Decision Making, Meaning, Importance, Process, Type and techniques

Decision: - A decision is a choice made between two or more available alternatives.

Decision Making

Decision making is a process of choosing the best alternative for reaching objectives.

There are such huge numbers of choices  found in the departments and Organization. Decision making is defined as the selection of choice of best alternative. It helps to make the best decisions. It is also one of the important function of Management.
A/C Stephen P. Robbins

"Decision making is defines as the selection of preferred course of action from two or more alternatives."

Characteristics of Decision making

 1.  It is a process of selecting the best from among alternatives available.
 2. Decision making is the end process preseded by discussion, deliberations and reasoning.
 3. Decision making is aimed to achieve organizational goals.
 4. Decision making is a focal point at which plans, policies and objectives are translated into concrete actions.
 5. Decision making is based on rational thinking. The manager tries to foresee various possible effects of a decision before taking a particular one.
 6. It also involves certain commitment. Management is committed to every decision it takes.

 Importance of Decision making

 1.  Importance of managerial function

 Without decision making different managerial functions like planning, Organizing, Staffing,Directing, controlling, can’t be conducted. In other words when an employee does he/she does the work through decision making function. Therefore we can say that decision is important element to implement the managerial functions.

 2. Pervasiveness of decision making

 The decision is made in all managerial activities and all functions of the organization. It must be taken by all staff. Without decision making any kind of function is not possible so it is pervasive.

 3.  Evaluation of managerial performance

 Decision can be evaluate managerial performance. At the point When decision is right it is understood that the manager is able, efficient and qualified. When the decision is not right, it is understood that the manager is not efficient and disqualified. So we can say that decision making evaluate the managerial performance.

 4.  Helpful in planning and policies

 Any plan or policy is set up through decision making. Without decision making no policies, stratagies and plans are performed. During the making plans, appropriate decisions must be made from such large number of alternatives. Therefore it is an important process which is helpful in making policy and planning.

 5.  Selecting the best alternatives

 Decision Making is the process of choosing the best choices or alternatives. It is necessary in every organization because there are many alternatives in organizations. So decision makers assess different advantages and disadvantages of every alternative and choose the best alternetive.

 6.  Successful operation of businesses

 Every individual, departments and organization make the decisions. In the competitive world organization can exist when the correct and appropriate decisions are made. Therefore right decisions help in successful and effective operation of business.

Process of Decision making

• Identifying the problem
• Analysing the problem
• Developing alternatives solutions
• Selecting the best type of alternative
• Implementation of the decision
• Follow up
• Monitoring and feedback

 1.  Identifying the problem

First step of decision making is identifying the issue/problem or opportunity and choosing to address it.

Decide why this decision will have any kind of effect to your clients, customers or fellow employees.

 2. Analysing the problem

After identifying the problem or opportunity, the next important step is systematic investigation of the accessible information. Sound decisions are depend on proper collection, classification and examination of Statistical data points.

There are three principles identifying with the analysis and classification as characterized below:

(i) The futurity of the decision.

This means to what period of time, the decision will be appropriate to a strategy.

(ii) The effect of decision on different functions and department of the business.

(iii) The qualitative considerations which come into the picture.

 3.  Developing alternative solutions

After identifying and analysing the problem, the following stage is to create alternative solutions. The principle point of creating alternative solutions is to have the most ideal choice out of the available alternative courses of action. In creating alternative solutions the supervisor comes across creative or unique solutions to the problems.

In modern age, the methods of operations research and computer applications are helpful in the development of alternative courses of action.

4. Selecting the best type of alternative

After developing different alternatives, the manager or supervisor need to choose the best option. It is not an easy process.

Coming up next are the four significant focuses to be remembered in choosing the best from different options: 

(a) Risk element associated with each course of action against the expected return. 

(b) Economy of effort involved in every option, i.e. securing desired results with the minimum efforts.

(c) Proper timing of the decision and activity.

(d) Final choice of decision is also influenced by the limited resources available to us. Human resources are constantly limited. We should have right kind of individuals to complete our decisions. Their understanding,calibre, intelligence and skill will at last figure out what they should or shouldn't do.

5. Implementation of the decision

In this stage, a manager or director has to put the selected choice into action.

For appropriate and successful execution of the Decision, three things are significant i.e.,

(a) Proper and effective communication of decisions to the subordinates. Decisions should be communicated in clear, concise and understandable manner.

(b) Acknowledgement of decision by the subordinates is significant. Group participation and involvement of the workers will encourage the smooth execution of decisions.

(c) Right planning in the execution of decision minimizes the resistance to change. Pretty much every decision presents a change and individuals are hesitant to accept a change. Implementation of the decision at the right time plays an important role in the implementation of the decision.

6. Follow up

A follow up system ensures the achievement of the objectives. It is exercised through control. Basically it is concerned with the process of checking the best execution of decision. Follow up is necessary so as to modify and enhance upon the decisions at the earliest opportunity.

7. Monitoring and feedback

Feedback provides the means of determining the effectiveness of the implemented decision. If possible, a mechanism should be built which would give periodic reports on the accomplishment of the execution. Moreover, the mechanisms should also assist as an instrument of “preventive maintenance”, so that the issues can be prevented before they occur.

According to Peter Drucker, the monitoring system should be such that the manager can go and look for himself for first hand information which is always better than the written reports or other second-hand sources. In several situations, still, computers are very successfully used in monitoring since the information retrieval process is very sharp and accurate and in some instances the self-correcting is immediate.

Types of Decisions

1. Organizational and personal Decisions

When a person takes a decision in the organization as an executive it will be an organizational decision. Such Decisions directly affect organizational behavior.

 The decision which are taken by any person in his personal capacity and not as a member of the organization are known as personal decision. For example Decisions for leaves, dress, resigning the organization and accepting or rejecting promotions etc.

 2. Routine and strategic Decisions

Routine Decisions are made repetitively following certain established rules, procedures, policies etc. These are taken at middle and lower level Management.
Strategic decision making technique is those decisions,which are very difficult to be taken. This effect the future of the business and are related to the whole organization. Strategic decision relate to policy matters and need the development and analysis of alternative and are taken by top management.

 3.  Programmed and non programmed decisions

 Programmed decision making is of repetitive and routine nature and which is taken through some well decided and well organized system so that when the problem arises, it may be solved by using that method.
Non programmed decision making is not a daily practice or repetitive in nature. These are unique and new and they have a long lasting effect on organization.

 4. Policy and operative Decisions

 Policy Decisions determine the basic policies of the organization and are taken at top level Management.
Operative Decisions, on the other hand are less important and are related with day to day operations of the business. These decisions are taken in the light of policies decided by the top management.

 5.  Individual and group Decisions

 If the decision is taken by one person it is known as individual decision. When the size of the business unit is small and the decisions to be taken do not require high, specific and technical knowledge, then the decision for various problems are normally taken by the manager or owner himself.

Group decisions are taken by a group of person. The decisions of board of directors or committees come under this category.

Tools and Techniques for Decision Making

 1.  Decision matrix

 A Decision matrix is used to evaluate all the option of a Decision. When using the matrix, make a table with the majority of the alternatives in the first column and the majority of the elements that influence the decision in the first row.
Then user score each option and weigh which factors are more important. A final score reveal which option is best.

 2.  T-Chart

 This chart is used when weighing the positive and negative of options. It ensure that all the positives and negatives are taken into consideration when making a decision.

 3.  Decision tree

Decision trees are flowchart diagrams or graphs that investigates all the decision alternatives and their potential results. Each branch of the tree represents one of the possible options that are available when making decision.
"Decision tree gives the decision maker a review of the different stages that will follow each possible decision"
Since there are lot of calculations involved in creating decision tree, many business use dedicated decision tree software to help them with the process.

 4.  Multi Voting

This is used when different individuals are involved in making a decision. It helps whittle down a large list option to a smaller one to the eventual final decision.

 5.  Pareto Analysis

Pareto analysis helps prioritize decisions so leaders know which ones will have the greatest influence one their overall goals and which ones will have the least amount of impact.
The Pareto analysis is also known as the 80/20 principle. Because it is based on the idea that 80 percent of a project's benefits can come from 20 percent of the work. Conversely, 80 percent of a situations problems can be traced to 20 percent of the cause.

 6.  Cost-Benefit analysis

This technique is used when weighing the financial rectifications of each possible alternative as a way to come a final decision that makes the most sense from an economic perspective.

 7.  Conjoint analysis

This is a strategy utilized by business leaders to determine consumer preferences when making decisions.

 8.  PEST Analysis

It is an acronym for political, economic, social, technological.
PEST can improve decision making and efficiency by analyzing external factors. This technique considers present patterns to help foresee future ones.

 9.  Delphi technique

For this decision-making method, a group of experts is asked to anonymously answer a survey and provide feedback on each other's answers. This process repeats itself. The aim is to come up with a concrete solution.

10. Brainstorming

Brainstorming is a technique for generating ideas to solve a design problem. It usually involves a group, under the direction of a facilitator. The strength of brainstorming is the potential participants have in drawing association between their ideas in a free-thinking environment. Thereby broadening the solution space.
Hope you understood well decision making. Please provide us your valuable feedback. If you find any grammatical mistake please let us know.
If you want lectures in Hindi about commerce and management you can our youtube channel and subscribe.