All human activities revolve around making choices or making decisions. Decision-making may be defined as the process of deciding to adopt a certain course of action from various alternatives, to achieve a set of pre-determined goals. Decision-making is future-oriented, as the sole objective of making a decision is to guide organisational and human activities towards achieving future objectives. The decision-making process involves investing the organisational resources in realizing a predetermined goal or solving a problem by following a specific course of action.
According to Mary Cushing Niles, “Decision-making takes place in adopting the objectives and choosing the means and again when a change in the situation creates a necessity for adjustments”.
Decisions are required to be taken to either solve problems or achieve certain results. Decision-making helps the managers in resolving problems and exploiting business opportunities by minimizing the gap between desired and actual situations. Decision-making is judgmental in nature. A decision is an end result that is achieved by analyzing the situation, formulating alternative solutions and selecting the best one for achieving the desired results.
Type of Decision
Although decision-making is one of the most significant functions of a manager, Not all decision are equally important or significant. some have a limited impact, while other have far reaching consequences. Different Type of management decison are as follows:
1) Programmed and Non-Programmed Decisions:
Some experts have broadly classified all decisions into the following two classes:
- Programmed Decisions: These decisions are taken while formulating the policies of the organisation and are repetitive in nature. The problems and choices related to programmed decisions are predictable and hence responses or outcomes are also as per the plans. There are templates in the form of standard operating procedures, rules, etc., which lay down the decisions that are needed to be taken in a particular situation, e.g., employee orientation and verification procedures. These decisions have low impact and are taken by low-level management without the involvement of the top-level management.
- Non-Programmed Decisions: Non-programmed decisions are unique and unpredictable. They are taken according to particular problems or situations. They are based on logical thinking with sound judgement and are hence normally taken by the top-level managers, e.g., decisions related to business expansion, adopting new technology, launching of new products, etc.
2) Major and Minor Decisions:
Decisions can also be major or minor. Major decisions are those that carry a high risk or involve a heavy cost, e.g., opening a new factory. Decisions are termed as minor when they involve low risk or low cost, e.g., replenishment of cleaning supplies in the organization. They are generally taken by the low-level management.
3) Routine and Strategic Decisions:
Routine decisions are that common day to day decisions that do not require any great evaluation or deliberation. Being low on risk, they also do not involve any substantial cost. They do not require a lot of time and are monotonous in nature. Strategic decisions are also known as basic decisions and involve high risk and cost. They are related to the formulation and implementation of strategies and policies. They are non-monotonous in nature and are taken keeping in mind a particular problem or situation. Such vital decisions are in the hands of the top management and require higher-level expertise, knowledge, evaluation, and experience. For example, the decision taken by Reliance Industries to set up Asia’s largest Refinery in Jamnagar was one such strategic decision.
4) Policy and Operative Decisions:
The primary task of the top management is to set goals and formulate policies. Policy decisions give direction to the organization and have great significance in the long-term functioning of the organization. Every large corporation has a ‘policy manual’ that acts as a base for the operative decisions. Operative decisions are taken within, the ambit of the policy decisions. They relate to daily operations and are generally taken by the executive, and supervisory level management as they are responsible for the day to day functioning of the business.
5) Organisational and Personal Decisions:
Organisational decisions relate to the achievement of organisational goals, whereas personal decisions are taken to achieve personal goals. These decisions can be delegated to the employees of the organisation. A personal decision cannot be delegated and are taken by the managerial personnel on an individual level. Personal decisions vary from person to person. Organisational decisions are taken by the middle-level managers on the bases of the organisational policies.
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6) Individual wad Group Decisions:
As the name implies, individual decisions are taken by individuals on the basis of rules, procedures, policies and standard operating procedures of the organisation. These low risk and low-cost decisions can be easily evaluated by the decision-maker. Decisions that require due deliberation and diligence are known as group decisions. They are generally taken by the Board members or a specially formulated committee. They -are extremely significant for the success of the organisation and require willing involvement of the group members.
7) Long-Term, Departmental and Non-Economic Decisions:
The decisions that are high in risk and can impact the organisation, in the long run, are known as long-term decisions. Departmental decisions are related to a particular department and do not necessarily influence other departments or the organisation as a whole. Non-economic decisions are related to the conduct of moral and ethical behaviour, technical values, etc. While making decisions the manager should remain unbiased and should make conscious efforts to provide justice to all the members of the organisation.
8) Crisis and Research Decisions:
As the name suggests, crisis decisions are required to be taken in response to a crisis or an unanticipated situation, which inherently carries a threat and demands an immediate response. Hence, such decisions are unexpected, have high risk and require a quick response. However, many organisations draw up contingency plans so that they have some protection against the sudden crisis or problem. On the other hand, decisions that involve research and study of a problem are called research decisions. They do not require a prompt response and the decision-maker can take time before handing over the results.
9) Problem and Opportunity Decisions:
Problem decisions are taken in response to a problem that is less severe than a crisis. These decisions are taken by the decision-maker to solve predictable problems. Opportunity decisions are required to be taken to create and exploit business opportunities, e.g., decisions related to cross-selling and up-selling. They are therefore customer-driven and based on a careful study and analysis of customer behaviour. Another example could be the decision to launch a new product.