Understanding Decision-Making In Business Organizations

Introduction
A decision is a conclusion/determination arrived at after consideration of relevant factors. A decision is the specific commitment to action to resolve a question/issue. ​Decision-making is a cognitive process resulting in the selection (choice) of a course of action among several possible alternatives (options). It is a deliberative process of making choices by identifying a decision, gathering information, and assessing alternative solutions (courses of action). ​The decision-making process is carried out through an intuitive or logical process, or a combination of both.

The term decision is used, in a variety of different circumstances, when people have to make up their minds in specific commitment to action to resolve an issue/question.  The circumstances in which people have to make a decision may include:

1. when a grocery store customer encounters an entire aisle of breakfast cereals; we say s/he has a decision to make;
2. when a high school senior considers which college to attend; we say s/he is facing a decision;
3. when a poker player weighs whether to raise or fold, that's a decision, too; 
4. when a company faces an opportunity - to enter a new market, acquire another company, or launch a new product - what is required of its management? A decision. 

​The use of the same word "decision" for these different kinds of deliberations, in a variety of very dissimilar situations, can be a source of confusion for decision makers.

Understanding Decision-Making in Business Organizations
In business organizations, the circumstances or situations in which managers have to make a decision may vary widely in complexity, type and scope, and may include, for example:

• Which conference rooms to schedule for a meeting,
• Where to hold the company's picnic,
• Which projects to fund,
• What strategy to pursue to exploit opportunities,
• What strategy to employ to mitigate threats,
• How to allocate resources across businesses,
• How to allocate resources to projects.

These decisions can occur at various levels in the organization. Managers at all levels in the organization must make decisions on behalf of a company. The decision-making is a deliberate process of making choices by recognizing the problem/issue, gathering information about feasible solutions, and finally choosing the best alternative/option. 

For example, the management decisions based on positions, roles and responsibilities may be defined as follows:

• Board or Owners - A company's board or owners create the mission and write the mission statement for the internal and external audiences. All business and management activity follows from the company's mission. Success in accomplishing the mission could take many forms. The form chosen gives a company its vision, an ideal the business seeks to actualize. A caterer, for instance, might envision becoming the first choice for jet-set soirees. Besides defining a lofty ambition and the existential question of mission, a company's board or owners also articulate the company's core values, those standards the business will never compromise.
• Upper Management - Upper management translates the vast scope of mission and vision into concrete achievements over time. In order words, upper management needs a strategic plan to help it decide the overall direction of the company. Decisions related to strategy involve company-wide matters enacted over the long term. The goals are what the company hopes to accomplish at least a year - - more often five years - into the future. Management then chooses a grand strategy such as growth, diversification, etc., to reach the strategic goals. 
• Middle Management - Middle management choses smaller tactical objectives that put together, accomplish strategic goals. Middle management create tactical plans, which have more detail than the strategic plans. The tactics are geared towards some function or department such as production, marketing, etc., where a possible objective could involve some measurable efficiency or quality improvement.
• Operational or Line Management - Operational management is the level; directly responsible for employees. By choosing their own goals on a daily, weekly or monthly basis, operational managers accomplish the objectives of middle management. The scope of operational management covers departments, sections or teams. Inventory, scheduling, and budgeting are examples of plans and decisions that operational managers adopt. Goals might include a certain number of sales for the day. 

The difference between decisions at the various levels, typically, lies in the type and scope of the decision or choices made. 

From the point of view of management, managerial decisions can be broadly classified into these categories, namely, strategic, tactical, operational and administrative decisions.
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1. Strategic Decisions - Strategic decisions are major choices of actions that affect and influence the business organization as a whole. In general, they are complex, unstructured and novel. A manager/decision maker has to apply his/her business judgment, evaluation and intuition into the definition of the problem statement and decision choices. Strategic decisions are influenced by the decision makers knowledge, available information, and mind-set - values and beliefs. They are long-term in scope and affect the competitiveness of the company as a whole. Managers can apply strategic thinking against decisions to determine the viability of the strategic and action plans, and assess alignment with organizational and strategic goals. Strategic decisions are important decisions usually taken by upper/middle management, and they usually relate to the policies of the firm or strategies. These decisions require a lot of analysis and careful study.
2. Tactical Decisions - Tactical decisions relate to developing functional/divisional plans, structuring workflows, establishing distribution channels, acquisition of resources such as human resources, materials, and money needed for implementing strategic decisions. These decisions affect development of resources and capabilities in functional areas to support implementation of strategic decisions. Tactical decisions pertaining to the policy and plans of the firm are known as policy decisions. These decisions have long-term impact, and are usually reserved for the firm's top management. 
3. Operational Decisions - Operational decisions affect specific day-to-day activities of the enterprise. They are taken repetitively and have a short-term horizon. These decisions are based on facts/data regarding business events and d not require much of business judgment. Operational decisions are taken at the lower levels of management and rely on operations information systems to make rational and informed decisions. Operational decisions are the decisions necessary to put the policy decisions into action. These decisions help implement the plans and policies taken by upper and middle management.
4. Administrative Decisions - Administration s simply an activity that concerns itself with day-to-day enforcement of policies, rules, and conduct of affairs in the organization. These are routine decisions that help or facilitate strategic decisions or operations decisions. 

All these management decisions can be related directly or indirectly to broader management functions: planning, organizing and staffing, leading, and controlling; with different management levels spending more time on certain functions than on others. 

Decision-Making and Decision Rights in Business Organizations
In any business enterprise decisions can be made at varying levels in the organization. Decision making is the means by which management's intentions are realized. Managers face in the course of their daily responsibilities, a range of decisions that are consistent with their positions and roles in the organization. ​The management decision levels and associated positions, roles and responsibilities may have designated decision rights and decision authority associated to each position. Decision rights are a component of organization design, that help identify and establish "what" business decisions need to be made, both to drive the business and to drive alignment to strategy. And "who" is involved in making them and "how" the decisions will be made through operating processes. Identifying and defining decision rights helps companies to organize their decision making and execution processes by setting clear roles and accountability, and by giving those involved a sense of ownership of decisions.

Decision authority is the, power or obligation to make a decision and accountability - the duty to answer for the success or failure of a decision. There are six (6) common types of Decision Authority, including:
 

1. Accountability -Accountability is the duty to answer for the success or failure of a decision. 
2. Responsibility - Responsibility is the duty to make a decision or take action as a result of a decision.
3. Delegation - Delegation is the process of granting your decision making authority to another person. You can delegate responsibility, but accountability can't be delegated.
4. Approval - Approval is the process by which decisions that require validation from multiple individuals and/or groups according to a predefined approval list may be done to validate the decision from multiple points of view or to gain broad support for a decision.
5. Consensus - Decisions that require the consensus of a group.
6. Automated Decisions - Decision authority always lies with a person and can't be delegated to a machine. Decisions made by a machine on the authority of the managers who operate the systems making the decision. As such, managers remain accountable and responsible for the decisions made by systems under their control.

An organization’s ability to execute well rests on its ability to make and implement the decisions that matter most.


​Decision-Making Structure
​The situations in which managers have to make decisions may range over a variety of very different circumstances, each requiring different kind of deliberations; but they have one property in common, that people have to make up their minds. Decision-making can be improved by having a structure (methodology) that can guide deliberations.

An example is viewing decisions as varying along two (2) dimensions; control and performance.

• Control considers how much the decision maker can influence the terms of the decision and the outcome. Are we choosing among options presented to us, or can we shape those options? Are we making a one time judgment/decision, unable to change what happens after the fact, or do we have some control on how things play out once we have made the decision? That is, what is the level of control , Control/No Control?
• Performance addresses the way we measure success. Its our aim to do well, no matter what anyone else does, or do we need to do better than others? That is is performance absolute or relative?

Decisions can be organized into categories based on: the level of control - Control/No Control, and level of performance - absolute/relative to produce the following categories of decision types:

• Routine Choices and Judgments - In these decisions we have no control over outcomes and our performance is absolute; we are not competing with anyone. Routine decisions do not require a lot of evaluation, analysis, or in-depth study. Examples of these decisions include consumer choices - picking from product selection in a supermarket - and personal investment decisions, or administrative decisions (e.g., where to hold a company's picnic, etc.). Decision-makers can benefit from knowledge of well-known lessons about avoiding common biases that make good sense, and result in good decisions.
• Influencing Outcomes - These are decisions that relate to much of what we do in life - using our energy and talents to make things happen. These involve situations where we can control judgment or outcomes to perform well. Examples include determining how long we will need to complete a project or operational decisions; (e.g., which jobs to schedule into production, etc.). That's a judgment we can control, and performance is absolute.
• Placing Competitive Bets - These are decisions where we have no control - we cannot influence outcomes, and performance is relative - success depends on how well we do relative to others. Decisions are tactical, and the best decisions must anticipate the moves of rivals. This is the essence of strategic thinking.
• Strategic Decisions - Strategic decisions by definition require executives (or decision makers) to possess the ability to control/influence outcomes by the way they lead and communicate, and through their ability to inspire and encourage people to perform better than the competition. For these decisions, decision makers can actively influence/control outcomes, and performance is relative - success means doing better than rivals. And success depends on the ability of managers to influence the desired outcomes through its people, and the need/expectation to outperform rivals. 

The structure (model) is useful in categorizing decisions into a decision type system that can lead to finding useful approaches to improve decision-making. This type system helps decision makers distinguish between the different types of decisions - routine as well as complex deliberations, to both small-stakes bets and high-stakes commitments, and to exploratory steps as well as irreversible moves. Decision-makers can improve the quality of their decisions substantially, if before making any decisions they make an assessment of the type of decision(s) required for the situation at hand. 

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and make them aware of the importance of the need to apply the appropriate methods and knowledge in the right situation for the decision taken to be successful.

​In a business context, decision-making is a set of steps taken by managers in an organization to determine the planned path for business initiatives and to set specific actions in motion.