and turbulent environment force manager to move away from traditional decision-making methods to alternative models of decision-making models.

It can be said that management theories and models of decision making processes should expand in current boundaries to incorporate this concepts.

The descriptive model is proposed in this article with the accent on decision making processes where managers operate in crisis situations in turbulent business environments based on an intuition and managerial experience.

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4. CONCLUSION

At the end, it can be concluded that management decision-making in crisis situations is partly defined through ability to understand the emotions.

The emotion is necessary variable in a rational decision analysis and it might be the key element in a manager's successful utilization of tacit knowledge and intuitive decision making strategies.

A major component of searching the decision-making under crisis situations is how managers perceive and interpret the crisis situation.

Do they perceive it as a threat, challenge or loss? It is important to determine how managers react in crisis situations. Presented descriptive model proposes a way to view the decision-making process of managers operating in situations of an uncertainty, turbulent environment, limited time and limited information.

5. REFERENCES

Ford, F. C. & Goia, D. A., (2000.), Factors influencing creativity in the domain of managerial decision making, Journal of Management, 26(4), pp. 716-718

Gaudine, A., & Thorne, L., (2001.)., Emotion and ethical decision-making in organizations, Journal of Business Ethics, 31(2), pp. 179.

Khatri, N., & Ng, H. A. (2000)., The role of intuition in strategic decision-making. Human Relations, 53(1)

Loewenstein, G., (2000.), Emotions in economic theory and economic behavior, American Economic Review, 90(2)

McKinley, W. & Schere, A. G., (2000.), Some unanticipated consequences of organizational restructuring, Academy of Management Review, 25(4)

Sikavica, P., (1999.), Poslovno odlueivanje, II izmijenjeno i dopunjeno izdanje, Informator, Zagreb; Business decisionmaking, 2nd edition, Informator, Zagreb