Business

Proper Business Decision Making Process Guide

Decision making is the process of making choices by identifying a decision, gathering information, and assessing alternative resolutions. Using a step-by- step decision-making process can help you make more deliberate, thoughtful decisions by organizing relevant information and defining alternatives.

There are many ways of classifying decision in an organization but the following types of decisions are important ones:

1. Tactical and Strategic Decisions

Tactical decisions are those which a manager makes over and over again adhering to certain established rules, policies and procedures. They are of repetitive nature and related to general functioning. Authority for taking tactical decisions is usually delegated to lower levels in the organization.

Strategic decisions on the other hand are relatively more difficult. They influence the future of the business and involve the entire organization. Decisions about the objective of the business, capital expenditure, plant layout, production, etc., are examples of strategic decisions.

2. Programmed and Non-programmed Decisions

Prof. Herbert Simon (June 15, 1916 – February 9, 2001), an American economist and psychologist, has used computer terminology in classifying business decisions. These decisions are of a routine and repetitive nature.

The programmed decisions are basically of a routine type for which systematic procedures have been devised so that the problem may not be treated as a unique case each time it crops up.

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The non-programmed decisions are complex and deserve specific treatment. In the above example, if all the professors in a department stop their teaching work the problem cannot be solved by set procedural rules.

It becomes a problem that requires a thorough study of the causes of such a situation and after analyzing all factors a solution can be found through the problem-solving process.

3. Basic and Routine Decisions

Prof. Katona has classified decisions as basic and routine. Basic decisions are those which require a good deal of deliberation and are of crucial importance. These decisions require the formulation of new norms tthrough aa eliberate thought-provoking process.

Examples of basic decisions are plant location, product diversification, selecting channels of distribution, etc.

Routine decisions are repetitive and hence, require relatively little consideration. It may be seen that basic decisions generally relate to strategic aspects, while routine decisions are related to tactical aspects of an organization.

4. Organizational and Personal Decisions

Organizational decisions are those that an executive takes in his official capacity and which can be delegated to others. On the other hand, personal decisions are those that an executive takes in his capacity but not as a member of the organization.

5. Off-the-Cuff and Planned Decisions

Off-the-cuff decisions involve “shooting from the hip”. These decisions can be taken easily and may be directed toward the purposes of the enterprise.

On the other hand, planned decisions are linked to the objectives of the organization. They are based on facts and involve the scientific process in problem-solving.

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6. Policy and Operating Decisions

Policy decisions are those which are taken by top management and which are fundamentally affecting the entire business. Operating decisions are those which are taken by lower management to execute policy decisions.

Operating decisions relate mostly to the decision maker’s work and behavior while policy decisions influence the work or behavior patterns of subordinates.

7. Policy, Administrative, and Executive Decisions

Ernest Dale (born in Hamburg, Germany, and died at the age of 79) has classified decisions in business organizations as under.

  • Policy decisions,
  • Administrative decisions and
  • Executive decisions.

Policy decisions are taken by top management or the administration of an organization. They relate to major issues and policies such as the nature of the financial structure, marketing policies, and outline of organization structure.

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Administrative decisions are made by middle management and are less important than policy decisions. According to Ernest Dale, the size of the advertising budget is a policy decision but the selection of media would be an example of an administrative decision.

Executive decisions are those which are made at the point where the work is carried out. Distinguishing between these three types of decisions Dale writes, “policy decisions set forth goals and general courses of action, administrative decisions determine the means to be used and executive decisions are those made on a day-to-day basis as particular cases come up”

Summarizing our major decision-making types:

Business decision-making includes decisions that are made that determine business or organization outcomes.

Personal decision-making has the decisions that determine who we are as individuals and the outcomes we create for ourselves and others with which we have relationships. This category includes what is sometimes referred to as life decisions.

Consumer decision-making consists of choices that determine our effectiveness in purchase decisions that occur in either a personal or business context. In this case, the consumer (entity) can be an individual or a person within a business.

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