Decision types in business
| Decision types in business |
|---|
| See also |
Decision types in business are categories of decisions that are commonly made in business. These categories help to identify the types of decisions and the processes and tools used to make them. The main types of decisions in business are strategic, tactical, operational, and financial.
There are various typologies of decision in business. One typology of decisions is related to the functions carried out by individual supervisors. One can speak of decisions concerning: salaries, supplies, marketing or accounting. An important feature of this division is to emphasize the importance of decisions made by the individual managers.
Example of Decision types in business
A good example of decision types in business is the decision to invest in a new product. This decision involves strategic, tactical, operational, and financial considerations. The strategic decision involves setting the long-term goals for the product, making plans for achieving those goals, and establishing a mission statement. The tactical decision involves planning the resources and activities that are needed to achieve the goals of the product. The operational decision involves making decisions about the use of resources, such as personnel, equipment, and materials, as well as scheduling activities. The financial decision involves making decisions about investments, capital budgeting, and financial forecasting.
In conclusion, the decision to invest in a new product is a good example of decision types in business. This decision involves strategic, tactical, operational, and financial considerations, each of which requires careful analysis and consideration.
Overall typology of management decision
- Programmed - based on custom, procedure, routine
- Non-programmed - too rare to form the appropriate procedure
- Strategic, tactical, operational decision
- Individual decision - based on collective diagnosis, group thinking
Based on management functions typology by Henri Fayol there are following:
- decisions related to planning,
- organizing,
- coordinating, motivating,
- and monitoring, controlling.
It is clear that the division of the decision depends on the particular typology of management functions.
Fig.1. Decision types in business
Types of decision making
Following table presents two-dimensional typology of decisions.
| Strategic decisions | Tactical decisions | Operating decisions | |
|---|---|---|---|
| Type of problem | Directions of development for the company | Providing conditions for effective implementation of corporate objectives | Optimizing the use of company resources |
| The essence of the problem | The allocation of global resources, depending on the options provided by the environment | Acquisition, organization and resource development | The use of resources, supervision and control |
| Major decisions | Establishing goals and objectives in the strategy development, change the production profile, new investments, etc. | Determining the structure of authority and responsibility, defining principles of material management, changes in production and marketing, etc. | Determination of current tasks, the allocation of resources for their implementation, inventory optimization, etc. |
| The main objectives | Aims and objectives, strategy of diversification, strategies in the field of finance and administration, selecting methods of development | The organization and structure of information, accountability, resourcing and development, cash, tools and work objects, people | Operational objectives and tasks, organization of production and marketing, process control |
| General characteristics of the decision | Decisions centralized, unique, made from time to time | Decision made for solving conflicts between strategy and execution, to address conflicts between individual goals and objectives of the company | Decentralized decisions, repeatable, large number, varied, often taken |
- Strategic decisions: Strategic decisions involve setting long-term goals, making plans for achieving those goals, and establishing a mission statement. These decisions are typically made by senior leaders and involve an analysis of the external and internal environment.
- Tactical decisions: Tactical decisions involve the implementation of strategic decisions and involve planning the resources and activities that are needed to achieve the goals of the organization. These decisions are typically made by middle-level managers and involve an analysis of the current situation.
- Operational decisions: Operational decisions involve the day-to-day operations of the organization. These decisions involve making decisions about the use of resources, such as personnel, equipment, and materials, as well as scheduling activities. These decisions are typically made by lower-level managers and involve an analysis of the current situation.
- Financial decisions: Financial decisions involve making decisions about the financial resources of the organization. These decisions involve making decisions about investments, capital budgeting, and financial forecasting. These decisions are typically made by financial managers and involve an analysis of the financial resources of the organization.
Limitations of Decision types in business
Limitations of decision types in business refer to the challenges and constraints faced when making decisions in the business environment. These limitations can include organizational structure, limited resources, and the complexity of the decision-making process.
- Organizational structure: The organizational structure of a business can limit the scope and type of decisions that can be made. For example, decisions may be constrained by the reporting structure, which can limit the authority of decision makers.
- Limited resources: Limited resources, such as time and money, can limit the scope and complexity of decisions. For example, decisions may need to be made quickly or with limited resources, which can restrict the options available.
- Complexity of the decision-making process: The complexity of the decision-making process can limit the scope and type of decisions that can be made. For example, decisions may be constrained by the availability of data and information, and the ability to analyze and process the data.
In conclusion, limitations of decision types in business refer to the challenges and constraints faced when making decisions in the business environment. These limitations can include organizational structure, limited resources, and the complexity of the decision-making process.
Another approach to decision types in business is to categorize decisions based on the type of information needed to make the decision. This approach can include decisions based on quantitative data, qualitative data, or a combination of the two.
- Quantitative decisions: Quantitative decisions involve making decisions based on numerical data, such as financial data or statistical data. These decisions are typically made using statistical or mathematical models and require an analysis of the data.
- Qualitative decisions: Qualitative decisions involve making decisions based on non-numerical data, such as customer feedback or market research. These decisions are typically made using qualitative methods, such as interviews or surveys, and require an analysis of the data.
- Combination decisions: Combination decisions involve making decisions based on both quantitative and qualitative data. These decisions are typically made using a combination of quantitative and qualitative methods and require an analysis of both types of data.
In conclusion, decision types in business can be categorized based on the type of information needed to make the decision. This approach can include decisions based on quantitative data, qualitative data, or a combination of the two.
References
- Bellman, R. E., & Zadeh, L. A. (1970). Decision-making in a fuzzy environment. Management science, 17(4), B-141.
- Cohen, M. S., Freeman, J. T., & Thompson, B. (1998). Critical thinking skills in tactical decision making: A model and a training strategy. Making decisions under stress: Implications for individual and team training, 155-189.
- Eisenhardt, K. M., & Zbaracki, M. J. (1992). Strategic decision making. Strategic management journal, 13(S2), 17-37.
- Janis, I. L., & Mann, L. (1977). Decision making: A psychological analysis of conflict, choice, and commitment. Free Press.
- Kirkwood, C. W. (1996). Strategic decision making. Wadsworth Publ. Co..
- Simon, H. A. (1978). Information-processing theory of human problem solving. Handbook of learning and cognitive processes, 5, 271-295.
- Wynn, M. T., Dumas, M., Fidge, C. J., Ter Hofstede, A. H., & Van Der Aalst, W. M. (2007, September). Business process simulation for operational decision support. In Business Process Management Workshops (p. 66-77). Springer Berlin Heidelberg.
