The first step is to define the problem. Managers should ask necessary questions to learn the actual problem. The problem itself should be detailed and specific and include all necessary background information. This step plays an important role in both managing and solving the problem because if the manager does not correctly identify the problem, it will be difficult to analyze and solve.

The second step is to determine the objective. When making decisions, managers must realize that although they may not obtain everything they want, they must determine goals and objectives in order to move forward.

In the private sector, a company's primary goal is to increase profits. Profits indicate how well the company performs. Accordingly, most managers choose increased profit as the company's desired end result. Increasing profits does not present a definitive plan for effective decision making, however, because of the indecision and risk involved. These factors directly affect a manager's perspective on identified goals.

For example, a pharmaceutical company can decide to increase profits, but it cannot rely on a guaranteed method to determine what process will produce the most profit. Because the manager cannot be certain the company will achieve a profit, his or her decisions necessarily include a degree of risk.

The third step is to explore the alternatives. Because managers cannot predict the future, they cannot expect to recognize and assess all available alternatives. Nonetheless, managers must ensure they do not ignore any feasible alternatives.

Furthermore, if the manager has built a thorough structure for the decision-making process, it will likely reveal alternatives. Based on these newly acquired alternatives, "managerial decisions involve more than a once-and-for-all choice from among a set of options. Typically, the manager faces a sequence of decisions from among alternatives" (Samuelson & Marks, 2012, p. 9). Accordingly, these ongoing decisions are seen as provisional.

Samuelson, W., & Marks, S. G. (2012). Managerial economics (7th ed.). Hoboken, NJ: Wiley.

The fourth step is to predict the consequences. The mission of predicting consequences can be either straightforward or challenging, depending on the circumstances. The manager may need to focus on a model that defines exactly how to convert decisions into results.

Models provide a basic explanation of a method, an association, or another occurrence. Models concentrate on significant areas of a problem to determine how each one functions. Models clarify and predict past and future results, but vary based on the type of decision.

The fifth step is to make a choice. Once the manager completes the analysis, he or she should determine the ideal choice of action. The majority of decisions have measurable and obtainable goals or objectives, which enable a manager to calculate whether they would help the company achieve a profit. A manager can also analyze the alternatives and choose the best fit for the company based on its objectives.

"A variety of methods can identify and cut directly to the best, or optimal, decision. These methods rely to varying extents on marginal analysis, decision trees, game theory, benefit–cost analysis, and linear programming" (Samuelson & Marks, 2012, p. 11). All these methods are imperative when making decisions and analyzing previous decisions.

Samuelson, W., & Marks, S. G. (2012). Managerial economics (7th ed.). Hoboken, NJ: Wiley.

The sixth step is to perform a sensitivity analysis. When attempting to solve a problem based on a decision, the manager must explain to others in the company why he or she made a certain decision. This explanation will be based on objectives or goals, the organization of the problem, and the process the manager used to predict results.

A sensitivity analysis accounts for the impact of the decision if other circumstances changed. For example, a company's senior leadership is completing the fourth evaluation of a new product. A few of the company's business economists completed a detailed report that forecasts substantial profits from the product for two years. Based on these projections, the proposed progression is to proceed with the product promotion. Should the company accept this proposal? A manager should not accept this recommendation without additional analysis. The manager must determine the factors behind the profits, which is part of the sensitivity analysis.

Through this analysis, a manager can define the profit forecasts and base decisions on the level of sensitivity to the uncertain results of important economic information.