TYPES OF DECISION MAKING
There are many ways of classifying decision in an organization but the following types of decisions are important ones :
1. Tactical and Strategic Decisions
Tactical decisions are those which a manager makes over and over again adhering to certain established rules, policies and procedures. They are of repetitive nature and related to general functioning. Authority for taking tactical decisions is usually delegated to lower levels in the organization.
Strategic decisions on the other hand are relatively more difficult. They influence the future of the business and involve the entire organization. Decisions pertaining to objective of the business, capital expenditure, plant layout, production etc., are examples of strategic decisions.
2. Programmed and Non-programmed Decisions
Prof. Herbert Simon (June 15, 1916 - February 9, 2001), an American economist and psychologist, has used computer terminology in classifying business decisions. These decisions are of a routine and repetitive nature. The programmed decisions are basically of a routine type for which systematic procedures have been devised so that the problem may not be treated as a unique case each time it crops up.
The non-programmed decisions are complex and deserve a specific treatment. In the above example, if all the professors in a department stop their teaching work the problem cannot be solved by set procedural rules. It becomes a problem which requires a thorough study of the causes of such a situation and after analysing all factors a solution can be found through problem solving process.
3. Basic and Routine Decisions
Prof. Katona has classified decisions as basic and routine. Basic decision are those which require a good deal of deliberation and are of crucial importance. These decisions require the formulation of new norms through deliberate thought provoking process. Examples of basic decisions are plant location, product diversification, selecting channels of distribution etc.
Routine decisions are of repetitive nature and hence, require relatively little consideration. It may be seen that basic decisions generally relate to strategic aspects, while routine decisions are related to tactical aspects of a organization.
4. Organizational and Personal Decisions
If any decision is taken by an executive in his official capacity, that decision is called organisational decision. For example, decisions relating to appointment, promotion or transfer of employees are organisational decisions. In the case of personal decisions, an executive takes decisions as an individual and not in his official capacity. For example, to opt for voluntary retirement from the business concern is the personal decision of the executive.
Organizational decisions are those which an executive takes in his official capacity and which can be delegated to others. On the other hand, personal decisions are those which an executive takes in his individual capacity but not as a member of organization.
5. Off-the-Cuff and Planned Decisions
Off-the-cuff decisions involve "shooting from the hip". These decisions can be taken easily and may be directed towards the purposes of the enterprise. On the other hand, planned decisions are linked to the objectives of organization. They are based on facts and involve the scientific process in problem solving.
6. Policy and Operating Decisions
Decisions can be policy decisions and operating decisions. While policy decisions are taken at a high level after lengthy deliberations, operating decisions are taken at a much lower level. For example, deciding to grant leave encashment benefit to employees is a policy decision whereas calculating the amount due to each employee because of the leave encashment benefit is an operating decision.
Policy decisions are those which are taken by top management and which are of a fundamental character affecting the entire business. Operating decisions are those which are taken by lower management for the purpose of executing policy decisions. Operating decisions relate mostly to the decision marker's own work and behaviour while policy decisions influence work or behaviour pattern of subordinates.'
7. Policy, Administrative and Executive Decisions
Ernest Dale (born in Hamburg, Germany and died at the age of 79) has classified decisions in business organization as under.
(a) Policy decisions,
(b) Administrative decisions and
(c) Executive decisions.
Policy decisions are taken by top management or administration of an organization. They relate to major issues and policies such as the nature of the financial structure, marketing policies, outline of organization structure.
Administrative decisions are made by middle management and are less important than policy decisions. According to Ernest Dale the size of the advertising budget is a policy decision but selection of media would be an example of administrative decision.
Executive decisions are those which are made at the point where the work is carried out. Distinguishing between these three types of decisions Dale writes, "policy decisions set forth goals and general courses of action, administrative decisions determine the means to be used and executive decisions are those made on a day-to-day basis as particular cases come up".
Additionally, the following types of decision making are also distinguished:
- Major and minor decisions: Decisions may be classified as major and minor. For example, a decision to purchase a machine worth lakes of rupees or deciding to open some branches is a major decision. On the other hand, purchase of some pencils or paper for office use is a minor decision which can be taken by the office superintendent.
- Routine and strategic decisions: One more method of classification of decisions is routine and strategic decisions. Usually, routine decisions do not require lengthy deliberations and such decisions are taken in a routine way. Some of the examples of routine decisions are: deciding to send samples to government test house, deciding to place an order with the supplier who has given a favourable quotation, deputing an employee to annual conferences, etc. Strategic decisions generally involve lengthy deliberations and also may have much impact on the functioning of the business concern. Some examples of strategic decisions are: decisions relating to product diversification or product line, entering a new market, pricing strategy, advertising strategy, etc.
- Individual and group decisions: Another method of classification of decisions is individual and group decisions. Individual decisions are taken by any individual and generally, they relate to routine mattered, for example, sanctioning of leave to a worker is an individual decision. In the case of group decisions, the superior managers take decisions in collaboration with their subordinates. For example, taking a decision by the production manager in consultation with his subordinates to change the design of the product slightly is a group decision.
- Departmental, inter-departmental and enterprise decisions: Decisions can be departmental, inter-departmental or enterprise decisions. Departmental decisions relate to the concerned department and they are taken by the departmental heads. For example, allotting work to the employees of a department is a departmental decision.
Inter-departmental decisions are made by the managers of the concerned or affected departments with the help of the controlling manager. For example, a decision relating to change the product design slightly is an inter-departmental decision.
Enterprise decisions are those which are taken at a higher level, i.e., Managing Director or Board of Directors. These decisions are concerned with the entire enterprise. For example, decisions relating to opening of branches, entering a new market, pricing decisions or decisions relating to giving of bonus to employees are enterprise decisions.