A new but very important analysis of capital market behavior has brought top company executives together for an urgent meeting in the middle of the night. This problem can result in great losses, many times greater than the value of the company, if left unchecked.
In ‘Margin Call’, we find ourselves hours before the start of the 2007-2008 US financial crisis and watch the decision-making process of the managers of a large investment company. We also review the decision-making and problem-solving process in times of a great crisis.
The Decision-Making Process
The progression of the decision-making process depends on getting sufficient information to the right people at the right time. But time, data, and expertise are themselves the limitations. What is important is to make a decision despite all limitations and improve the quality and effectiveness of the decision as much as possible.
7 Steps in the Decision-making Process in Margin call movie
Step 1: Identify the Issue
The starting point of the decision-making process is having a clear understanding of the problem, where we need to clarify the cause and not the symptoms of the problem, and focus on the effect of the decision on the issue. This is what the Chairman of the Board does. He tries to discover the issue and follow it up, arriving at the highest level of transparency and clearing up all ambiguities in such a way that the issue is clear for everyone.
Step 2: Options on the Table
Pressures and constraints sometimes present us- as the only viable option- a one-dimensional solution at exorbitant costs. If there is no diversity of opinion in the think-tank, this available option may be used as the final decision, without criticism or analysis. Following this, as a result of lack of awareness of damages or losses incurred and of methods of alleviation, new issues arise. The existence of creative people, diversity in thinking, constraints and open-mindedness will contribute to the quality of all choices made.
Step 3: Identification of Constraints
Factors that affect or constrain decision making include time, financial resources, laws, and many others. These factors limit the decisions we make and options we have. For this reason, the active involvement of specialists and consultants in the decision-making process, allows decisions to be made based on reality.
Step 4: Scrutiny of Options
The options that exist may be the result of group or individual decision-making, but should be evaluated from several perspectives, regardless of the source of the choices:
Feasibility Aspect:
Can it be done?
Effectiveness:
How much does it help to solve the issue?
Consequences:
The cost (financially and non-financially) incurred for the organization?
Step 5: Final Decision
The best possible decision has the most benefits (Text in the image: Most Benefits) and the fewest drawbacks (text in the image: Fewest Drawbacks). However, sometimes it is very difficult to choose between the options on the table, and the positive and negative effects in a specific time period and the chance of success of each option are what allow managers to prioritize.
Step 6: Execution of the Decision
Those involved in the decision-making process must also know their role to ensure a positive outcome. Management does not end with decision-making, and managers must help the problem-solving process by devising plans, procedures, rules, strategies or policies. Especially, in critical situations where decision-making and implementation processes are closely interconnected and linked.
Step 7: Control and Evaluation
Even the best decisions can fall short during implementation. By gathering data, a manager can evaluate his or her decision and determine the effectiveness of the option. Determining the control and evaluation indicators helps to protect well-made plans and make better decisions.
Summary
- The DATA makes the decision. Management must equip its decision-makers with sufficient information and analysis, both from outside the company, the market, as well as from within the company and related processes.
- For key decisions, executive and realistic options must be put forward for debate.
- Options are to be challenged from different standpoints and angles. Diverse and/or independent expert opinion must be offered and considered.
- Choices must be made by evaluating the advantages and disadvantages of the options.
- To implement the option, planning is required and control indicators and criteria must be specified.
