Decision making is procedure of management process taking into account multiple economic, social and psychological considerations. Decision-making can be considered in two senses. In a broad sense it is a complex process, consisting of: registration and evaluation of information, identification of the decision-making problem and application of adopted criteria, the determination and issuing a decision and gathering information about its execution. In the second, the strict sense, decision is only one of the stages of the decision-making process during which the decision maker will knowingly make a non-random choice of one act, from a set of possible variants of solutions to the problem (these variants, of course, must be previously identified or designed).
Stages of the decision-making process
The decision-making process consists of the following stages:
- Examine the situation: defining the problem, identifying the purpose of the decision - diagnosis of the causes of the problems
- Development of alternative solutions: generating options, assessment and evaluation, heuristic methods: brainstorming, scenarios,...
- Selecting of option: evaluation of the options, the choice of the optimal solution.
- Implementation of decision: identification of resources needed, monitoring during the implementation, measuring results
Methods and techniques used in decision making
- mathematical models (linear programming, queuing, simulation games), they often require IT support, artificial intelligence,
- problems of inventory, queuing, routing,
- network methods: PERT, CPM,
- forecasting methods: extrapolation of trends, causal models, econometrics, statistics, etc.
Classification of decisions
Classification of decision constitutes an essential element of decision-making. Classification decision is extremely difficult due to their large quantity and diversity.
We can distinguish the following main types of decisions:
- strategic decisions
- tactical decisions
- operational decisions
Due to the structure and repeatability of the decision there are:
- programmed decisions - have a complete structure or are repeated at certain intervals.
- not programmed decisions - they have not a very clear structure, taken much less often than the programmed decisions
According to the criterion of decision-making problems decisions are divided into:
- decisions initiated by the parent company
- decisions initiated by the manager
- decisions initiated by subordinates
Decisions classified according to the causes of problems:
- regulatory decisions
- control decisions
- innovative decisions
Due to the amount of information and the conditions under which we make decisions we distinguish:
- decisions taken under conditions of certainty
- decisions taken under the risk
- decisions taken under uncertainty
In accordance with the criterion of quantification the decisions is divided into:
- quantifiable decisions
- decisions difficult or impossible to quantify
According to choice of variants we can distinguish:
- closed decisions
- open decisions (research and development issues)
Due to participation in decision-making they can be divided into decisions on:
- individual decisions, taken by one person
- individual decisions with collective diagnosis
- collective decisions
Taking into account the management function we can distinguish:
- planning decisions
- organizer's decisions
- coordination decisions
- directing decisions
- control decisions
- Impact of information on decision-making
- Selection process in conditions of certainty and uncertainty
- Behavioral aspects of decision-making
- Conditions of decision-making
Examples of Decision making
- Deciding whether to accept a job offer: A potential job offer must be carefully evaluated to determine if it is in line with the individual's career goals, expectations, and lifestyle. Factors such as salary, benefits, location, and job duties should all be considered in the decision-making process.
- Deciding whether to invest in stocks: Investing in the stock market is a popular way of growing wealth, but it carries risk. When considering whether to invest in stocks, people must assess their own financial situation, risk tolerance, and investment objectives.
- Deciding whether to go to college: College can be an expensive investment, and individuals must decide whether the return on investment is worth it. Factors such as the type of degree, cost, and potential job prospects should all be taken into account when making the decision to go to college.
- Deciding whether to buy a home: Buying a home is a major decision and commitment. People must assess their financial situation and consider factors such as the location, size, and amenities of the home before making a decision.
Advantages of Decision making
One of the main advantages of decision making is the ability to make well-informed choices to optimize outcomes. This can help organizations to make the best decisions to suit their needs and objectives. The following are some of the key benefits of decision making:
- Increased Efficiency – By making decisions in a systematic manner, organizations can reduce the time taken to complete tasks and make decisions. This can help them become more efficient, leading to improved performance outcomes.
- Improved Problem-Solving – By analyzing all the available information, decision makers can come to a conclusion that is in the best interests of the organization. This can help to identify and solve problems quickly and effectively.
- Clear Direction – Decision making can help provide the organization with a clear direction and make sure everyone is on the same page. This can help to align everyone’s efforts and ensure that everyone is working towards the same goals.
- Improved Communication – Decision making can also improve communication between all levels of the organization. This can help to ensure that everyone is on the same page and aware of any changes or decisions that are being made.
Limitations of Decision making
- Limited Knowledge: Decision-making is subject to the limitations of the decision maker's knowledge. Decision makers, no matter how experienced, can only act based on the information they have on hand, and may not be aware of all the relevant facts or potential solutions.
- Time Constraints: Making decisions can take time, and in some cases, the decision needs to be made quickly. This can lead to decisions being made without adequate consideration of all the facts and potential solutions.
- Emotional Bias: Decision makers may be influenced by their emotions and feelings when making decisions. This can lead to decisions that are not based on the facts, or that are not the best option for the situation.
- Cognitive Biases: Cognitive biases are mental errors that can lead to incorrect decision making. Examples of cognitive biases include confirmation bias, the tendency to only consider information that confirms one's preconceived ideas, and the halo effect, the tendency to assign positive qualities to a person or thing without any valid evidence.
- Groupthink: Groupthink is a phenomenon where a group of people make decisions without considering all the facts or potential solutions. This can lead to decisions that are not in the best interest of the group.
Other approaches to decision-making that are closely related to the traditional definition are:
- Rational decision-making model: This model is based on assumptions that the decision-maker is entirely rational and logical in the process of decision-making. It involves the identification of a problem, the collection and analysis of data, the formulation of a decision, the evaluation of alternative solutions and the selection of the best solution.
- The bounded rationality model: This model suggests that the decision-maker is limited in his/her ability to process information, due to cognitive and emotional constraints. This model also involves problem identification, data collection and analysis, but the decision-maker will select an acceptable solution that is “good enough”, rather than the “best” solution.
- Intuition-based decision-making: This model suggests that the decision-maker relies on his/her gut feeling and instinct, rather than on logical and rational analysis. This approach is often used in situations where the situation is complex, and the decision-maker has limited time to make a decision.
- Group decision-making: This model involves the participation of multiple individuals in the decision-making process. It involves the identification of a problem, the collection and analysis of data, the formulation of a decision and the selection of the best solution.
These four approaches to decision-making are closely related to the traditional definition. They involve the identification of a problem, the collection and analysis of data, the formulation of a decision and the selection of the best solution. Each approach has its own merits and drawbacks, and the decision-maker must select the approach that is most suitable for the particular situation.
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- Wozniak K., Management information system as an instrument of strategic management in the company, PhD Thesis, Cracow University of Economics, Cracow 2005
Author: Krzysztof Wozniak