The decision making process in business management can be described as choosing among alternatives. The main steps are: problem definition, identification of decision criteria, allocation of weights to criteria, development and analysis of alternatives, and selection and implementation of alternatives. Show
A typical decision problem in forest products industries is the selection of equipment. For example, a manager is in the process of purchasing a computer numerical control (CNC) router for machining operations in the manager’s wood kitchen cabinet manufacturing plant. Some of the criteria that the manager might use are: price, number of axes, monthly maintenance costs, energy consumption, availability of service, brand recognition, optional equipment, safety, and productivity. The weighting of the different machines available for purchasing are shown in the figure below. Notice that a score from 0 to 10 is assigned to each option on each decision criteria. The weights for each decision criteria are located on the top of the criteria’s name. For instance, for the criteria price and productivity the weight is 20 in each case. For number of axes, energy consumption, and optional equipment the weight is 5 for each case. In this example, the option Thermwood scores the highest with 82 points out of 100.  For other cases where the level of complexity is higher, different tools might be required. For example, if the manager needs to optimize variables (minimization or maximization problems) a linear programming method might be a good tool. Sometimes a combination between quantitative and qualitative criteria can be achieved through the use of special tools such as the analytical hierarchy process (AHP). Overall, there are a large number of quantitative and qualitative tools that managers can use to make decisions
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 DecisionsThese 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 MakingThere 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.
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 MakingPoorly 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 MakingDecision 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:
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 ProcessThe fault of rational model is that it’s not applicable to actual decision targets for two reasons;
Actual decision making models are calculated with the presentation of the ideal rational model. Challenges in Decision MakingLeaders 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 ConstraintsWhen 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. BiasesOne 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 IncreasingIt’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 RationalityDecisions 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. ConflictLeaders 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:
Decision-Making Styles – Types of Managerial Decision MakingAll 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.
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.
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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