Decision Making

Concept of Decision and Decision Making

Topics Covered:

i. Concept of Decision – Meaning, Definitions and Types

ii. Concept of Decision Making – Meaning, Definitions, Features, Elements, Principles, Process

iii. Rationality in Decision Making/Models of Decision Making Behaviour

iv. Effective Decision

v. Common difficulties 

vi. Guidelines for Making Effective Decision

vii. Common Biases and Errors 

viii. Role of Creativity in Decision making

ix. Group Decision Making – Meaning, Features, Situations for Individual and Group Decision Making, Techniques for Group D.M. , Positive and Negative Aspects of Group D.M.

What is Decision ?

The word decision has been derived from the Latin word ‘decidere’ which means cutting off. Thus decision involves cutting off alternatives that are desirable and those are not desirable. The decision is a kind of choice of a desirable alternative.

Definitions

According to D.E. McFarland
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 behavior chosen from a number possible alternatives.

According to Lopez
A decision represents a judgement: a final resolution of a conflict of needs, means or goals, and a commitment to action made in face of uncurtaining, complexity and even irrationality.

According to Hynes and Massie
A decision is a course of action which is consciously chosen for achieving a desired result.

According to R.A. Killian
A decision in its simplest form is selection of an alternative.

Types of decision

There are different types of decisions which are made by managers in organizations and for each type of decision, decision making variables and conditions differ. There are different ways in which organizational decisions may be classified.

i. Programmed Decisions and Non-Programmed Decisions

Programmed decisions

i. Programmed decisions are routine and repetitive and are made within the framework of organizational policies and rules.
ii. These policies and rules are established well in advance to solve recurring problems in the organization. For example, the problem relating to promotion of employees is solved by promoting those employees who meet promotion criteria. These criteria are established by promotion policy and the managers have just to decide which employees meet criteria for promotion and the decision is made accordingly.
iii. Programmed decisions are comparatively easy to make as these relate to the problems which are solved by considering internal organisational factors.
iv. Such decisions are made by personnel at lower levels in the organisation where the environment affecting decision making is static and well structured.

Non Programmed decisions

i. Non-programmed decisions are relevant for solving unique/unusual problems in which various alternatives cannot be decided in advance. For such decisions, the situation is not well structured and the outcomes of various alternatives cannot be arranged in advance. For example, if an organization wants to take actions for growth, it may have several alternative routes like going for a grass-route project or taking over an existing company. in each situation, the managers have to evaluate the likely outcomes of each alternative to arrive at a decision.
ii. For evaluating the likely outcomes of these alternatives, the managers have to consider various factors, many of which lie outside the organization.
iii. A common feature of non-programmed decisions is that they are novel and non-recurring and, therefore readymade solutions are not available.
iv. Since these decisions are of high importance because of their long-term consequences, these are made by managers at higher levels in the organization.

ii. Strategic and Tactical Decisions

Strategic Decisions

Strategic decision is a major choice of actions concerning allocation of resources and contribution of the achievement of organizational objectives.
i. The strategic decision is a major one which affects the whole or major part of the organization.
ii. It contributes directly to the achievement of organizational objectives. Though all decisions try to contribute in this direction, strategic decisions contribute directly and other decisions are derived from these.
iii. A strategic decision may involve major departure from earlier ones concerning some organisational practices, for example change in product mix, expansion of business, change in personnel policies etc.
iv. The strategic decision has normally three elements:
(a) A course of action or plan which specifies the work to be done to achieve the result, known as action element,
(b) A desired result or objective to be achieved through the implementation of the decision, result element and
(c) A commitment which directs some part of the organization to undertake the course of action, makes the personnel involved responsible for attaining the objective and allocates resources to them, commitment element.
v. The strategic decision is normally a non-programmed decision which is made under the conditions or partial ignorance. The alternatives involved and the outcomes of these alternatives cannot be known in advance. This is so because strategic decision is to be made in the context of environmental factors which are quite of dynamic and uncertain.

Tactical Decisions

Tactical or operational decision is derived out of strategic decisions. It relates to day-to-day working of the organisation and is made in the control of well-set policies and procedures. The various features of a tactical decision are as follows:
i. Tactical decision relates to day-to-day operation and has to be taken very frequently. The decision of mostly repetitive, for example purchase of raw materials, assigning duties to employees etc.
ii. Tactical decision is mostly a programmed one. The decision is programmed through the prescription of policies, rules, procedures etc.
iii. The outcome of tactical decision is of short-term nature and affects a narrow part of the organisation. For example, purchase of raw materials in routine manner will affect production department for a short period because raw materials are purchased very frequently in the context of well-set policies.
iv. The authority for making tactical decisions can be delegated to lower managers. This is done because of two reasons first the impact of tactical decision is narrow and of short-term nature. Therefore, the lower level managers have adequate perspective to make such decisions. Second, by delegating authority for such decisions to lower-level managers, higher level managers are free to devote more time on strategic decisions which are more important.

iii. Individual and Group Decisions

Individual decisions

Individual decisions are taken by a single person at his capacity without consultation with any other persons whatsoever. Individual decisions are taken where the problem is of a routine nature, where the analysis of variable is simple and where definite procedure to deal with the problem already exist.

Group decisions

Group decisions taken by a group of persons constituted for particular purpose. Important and strategic decisions which may result into some change in the organization are generally taken by a group. Interdepartmental decisions are also taken by groups consists of managers of the department affected by the decision.

iv. Simple and Complex decisions

Simple decisions

When variable to be considered or solving a problem are few, the decision is simple.

Complex decision

When variables to be considered for solving a problem are many, the decision is complex.

When we combine these two types of decisions with the low or high certainty of their outcomes, we get four types of decisions:
i. Decisions in which the problem is simple and the outcome has a high degree of certainty. These are called mechanistic or routine decisions.
ii. Decisions in which the problem is simple but the outcome has a low degree of certainty. These are called judgmental decisions. Many decisions in the area of marketing, investment and personnel are of this type.
iii. Decisions in which the problem in complex but the outcome has a high degree of certainty. These are called analytical decisions. Many decisions in the area of production are of this type.
iv. Decisions in which the problem is complex and the outcome has a low degree of certainty. These are called adaptive decisions. Changes in corporate plans and policies to meet the changes in environment and technology of this type.