Unit II: Decision Making Process & Concepts
Decision-making is an integral part of everyday life and a crucial component of management in
organizations. It involves selecting the best action from various options by considering resources,
outcomes, and personal preferences. This process includes identifying a situation, gathering
and analyzing information, evaluating the pros and cons, and choosing a path
forward. Decisions, whether made through rational analysis or instinct, significantly affect all
involved parties.
Effective decision-making, which entails evaluating all possible outcomes and choosing the most
beneficial one, is essential for personal, professional, and organizational success. Conversely,
poor decisions can lead to losses and tarnish reputations. Thus, developing a structured approach
to decision-making is vital for achieving favorable outcomes.
A decision is an act of choice, wherein an executive form a conclusion about what must be done
in a given situation. A decision represents a course of behaviour chosen from several possible
alternatives.“ – D.E. Mc. Farland
Nature of Decision-making
The nature of decision-making can be characterized by several key factors, including:
1. Goal-oriented: Effective decision-making hinges on setting clear goals and selecting
strategies to achieve them, while remaining unbiased and avoiding personal prejudices that
may affect judgment.
2. Dynamic Process: Decision-making is a dynamic process as it involves a time dimension and
time lag. The techniques used for choice vary with the type of problem involved and the time
available.
3. Continuous or ongoing process: It is a continuous and ongoing process as managers have to
take a series of decisions.
4. Intellectual or Rational process: As decisions are products of reasoning, deliberation and
evaluation, decision-making is an intellectual and rational process.
5. Set of Alternatives: Decision-making implies a set of alternatives as a decision problem
arises only when there are two or more alternatives. No decision is to be made if there is only
one alternative.
Role of Decision-making
Making decisions plays a key part in the life of an individual and any organization. The
accomplishment of personal and organizational objectives, enhanced performance, risk
minimization, and success maintenance all depend on effective decision-making. Here are some
key roles of decision-making:
1. Strategic planning: Decision-making is an important element of strategic planning. It
provides a framework for taking decisions that determine the goals or objectives of the
organization.
2. Problem-solving: Decision-making helps individuals or organizations to identify all the
possible solutions and decide the best course of action. It comprises evaluating the current
situation, identifying the cause of the issue, balancing them, and selecting the best course of
action.
3. Opportunity identification: Making decisions enables one to recognize and take advantage
of opportunities. It allows for identifying potential advantages and determining if they are
consistent with the objectives of the person or organization.
4. Resource allocation: Decision-making is essential for allocating resources effectively,
whether it is the allocation of budget, time, or personnel. It requires evaluating the available
resources, determining the priorities, and allocating resources to the situation and goals of the
organization.
5. Risk management: Decision-making is also important in managing risks. Decision makers
must analyze the potential risks and benefits of different options and make decisions based on
the analysis done.
6. Goal achievement: Effective decision-making is an important tool for achieving personal and
organizational goals. It involves setting goals, determining courses of action to achieve those
goals, and evaluating progress along the way.
7. Continuous improvement: Good decision-making requires continuous improvement.
Organizations must evaluate their performance, determine where they can make
improvements, and then decide what adjustments will best improve their functioning.
Process of Decision Making:
Step 1 − Identification of the Purpose of the Decision
In this step, the problem is thoroughly analyzed. There are a couple of questions one should ask
when it comes to identifying the purpose of the decision.
● What exactly is the problem?
● Why the problem should be solved?
● Who are the affected parties of the problem?
● Does the problem have a deadline or a specific time-line?
Step 2 − Information Gathering
A problem of an organization will have many stakeholders. In addition, there can be dozens of
factors involved and affected by the problem.
In the process of solving the problem, you will have to gather as much as information related to
the factors and stakeholders involved in the problem. For the process of information gathering,
tools such as 'Check Sheets' can be effectively used.
Step 3 − Principles for Judging the Alternatives
In this step, the baseline criteria for judging the alternatives should be set up. When it comes to
defining the criteria, organizational goals as well as the corporate culture should be taken into
consideration.
As an example, profit is one of the main concerns in every decision making process. Companies
usually do not make decisions that reduce profits, unless it is an exceptional case. Likewise,
baseline principles should be identified related to the problem in hand.
Step 4 − Brainstorm and Analyze the Choices
For this step, brainstorming to list down all the ideas is the best option. Before the idea
generation step, it is vital to understand the causes of the problem and prioritization of causes.
For this, you can make use of Cause-and-Effect diagrams and Pareto Chart tool.
Cause-and-Effect diagram helps you to identify all possible causes of the problem and Pareto
chart helps you to prioritize and identify the causes with the highest effect.
Then, you can move on generating all possible solutions (alternatives) for the problem in hand.
Step 5 − Evaluation of Alternatives
Use your judgment principles and decision-making criteria to evaluate each alternative. In this
step, experience and effectiveness of the judgment principles come into play. You need to
compare each alternative for their positives and negatives.
Step 6 − Select the Best Alternative
Once you go through from Step 1 to Step 5, this step is easy. In addition, the selection of the best
alternative is an informed decision since you have already followed a methodology to derive and
select the best alternative.
Step 7 − Execute the decision
Convert your decision into a plan or a sequence of activities. Execute your plan by yourself or
with the help of subordinates.
Step 8 − Evaluate the Results
Evaluate the outcome of your decision. See whether there is anything you should learn and then
correct in future decision making. This is one of the best practices that will improve your
decision-making skills.
Types of Decision-making
Managerial decisions may be classified into the following categories:
o Unstructured decisions: These decisions require judgement, evaluation and insight to solve the
problem. Unstructured means “decision processes that have not been encountered in quite the
same form and for which no predetermined and explicit set of ordered responses exists in the
organization”. These decisions are seen as novel, important and non routine. There is no well
understood procedure for making them. An example of an unstructured decision that
management may face could be deciding if the company should enter into a new market or
would it be more beneficial for them to stay in just their current market. Information systems
help to make such decisions.
o Semistructured decisions: these decisions have elements of both structured and semi structured
decisions. Only part of the problem has a clear-cut answer provided by accepted procedure. A
semi structured decision is one which is partially programmable but still requires human
judgement. There are three dimensions to a semi structured decision:
1. Degree of decision-making skill required.
2. Degree of problem complexity
3. Number of criteria considered
o Structured decisions: means having processes in place to handle a situation. The implication is
that structured problems are recurring ones. Because they recur, we put processes and
procedures in place to handle them. These decisions are repetitive and routine. They involve
definite procedures for answering. Therefore they don’t need to be treated as new each time the
decision has to be made. A good example of a structured decision would be the hiring process in
a company. its important to create structure around repetitive situations so that a lot of time is not
spent on very minor decisions.
4. Behavioral Concept in Decision Making:
The behavioural model of decision making takes into account the less rational, more human
aspects of decision making. It considers the impact of individual personality traits, emotions,
perceptions and social influences on the decision-making process. This model is grounded in two
primary principles:
● Cognitive limitations: Individual cognitive abilities, like perception, memory, and
reasoning, limit the capacity to process and interpret information.
● Behavioural rules: Behavioural patterns and biases often guide decisions, rather than
absolute rationality.
In the behavioural model, the decision-making process often involves a mix of rational analysis,
intuition, and personal biases. At times, the emotions or personal biases of the decision-maker
may have more influence on the decision than the actual facts at hand. Understanding these
models can help you grasp the multifaceted nature of organizational decision making and enable
you to make better, more informed decisions in your everyday work.
● Brainstorming is a classic creative method employed to generate multiple potential
alternatives. This inclusive method involves gathering a group of individuals to
spontaneously suggest a myriad of potential solutions.
● Lateral thinking: This method involves looking at the problem from several different
perspectives. It encourages breaking away from traditional patterns of thinking and
approaching the problem in innovative ways.
● Analogical thinking: This creative technique involves drawing parallels between similar
problems in different contexts and transferring the solution from one context to another.
During the alternatives evaluation stage, a creative approach allows each alternative to be
assessed from various perspectives. It encourages decision-makers to imagine possible scenarios,
weigh each alternative's potential impacts on diverse stakeholders, and consider any long-term
effects. Finally, at the decision implementation stage, creativity aids the formulation of a unique
implementation strategy. It could involve developing a novel communication plan to relay the
decision throughout the organisation or designing an innovative monitoring strategy to gauge the
decision's effectiveness.
5. Organizational Decision Making:
Organizational Decision Making is a crucial process that affects the success and efficiency of any
business. It refers to the method by which decisions are made in an organizational setup, taking
into consideration multiple perspectives and factors. It involves the process of choosing a course
of action from several alternatives to achieve organizational goals and objectives.
Definition:
Organizational Decision Making can be defined as the process of responding to a challenge,
question or opportunity by examining options, comparing them based on established metrics and
making a choice that most effectively meets your organizational goals and objectives.
Key Principles of Organizational Decision Making
There are several key principles that guide effective organizational decision making.
Understanding these principles can help you make better, more informed decisions that align
with your overall strategy and goals.
● Define clear objectives: This involves understanding, with clarity, what the organization
seeks to achieve.
● Gather and analyze relevant data: Making informed decisions requires accurate,
up-to-date and relevant data.
● Evaluate alternatives: This involves comparing the pros and cons of each course of
action.
● Make the decision: Based on the evaluation, the most beneficial alternative is chosen.
● Implement the decision: The chosen course of action is put into practice.
● Monitor and adjust: The impact of the decision is monitored and any necessary
adjustments are made.
Example:
For instance, if a company is looking to expand its market reach, they may consider various
alternatives such as entering a new industry, focusing on digital marketing or forming strategic
partnerships. The decision would be based on an evaluation of each alternative, which might
include the cost, potential ROI, alignment with the company's goals, etc. Once chosen, the
decision would be implemented and monitored to ensure it delivers the desired result.
Understanding the Rational Model of Organizational Decision Making
The rational model of decision making is one of the primary models used in organizations.
Adherents to this model believe in the completeness of information and the consistency of
human nature in making decisions. The steps in the rational decision-making model include:
● Identifying the problem: The first step involves recognizing a problem or opportunity
that demands a decision.
● Gathering information: Next, information relevant to solving the problem is collected.
● Generating alternatives: Several potential solutions are then created.
● Evaluating alternatives: Each alternative's viability is evaluated based on established
criteria.
● Choosing an alternative: The most effective alternative is chosen.
● Implementing the decision: The chosen alternative is then executed.
● Evaluating decision effectiveness: Finally, the efficiency of the decision is assessed and
adjustments are made as needed.
This model assumes perfect rationality, meaning, individuals always make prudent, logical
decisions that provide them with the utmost utility.
