Decision Making – Types, Process, Techniques, Importance

Decision Making refers to a process by which individuals select a particular course of action among several alternatives to produce a desired result. The main purpose of decision making is to direct the resources of an organization towards a future goals and reduce the gap between the actual position and the desired position through effective problem solving and exploiting business opportunities.

A decision is a choice made from various available alternatives.

Decision making involves commitment of the organization, its employees and its resources, towards a particular course of action among various alternatives available to achieve some predetermined objectives. Decision Making helps managers to identify organizational problems and attempt to solve it. It is carried out at all management levels in an organization. Decisions that are taken in an organization are usually related to –

  1. Goals and objectives of the organization

  2. Organizational structure

  3. Organizational design 

  4. Budgets

  5. Time period

  6. Staff – salaries, wages, working hours, promotion, demotion

  7. Marketing MixProduct, Price, Place, Promotion

  8. Research and design

Decision Making Process

Decision Making Process

Types of decisionsBasic decisionsRoutine decisionsDecisions concerned with unique problems and situations an organization is facing, that require large investments. E.g. Launch of a new productDecisions that have to be made during the normal course of a business, that are repetitive in nature and require small investments.Personal decisionsOrganizational decisionsInformal Decisions that a person makes as an individual, and not as a member of an organization which do not directly affect the organization.Formal Decisions that a person makes as a member of an organization using formal authority, which directly affect the organization.Individual decisionsGroup decisionsDecisions taken by a single individual during regular routine work according to the policies of the organization.Decisions taken by a group or a committee formed for a specific purpose to make an important and informed decision for the organization.Rational decisionsIrrational decisionsDecisions made after careful and systematic analysis of a problem and evaluation of several alternatives based on rational and logical facts and figures.Decisions based on intuition or experience of the decision maker and not based on relevant facts and figures.Programmed decisionsUn-programmed decisionsRoutine and repetitive decisions made by lower level executives using pre-established rules and procedures that require little time and effort and are easy and simple to make.Decisions concerned with unique problems faced by an organization for which no pre-established rules and procedures have been made. Such decisions are complex, demand lot of time and effort and have a long term impact.

Difference between Programmed and Unprogrammed DecisionsProgrammed DecisionsUn-Programmed DecisionsConcerned with routine problemsConcerned with Unique problemsRepetitive in natureNon repetitive in natureStructuredUnstructuredSimple and have a small impactComplex and have a long term impactPre-established policies and procedures are usedNot usedInformation regarding these problems is readily availableNot easily availableConsumes less time and effortsDemands time and discretionLower ExecutivesTop Management

Various Techniques of Decision Making

  1. Group Discussions

  2. Brainstorming

  3. Delphi technique

  4. Marginal Analysis

  5. Cost-Benefit Analysis

  6. Ratio Analysis

  7. Financial Analysis

  8. Break-even Analysis

  9. Operations research

  10. Pareto Analysis etc.

Importance of Decision Making

  1. Optimum and efficient utilization of resources

  2. Aids in Problem solving and facing business challenges

  3. Helps in business growth and achieving objectives

  4. Facilitates effective management and Innovation

  5. Motivates employees and improves overall business performance

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