The justification and selection of specific management decisions related to financial risks are based on the concept of management decision-making. This theory assumes that decisions associated with risk are always characterized by elements of uncertainty about the specific behavior of the initial parameters, which do not allow one to determine the values of the final results of these decisions. The theory of risk management would be beneficial in a crisis.
For a leader, decision-making is not an end in itself. The manager should be concerned not with choosing alternatives but with resolving a specific managerial problem. The decision approach plays a crucial role in problem-solving because “a decision approach is considered a complete problem-solving process for a certain decision target” (Chai & Ngai, 2020, p. 3). Frequently, not a single solution is required to solve a problem, but a particular sequence of solutions and, most importantly, their implementation. In the decision-making process, the following strategies for decision-making can be distinguished:
- Strict calculation: application of professional solution algorithms. For example, it is used when the information is complete or available in budget calculation. As a rule, to make a decision, in this case, it is enough to contact the appropriate professional.
- Systematized search strategy: using professional methods for searching for missing information (R&D models, experiments, tests, data analysis using matrix methods and classifications). All these methods are applied with a specific purpose, and their procedures are carried out strictly and in a predetermined plan.
- Directed search strategy: application of universal data search and analysis (SWOT analysis, Pareto chart, Ishikawa scheme). It is connected with the impossibility of defining a clear goal and criteria for selecting information.
- Intuitive search strategy: application of simplification techniques for complex tasks – heuristics (garlands of associations, brainstorming, synectics).
- Pure intuition: making a decision based on an intuitive choice. It can be implemented through delayed action when the problem’s solution is postponed for some time and later returned to it or through associative thinking – the search for a solution based on emerging associations.
Factors Affecting Decision Implementation
The decision-making process is a complex task influenced by many factors. The main basis for successful decision-making is the ability and motivation to make the best decisions. The quality of decision-making is the result of a fusion of knowledge in the relevant area of decision-making. Important aspects also are communication abilities, motivation, and ability to convince another of one’s ideas, and the ability to carry out the necessary stages of rational decision-making.
The adoption of a managerial decision covers a conscious, reasonable choice from alternative options for a specific action that can ensure the implementation of the tactical and strategic plans of the organization. Top and bottom managers make decisions in the organization’s management since they concern not only an individual but also a specific unit and the entire organization. The primary condition for making a decision is its consistency with other management decisions previously made by the heads of various levels of management.
Resources and Actions Required for Implementation
To successfully implement the decision, it is essential to manage resources properly. The resource management plan manages and allocates all the resources needed to implement the solution. A practical implementation plan should describe the specific resources, including human, financial, technical, and physical, and activities required to carry out the project or initiative. A compelling resource and action management plan will help the organization properly distribute forces and confidently implement projects and prevent employee burnout. Properly managing the capacities, the manager creates conditions for comfortable and high-quality work. Moreover, employees will eventually feel satisfied with their activities by understanding that they have the opportunity to do a good job.
Ethical Implications of a Decision
Ethical aspects of decision-making are based on concepts that denote moral values, such as goodness and justice, honesty and respect, citizenship, and equality. Insufficient attention to these aspects in managerial decisions leads to reputational risks. However, it is worth remembering in ethics that “decision-making assumes that individual characteristics can explain behavioral variation” (Karimi et al., 2018, p. 3). Therefore, each person is free to interpret certain decisions in the context of their ethical views. Ethical constraints on decisions are often intuitive and based on everyday morality. Normative theories of morality provide a rational basis for resolving ethical dilemmas. The difficulty lies in that moral philosophy has not yet formed a unified approach to understanding the nature and nature of moral principles.
Decision-Making Outcomes and Processes
Forming and making decisions on specific problems and problem situations is a critical element of the process. Problem-solving is a process consisting of a sequence of successive actions. The process begins with the moment of occurrence, detection, and problem situation and ends with the implementation of the chosen solution and evaluation of the result of removing the problem. The decisions’ results include quality of the decision, timeliness, degree of compliance with the goals, customer requirements, accuracy, and the degree of improvement in the decision-making procedure. The ability to make managerial decisions develops with experience. We make everyday decisions without systematic deliberation. We think over long-term decisions in life. In management, decision-making is a systematic process. The reasons for this are the responsibility for making decisions and the consequences for the entire company.
Business Editorial that Presents Position on a Timely Business Issue
Risk management during a crisis
Crises regularly overtake the world economy, and this indicates their cyclicality. This is a feature of the development of the world economy. Consequently, the crisis is only a structural transformation of the world economic system on the eve of the emergence of a new financial and economic structure. The critical factor in making managerial decisions in a difficult situation is the choice of a strategy for making such decisions. The whole process will depend on the chosen strategy, from the decision to its implementation. The most significant of these emergency strategies is risk management.
Risk management must be integrated into the corporate process and have its strategy, tactics, and operational implementation. As Tamásné states, “The pre-crisis period is the most important part of the process in terms of the options of a company in the case of an actual crisis” (2020, p. 317). Therefore, by the time a crisis occurs, the company should already be ready for it. It is crucial not only to carry out risk management but also to periodically review the tactics and means of such management. Risk management becomes relevant once the risk has been identified. The following control actions are a possible concerning risk as a probable failure: prevention, reduction, damage compensation, and absorption.
The crisis and, accordingly, the risks are influenced by many factors. For example, it is important considering the company’s specifics is also essential because systematic risks manifest differently in all economic areas (Angel et al., 2018). Most companies in a crisis focus only on optimizing the costs of the enterprise, reducing them to a minimum. Such an approach has a short-term effect and, simultaneously, leads to a reduction in operations and a gradual withdrawal of the company from the market. The main tasks of crisis management are debugging business processes, increasing labor productivity, increasing sales, and team building. In a crisis, underestimated risks can result in irreparable financial losses.
The era of rapid development, which lasted more than two decades, has come to an end. Now the world is faced with a slowdown in economic growth and an increase in the influence of the state. This will completely change the usual picture of the world economy. The financial crisis should be used as a chance for the company to rebuild its management system and create an effective mechanism capable of making complex management decisions in any conditions. In the management of financial risks and risks in general, all the functions of the financial management cycle are involved: from planning to control. An important aspect is the organizational moment of risk management with certain functional responsibilities and the necessary material, financial, and labor resources. The more time and attention devoted to preliminary analytical work before responsible commercial operations, the less likely it is to make mistakes and, consequently, the occurrence of risky situations.
The economic space, especially the market type, is characterized by dynamism, volatility, and mobility. The variability of the parameters of the economic system is a source of risks. Most managers consider risk only out of necessity, in predicaments under the pressure of changes in market conditions, when the continuation of a particular type of activity is in question. This is the main mistake because the consistent application of the risk management system can help to overcome the crisis much more accessible.
Based on all the information studied, it can be concluded that risk management during a crisis requires considering the specific options for efficiency values. Most managers make serious mistakes when managing a company in a crisis, and they can be avoided if they prepare adequately and in advance and look for alternative solutions. The risk management theory has shown that it is excellent for crisis management.
Angel, K., Menéndez-Plans, C., & Orgaz-Guerrero, N. (2018). Risk management: Comparative analysis of systematic risk and effect of the financial crisis on US tourism industry: Panel data research. International Journal of Contemporary Hospitality Management, 30(3), 1920-1938.
Chai, J., & Ngai, E. W. (2020). Decision-making techniques in supplier selection: Recent accomplishments and what lies ahead. Expert Systems with Applications, 140, 112903.
Karimi, S., Holland, C. P., & Papamichail, K. N. (2018). The impact of consumer archetypes on online purchase decision-making processes and outcomes: A behavioural process perspective. Journal of Business Research, 91, 71-82.
Tamásné Vőneki, Z. (2020). Crisis management and operational risk management in the financial sector in the shadow of COVID-19. Economy and Finance: English-Language Edition Of Gazdaság És Pénzügy, 7(3), 309-325.