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DECISION MAKING IN BUSINESS

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Decision Making

Decision Making

Running a business or any complex organization involves making choices. Every day and every minute of the day someone will be making a decision that will affect some aspect of the business and its customers, suppliers, staff or shareholders. Managers within businesses are charged with undertaking a number of roles, many of which involve making decisions. In general, decision making involves making a choice between a set of optional courses of action according to a set of criteria or decision rules.

Functions of Management

The functions of management can be grouped 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 build a new plant, how much to spend 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 may involve making choices between different styles of management and working to different timeframes.

Controlling the process

Controlling the process ensures that things proceed according to the plan. 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 in the office is too low, turn up the heating). Where there is a choice of actions that can be taken, then decisions will have to be made.

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 which relates to the decision and which informs the decision. A decision on how many items to order this week may well depend on how many of the item were sold last week or the same 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 particular production line
  • The weekly machine maintenance schedule
  • Daily raw material inventory check

The information required is precise, usually not financial and usually related to a policy prescribed by a higher 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 which 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 require information of a historical (i.e. company records) or financial nature which is generated within the organization. For example:

  • The budget for personnel recruitment in the next financial year
  • Expenditure on advertising in the next quarter
  • Monthly sales targets for the next 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 many production lines should there be in 5 years’ time?
  • What kind of research and development policy should be adopted?
  • How should the product range be developed over the next 20 years?

For this type of decision-making, management will require access to all internal information, as well as all relevant external information. 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 decisions are routine and repetitive, with clear options and known decision rules (e.g. stop when light is red; always load the largest 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 decisions are more 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

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