September 18, 2020

DECISION MAKING IN BUSINESS

Decision Making

Decision Making

Running a business or any complex organization involves making choices. Every day and each minute of the day somebody is going to be creating a decision which will have an effect on some side of the business and its customers, suppliers, workers or shareholders. Managers inside businesses are charged with endeavor variety of roles, several of that involve creating decisions. In general, involves making a choice between a collection of optional courses of action in keeping with a collection of criteria or decision rules.

Functions of Management

The functions of management are often classified into specific areas:

  • Planning
  • Organizing and coordinating
  • Leading and motivating
  • Controlling processes

Planning

Planning is the process of deciding in advance what is to be done and how it is to be done (e.g. where to create a replacement plant, what proportion to pay on marketing). The process results in plans (predetermined courses of action) that reflect organizational objectives and goals. This clearly involves decision making.

Organizing and coordinating

Organizing and coordinating people, resources, materials in order to implement the plan to get things done, will sometimes involve choosing between different courses of action, different people or other resources to do the job.

Leading and motivating

Leading and motivating people could involve creating choices between completely different types of management and dealing with different timeframes.

Controlling the process

Controlling the method ensures that things proceed in keeping with the idea. This is often achieved by comparing actual performance with a target and using any difference to guide the adjustment of the operation and thus, to bring about the desired performance (e.g. if the temperature within the workplace is to low, turn up the heating). Wherever there’s a choice of actions which will be taken, then decisions ought to be created.

Informed Decisions

Making the right (or at least a good) choice requires judgment but also requires a basis on which to make the choice. Many decisions are based on information that relates to the decision and which informs the decision. A decision on how many things to order this week would rely upon how many of the item were sold last week or an equivalent week last year. The choice of the person for a job will depend on their prior performance and achievements. The information requirements for making decisions will be explored in more detail later on.

Decision Making Within The Organization

Decisions are made at different levels within the organization:

Operational or Transactional Decisions

made by junior managers or operatives affect the immediate running of the organization (or section)

Here problems of a recurring nature are dealt with. For example:

  • Weekly staff schedule for a specific assembly line
  • The weekly machine maintenance schedule
  • Daily raw material inventory check

The information needed is precise, typically not monetary and usually associated with a policy prescribed by the next level of management.

Tactical Decisions

Made by middle managers affect the medium-term running of the organization (or department). This middle level of management is concerned with decisions that are made on a regular or periodic basis (annually, quarterly, monthly). Tactical decisions will usually be short-range, covering planning cycles of a year or so. These decisions primarily need info of a historical (i.e. company records) or financial nature that is generated within the organization. For example:

  • The budget for personnel achievement within the next financial year
  • Expenditure on advertising in the next quarter
  • Monthly sales targets for the subsequent quarter

Strategic Decisions

made by senior managers affect the longer-term development of the organization This is the executive or top level of management which is concerned largely with issues of long-range planning. For example:

  • How large should the organization be in 10 years’ time?
  • How several production lines ought to there be in five years’ time?
  • What kind of analysis and development policy ought to be adopted?
  • How ought the merchandise range be developed over succeeding twenty years?

For this sort of decision-making, management would require access to all internal info, yet as all relevant external info. The information is used irregularly i.e. the decisions made are not routine.

In addition to the information requirements of these management categories, there will be other groups, concerned with an organization, which have yet other information requirements. For example:

  • Employees, in general, require information about wages, the firm’s progress, developments in the provision of staff facilities, etc.
  • Shareholders require information about the company’s current and expected performance.

TYPES OF DECISIONS

Some decisions are made routinely and others are more novel.

Programmed decisions

Programmed selections are routine and repetitive, with clear options and famous decision rules (e.g. stop once the light is red; continually load the biggest items into the lorry first). This type of decision tends to be made at the more operational levels within the organization.

Non-programmed decisions

Non-programmed selections are additional novel and unstructured, with complex options and unclear decision rules (e.g. what to do when a machine develops an unusual fault, how to deal best with a new competitor in the market place). This type of decision tends to be made at a more tactical or strategic level.

DATA AND INFORMATION FOR DECISION MAKING

BUSINESS & CAREER

This post contains the content of the book Applied Business Analysis