The business environment has in recent times changed from being predictable to being unpredictable and from being simple to being complex. Hence, we require a transformation in how decisions are made, both individually and within organizations. As it redefines its role in society, business must restore trust with its employees and its customers. Personally, professionally, and organizationally, it’s time to gain access to all your creative resources and intelligences so that you can make the decisions you need to, to prime your company for success in this ever-changing world.
Decision making has received increasing attention in recent years and some authorities have argued that management and decision making are synonymous terms. Indeed, there is very little managerial activity which does not involve decision making, in some form. Since, the quality of information available is crucial to the quality of decision-making, an efficient and adequate information system is a prerequisite of managerial success. The hallmark of efficient management may thus be seen in the ability to specify accurately the information needed, and this ability is in itself a function of clear definition of objectives, sound planning and control capability and satisfactory organizational arrangements.
A decision is a choice between a variety of alternatives, and a decision-maker is whoever makes such a choice. A decision can be made instantly but more often involves decision-maker in a process of identification, analysis, assessment, choice and planning. To arrive at a decision, a manager must define the purpose of the action, list the options available, choose between the options, and then turn that choice into action. Decisions and the process of decision-making are fundamental to all management processes, just as they are to everyday life.
Types of Decision Making
Decision making are usually made at three levels in an organization ie strategic, tactical and operational levels. Hence, we have three types of decisions based on these three levels.
Strategic decisions
Strategic decisions are executive-level decisions. Strategic decisions are made in every area, from IT (information technology), HR (human resources), finance, and CRM (customer relations), for example. Strategic decisions look ahead to the longer term and direct the company to its destiny. They tend to be high risk and high stakes. They are complex and rely on intuition supported by information based on analysis and experience. When you face a strategic decision, you may have time to consider options reinforced by the gathered information, or you may have moments to decide.
To make good strategic-level decisions, you need to be comfortable working with a lot of information and have the ability to see the interrelationships among the company and its employees, clients, suppliers, and the communities it reaches. You need to be collaborative, in touch with what is going on, open-minded, and flexible without being wishy-washy. Jones(2015) opines that Yahoo’s CEO Marissa Mayer created a strategic plan to foster the company’s renewal: Knowing that each was interrelated, Mayer focused on people, then product, then site traffic, and then revenue. She began by hiring great people and taking steps to stop talented Yahoo employees from going to other companies.
She then bought companies to strengthen the Yahoo product, knowing that a strong product keeps employees, builds traffic, and generates revenue. This is what it takes to make strategic decisions.
Tactical decisions
Tactical decisions translate strategic decisions into action. Tactical decisions are more straightforward and less complex than strategic-level decisions. They are decisions taken by middle level management that are usually semi-structured. When they are in alignment with your company’s core values or its overall mission, tactical decisions add even more value to the outcomes of the implementation.
Conversely, if tactical decisions become detached from the company’s direction, you and your employees end up expending a lot of effort on tasks that don’t help the company achieve its goals or vision.
Tactical decisions fall in the scope of middle management. Middle managers are the proverbial meat in the sandwich; they make things happen. In vertically organized hierarchies, middle managers translate top-level decisions into goals that can be operationalized.
Operational and frontline decisions are made daily. Many operational decisions are guided by company procedures and processes, which help new employees get up to speed and serve as a backdrop for more experienced employees, who, having mastered the current procedures and processes, can detect and rapidly collate additional information, like cues, patterns, and sensory data, that aren’t covered by the procedures. Take mechanics, for example: A master mechanic is able to apply procedures and specifications to fix a problem, and his accumulated experiences (and intuition) strengthen his troubleshooting abilities. Detecting subtleties is an intuitive intelligence. The effect is faster and more accurate diagnosis or assessment of a particular situation.
Because conditions are more concrete and predictable, operational and frontline decisions as a rule hold less risk strategically and tend to follow a more routine pattern. But therein lies the danger: They can hold more risk for health and safety for the simple reason that complacency sets in, and people become less alert.
Types of Problems found at different Levels of Management
Hicks et al(2010) opine that information system is a system which manages organization. They are designed to aid management in decision making and facilitate provision of solutions to solving structured, semi-structured and unstructured problems at different levels of management in an organization(Computer in Business MBA module,2000).
Metiboba(1998) gave the following as examples of structured, semi-structured and unstructured problems;
· At top management level, the structured problem is selecting warehouse facilities, semi-structured problem is decision to embark on mergers/acquisition while unstructured problems are new product line, Research and Development(R&D).
· At the middle level of management, structured problems are budget management and budgeting, semi-structured problems are sales forecasting and product pricing while unstructured problem is personnel management.
· At operational levels, the structured problems are sales order processing and approving customer credit, semi-structured problem is product scheduling while unstructured problem is selecting media devices for advertising. Decision Support Systems(DSSs) usually aid executives in solving unstructured problems that exist at top level of management.
The following is a list of decision-making styles, which were drawn from the work of Kenneth
Brousseau, CEO of Decision Dynamics:
Decisive: With decisive decision-makers, time is of the essence. Their mantra is “Get things done quickly and consistently, and stick to the plan.” This decision-making style applies one course of action, using relatively little information. Being decisive comes in handy in emergency situations or when you have to clearly communicate operational-level health and safety decisions.
Flexible: Flexible decision-makers are focused on speed and adaptability. They acquire just enough data to decide what to do next and are willing to change course if needed. This decision-making style works with several options that can change or be replaced as new information becomes available. Being flexible comes in handy when you have to make decisions in dynamic, uncertain situations. Flexible decision-making is relevant to all levels of decision-making.
Hierarchic: Hierarchic decision-makers analyze a lot of information and seek input from others. They like to challenge differing views or approaches and value making decisions that will withstand scrutiny.
Once their minds are made up, their decisions are final. This decision making style incorporates lots of information to produce one option.
This characteristic can be handy, depending on the application; financial forecasting and capital procurement decisions come to mind.
Integrative: Integrative decision-makers take into account multiple elements and work with lots of input. They cultivate a wider perspective of the situation and invite a wide range of views (even ones they don’t agree with). They flex as changes arise until time is up and a decision must be made. This decision-making style uses lots of information and produces lots of options. It’s handy for executive-level or managerial decision-making in fast-moving, dynamic conditions where the decision has a big impact on people or resources.
If you don’t feel like you fit into any one of the decision-making characteristics I list here, rest assured. First, you bring more than what is described here to the business decision-making process. Second, these styles are not exclusive: You may use characteristics of more than one style, or you may use different styles in different situations(Jones,2015).
Decision Making is an art of selection of one feasible alternative decision from many. Therefore types of managerial decision making is about implementing a variety of decisions to situations of structured or unstructured problems. Since decisions are of two types.
Programmed Decisions
These are the decisions made in a well-structured, repetitive and routine basis through predetermined decision rules. Although several programmed decisions are taken from the previous experiments and practices. Moreover computer software is the best option to deal with complex programmed decisions. Thus programmed decisions may be taken by first line or middle line managers.
These are the decisions taken in the dramatic or critical sudden situations. So these are referred to as predetermined and impractical ones in accordance with problems.
Types of Problems and Managerial Decision Making
There are different types of problems faced during the process and progress, so a variety of decisions are implemented. Hence in accordance with the situation of the problem, either the problem is well structured or roughly Poorly structured.
Well structured problems are predefined problems and are easy to tackle from the past history or practice. Moreover they can be handled by the managers through programmed decisions. Three plans are there to take programmed decisions.
- Procedure: It is a process of continuous sequences, which can be applied in structured problems.
- Rule: It is the guideline to the managers whether they can do or cannot do anything.
- Policy: It is a set of parameters that are used in making a decision including the boundaries and limits along with restrictions.
Unusual or new problems with limited or insufficient information are poorly structured problems. Non-programmed decisions are used to tackle such types of problems. Therefore the decision in such a type of problem should be customized and unique.
General Organizational Situations – Types of Managerial Decision Making
Poorly structured problems are managed through non-programmed decisions by higher levels of managers within the organization and well-structured problems are solved through programmed decisions by lower levels of managers within an organization.
The decisions are made on the basis of rationality, perception and bounded rationality by the managers, so we have to understand them gradually:
Assumptions of Rationality – Types of Managerial Decision Making
Decision Making by the managers is assumed to be rational due to the choices that are reliable and valuable under the specified parameters. They are summarized as:
- The problems are very clear, target oriented, all alternative options are well known, clarity of preferences, parameters are non cost and time consuming and maximum profitable in these assumptions.
- Economic interests of the organization that are kept in mind in these assumptions are not of the managerial interests.
These assumptions can be achieved if; goals are clear, alternatives are limited and simple problems are faced by the manager, in which output is solid and countable and risk & innovation is supported by organizational behavior.
More From Business Study Notes:- Decision Making Process
The fault of rational model is that it’s not applicable to actual decision targets for two reasons;
- Unavailability of complete information.
- Decisions are interfered with by the personality factors and norms of the manager.
Actual decision making models are calculated with the presentation of the ideal rational model.
Challenges in Decision Making
Leaders may face fascinating problems during the decision-making process. Challenges are usually referred to as decision-making barriers or simply obstacles in the business environment.
- Time constraints
- Uncertainty
- Biases
- Commitment levels increasing
- Bounded rationality
- Conflict
Time Constraints
When we talk about time restrictions, we’re not always talking about time management. Managers could have done a good job managing their time, but extraneous factors could have pushed them to make a decision quickly. When there is a lack of time to gather knowledge rationally and make an appropriate decision, time limitations apply.
No one can be certain of every decision they make in ordinary life. If you answered no, don’t panic; good leaders and managers aren’t always 100 percent certain of their decisions. Uncertainty is defined as the inability to predict an outcome until it occurs, and it is linked to the notion that a consequence is envisioned but not seen. It is unclear how to manifest learning in prospective students inside a learning organization. Leaders may only use a methodology that allows the learner to acquire the most information. A desired conclusion can be imagined, but due to the uncertainty, the conclusion can only be seen after the decision has been made.
Biases
One of the most typical mistakes made by leaders and managers is to put their faith in a bad judgment made on the basis of preconceived beliefs. Biases in decision-making are based on the idea that the decision is intimately linked to underlying beliefs and world views. Furthermore, it strengthens beliefs that are similar to our own. Being aware and sympathetic about an opposing viewpoint is one technique to avoid bias. Leaders may make decisions based on personal worldviews, but such influences can be avoided if they recognize that their decision is based on bias and try to incorporate opposing viewpoints for a more collaborative decision-making process.
Commitment Levels Increasing
It’s difficult to make a difficult decision, and it’s even more difficult to live with that decision if it doesn’t work out. The principle of escalating commitment is that leaders and managers remain committed to a bad decision or find it difficult to reasonably detach themselves from a bad option. As a result, it’s ok if a poor judgment is made, but there are mechanisms in place to assist a student in developing new skills to overcome previous mistakes, hence removing the escalation difficulty.
Bounded Rationality
Decisions made within the organizations are all usually rational in nature. Bounded rationality is the idea that confronting leaders with difficult challenges that they don’t fully comprehend prevents them from being reasonable about the situation and, as a result, from recognizing an alternative. Educators in learning organizations would like to believe that they can learn anything. However, there are instances when individuals are unable to comprehend a certain aspect of learning, and they become victims of bounded rationality.
This can lead to erroneous decisions being made without all of the facts, or the complete abandonment of a problem. Both provide an unsatisfactory result. However, there are occasions when individuals are unable to comprehend a certain aspect of learning, and as a result, they fall prey to constrained rationality. This might lead to erroneous conclusions based on incomplete information or the complete abandonment of a problem. Both yield an unsatisfactory result.
Conflict
Leaders and managers in an organization should not be afraid of tumultuous circumstances. Although not physically or vocally, situations might be tense depending on the circumstances. Within an organization, conflict can be divided into two categories:
- Process conflict
- Relationship conflict
Decision-Making Styles – Types of Managerial Decision Making
All the decisions are made to solve the problems by the managers with different styles and perspectives. The approach of decision making differs in two dimensions. One is an individual’s thoughts, i.e. rational or instinctive, and the other is the (high or low) tolerance of uncertainty.
Four decision-making styles are obtained by going through two dimensions.
- The style that is characterized by low tolerance for uncertainty along with a rational way of thoughts is Directive Style.
- The style, which is characterized by a high level of tolerance for uncertainty with rational thinking, is Analytic Style.
- Instinctive thinking and high tolerance towards uncertainty are the characteristics of Conceptual Style.
- Low tolerance towards uncertainty and instinctive thinking are the characteristics of Behavioral Style.
From a realistic point of view, most of the managers have dominant and alternative styles. Although some of them rely on their dominant style and some of them become flexible according to situations.
Richard DanielsAuthor at Business Study Notes
Hello everyone! This is Richard Daniels, a full-time passionate researcher & blogger. He holds a Ph.D. degree in Economics. He loves to write about economics, e-commerce, and business-related topics for students to assist them in their studies. That's the sole purpose of Business Study Notes.
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