Rakesh Jain, Associate Professor, School of Real Estate, writes about Structured Decision Making (SDM) and why the real estate industry needs it.
Business organisations aspire to operate in an industry which has a stable industry economic environment. The industry however is a sum total of all the business organisations thus the macroeconomic environment of an industry is governed by the economic environment in a business organisation. The stability and growth of an organisation depends on the quality of decision making. The quality of decision making has a direct impact on the economic conditions of the organisation which in turn impacts the macroeconomic environment of industry as well. The economic environment was more stable and predictable in industries where structured decision making was more pronounced than the unstructured decision making.
Before we understand the role of structured decision making (SDM) in a business organisation, let us understand the meaning of SDM.
Structured decision making is an approach for making logical, reproducible, and defensible decisions in the face of technical complexity, uncertainty, costs and value judgments, or multiple competing objectives.
SDM is ‘formalized common sense’ and a set of tools for structuring and analysing complex decision problems. The process of SDM involves identifying objectives, decision options, and events that define the decision analysis and clearly communicating judgments about costs and values, uncertainty (probabilities), and risks.
An industry operates in a macro environment like a ship sailing in an ocean. It is the responsibility of the management to solve the business environment problems just like the captain manoeuvres the ship through the different waters. The organisational problem solving happens in 2 ways ̶ structured decision making and unstructured decision making. The structured decision making is like solving an equation 2+2= wherein the answer is known because the variables are known and modelling of the problem is clear. The unstructured decision making requires different kind of knowledge, skills and experience.
Every industry functions through structured decision making which is more fundamental and unstructured decision making which is more sentimental. The health and maturity of an industry or a sector can be gauged by the fact that there is more structured decision making than unstructured problem solving. An industry develops this ability of structured decision making through regular research and analysis and documentation of the business problems. This knowledge is passed on to new entrants of the industry who in turn manage the business effectively and efficiently. This knowledge sharing lead to professional development of both the industry as well as its manpower.
In real estate the problem is lack of this professional knowledge and development.
Real estate traditionally has been viewed as an essential factor of industrial production and residential space. The evolution of real estate as an asset and a business is a relatively new phenomenon. This evolution was initiated by people who were largely land owners and when the land became a scarce resource, they capitalized on the growing demand. The product and prices were driven mostly by sentiments and business problem solving was happening in complete unstructured format which in some case was even ad hoc. Traditionally real estate in India was characterized by deal making and unstructured land development. There was lack of professional knowledge in managing real estate as business.
This unstructured and non-professional method of management created a peculiar situation wherein business processes were put on back burner and management of the real estate organisations engaged themselves into profit making through expanding the land and its prices. There was little focus on analytical testing of the business tenets and hypotheses driving the market sentiments. There was no focus on documentation of the knowledge and experience and in the absence of the documentation, there were no standards or standardization. There was little information flow which resulted into insulation of the real estate sector from the available opportunities of knowledge sharing from other markets or industries.