Who said decision making involves the selection of an action from two or more possible alternatives?

Read this article to learn about the characteristics, nature, basis, types and conditions of decision making.

Decision-making is an important job of a manager. Every day he has to decide about doing or not doing a particular thing. A decision is the selection from among alternatives. “It is a solution selected after examining several alternatives chosen because the decider foresees that the course of action he selects will be more than the others to further his goals and will be accompanied by the fewest possible objectionable consequences. It is the selection of one course of action from two or more alternative courses of action. In the words of Mac Farland, “A decision is an act of choice wherein an executive forms a conclusion about what must be done in a given situation.

A decision represents a course of behaviour chosen from a number of possible alternatives.” The way an executive acts or decides the course of action from among various alternatives is an act of decision-making. George Terry says, “Decision-making is the selection based on some criteria from two or more possible alternatives.” Though there are many alternatives available for a manager but he has to choose the best out of them.

Characteristics:

Following are the characteristics of decision-making:

1. Decision-making is based on rational thinking. The manager tries to foresee various possible effects of a decision before deciding a particular one.

2. It is a process of selecting the best from among alternatives available.

3. It involves the evaluation of various alternatives available. The selection of best alternative will be made only when pros and cons of all of them are discussed and evaluated.

4. Decision-making is the end product because it is preceded by discussions and deliberations.

5. Decision-making is aimed to achieve organizational goals.

6. It also involves certain commitment. Management is committed to every decision it takes.

Nature of Decision-Making:

A decision is always related to some problem, difficulty or conflict. Decisions help in solving problems or resolving conflicts. There are always differences of opinions, judgments, etc. Managerial decision helps in maintaining group effectiveness. All problems may not require decision- making but merely the supply of information may be sufficient. For example, when will different groups report for re-orientation? The supply of information about training programme may be enough.

Decision problems necessitate a choice from different alternatives. A number of possibilities are selected before making a final selection. Decision-making requires something more than a selection. The material requiring a decision may be available but still a decision may not be reached. A decision needs some sort of prediction for the future on the basis of past and present available information. The effect of a decision is to be felt in future so it requires proper analysis of available material and a prediction for the future. If decision premises do not come true, then decision itself may be wrong.

Sometimes decisions are influenced by adopting a follow- the-leader practice. The leader of the group or an important manager of a concern sets the precedent and others silently follow that decision. Whatever has been decided by the leader becomes a guide for others and they also follow suit. The decisions may also emerge from answers to pertinent questions about the problem. Such answers try to narrow down the choice and help in making a decision.

Techniques or Basis for Decision-Making:

Decision-making has become a complex problem. A number of techniques, extending from guessing to mathematical analyses, are used for decision-making process. The selection of an appropriate technique depends upon the judgment of decision-maker.

Following techniques of decision-making are generally employed:

1. Intuition:

Decision-making by intuition is characterized by inner feeling of the person. He takes a decision as per the dictates of his conscious. He thinks about the problem and an answer is found in his mind. The decision-maker has his own preferences, influences, psychological make-up and these things play a vital role in taking a decision. The past knowledge, training and experience of the decision-maker plays an important role in intuitive decisions.

With this technique of decision-making, decisions are taken quickly and the decision-making capability of the person is also used. In case the intuition of the decision-maker is wrong then decision will also be incorrect. The other techniques of decision-making are also neglected.

2. Facts:

Facts are considered to be the best basis of decision-making. A decision based on facts has its roots in factual data. Such decisions will be sound and proper. The increasing use of computers has helped in systematic analysis of data. The information has become a major tool in managerial decision-making. It may not be possible to secure all relevant facts for taking decisions. Managers, generally, complain of insufficient information. It is also essential that facts should be properly diagnosed, classified and interpreted. Facts alone may not be sufficient for decision-making. The imagination, experience and beliefs of the decision-making also required to comprehend the facts in proper perspective.

3. Experience:

Past experience of a person becomes a good basis for taking decisions. When a similar situation arises then the manager can rely on his past decisions and takes similar decisions. The person sees and understands things in terms of concepts with which he is familiar. Experience should not be followed blindly. The new situations should be analyzed on the basis of past knowledge. A successful decision in the past may not prove useful this time also, on the other hand, a decision once failed need not be avoided for all times in future. Though past experience is a good basis but present situations should be properly analyzed and assessed before taking a decision.

4. Considered Opinions:

Some managers use considered opinions as a basis for decision-making. Besides pertinent statistics, opinions are also given due weightage. Something discussed and considered by more persons become logical and may form a sound basis for decision-making. A marketing manager, before deciding whether to market a new product or not, will like to see marketing statistics as well as considered opinions before finally making a choice.

5. Operations Research:

The traditional methods of taking decision on the basis of intuition, experience, etc. are replaced by systematic techniques based on analysis of data. The operations research is one of the techniques used by modern management for deciding important matters. It helps managers by providing scientific basis for solving organizational problems involving interaction of components of the organization.

6. Linear Programming:

This technique is used to determine the best use of limited resources for achieving given objectives. This method is based on this assumption that there exists a linear relationship between variables and that the limits of variations could be ascertained. Linear programme can be used for solving problems in areas like production, transportation, warehousing, etc.

Decision Making Conditions:

Decision making involves the selection of one of the alternatives available. A decision taken at present will have effect in future. A decision-maker tries to visualize the conditions in future and take decisions accordingly. So decisions are made in an environment of at least some uncertainty. There are certain risks involved in decision making and the conditions vary from certainty to complete uncertainty. The strategy of taking decisions under different conditions vary.

The conditions under which decisions are taken are as follows:

Certainty:

Under the conditions of certainty, people are reasonably sure about what will happen when they take a decision. The required information is available and it is reliable and the cause and effect relationships are known. The manager makes decisions under such situations at different times with the same results. Under such situations a deterministic model is used, in which all factors are assumed to be exact with the chance playing no role.

Risk:

In a risk situation, factual information may exist but it may be insufficient. Most of the business decisions are taken under risk conditions. The available information does not answer overall questions about the outcome of the decision. A manager has to develop estimates of the likelihood of the various states of events occurring. The estimates may be based on past experience, other available information or intelligence.

In order to improve decision-making under these conditions, one may estimate the objective probabilities of an outcome by using, for example, mathematical models. On the other hand, subjective probability, based on judgment and experiences, may be used. There are a number of tools available which help a manager in taking decisions under such conditions.

Uncertainty:

Under conditions of uncertainty a manager has only little information and he is not sure about its reliability also. Since the manager does not have proper information on which he can develop, the best he can do is to be aware that he has no chance of predicting the events. The interaction of various variables cannot be evaluated for taking decisions. The decision making under uncertainty is a difficult proposition. For example, if a company wants to enter a foreign market, if may not be sure about the consumer preference for the product, economic situation, above all the political conditions.

The conditions in a new market may so fluctuate that proper decision taking becomes a problem. The use of a number of modern techniques may improve the quality of decisions under uncertain conditions. The use of risk analysis, decision trees and preference theory can help in making proper decisions under those situations.

Types of Decisions:

Different decisions differ in nature and significance. Some decisions are taken in routine while some may have to be carefully evaluated.

Various decisions are discussed as follows:

1. Programmed and Non-Programmed Decisions:

Programmed decisions are of a routine nature and are taken within the specified procedures. These decisions are made with regard to routine and recurring problems which require structured solutions. A manager is not required to go through the problem solving procedures again and again for taking programmed decisions.

The decision rules for programmed decisions should be prepared carefully and intelligently so that lower level executives are able to take the decisions without making references to higher managerial levels. No judgment or discretion is needed to find out solutions to such problems. These decisions remain consistent for a relatively longer period of time and over many solutions.

Non-programmed decisions are related to problems which are unique and non-repetitive. The information and knowledge about such decisions is not available. Such decisions are made under new and unfamiliar circumstances. The standard and pre-determined procedures and rules are rendered ineffective in programmed decisions because every decision will have to be taken separately. Non-programmed decisions are usually grade for solving unstructured problems which keep on changing from time to time.

Every problem has to be restructured and analyzed by the manager by using his skill, judgment and creativity. For example, a decision regarding adding a new product, purchase of new machinery, opening a new branch, appointment of a new chief executive are all non- programmed decisions and require separate attention for each decision.

2. Strategic and Tactical Decisions:

Strategic decisions relate to policy matters and need the development and analysis of alternatives. These decisions influence organizational structure, objectives, working conditions, finances etc. Strategic decisions exercise great influence on the functioning and direction of the organization and have long-term implications. They also define and establish the relationship of the organization with external environment. Such decisions require more resources, judgment and skill. Because of their importance, strategic decisions are taken at top managerial levels.

The decisions such as adding a new product or service, introduction of new technology, taking over of another organization, selection of a location are all strategic decisions. These decisions once taken cannot be easily reversed. The impact of these decisions is fairly long because expansion, growth, development and profitability of the organization is linked to them. Strategic decisions somewhat resemble to non- programmed decisions because they possess the characteristics of the latter.

In order to implement strategic decisions, management has to make some tactical, operational or routine decision. One strategic decision may require many operational decisions. These decisions are concerned with routine and repetitive matters arising out of the working of the organization. Such decisions do not require managerial judgment and are taken at lower levels of the management. Tactical decisions are more specific, functional and have short-term implications. Such decisions are taken by referring to established rules, procedures and standards.

3. Individual and Group Decisions:

A decision taken by one person is known as individual decision. In a small concern normally the owner takes most of the decisions, in a bigger concern the routine or simple decisions may be left to a particular manager. Such decisions are generally taken as per predetermined rules and procedures and require less application of judgment and skill. When a manager is required to take a decision, he is supplied with information and other inputs needed for this purpose. All managers, whether at top level or at lower level, take decisions for carrying out their activities.

When decisions are taken by two or more persons, these are known as group decisions. Generally, strategic or other important decisions are taken by groups instead of individuals because of risk involved. The decisions of Board of Directors or Committees come under this category.

Group decisions are normally important and have long-term implications for the concern. A decision regarding introducing a new product, shifting to latest technology, trying labour saving devices etc. may be better taken by a group of specialists than by an individual. Group decisions are generally time consuming but otherwise these are well discussed decisions.