Decision-Making in Organizations: Is It Better to Be Arbitrary or Judicious?

Dear Members,

On one of the WA groups of HR, the Administrator of the group has raised a topic for discussion. Today's topic is on Decision-making. He has asked the following questions:

Should decisions pertaining to the organization and employees be taken arbitrarily or judiciously? What would be the implications or benefits if decisions are taken arbitrarily?

I have provided replies to the questions below:

Dear Rajaram,

The replies to your questions are as follows:

Introduction: Factors that limit the decision-making process

Factors that limit the decision-making process are as follows: a) Inadequate information b) Time and constraints on the amount of information that can be gathered c) Perception of decision-makers about the relative importance of data d) Human memory e) Calculating capacities associated with intelligence

Collective Reply: Distinguishing between arbitrariness and judiciousness in decision-making

While making decisions, there is no scope for making arbitrary decisions. But is there any person who readily admits that his/her decision was arbitrary? The following questions distinguish between the arbitrariness and judiciousness of a decision: f) When the decision will be evaluated, how will it be evaluated, who will evaluate it, and on what parameters will it be evaluated? These are the most primary questions. Those who consider these questions are the real leaders. g) Was a Cost-Benefit Analysis (CBA) done before making a decision? If yes, what were the parameters? h) Does the culture of evaluation exist in the company? In many organizations, leaders make decisions and then justify them without maintaining any records on the circumstances under which the decision was made. This lack of clarity benefits the decision-maker and saves face. i) If the decision involves financial investment, were investment appraisal tools like IRR, ARR, NPV, or PBP used while making the decision? If such tools were used in the past, does leadership evaluate after a certain number of years to compare projected IRR with actual IRR? j) Many times, leadership displays plain capriciousness. Scientific decision-making is always a casualty with this kind of leadership. k) There are various types of biases that impact the decision-making process. Did leadership try to make itself aware of those biases and how to keep decisions free from such biases?

Thanks,

Dinesh Divekar

This is in addition to what Mr. Dinesh has explained above. Decision-making is a conscious process of purposefully choosing a particular course of action from among many alternatives in a given situation. Therefore, an arbitrary decision implies a negative connotation, suggesting that such a decision is based on chance rather than reason.

An organization, being a human association striving collectively towards the achievement of a common goal, impacts all stakeholders with every decision made by the management. The impact is particularly significant on the employees of the organization since the implementation of any decision rests solely on them. If a decision is judiciously made with an overall perspective, even inevitable negativities associated with it would eventually diminish in significance. However, if a decision is governed or characterized by sheer caprice, apart from searching in vain for any benefits, such an arbitrary decision will not serve its purpose.

The inputs provided by learned members on the subject will be guiding in nature. The social environment in which an organization operates provides a system of checks and balances over arbitrary decision-making. For example, welfare legislation like labor laws does not allow a company to make arbitrary decisions regarding terminating the service of an employee, particularly those in the workmen cadre, or denying benefits like leave, compensation, medical, or other statutory benefits such as PF and gratuity.

Role of Trade Unions and Collective Bargaining

Further, the presence of trade unions and the process of collective bargaining entail management's responsibility to include workmen or their unions in matters concerning their service conditions. The compulsions of employer branding also compel organizations to make informed decisions, considering all angles, and to introduce a culture of consultation or bipartite dialogue in making decisions on matters pertaining to employees.

Regards, B. Saikumar HR & Labour Law Adviser Navi Mumbai