Meaning of decision making
In any organization before doing anything, a decision is required to be taken. This decision-
taking is a really difficult task since for any problem, there is the existence of several solutions.
Though, there might be one or more feasible and viable solutions, not all are accepted. It is the
role of a manager to choose one out of many alternatives that are available for solving the
problem. This decision-making is therefore, an act of choice by which an individual or
organization selects one, thereby rejecting others.
Decision-making, therefore, hovers around the term ‘decision’ which a Greek word meaning “off
to cut”, is making it clear that it aims at rejecting more than accepting. According to Shull,
Delbecq and Cummings, “decision making is a conscious and human process, involving both
individual and social phenomenon based upon factual and value premises, which concludes with
a choice of one behavioural activity from among one or more alternatives with the intention of
moving towards some desired state of affairs”. It is more of a rejection process where many
alternatives are rejected, but only one or a few others are accepted. Hence, from the definition of
the term, it is clear that this process of acceptance or rejection is carried out to reach a particular
objective which is taken on the basis of certain assumptions, facts and data in a given context.
In organizations, one may or may not realise that he/she is taking decisions. The words of Peter
Drucker in this respect are very true who once said, "Whatever a manager does, he does through
decision-making". In other words, the manager of any organization applies decision-making at
any stage of the management process, be it planning, implementing or controlling. Decisions are
required to be taken before execution, at the time of execution and even after execution. Hence,
management in a nut-shell is decision-making process as observed by R.C.Davis without which
no organization can be run. It is an intellectual process that involves the acceptance of one option
and rejection of many others. Hence, the importance and relevance of this process can be felt
since the future prospect of any organization will be very much dependent upon the decisions
that are taken. For adopting the best possible decision, selection of the option will depend upon
the sincerity of the decision-maker in following the steps of the decision-making process. The
effectiveness of management depends on the quality of decision-making.
A person has to take decisions everyday. But, we do not realize that we went through a decision- making process. It is so because the type of decisions is very routine and simple in nature. Had
the decision been a complex one having serious after-effect, we would have realized it.
2.4.2 Decision-making environment
Decision-making, generally is a very critical one. The difficulty in arriving at decisions depends
more so on the nature of the environment in which it has to be taken. Environments, in general
can be of various types:
(i) Certainty
In this type of decision making environment, decision-maker has a guarantee about the event that
is going to take place. Though, this is a utopian environment, in practical situations, it will rarely
exist since an environment has several fluctuating factors which are having an impact on the
decision-making assumptions. Certainty implies no risk, thereby creating a riskless environment.
(ii) Uncertainty
This is the worst possible situation that a decision-maker has to handle. In this type, the person
has no information and knowledge about the future likely events. In other words, he is not in a
position to even assign probabilities to the likely events. These type of cases are seen when the
affecting factors are totally external. Example, future government policies, astronomical
decisions etc.
(ii) Risk
This environment is the one which a decision-maker is most likely to face. By a risky
environment, we mean that the likely events are known along with their probability of
occurrence / non-occurrence. Based on that information, the decision-maker has to arrive at a
choice. Hence, it is a probabilistic environment which a decision-maker handles by applying
several modern problem-solving techniques.
2.4.3 Types of decisions
In the context of an organization, several decisions are being taken by managers. The decisions
vary in terms of importance, effect, scope, risk etc. Organizational decisions fall into different
categories:
(a) Group decisions vs Individual decisions
(b) Organizational vs Personal decisions
(c) Strategic decisions vs Tactical decisions
(d) Programmed decisions vs Non-programmed decisions
2.4.3.1 Group vs Individual decisions
The basic difference between the two decisions is the number of individuals involved in the
decision-making process. In the former case, several individuals discuss together before arriving
at the decision, whereas in the latter case, the decision is taken by an individual only.
2.4.3.2 Organizational vs Personal decisions
Organizational decisions are the ones that relate to some aspect of an organization, whereas
personal decisions are not related with organizational matters. Therefore, personal decisions
relate with personal matters.
2.4.3.3 Strategic vs Tactical decisions
In any organization, managers are required to take decisions of various kinds. Some of the
decisions are extremely important and can change the future of a business. There are also
decisions which are not that important and do not have a tremendous effect on an organization’s
fortunes.
Strategic decisions are those that can change the future of any organization by generating
advantage in the long-term. It is to do with what they want the organization to be like. The
advantage generated is a sustainable one since it guides the managers regarding the future scope
of activities and also creates a fit between the ‘external environment’ and the ‘internal
environment’. These decisions are such that they aim to ‘stretch’ an organization’s resource in
order to have the optimum utilization of resources. They have a severe impact because these
decisions are taken after a SWOT analysis of the environment. In other words, the decision is
taken after an analysis of the organization and the external environment. Thus, the knowledge
about the strengths, weaknesses, organizational opportunities and threats helps to create a
strategic fit so that the organization is able to rightly adjust with the environmental changes.
Another important point of strategic decisions is that they are affected by the values and
expectations of those who have power in and around the organization. A strategic decision has the following features:
a. It is concerned with resources mobilization, acquisition and re-allocation.
b. Strategic decision is complex in nature
c. It is extremely risky in nature.
d. It is taken by top-level managers.
e. It aims at creating a ‘fit’ between an organization and the external environment.
f. It draws the route of organization’s activities for the future.
g. It has a long-term impact.
h. It involves a change of major kind since an organization operates in ever-changing
environment.
Tactical decisions, on the other hand, are non-strategic in nature having less severe impact on the
organization. The authority to take tactical decisions is on the middle level managers since it
deals with routine decisions having less of innovation. Therefore, they are less risky in nature
and affect an organization in the short-term. The decisions are mainly on the basis of an
observation of the internal environment. There is another category of operational decisions
which help in the execution of strategic decisions.
A comparison of the above three types of decisions is given in the table below.
Strategic Decisions Administrative / Tactical
Decisions
Operational Decisions
They guide the future
journey of a business
They design the policies,
rules and procedures. They ensure a sound
functioning of the
different operations.
Have an impact in the
long-term. They impact in the medium-
term.
They impact in the
short-term.
These decisions are
very risky
They are less risky. These are least risky in
nature.
It is taken after a
consideration of both
the external and internal
environment
Affected mainly by internal
matters though the external
environment also has some
impact
Affected by the internal
environment
Strategic decisions are
taken in order to meet
the organizational
mission and vision.
They are taken to meet the
strategic decisions
They are taken keeping
in mind the strategic
and administrative
decisions.
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