The role of managers and their decisions play a key role in the business environment. Decision-making is one of the most complex and important responsibilities of managers and policymakers, which is very dynamic.
Decision-making, as one of the basic concepts in management and leadership, has a long history. With the development of societies and emergence of more complex organizations, the need for more accurate decisions based on information and data has increased, Ali Chagharvand, the director of Plan Management, Planning and Monitoring Department of Iran Chamber of Commerce, Industries, Mines and Agriculture, said in an article for the Persian economic daily Donya-e-Eqtesad. A translation of the text follows:
In the Middle Ages, decisions were made more individually and according to people’s personal experiences, but with the advent of the Industrial Age and larger organizations, the need for decision-making based on information and data increased. In the 1960s, decision-making theory was put forth as one of the key issues in management and leadership. This theory emphasized that successful decisions should be made based on accurate information and data, and by taking into account the complex and changing conditions of the market and society. Since then, various theories and approaches have been presented regarding decision-making in various economic, political and military arenas.
Political, economic and managerial decision-making in Iran dates back to ancient times. Over time, however, the form of decision-making changed according to various developments in politics, culture, economy and society. Decisions during this era were always taken by the highest authority in the central government; given the centralized and non-participatory governance structures, there was no decision-making authority in the lower parts of the power pyramid.
In pre-Islamic Iran, the Mahestan Assembly was formed during the Parthian Empire for the first time as the first official decision-making body consisting of elders, nobles and clergymen. Even though this assembly had a strong impact on some military and national decisions, it played no role in making some decisions.
In post-Islam Iran, following the Constitutional Movement and under Mozaffar ad-Din Shah Qajar, the National Council was formed for the first time; it was entrusted with making decisions regarding budgeting, collecting taxes and managing income and expenses.
Since then, there has always been an assembly of people’s representatives in Iran. However, despite the developments, it seems that the tradition of centralized decision-making is still prevalent in important political and economic decision-making centers of the country. Many important managerial decisions are often referred to higher authorities in order to distribute decision-making risks.
On the other hand, the lower tiers in the hierarchical structures do not have the power to question the people at the top of the power pyramid; all wrong decisions, indecision or inaction, if questioned, will not necessarily lead to an answer. Undoubtedly, the creation and development of the decision-making system in Iran and all other countries originate from several internal and external factors. The historical and cultural context of each country has determined the underlying beliefs and norms of the growth and development of the decision-making system and its quality.
Decision-Making in Closed Economies
From the point of view of rational decision making, the goal of every decision is to obtain some kind of opportunity or benefit. But gaining any opportunity requires some kind of tradeoff and loss of other opportunities; we all want to see the benefits of a decision outweigh its costs. That’s why the concept of opportunity-cost is one of the most important variables in the decisions of economists and politicians. In fact, the costs of a policy should be regularly compared with the costs of other policies and the costs of lost opportunities.
Although the logic of policymakers is often the maximization of short-term benefits, societies are always affected by the long-term costs of policies, which are less important in the eyes of policymakers in the long-term horizon.
In closed economies, decision-making horizons are usually shorter and decisions are often more centralized. In these economies, the calculation of opportunity-cost has no meaning and policymakers often assume that the available resources are unlimited; they are reluctant to think about the costs of lost opportunities that result in the society when exposed to more systematic risks.
Decision-Making in Open Economies
Making correct and timely decisions is one of the prerequisites for achieving sustainable growth and development in all countries.
Passivity and procrastination in making right decisions about important economic issues increase economic risks and reduce growth. Although this is true for all countries, the decisions of policymakers in open economies are made according to a wider range of domestic and international considerations.
In these countries, important economic decisions such as monetary policies, financial policies, international trade and tax laws are reviewed for different periods of time; their ultimate goal is to align with the goals of economic growth, development and improvement in the welfare of the society.
Since economic and political decisions are very important for the private sector and sometimes the effects of not making the right decisions are very strong and stable, continuous efforts to improve decision-making and policymaking methods in these areas are being pursued in open economies. The existence of transparent and accountable frameworks restricts the possibility of indecision and inaction by policymakers, especially in countries with more democratic political structures. The need for optimal use of production resources in competitive and market-based economies directs the decision-making framework toward the maximum use of information and data.
The same issue has highlighted the role of advancement of technology and the creation of algorithms and methods of artificial intelligence, automatic and data-based decisions in these countries. There are many examples of indecisiveness in our country. For example, despite the imposition of huge costs due to political and diplomatic weaknesses on the business environment and the entire economy, a cost-benefit decision has yet to be made to depoliticize the economy. Important issues such as complying with the Financial Action Task Force based on collective cost-benefit have not been addressed yet.
At the same time, the policymaker must calculate the opportunity cost of each upcoming policy and make a careful choice. But today, we do not see such discussions; at times, important issues are left undecided or if decisions have been made, they have not been implemented. Decisions on reducing the government’s share of the economy, adopting policies to prevent budget deficits and bank imbalances, correct monetary policies in order to prevent the growth of liquidity and failing to enforce decisions related to the sustainable management of water resources and reducing the exploitation of water resources are other examples that indicate that the policymaker is sitting on the fence and does not realize how huge the costs will be over time.
The origin of many challenges in our business environment today and the costs incurred by economic operators are to blame on the lack of correct and timely decisions; we should be worried if the continuation of indecision and inaction in the long term become the norm of governance in our country. It is appropriate for policymakers and decision-makers to focus on real information and data, and make decisions based on them. Moving toward participatory decision making and interaction with stakeholders and those who pay the real cost of policies will be fruitful. The policymaker should look for more than two points of view in every issue to be able to compare the costs of each policy with another one and finally make the optimal choice.
Paying attention to the opinions of the elites of industries, economy and private sector who are affected by decisions will be very useful. According to laws and regulations, the government is obliged to consult the private sector in the amendment or regulation and the writing of bylaws (for example, articles II and III of the Law on Continuous Improvement of the Business Environment).
Another suggestion is for the policymakers to focus on long-term and collective interests to manage conflicts caused by short-term interests. The policymaker should not give up collective interests by emphasizing legitimacy where there is a conflict between the interests of agents and decision-makers. In fact, institutional relations should resolve such conflicts.
It is our hope that policymakers will pay attention to these matters and help improve the decision-making system of the country.
