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Decision Making: Process, Approaches and Types | Principle of Management

Principle of Management

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Decision Making: Process, Approaches and Types | Principle of Management

Decision Making: Process, Approaches and Types

Decision Making:

A decision may be defined as a choice made from available alternatives. It represents a course of action about what must be done or must not be done.

Decision making is defined as the conscious process of selection a course of action among several alternatives to achieve a desired goal or solve problems.

Decision making process:

Decision making is step by step process. There are following steps in decision making process.

1. Identifying and diagnosing the problem: Decision making process start when there is a problem occurs in an organization. Problem definition is an initial step in decision making. Problem should be accurately identified and thoroughly diagnosed so that corrective action can be under taken. E.g. declining sales: It may be due to the poor product development or inadequate advertising and sales promotion or any other reasons. Therefore, a decision maker has to collect relevant information, use his diagnostic skill effectively and recognize the problems properly.

2. Generating possible alternatives: At this step decision maker should try to generate all the possible alternative solutions to the problems. Relevant information is gathered, analyzed by using their knowledge, skill and experiences to generate possible alternatives. It can be costly and time consuming operation. Typically, the more important the problem situation the more time and effort can be spent for the exploration of alternative solutions.

3. Evaluation of alternatives: After generating the alternatives the next step is to evaluate each alternative. It is important to establish some common framework to evaluate each alternative to assure consistency. Manager must ascertain, whether or not alternative is feasible and practical?  If an alternative is not feasible it should be eliminated and vice-versa.

4. Selection of best alternative: After evaluating each alternative the best alternative which contribute maximum to the organizational goal is selected. Important reason for choosing one alternative over the other are as follows:

  1. It is less expensive.
  2. It takes less time.
  3. It will be more effective.
  4. It will be preferred by employees.
  5. It will result in greater productivity.

5. Implement the selected alternative: Implementing means putting the selected solution to work. The ultimate success of an alternative depends on its ability to be translated into action. All concerned parties should be well communicated and their full cooperation for the implementation should be obtained.

6. Evaluating and Controlling: It is the final step of decision making process. After decision has been implemented, their progress should be constantly monitored and evaluated. If there are any differences between the decision and the problem, the decision maker may restart the decision- making process by setting a new goal.

Approaches to decision making:

There are two basic approaches (Model) to decision making .They are:

  1. Classical Model
  2. Administrative Model

1. Classical Model: This approach to decision making is influenced by the thinking of the classical theorists, such as: Taylor, Fayol, and Weber etc. It is a prescriptive approach that is based on critical economic assumption. This model is essentially a theory of decision making under condition of certainty. It is based on the following assumptions.

  1. The manager seeks to attain objectives that are both known and agreed upon.
  2. Targeted problems are precisely defined.
  3. The manager posses full information relation to the problem.
  4. All alternative solutions to problems and their potential results can be calculated.
  5. The manager is rationale and logical in assigning values, evaluation alternatives and making decisions.
  6. The manger will select the alternative that maximizes return to the organization or attainment of organizational goals.

This model however is based on defective logic and reasoning. In real life situation these assumptions cannot be met. Hence, this model is an idealistic explanation of decision making.

This model can probably be most helpful when used for programmed decision or for decisions made in risk where outcome probabilities can be calculated.

2. Administrative Model: Herbert A. Simon develops the administrative model of decision making to deal with the condition (uncertain and non- programmed) that mangers usually face. Simon’s model is based on two concepts: Bounded rationality and Satisficing.

The decision maker’s rationality is limited or bounded by inherently individualized beliefs, values, attitudes, skills, habits and unconscious reflexes. It is also limited by the complexity of the organization, environment, available information, amount of time and money needed etc. So due to these constraints the decisions maker rarely tries to find the optimum solution to a decision problem.

By satisficing the decision maker selects the first solution alternative hat satisfied some minimal set of outcome expectation. In other words, instead of conduction an exhaustive search the decision maker looks for a limited number of alternatives. Hence, the decision maker satisfices rather than optimizes and makes decision which he consider satisfactory in terms of his own or organizationally determined criteria.

Types of Decision:

Decisions are taken at various levels of management. Such decisions made in organization can be classified according to their frequency and nature.

1. According to their frequency, decision are classified as programmed and non programmed decisions

  1. Programmed decisions: Most decision making that related to the day to day running of an organization is called programmed decision making. Such decisions are taken by middle or lower level and are repetitive and routine type. Decision maker knows in advance what decision he/she has to take in a particular set of condition. In most organization programmed decisions are handled through policies, rules or standard procedures which have been set by top executives.
  2. Non-Programmed decisions: Decision are called non-programmed when they are made for novel, non-recurring and unstructured problems. They often deal with complex issues that demand data gathering, forecasting and strategic planning. Such decisions are taken by the top executives. E.g. Opening a branch in locality, launching a new product, establishing strategic alliances etc.

2. According to nature, classification of decisions are as follows:

  1. Operating decisions (internal): Operating decisions are day to day decisions which aim at maximizing the efficiency and profitability of the organization’s current operation. These decisions are deal with internal issues such as production schedule, inventory level, operational monitoring and control. Low level manger takes such decisions.
  2. Strategic decisions: Strategic decisions focus on issues external to the organization. These decisions deal with problems such as the goal and objective of the organization selection of a product market-mix, strategies for diversification, investment and expansion etc. These decisions are centralized and are responsibility of top level management.
  3. Administrative decisions: Administrative decisions act as a bridge between operative and strategic decisions. They deal with issues such as rules, procedures, information flows, reward system, acquiring resources etc. Mostly middle level managers are involved in the kind of decisions.

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