Decision-making can be defined as a selection of one course of action from various available courses of action. It is, in fact, a choice-making activity in which the choice determines our action or inaction. The decision-making should be rational. Human beings make many decisions in day-to-day life. In businesses, almost every step is based on decisions made by the management, making the activity of decision-making the core of managerial activities in an organization. The decision-making process may be carried out by an individual or a group.
Definition of Decision-making
Management scholars and educationalists have defined decision-making in various ways. Some of the popular definitions are as below:
A decision is an act of choice, wherein an executive forms a conclusion about what must be done in a given situation. A decision represents a course of behaviour chosen from a number of possible alternatives.” – D.E. Mc. Farland
Decision-making is the selection based on some criteria from two or more possible alternatives.” – George R.Terry
A decision can be defined as a course of action consciously chosen from available alternatives for the purpose of desired result.” – J.L. Massie
Types of Decision-making
There are five main types of decisions.
1. Strategic and Routine Decisions
The repetitive decisions made by the manager in day-to-day life are called routine decisions. These routine decisions do not require a lot of evaluation, analysis, or in-depth study. These decisions are usually delegated to subordinates by senior managers. On the other hand, strategic decisions require proper analysis and in-depth study. These are important decisions usually taken by upper and middle-level management; these decisions affect the routine decisions taken daily.
2. Programmed and Non-Programmed Decisions
Programmed decisions are repetitive decisions that follow an established procedure. These decisions do not require an in-depth analysis and are usually made by lower management. Non-programmed decisions are not routine decisions, and these decisions arise from unstructured problems. No standard procedure or process is followed to deal with these decisions. In this case, your response to the situation is not planned or clearly defined. These decisions do not require rules and guidelines to be followed because the situation is unexpected and uncertain. These decisions present greater challenges as the manager has to gather as much relevant information as possible and make an educated guess before making the final decision. Non-programmed decisions are usually made by upper and middle-level management.
3. Policy and Operating Decisions
Policy decisions are tactical decisions related to the policy and planning of an organization. These decisions are mostly taken by the top management as they require a great deal of analysis. Policy decisions have a long-term impact on the organization. Operating decisions implement the policies and plans drafted by the top management. Operating decisions are mostly made by middle and lower management.
4. Organizational and Personal Decisions
Decisions taken by the management to achieve the organizational goals are called organizational decisions. These decisions can be delegated to subordinates. On the other hand, personal decisions are meant only to achieve personal goals and can not be delegated to others.
5. Individual and Group Decisions
Individual decisions are taken by an individual in an official capacity. These decisions are usually made in small organizations, where an autocratic style of functioning prevails. Group decisions are made by a group of individuals or a committee with proper representation. These decisions are usually made in large organizations.
Examples of Decision-making
1. Daily Work Schedules
The decision about work schedules for employees is usually made by lower and middle management. These are routine decisions based on shifts and the responsibilities of employees.
2. Office Supplies Replenishment
Giving new orders and restocking office supplies like paper, pens, printer ink, etc., are programmed decisions usually made by lower and middle management.
3. Employee Orientation
Employee orientation is a programmed decision-making process in firms. Managers follow a standard procedure during the orientation of new hires.
4. Granting Leave
Granting leave to employees is an example of programmed decision-making as it follows a standard procedure.
5. Entering New Markets
When a firm decides to enter a new market, managers follow a strategic decision-making process. These decisions are usually taken by senior managers who do an in-depth analysis of the new market before deciding to enter into it.
6. Developing New Products or Services
Developing new products or services requires proper evaluation and analysis of the impact of the new product or service on the market/customer. These decisions are taken by top management. This is an example of strategic decision-making.
7. Forming Strategic Partnerships or Alliances
Before entering into a partnership or alliance, the top management undergoes proper analysis and evaluation. This is an example of strategic decision-making.
8. Investing in New Technology or Infrastructure
When a firm decides to make investments in new technology or infrastructure, the top management follows a non-programmed decision-making process. These decisions are made after an in-depth analysis of the new technology or infrastructure in which the firm wants to make investments. Before making such decisions, the manager has to ask questions like Will the new technology be better than the existing technology? Will it become widely accepted over time?
9. Restructuring the Organization
Restructuring an organization requires strategic planning by the top management. The decision is taken after evaluating the pros and cons of the existing structure of the organization and brainstorming new and effective parameters while restructuring the organization.
10. Expanding or Downsizing Operations
When a firm decides to expand or downsize its operations, the top management follows a strategic decision-making process. These decisions are made after an in-depth analysis of the effects of expansion or downsizing.
11. Declining Market Share
When the market share of a company declines, the managers have to devise newer strategies to overcome the loss. They may lower the price, make greater marketing efforts, etc. However, none of these strategies are guaranteed to work. This is an example of non-programmed decision-making.
12. Introducing a New Incentive System
Introducing a new incentive system applies to the entire organization. This is an example of organizational decision-making. Managers make these decisions in the ordinary course of business.
13. A Manager Leaving the Organization
A manager’s decision to leave the organization is an example of personal decision-making. Although these decisions are personal in nature, they may affect the organization.
14. Leave Approvals
This is an example of individual decision-making. The decision to approve or deny the leave request is usually made by the immediate supervisor or manager of the employee. The manager makes this individual decision after assessing factors like workload, staffing, and the organization’s leave policies.
15. Promotion Policies
The drafting of policies like promotion policy by top management is an example of policy decision-making. Top management or board members decide the guidelines and eligibility conditions to promote juniors for management positions.
