Managerial Decisions - Assignment Example

Managerial Decisions: Student Name: Name of institution: Lecture; Date: Introduction Making managerial decisions on employee layoffs is one of the hardest decision in an organization. The ministry of education where I was employed was going through lean times recently and had to retrench some staff to rein in costs. This report analyzes how the decision to lay off staff was reached, how it was made and it consequences on the staff. The second part, discusses how the decision could have been better optimised using the rational decision making model. The final part of the report analyzes various limitations that prevented the decision maker from reaching an optimal solution in the case. Decision scenario One of the hardest decisions for managers is to have to lay off a number of workers. Recently, a number of government institutions have undergone restructuring programmes where they have had to lay off hundreds of workers. The human resource manager at education ministry was forced to make a lay-off decision due to the pressure of an increasing wage bill and decreasing budget allocation. The laying off decision is hard as the manager had to show that laid off workers did nothing wrong. Secondly, the human resource manager has to show that the decision was rational. The manager has to show that the laid off employees were not sacked because they were not skilful enough, or lacked work ethics or were not liked in the organization. The manager also has to show that the poorest performers were the one shown the door while the top performers were retained in the organization. The layoff decision was made after the ministry of education failed to get the budget allocation expected. The layoff was the best solution after it was found that that employee were a huge cost to the organization. My employer found that the cost of benefits, expenses and payroll taxes were a great burden on the organization. However, the decision to lay off employee because the organization was going through a hard time was criticized as many view it as quick fix which has no regard for workers welfare. In addition, my employer had many employee employed on a permanent basis making them a fixed cost to the organization. Since the budget allocation was dropping, the fixed cost started to look too high. Many people argued that the laying off of employees to improve the bottom-line is unethical (Coucke, Pennings and Sleuwaegen, 2007). However, our ministry went ahead with the retrenchment which devastated those who were laid off and demoralizing those who were left. Staff morale at our organization has hit rock bottom as many employees are afraid they will be targeted for retrenchment since budget allocation is still dropping. While the company achieved the desired reduction in cost, the layoff affected staff motivation negatively and the ministry’s performance is worse that even before the restructuring programme was implemented. They were also many complaints that the best performers were laid off while low performers were saved. Many employees also resigned from the ministry as a result of the layoffs. Rational decision making The human resource manager had to decide which employees to retrench and which ones to retain. The rational decision making model is one of the best models that would have been used to make a better decision in the case: The rational decision making model involves six steps (Harrison, 1999): 1. Definition of the problem. 2. Identification of a suitable decision criteria 3. Allocation of weights to the criteria. 4. Development of alternate solutions. 5. Evaluation of the alternatives. 6. Selection of thje best alternative. Definition of the problem The human resource manager first needs to define the problem that is facing the organization. This step is easy as the issue of high cost of retaining permanent employees has been pointed out by upper management. The organization needs to decrease cost as it budget allocation are dwindling. Next, the HR manager has to decide the criteria she will used to make the decision. Identifying the decision criteria Identifying the decision criteria involves choosing the variable that will be considered in arriving at the final outcome. The HR manager needs to take into account employee information such as performance and age to determine which employees should be retained or laid off. According to Harrison (1999), managers make decisions based on their belief and values and the guidance of top management. The HR manager will only lay off those workers who are performing poorly and those who are nearing retirement age. She will do anything to protect the top performers in the organization as they are the best chance of bettering organizational performance. Her criteria would be: Who are the best performers in the workplace? How will performance of the organization be affected? How will the workforce be affected? Allocate Weights to Criteria The human resource manager will then assign weights to each of the criteria (Harrison 1999). In this case, the question of who is the best performer should be assigned the most weight closely followed by the effect of the lay-off on the employees. Develop the Alternatives The decision maker needs to develop alternatives solutions for the problem being considered. In this step, a list of alternatives is made with no consideration for which alternative is most suitable (Harrison, 1999). Some of the alternative solutions available to the human resource manager include: Changing the terms of employment for most workers from permanent to long-term contracts Laying off workers who are taking home large salaries. Shortening the number of working hours. After listing the alternatives the human resource manager should move to evaluating the alternatives to find out which is the most suitable. Evaluate the Alternatives Evaluating the alternatives involves comparing the alternative with the decision criteria (Harrison, 1999). The human resource manager has to consider the decision that has will retain top performers while having the least effect of staff morale. Choose the best alternative In this case, the best alternative would have been to put the permanent staff on contract and reduce associated cost such as benefits and expenses. Bounded Rationality The theory of bounded rationality posits that decision cannot be completely rational as they are limited by the information available, decision maker’s cognitive ability and the time available for decision making (Gigerenzer and Selten, 2002). However, information, cognitive ability and time are not the only bounds on rational decision making in the organization. Decision makers have the obligation to make satisfactory decisions as they lack resources and ability to arrive at an optimal decision. Bounded decision making arrives at better solutions than the mathematical modelling in use in political and economic decision making (Gigerenzer and Selten, 2002). In the decision making process of laying off employees a number of limitations on arriving at a rational decision can be identified; Lack of enough time to make the decision The decision requires a lot of information. They are no agreed upon criteria for making the decision. Organizational politics. Lack of accurate and complete knowledge of goals, alternatives, preferences and consequences. Time pressure is one of the limitations of rational decision maker in an organization setting (Sahinidis, 2004). The decision to lay off workers needs a lot of time to make as it has serious implications on the individual employees and overall staff morale in the organization. However, the human resource manager does not have enough time to analyze all the information needed to make a rational decision in the case. Often, decision makers are overwhelmed by the amount of information they need to go through to make a decision. Time limitations may mean the final decision may be based on greatly summarised information that may not provide sufficient details to come up with an optimal decision (Spencer, 2014). The decision to lay off employees was reached after the ministry’s annual report brought the attention of upper management to the ministry’s high wage bill burden. The human resource manager only had two months to decide who the ministry was going to lay off or retain among it national workforce. Lack of enough information is also one of the largest limitations on reaching an optimal solution in the above decision scenario (Sahinidis, 2004). Unfortunately, the ministry had not carried out a performance review for the last three years. This situation meant that there was no objective measure of performance available in the organization. The retrenchment of top performers was a direct consequence of the unavailability of employee performance data. Other critical information that was lacking was on how retention of workers affects the workplace. Although it has been theorised that lay-off have a negative effect on staff morale there is no authoritative study to support this view. Unfortunately, the failure to consider the effect of the lay off on employee resulted in staff morale going down significantly. Organizational politics is also a factor that limits the rationality of the decisions that can be made in the above scenario. Managerial decision making must take into consideration the competing interests of individuals in the organization. According to Pettigrew (2014), the competing interest of various interest groups in the organization must be taken into account to arrive at a good decision. It has been argued that involving employees in decision making is one of the ways to gain their support and eliminate organizational politics pertaining to the decision (Maitlis and Ozcelik, 2004). The human resource manager should have sought information about influential employees whose lay off would affect the staff morale negatively. In the scenario, the human resource manager laid off the staff without putting organizational politics into consideration. Conclusion Making optimal decision is very hard in organizational settings. In many case, organizational decisions may lead to unintended consequences. In this case, the decision to lay off staff affected staff morale negatively. However, the rational decision making model can lead to better solution as show in the case. But one has to remember that decisions are still limited by the resources available and the ability of the decision maker. References Coucke, K., Pennings, E., & Sleuwaegen, L. (2007). Employee layoff under different modes of restructuring: exit, downsizing or relocation. Industrial and Corporate Change, 16(2), 161-182. Gigerenzer, G. & Selten, R. (2002). Bounded Rationality: The Adaptive Toolbox. MIT Press. Harrison, E. F. (1999). The managerial decision-making process. Houghton Mifflin College Div. Maitlis, S., & Ozcelik, H. (2004). Toxic decision processes: A study of emotion and organizational decision making. Organization Science, 15(4), 375-393. Pettigrew, A. M. (2014). The politics of organizational decision-making. Routledge. Sahinidis, N. V. (2004). Optimization under uncertainty: state-of-the-art and opportunities. Computers & Chemical Engineering, 28(6), 971-983. Spencer, R. W. (2014). Managing Under Uncertainty. Research-Technology Management, 57(5), 53. Read More