Meaning and Definition of Decision Making

Decision making is an indispensable part of the management process. Decision making can be defined as the
process of selecting a course of action from among several alternatives in order to achieve organizational goals
or to solve problems. It refers to the process by which managers identify problems, develop different alternatives,
evaluate the alternatives, and finally select the best alternative to solve problems or achieve organizational goals
and objectives effectively.

Managers in organizations are constantly faced with decision-making situations. In the course of regular
functioning of an organization, many problems may arise. Managers respond to such problems through decision
making. They also respond to opportunities and threats through decision making. Thus, decision-making is an
integral part of managerial job. It is rightly said that whatever managers do, they do through decision-making.
According to George R. Terry, “Decision making is the selection based on some criteria from two or more
alternatives.”
According to R.W. Griffin, “Decision making is the act of choosing one alternative from among a set of
alternatives.”
According to Koontz and Weihrich, “Decision making is selection of a course of action from among alternatives.”

In conclusion, decision making is the process of selecting the best course of action after considering the possible
alternatives. The success of an organization depends upon the decision-making ability of managers and its
effective implementation in practical field.

Nature/ Characteristics/Features of Decision Making

1. Goal-Oriented Process: - Decision making is oriented towards achieving organizational goals. Decisions
are made to address challenges, solve problems, and seize opportunities, which in turn, contributes to the
attainment of the organization's goals and objectives.
2. Selective Process: - Decision making is a selective process. It is concerned with the selection of the best
possible alternative out of various alternatives available. If alternatives are not available, the process of
decision-making does not exist.
3. Dynamic Process: - Decision making is a dynamic process. It takes place within the changing
environment. Therefore, managers have to consider environmental factors such as consumers’ taste,
fashion, and preferences, technological advancements, economic conditions and more while making
decisions. They have to change or modify their decisions according to the change in the environment for
its effectiveness.
4. Pervasive Function: - Decision making is a pervasive function of management. Managers at all levels
have to be involved in decision making. Similarly, all managerial functions such as planning, organizing,
directing and controlling require decision making.
5. Continuous Process: - Decision making is an ongoing and continuous process. Decision making starts
from the beginning of the organization and continues as long as the organization exists. Managers are
required to continuously make decisions to address challenges, solve problems, and seize opportunities
that emerge inside and outside the organization. They have to make decisions on a regular basis to operate
business activities smoothly.
6. Human Process: - Decision making is a human process. While technology can certainly assist in decision
making, the human emotion, desire, empathy and ethical consideration play important roles in the process
of decision-making.
7. Rational Process/Intellectual Process: - Decision making is a rational or intellectual process. In decision
making, final selection is made after careful consideration of various alternatives which involves
imagination, reasoning, evaluation, foresight and judgement.
 8. Positive and Negative: - Decision can be positive as well as negative. Positive decisions lead to positive
outcome and drive the organization towards success. Whereas negative decisions lead to negative outcome
and drive the organization towards failure. Therefore, decisions should be made after careful consideration
of all available alternatives, potential consequences and future impact.
9. Freedom to Decision-Maker: - Modern organizations provide decision-makers with the freedom to apply
their knowledge, ability, and skill while making decisions. However, they are expected to make rational
decisions for the benefit of the organization.

Decision Making Process

Decision making is an intellectual process. Effective decision making requires a rational choice of a course of
action. In order to make sound decision, number of steps need to be followed in a logical manner. The steps in
decision making are as follows:

1. Recognizing and defining the problem: - The first step in the decision-making process is to identify and
define the problem or situation where a decision is needed. A problem is essentially the gap between the
existing situation and the desired situation. Managers must accurately recognize the main problem,
identify its causes and symptoms, and understand its interconnections with other factors. This requires
careful analysis of the situation, information gathering and analyzing, and developing comprehensive
understanding of the problem. When a problem is correctly defined, it becomes easier to solve. A wrong
definition of the problem can lead to an incorrect solution.
2. Develop Appropriate Alternatives: - There may be various alternative ways to solve a problem.
Managers, in the second step, should generate all possible alternative solutions to the problem. The
development of alternative is a mental and creative work. A decision-maker should be creative and
innovative to identify alternatives. Managers can use various sources to generate alternatives such as:
• Search of problem file:
• Opinion of experts
• Discussions with subordinates, customers, salesforce etc.
• Creative methods: Brainstorming, Delphi techniques etc.
3. Evaluating Alternatives: - After generating possible alternatives, in the next step, all the alternatives
should be evaluated to determine their strong and weak points. Alternatives should be evaluated properly
in terms of feasibility, satisfactoriness and affordability of consequences.
• First, the manager must evaluate whether the alternative is feasible (practical) in terms of cost,
time, resources etc.
• Second, the manager has to evaluate whether the alternative satisfactorily solves the problem.
• Finally, the manager must evaluate whether the consequences (outcome) of the alternative are
affordable (favorable) for the organization.
4. Selecting the Best Alternative: - After evaluating all the alternatives, the manager has to select the best
alternative. The best alternative is the one that is relatively more feasible, satisfactory and has affordable
consequences. It is the real point of decision-making. Sometimes, more than one alternative can be seen
equally important, in such situations, managers have to review the information to select the best one.
Furthermore, in some situations, a single alternative may not provide complete solution, then managers
can consider more than one alternative. The decision maker's judgment is crucial in this process.
The following approaches are usually followed in selecting the best course of action. (i) Experience (ii)
Experimentation (iii) Research and Analysis.
 5. Implementing the Decision/Alternative: - In this step, the selected alternative has to be implemented
into practice. To ensure effective implementation, several steps are crucial. Firstly, the decision should be
communicated to all the concerned departments, parties and employees. Additionally, authority,
responsibility and accountability should be clearly defined. Furthermore, proper instruction, guidance and
leadership should be provided for effective cooperation and coordination among the departments and
employees. The efficiency of the decision-maker is measured in terms of effective implementation of the
decision.
6. Evaluation and Follow-up: - After implementing the decision (selected alternative), it is essential to
regularly monitor and evaluate progress and outcomes. Regular evaluation helps determine whether the
problem has been resolved or the desired results have been achieved. If the implemented alternative is not
producing the desired results, or if there is a deviation between actual and expected results, corrective
actions must be taken to address these deviations. Effective follow-up helps to control deviations in time.

Types of Decision

Managers make a variety of decisions of different natures. Managerial decisions can be categorized into different
types based on various criteria, which are discussed below:

1. Programmed and Non-programmed Decisions

Programmed Decisions
Programmed decisions are routine or repetitive in nature. Such decisions deal with simple, common, and
frequently occurring problems or situations in an organization. These decisions are taken based on the
established policy, rule or standard procedure of the organization and therefore, there is usually no need
to conduct an in-depth study or analysis. They are structured. These decisions are made by the middle and
lower-level managers.

Examples are: decisions regarding making purchase orders, granting leave to an employee, handling of
latecomers, etc.

Non-Programmed Decisions
Non-programmed decisions are non-routine or non-repetitive in nature. These decisions deal with
complex, novel and non-routine problems or situations. Due to the unique nature of these problems or
situations, there are no established procedures, rules, or guidelines to guide managers in decision-making
process. Therefore, these decisions require in-depth analysis and study. Managers are required to apply
their judgment, analytical abilities, intuition and creativity in making such decisions. Non-programmed
decisions are unstructured. Top-level managers often handle these decisions.

Examples are: decisions regarding introduction of new product, changing market strategy, opening new
branch, product diversification etc.

2. Routine and Basic Decisions

Routine Decisions
Routine decisions are related to day-to-day operations of the organization. These decisions are crucial for
the continuous operation of the organization and are often taken based on established procedures or
guidelines. Routine decisions are typically repetitive in nature. Such decisions are made in short-time and
implemented immediately. They do not usually involve much analysis and evaluation. They are similar to
programmed decisions. These decisions are generally taken by lower-level managers.
 Examples are: decisions regarding exchange of work between co-workers, repairs and maintenance of
machines, making availability of raw materials for production process, customer order processing etc.

Basic Decisions
Basic decisions are also known as strategic decisions. Basic decisions are strategic in nature and have a
significant impact on the long-term goals, overall direction and future of the organization. These decisions
are crucial for the long-term survival and growth of the organization. Basic decisions are non-repetitive
in nature. They require careful and in-depth analysis of the situation. Creative thinking, innovativeness,
foresight, and judgment of managers are essential while making basic decision. They are similar to non-
programmed decisions.

Example are: decisions regarding expanding business, entering new markets, changing the product mix,
shifting the manufacturing facility, striking alliances with other companies, etc. are strategic in nature.

3. Organizational and Personal Decisions

Organizational Decisions
Organizational decisions are also known as formal or official decisions. Decisions taken by managers in
their official capacity (as a part of their official role) during the normal course of business are
organizational decisions. These decisions are concerned with organizational matters and are taken
considering organizational goals.

The authority to take such decision is clearly defined in the organizational structure. Such authority can
be delegated to other individuals within the hierarchy. Organizational decisions have a direct impact on
the overall functioning of the organization.

Personal Decisions
Decisions made by individuals for themselves in their personal capacity are referred to as personal
decisions. Personal decisions are related to personal matters and based on personal interest, desire,
necessity of the decision-makers.

The authority of taking personal decisions cannot be delegated and dependent on the individual itself.
These decisions do not have a direct impact on the organization’s operations. Within organizations,
managers may occasionally make decisions that are purely personal in nature. For example: the manager’s
decision to quit the organization is personal in nature.

4. Policy and Operating Decisions

Policy Decisions
Decisions that are related to various policy matters in the organization are known as policy decisions. All
the decisions relating to the formulation and amendment of plans, procedures, rules and programs of the
organization fall under policy decisions. These decisions are taken by top-level management. Such
decisions are very important and have long term impact on the organization.

Operating Decisions
Operating decisions are concerned with the implementation of the policy decisions. These decisions deal
with day-to-day operations of the organization. They are routine in nature and usually made by middle or
lower-level management.
 For example, bonus issue is a policy decision whereas calculation of bonus to be distributed to each
employee is an operating decision and is performed by middle or lower-level managers.

5. Individual and Group Decision

Individual Decision
When the decision is taken by an individual like general manager, departmental manger etc., it is
categorized as an individual decision. In organizations, usually, routine decisions or programmed
decisions are taken by individuals. Similarly, individual decisions are also taken in small organizations
like sole trading concern.

Group Decision
When decisions are taken jointly by a group of individuals, the decision is called group decisions. In
organizations, generally, important and strategic decisions are taken by a group. In group decisions, a
group of persons join together, discuss the subject matter in detail and finally come to a decision through
mutual consensus or majority of votes.

Decisions taken by Board of Directors’ meeting, shareholders’ meeting, committee discussions,