Decision Making : Importance , Steps and Types of Managerial Decision

Decision-making is the act of making a choice among available alternatives. There are innumerable decisions that are taken by human beings in day-to-day life. In business undertakings, decisions are taken at every step. It is also regarded as one of the important functions of management.

Concept of Decision-Making

Decision-making is the act of making a choice among available alternatives. There are innumerable decisions that are taken by human beings in day-to-day life. In business undertakings, decisions are taken at every step. It is also regarded as one of the important functions of management. Managerial functions like planning, organizing, staffing, directing, co­ordinating and controlling are carried through decisions. Decision making is possible when there are two or more alternatives to solve a single problem or difficulty. If there is only one alternative then there is no question of decision making. It is believed that management without a decision is a man without a backbone. Therefore, decision making is a problem-solving approach by choosing a specific course of action among various alternatives.

"Decision-making is the selection, based on some criteria from two or more possible alternatives."- George R.Terry

"A decision can be defined as a course of action consciously chosen from available alternatives for the purpose of the desired result." - J.L. Massie

In conclusion, we can say that decision making is the process of choosing a specific course of action from various alternatives to solve organizational problems or difficulties.

Importance of Decision-Making

Decision making is considered as the backbone for the business management because without taking the right decision at the right time, nothing can be performed. The further importance of decision making can be discussed under the following points:

1. Achievement of Goal/Objectives:
   Decision making is important to achieve the organizational goals/objectives within given time and budget. It searches the best alternative, utilizes the resources properly and satisfies the employees at the workplace. As a result, organizational goals or objectives can be achieved as per the desired result.
   
   
2. Employees Motivation:
   Decision making is important to motivate the employees within an organization. It provides an overall framework of operation and guidelines to the operating level of staff. It also provides different types of facilities and benefits on time. As a result, employees are motivated to their job or work as per the organizational requirement.
   
   
3. Proper Utilization of Resources:
   An organization has various resources like man, money, method, material, machine, market and information. All these resources are properly utilized without any leakage and wastage with the help of the right decision at the right time. As a result, an organization can operate at a minimum cost.
   
   
4. Selecting the Best Alternative:
   As we know that the problem has multiple solutions. Decision making is important to select the best alternative among various alternatives by analyzing them one by one using various financial, statistical, and accounting tools/techniques.
   
   
5. Evaluation of the Managerial Performance:
   Decision making is not only important to select the best alternative but also essential for evaluating the performance of a manager. The quality/success of the manager largely depends upon the number of right decisions that he/she can take for organizational success. Therefore, decision making is important to judge the performance of the top level of management.
   
   
6. Indispensable Element/ Component:
   Decision making is an indispensable element/ component for organizational success because without taking the right decision at the right time, nothing can be performed as per the plan.
   
   
7. Pervasive Function:
   Decision-making is a pervasive function of managers aimed at achieving organizational goals. Decisions are to be taken in all managerial functions such as planning, organizing, motivating, directing and controlling and in all functional areas such as production, marketing, finance, personnel, and research and development. It indicates that the decision-making is spread over many areas of the organization.

Steps of Decision-Making Process

For the rationality, reliability, and enforceability of decisions, managers should follow a sequential set of steps. It is said that a decision is rational if appropriate means are chosen to reach desired ends. In this regard, various management authorities have recognized and described different steps in the process of decision-making. Ricky W. Griffin has suggested six steps in the process of decision making. Accordingly, the steps are:

1. Implementation of Decision:
   After selecting the best alternative, the manager or superior should convert the decision into action. For this purpose, he/she should communicate with their subordinates and manage the various additional resources for the implementation of the organizational decision.
   
   
2. Developing an Alternative Course of Action:
   As we know that a problem has multiple solutions. Therefore, the decision-maker should develop the various possible alternatives for a better decision. While developing the alternative course of action he/she may use their own knowledge, skills, experiences and technical support from the professional planner and experts as well.
   
   
3. Identification of Problem:
   The initial stage of the decision-making process is to identify the exact problem. The problem may occur due to the gap between thinking and do the process. The reason for problems may be internal or external. Decision-makers should identify the correct problems before taking any decision. It is not an easy job or task. Therefore, he/she may use his own knowledge, skills, experience and collect information from internal and external sources. It is believed that the identification of the correct problem is almost half part of the decision-making process.
   
   
4. Analysis of Problem:
   After identification of the correct problem decision-maker should analyze the problem systematically and scientifically in terms of cost, time, legality, organizational resources, and short-term as well as the long-term impact of the problem. While analyzing the problem he/she may use various financial, accounting and statistical tools or techniques.
   
   
5. Selecting the Best Alternative:
   After analyzing the various alternatives, the decision-maker has to select the best alternative among the various alternative by considering the short-term as well as long-term impact. For this purpose, he/she may use his/her knowledge, skills, and experiences. He/she may also concern with other stakeholders for a better decision.
   
   
6. Review of Decision:
   The last step of the decision-making process is to get responses or feedback from other stakeholders of the organization. If the response is positive then the decision-making process is successfully completed. It the response is negative then he/she must go through the first step to take a new organizational decision.
   
   
7. Evaluating Alternative Course of Action:
   After developing various possible alternatives, the decision-maker should evaluate all alternatives one by one for a better decision. In this step, he/she should try to search the answers to the following questions.
   
   - Whether the alternative is feasible in terms of cost, time, legality and other organizational resources or not?
   - Whether the alternative is satisfactory to solve the organizational problems or not?
   - Whether the features of alternatives are matched with the objectives of the business or not?

Types of Managerial Decision

In a business undertaking, the manager needs to take different types of decisions to support their duties and responsibilities. Decisions are taken at various levels of management. Some of the important types of managerial decisions are as follows:

1. Individual and Group Decisions

   If an individual is involved in taking the decision, it is called an individual decision. Generally, individual decisions are taken in small business organizations. Similarly, it is also taken when and where the problem is of a routine nature, where the analysis of variables is simple and where definite procedures to deal with the problem already exist.
   
   Decisions taken in the consent of more than one person is known as group decisions. Decisions are taken by the board of directors, shareholders, etc. are some of the examples of a group decision.

2. Routine (Tactical) and Basic (Strategic) Decisions

   The decisions that are frequently taken to achieve a high degree of efficiency in the ongoing activities are known as routine decisions. These types of decisions are also known as tactical decisions. For example, parking facilities, cafeteria services, deputing employees, etc.
   
   Basic and strategic decisions are prepared by the top level of management for the formulation of the organizational rules, regulations, programs, etc. It has a long term impact on management. Therefore, much analysis is needed. A small mistake in the basic decisions may be the cause of business failure.

3. Programmed and Non-programmed Decisions

   The decisions that are normally repetitive in nature are known as programmed decisions. Normally, these types of decisions are taken by middle and lower-level managers. Programmed decisions have a very short-term impact. Granting leave to an employee, pricing ordinary customers’ orders, recording office supplies, purchase of materials required in the daily course of action, etc. are some of the examples of programmed decisions. Therefore, we can say that they are related to policy and the rules of the management.
   
   Non-programmed decisions are the opposite of programmed decisions. Decisions, which are non-repetitive in nature is known as non-programmed decisions. These kinds of decisions are taken by top executives. Non-programmed decisions don’t have a ready-made course of action. They have to collect data, analyze them, forecast and prepare strategic plans.
   
   In conclusion, taking non-programmed decisions are much tougher and challenging than taking programmed decisions.

4. Major and Minor Decisions

   The decisions, which are relatively more important, are known as major and which are less important, are known as minor decisions. The major decisions have long term impacts like the replacement of men by machine, diversification of existing product line, change the basis of overhead allocation in preparing departmental profit and loss account and so many others which are rare and have no precedents as guides.
   
   Just opposite of major decisions, minor decisions are those decisions that do not have long-range impact. For example, minor decisions are related to storing raw materials.

5. Organizational and Personal Decisions

   Decisions which are related to the policy of the business and affect the organizational functions directly is known as organizational decisions. These types of decisions are taken by top-level management. It has a long term impact on management.
   
   Personal decisions are taken by an individual for personal benefits rather than an organizational benefit. It has a short term impact. Therefore, much analysis is not needed.

6. Policy and Operating Decisions

   Policy decisions are taken by the top-level management with the involvement of high-ranking officers and legal advisors to change the organizational rules, regulations, events, and producers. Policy decisions are the most important decisions. On the other hand, operating decisions are taken by the operating level of management to perform the day to day activities efficiently and effectively. This type of decision is taken by a middle or lower level of management. It has a short term impact. Therefore, much analysis is not needed.