Decision-Making:

A decision is an act of selection or choice of one action from several alternatives.

The process of choosing a correct and successful course of action from two or more alternatives
in order to achieve a desired outcome is known as decision-making. Management is all about
making decisions.

According to P. F. Drucker – “Whatever a manager does he does through making

decisions.” All matters relating to planning, organising, direction, co-ordination and control are
settled by the managers through decisions which are executed into practice by the operators of
the enterprise. Objectives, goals, strategies, policies and organisational designs are all to be
decided upon in order to regulate the performance of the business.

Decisions underpin the entire management process. Decisions are needed for both addressing
issues and maximising the benefits of available opportunities. Correct decisions minimise the
complexity, uncertainty, and variety of organisational environments.

Importance of Decision-Making:

Management is essentially a bundle of decision-making process. The managers of an enterprise

are responsible for making decisions and ascertaining that the decisions made are carried out in
accordance with defined objectives or goals.

Decision-making plays a vital role in management. Decision-making is perhaps the most

important component of a manager’s activities. It plays the most important role in the planning
process. When the managers plan, they decide on many matters as what goals their organisation
will pursue, what resources they will use, and who will perform each required task.

When plans go wrong or out of track, the managers have to decide what to do to correct the
deviation.

In fact, the whole planning process involves the managers constantly in a series of decision-
making situations. The quality of managerial decisions largely affects the effectiveness of the
plans made by them. In organising process, the manager is to decide upon the structure, division
of work, nature of responsibility and relationships, the procedure of establishing such
responsibility and relationship and so on.

In co-ordination, decision-making is essential for providing unity of action. In control, it will

have to decide how the standard is to be laid down, how the deviations from the standard are to
be rectified, how the principles are to be established how instructions are to be issued, and so on.

The ability to make good decisions is the key to successful managerial performance. The
managers of most profit-seeking firms are always required to take a wide range of important
decision in the areas of pricing, product choice, cost control, advertising, capital investments,
dividend policy, personnel matters, etc. Similarly, the managers of non-profit seeking concerns
and public enterprises also face the challenge of taking vital decisions on many important
matters.

Decision-making is also a criterion to determine whether a person is in management or not. If he

participates in decision-making, he is regarded as belonging to management staff. In the words of
George Terry: “If there is one universal mark of a manager, it is decision-making.”

Principles of Decision Making:

Effective decision involves two important aspects—the purpose for which it is intended, and the
environmental situation in which it is taken. Even the best and correct decision may become
ineffective if these aspects are ignored; because in decision-making there are so many inside and
outside chains of unavoidable reactions.

If certain principles are followed for decision-making, such multidimensional reactions can
mostly be overcome.

These principles are stated as follows:

1. Subject-matter of Decision-making:

Decisional matters or problems may be divided into groups consisting of programmed and non-
programmed problems. Programmed problems, being of routine nature, repetitive and well-
founded, are easily definable and, as such, require simple and easy solution. Decision arrived in
such programmed problems has, thus, a continuing effect. But in non-programmed problems,
there is no continuing effect because they are non-repetitive, non-routine, and novel. Every event
in such problems requires individual attention and analysis and its decision is to be arrived at
according to its special features and circumstances.

2. Organizational Structure:

The organizational structure, having an important bearing on decision-making, should be readily

understood. If the organizational structure is rigid and highly centralised, decision-making
authority will remain confined to the top management level. This may result in delayed and
confused decision and create suspicion among the employees.

On the contrary, if the organizational structure provides scope for adequate delegation and
decentralisation of authority, decision-making will be flexible and the decision-making authority
will be close to the operating centres. In such a situation, decision-making will be prompt and
expected to be more effective and acceptable.

3. Analysis of the Objectives and Policies:

Proper analysis of the objectives and policies is needed for decision-making. The clear definition
of objectives and policies is the basis that guides the direction of decision-making. Without this
basis, decision-making will be aimless and unproductive.

4. Analytical Study of the Alternatives:

For decision-making, analytical study of all possible alternatives of a problem with their merits
and demerits is essential. This is necessary to make out a correct selection of decision from
among the alternatives.

5. Proper Communication System:

Effective decision-making demands a machinery for proper communication of information to all

responsibility centres in the organisation. Unless this structure is built up, ignorance of decision
or ill-informed decision will result in misunderstanding and loose co-ordination.

6. Sufficient Time:

Effective decision-making requires sufficient time. It is a matter of common experience that it is

usually helpful to think over various ideas and possibilities of a problem for the purpose of
identifying and evaluating it properly. But in no case a decision can be delayed for an indefinite
period, rather it should be completed well in advance of the scheduled dates.

7. Study of the Impact of a Decision:

Decision is intended to be carried out for the realisation of the objectives of the organisation. A
decision in any particular area may react adversely in other areas of the organisation. As all
business activities are inter-related and require co-ordination, it is necessary that a study and
analysis of the impact of any decision should precede its application.

8. Participation of the Decision-maker:

The decision-maker should not only be an observer while others will perform as per his decision.
He should also participate in completing the work for which decision was taken by him. This
experience will help him in decision-making in future. The principle of participation in work of
the decision-maker will enable him to understand whether the decision taken is practical and also
guide him in forthcoming decisional matters.

9. Flexibility of Mind:

This is critical in decision-making since no decision can please everyone. Decisions can be
thrown off by the decision-rigid maker's mental set-up. The decision-adaptable maker's mental
state allows him to change his mind and gain the cooperation of all the various parties.

10. Consideration of the Chain of Actions:

There is a chain relationship in all the activities of any organisation. Different activities are tied
up in a chain sequence. Any decision to change a particular work brings change in other related
works also. Similarly, decision-making also proceeds following the chain of action in different
activities. Therefore, before taking a decision one should consider the chain relationship among
different activities.

7 decision-making process steps

Though there are many slight variations of the decision-making framework floating around on
the Internet, in business textbooks, and in leadership presentations, professionals most commonly
use these seven steps.

1. Identify the decision

To make a decision, you must first identify the problem you need to solve or the question you
need to answer. Clearly define your decision. If you misidentify the problem to solve, or if the
problem you’ve chosen is too broad, you’ll knock the decision train off the track before it even
leaves the station.

If you need to achieve a specific goal from your decision, make it measurable and timely.

2. Gather relevant information

Once you have identified your decision, it’s time to gather the information relevant to that
choice. Do an internal assessment, seeing where your organization has succeeded and failed in
areas related to your decision. Also, seek information from external sources, including studies,
market research, and, in some cases, evaluation from paid consultants.

Keep in mind, you can become bogged down by too much information and that might only
complicate the process.

3. Identify the alternatives

With relevant information now at your fingertips, identify possible solutions to your problem.
There is usually more than one option to consider when trying to meet a goal. For example, if
your company is trying to gain more engagement on social media, your alternatives could
include paid social advertisements, a change in your organic social media strategy, or a
combination of the two.

4. Weigh the evidence

Once you have identified multiple alternatives, weigh the evidence for or against said
alternatives. See what companies have done in the past to succeed in these areas, and take a good
look at your organization’s own wins and losses. Identify potential pitfalls for each of your
alternatives, and weigh those against the possible rewards.
 5. Choose among alternatives

Here is the part of the decision-making process where you actually make the decision. Hopefully,
you’ve identified and clarified what decision needs to be made, gathered all relevant information,
and developed and considered the potential paths to take. You should be prepared to choose.

6. Take action

Once you’ve made your decision, act on it! Develop a plan to make your decision tangible and
achievable. Develop a project plan related to your decision, and then assign tasks to your team.

7. Review your decision

After a predetermined amount of time—which you defined in step one of the decision-making
process—take an honest look back at your decision. Did you solve the problem? Did you answer
the question? Did you meet your goals?

If so, take note of what worked for future reference. If not, learn from your mistakes as you
begin the decision-making process again.

Tools and Techniques for Effective Decision Making

Effective decision-making relies on various tools and techniques to gather information, analyze
alternatives, and make informed choices. Here are some commonly used tools and techniques for
effective decision-making:

1. Decision Trees: Decision trees are graphical representations of decisions and their potential
consequences, including probability assessments. They help visualize complex decision
scenarios and calculate expected values to aid in decision-making.
2. SWOT Analysis: SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis is a
strategic planning tool used to identify internal strengths and weaknesses, as well as external
opportunities and threats. It helps organizations assess their current situation and make
decisions based on their analysis.
3. Cost-Benefit Analysis: Cost-benefit analysis involves comparing a decision's costs with the
benefits it is expected to generate. By quantifying both costs and benefits, decision-makers can
evaluate whether the decision is economically viable and make choices that maximize value.
4. Pareto Analysis: Pareto analysis, also known as the 80/20 rule, helps prioritize options by
identifying the most significant factors contributing to a problem or opportunity. By focusing
on the most critical issues, decision-makers can allocate resources more efficiently and
address the root causes of problems.
5. Decision Matrix: A decision matrix is a structured tool used to evaluate and prioritize multiple
alternatives based on predefined criteria. By assigning weights to different criteria and scoring
alternatives accordingly, decision-makers can objectively compare options and select the most
suitable one.
6. Brainstorming: Brainstorming is a group technique to generate creative ideas and solutions to
problems. By encouraging open and free-flowing discussion, decision-makers can explore a
wide range of possibilities and identify innovative approaches to decision-making.
7. Scenario Analysis: Scenario analysis involves considering possible scenarios and their
potential implications on decision outcomes. By analyzing best-case, worst-case, and most-
likely scenarios, decision-makers can prepare for uncertainty and make more robust decisions.
8. Decision Support Systems (DSS): Decision support systems are computer-based tools that
provide analytical support for decision-making processes. They help organize and analyze
data, generate insights, and facilitate decision-making by providing decision-makers with
relevant information and modeling capabilities.
9. Risk Management Techniques: Various risk management techniques, such as risk assessment,
risk mitigation strategies, and contingency planning, help decision-makers identify, assess,
and manage risks associated with different alternatives. By considering potential risks,
decision-makers can make more informed choices and minimize negative outcomes.
10. Group Decision-Making Techniques: Techniques such as the Delphi method, nominal group
technique, and consensus decision-making facilitate group collaboration and decision-making.
By involving multiple stakeholders and leveraging collective expertise, decision-makers can
gain diverse perspectives and reach consensus more effectively.
Types of Decision-making
Managerial decisions may be classified into the following categories:
1. Programmed and Non-programmed Decisions
According to Herbert Simon, programmed decisions are related to routine and repetitive
problems. Information about these problems is readily available and can be processed using
pre-established methods. These decisions have a short-term impact and are relatively
simple, typically made at lower management levels. Decision rules and procedures are in
place to streamline the decision-making process and save time. Little thought and judgment are
required, as the decision-maker follows predetermined solutions. For instance, dealing with a
consistently late employee can be addressed through established procedures.
On the other hand, non-programmed decisions tackle unique or unusual problems
that demand a high level of executive judgment and consideration. There are no ready-
made solutions for such problems, as they require creative and thoughtful
approaches. Examples of non-programmed decisions include introducing a new product or
determining the location of a plant. These decisions are usually made by higher-level
managers.

2. Routine and Strategic Decisions

There are two types of decisions in an organization: routine (or operating) decisions and
strategic (or policy) decisions. Routine Decisions are repetitive in nature and have a short-
term impact, mainly concerning day-to-day operations. They are typically made at lower
levels of management, using established procedures to ensure quick and efficient handling. For
example, a supervisor may make routine decisions regarding employee overtime pay.
On the other hand, strategic decisions involve long-term commitments and significant
investments, influencing the entire organisation’s future. These decisions require careful
deliberation and judgment and are usually made at higher levels of
management. Examples of strategic decisions include launching a new product, selecting
the location for a new plant, or implementing major organisational changes.

3. Organisational and Personal Decisions

Organisational Decisions are made by officials in their capacity as resource allocators for
the organisation. These decisions rely on sound judgment and experience and can be
delegated to other individuals within the organisation. Organisational decisions have a direct
impact on the functioning of the organisation and its outcomes.
On the other hand, personal decisions are made by managers as individuals and cannot be
delegated. These decisions pertain to matters that directly affect their personal lives, such as
decisions to marry or enroll children in a boarding school. While personal decisions may
have implications for the individual manager, they may also indirectly affect the
organisation. For instance, the decision of a chief executive to retire early could have a
direct effect on the company’s future.

4. Individual and Group Decisions

Individual Decisions are made by an individual based on the information available to
them. These decisions may involve analyzing various variables, but they are often
straightforward. However, in certain situations, significant decisions may be made collectively
by a group.
Group Decisions are taken by a team of individuals formed for this purpose, such as
the decisions made by a Board of Directors or a committee. These decisions are typically
crucial for the organisation. Group decision-making often leads to more realistic and well-
balanced outcomes, as different perspectives are considered. Encouraging participative
decision-making can be a positive organisational approach, but it may result in delays and
can make fixing responsibility for such decisions more complex.
5. Tactical and Operational Decisions
Tactical Decisions focus on how things will be done to achieve strategic goals. They
are short-term and usually involve specific actions that help meet the broader objectives set by
higher management. For example, a company deciding on a marketing campaign to
boost sales in the next quarter is making a tactical decision. These decisions are usually made
by middle managers and are meant to ensure that day-to-day operations align with the overall
strategy.
On the other hand, operational decisions deal with the routine activities necessary for
running an organization. They are very short-term, often made on a daily or weekly basis,
and involve specific processes and procedures. For example, a manager deciding on the daily
work schedule for employees or handling customer complaints is making operational
decisions. These decisions are typically made by lower-level managers or supervisors who
ensure that everything runs smoothly and efficiently on a daily basis.
6. Major and Minor Decisions:
Major Decisions are significant choices that can have a long-lasting impact on our lives. For
example, deciding on a career path, choosing a life partner, or buying a house are major
decisions. These decisions often require careful thought, research, and sometimes advice from
others because they can affect our future in profound ways.
On the other hand, minor decisions are smaller choices that we make more frequently and
with less deliberation. Examples include what to eat for dinner, which clothes to wear, or what
movie to watch. These decisions usually have a short-term impact and can often be changed
without much consequence.
For major decisions, it is wise to take time, gather information, and consider the long-term
implications. For minor decisions, it’s often better to make a quick choice and move on, saving
mental energy for the more important decisions in life.

Features or Characteristics of Decision-Making:

From definitions and elements we can draw the following important features of managerial
decisions:
1. Rational Thinking:
It is invariably based on rational thinking. Since the human brain with its ability to learn,
remember and relate many complex factors, makes the rationality possible.

2. Process:
It is the process followed by deliberations and reasoning.

3. Selective:
It is selective, i.e. it is the choice of the best course among alternatives. In other words, decision
involves selection of the best course from among the available alternative courses that are
identified by the decision-maker.

4. Purposive:
It is usually purposive i.e. it relates to the end. The solution to a problem provides an effective
means to the desired goal or end.

5. Positive:
Although every decision is usually positive sometimes certain decisions may be negative and
may just be a decision not to decide. For instance, the manufacturers of VOX Wagan car once
decided not to change the model (body style) and size of the car although the other rival
enterprise (i.e. the Ford Corporation) was planning to introduce a new model every year, in the
USA.
That a negative decision and is equally important was stressed by Chester I. Bernard-one of the
pioneers in Management Thought-who observed, “The fine art of executive decision consists in
not deciding questions that are not now pertinent, in not deciding prematurely, in not making
decisions that cannot be made effective, and in not making decisions that other should make. ”

6. Commitment:
Every decision is based on the concept of commitment. In other words, the Management is
committed to every decision it takes for two reasons- viz., (/) it promotes the stability of the
concern and (ii) every decision taken becomes a part of the expectations of the people involved
in the organisation.

Decisions are usually so much inter-related to the organisational life of an enterprise that any
change in one area of activity may change the other areas too. As such, the Manager is
committed to decisions not only from the time that they are taken but upto their successfully
implementation.

7. Evaluation:
Decision-making involves evaluation in two ways, viz., (i) the executive must evaluate the
alternatives, and (ii) he should evaluate the results of the decisions taken by him.