Decision-making is a crucial part of good business. The question then is ‘how is a good decision made?
One part of the answer is good information, and experience in interpreting information. There are also aids to decision-making, various techniques which help to make information clearer and better analysed, and to add numerical and objective precision to decision-making (whereappropriate) to reduce the amount of subjectivity.
Managers can be trained to make better decisions. They also need a supportive environment where they won’t be unfairly criticised for making wrong decisions (as we all do sometimes) and will receive proper support from their colleague and superiors. A good climate let managers respond with effectiveness to market changes.
Decision-makingincreasingly happens at all levels of a business. The Board of Directors may make the grand strategic decisions about investment and direction of future growth, and managers may make the more tactical decisions about how their own department may contribute most effectively to the overall business objectives.
A good place to start is with some standard definitions of decisionmaking.
1. Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker.
Making a decision implies that there are alternative choices to be considered, and in such a case we want not only to identify as many of these alternatives as possible but to choose the one that (1) has the highest probability of success or effectiveness and(2) best fits with our goals, desires, lifestyle, values, and so on.
2. Decision making is the process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them.
Very few decisions are made with absolute certainty because complete knowledge about all the alternatives is seldom possible. Thus, every decision involves a certainamount of risk. If there is no uncertainty, you do not have a decision; you have an algorithm--a set of steps or a recipe that is followed to bring about a fixed result.
Types of Business Decisions
1. Programmed Decisions These are standard decisions which always follow the same routine. As such, they can be written down into a series of fixed steps which anyone can follow. They could even bewritten as computer program
2. Non-Programmed Decisions. These are non-standard and non-routine. Each decision is not quite the same as any previous decision.
3. Strategic Decisions. These affect the long-term direction of the business eg whether to take over Company A or Company B
4. Tactical Decisions. These are medium-term decisions about how to implement strategy eg what kind of marketingto have, or how many extra staff to recruit
5. Operational Decisions. These are short-term decisions (also called administrative decisions) about how to implement the tactics eg which firm to use to make deliveries.
Figure 1: Levels of Decision-Making
Figure 2: The Decision-Making Process
Is a Normative model, because it illustrates how a good decision ought to be made. Business Studiesalso uses positive models which simply aim to illustrate how decisions are, in fact, made in businesses without commenting on whether they are good or bad.
Decision Making is a Recursive Process
A critical factor that decision theorists sometimes neglect to emphasize is that in spite of the way the process is presented on paper, decision making is a nonlinear, recursive process. That is,most decisions are made by moving back and forth between the choice of criteria (the characteristics we want our choice to meet) and the identification of alternatives (the possibilities we can choose from among). The alternatives available influence the criteria we apply to them, and similarly the criteria we establish influence the alternatives we will consider. Let's look at an example to...