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Define Decision Making and Types of Decisions

Define Decision making and types of decisions.

Define Decision Making and Types of Decisions

What Do You Mean By Decision Making?

Decision making can refer either to a specific act or to a general process. Decision making is the act of choosing one alternative from among set o alternatives. The decision-making process, however, is much more than this. One step of the process, for example, is that the person making the decision must recognize that a decision is necessary and identify the set of feasible alternatives before selecting one. Define Decision making and types of decisions.
Hence, the decision making process includes recognizing and defining the nature of a decision situation, identifying
alternatives, choosing the “best” alternative and putting it into practice.


Effective Decision Making

The word “best” implies effectiveness. Effective decision making requires that the decision-maker understand the situation deriving the decision. Most people would consider an effective decision to be one that optimizes some set of factors such as profits, sales, employee welfare, and market share. In some situations, though, an effective decision may be one that minimizes loss, expenses, or employee turnover. It may even mean selecting the best method for going out of business, laying off employees, or terminating the contract. We should also note that managers make decisions about both problems and opportunities. for example, making decisions about how to cut costs by 10 percent reflects a problem—an undesired situation that requires a solution. But decisions are also necessary for a situation of opportunity.

Learning that the firm is earning higher-than-projected profits, for example, requires a decision. Should the extra funds be used to increase shareholder dividends, reinvested in current operations, or use to expand into new markets? Of course, it may take a long time before a manager can know if the right decision was made.


Types of Decisions

Managers must make many different types of decisions. In general, however, most decisions fall into one of two categories:

  1. Programmed decision  and
  2. Non-programmed decision.


A Programmed Decision

A programmed decision is one that is fairly structured or recurs with some frequency (or both).


>> suppose a manager of the distribution center knows from experience that she needs to keep a thirty-day supply of a particular item on hand. She can then establish a system whereby the appropriate quantity is automatically reordered whenever the inventory drops below the thirty-day requirement. Likewise, the

Bryan BMW dealer has made a decision that he will sponsor a youth soccer team each year. Thus when the soccer club president calls, the dealer already knows what he will do. Many decisions rearming basic operating systems and procedures and standard organizational transactions are of this variety and therefore can be programmed.


Non-Programmed Decision.

Non-programmed decisions, on the other hand, are relatively unstructured and occur much less often.


Consider GE’s decision to exchange businesses with Thomson and BMW’s decision to build a new plant: no business makes decisions like those on a regular basis. Mangers faced with such decisions must treat each one as unique, investing enormous amounts of time, energy, and resources into exploring the situation from all perspectives.

Intuition and experience are major factors in non-programmed decisions. Most of the decisions made by top managers involving strategy (including mergers, acquisitions, and takeovers) and organization design are non-programmed. So are decisions about new facilities, new products, labor contracts, and legal issues.


Define Decision making and types of decisions


Managers at BMW recently made the decision to build a new manufacturing plant in South Carolina at a cost of over $600 million. At about the same time, the manager at the BMW dealership in Bryan, Texas, made a decision to sponsor a local youth soccer team for $150. Each of these examples includes a decision, but the decisions differ in many ways. Thus as a starting point in understanding decision making, we must first explore its meaning as well as the types of decisions and conditions under which decisions are made.


Define Decision Making and Types of Decisions

About Ela Zaman

Ela Zaman is a Top Author at BBALectures who writes about business issues and helps finance professionals as well as Fin-tech startups build an audience and get more paying clients online.

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