Decision Making – Types, Process, Techniques, Importance

Decision Making – Types, Process, Techniques, Importance

Decision Making refers to a process by which individuals select a particular course of action among several alternatives to produce a desired result. The main purpose of decision making is to direct the resources of an organization towards a future goals and reduce the gap between the actual position and the desired position through effective problem solving and exploiting business opportunities.

A decision is a choice made from various available alternatives.

Decision making involves commitment of the organization, its employees and its resources, towards a particular course of action among various alternatives available to achieve some predetermined objectives. Decision Making helps managers to identify organizational problems and attempt to solve it. It is carried out at all management levels in an organization. Decisions that are taken in an organization are usually related to –

Decision Making Process

Decision Making Process  

Awareness of the ProblemAt this stage the decision maker becomes aware about a problem that is to be solved.
Diagnose and State the Problem The decision maker understands and analyses the problem and attempts to describe the problem and objectives that are to be achieved through solution.
Develop the AlternativesThis stage involves collection of data regarding the problem and formulation of different alternate course of action that can be followed to solve the problem.
Evaluate the AlternativeThis step involves evaluation of the various alternatives on the basis of the feasibility of a particular action, market and business situation, resources of the organization, time period in which the objective has to be achieved etc.
Select the Best AlternativeAfter analysing and evaluating the possible outcomes of each course of action the most suitable, feasible and profitable option is selected. 
Implement and Verify the decisionThe next step involves implementing the decision and making sure that the selected course of action meets the expected outcomes. Follow up strategies are prepared to react towards any counter moves of others affected by the decision.
FeedbackDecision Making is a continuous process, hence a feedback from all the parties involved with implementing the decision is taken. Feedback may reveal another problem created due to implementation or hindering effective implementation, which calls a new decision and so on.


Types of decisions

Basic decisionsRoutine decisions
Decisions concerned with unique problems and situations an organization is facing, that require large investments. E.g. Launch of a new productDecisions that have to be made during the normal course of a business, that are repetitive in nature and require small investments.
Personal decisionsOrganizational decisions
Informal Decisions that a person makes as an individual, and not as a member of an organization which do not directly affect the organization.Formal Decisions that a person makes as a member of an organization using formal authority, which directly affect the organization.
Individual decisionsGroup decisions
Decisions taken by a single individual during regular routine work according to the policies of the organization.Decisions taken by a group or a committee formed for a specific purpose to make an important and informed decision for the organization.
Rational decisionsIrrational decisions
Decisions made after careful and systematic analysis of a problem and evaluation of several alternatives based on rational and logical facts and figures.Decisions based on intuition or experience of the decision maker and not based on relevant facts and figures.
Programmed decisionsUn-programmed decisions
Routine and repetitive decisions made by lower level executives using pre-established rules and procedures that require little time and effort and are easy and simple to make.Decisions concerned with unique problems faced by an organization for which no pre-established rules and procedures have been made. Such decisions are complex, demand lot of time and effort and have a long term impact.

Difference between Programmed and Unprogrammed Decisions

Programmed DecisionsUn-Programmed Decisions
Concerned with routine problemsConcerned with Unique problems
Repetitive in natureNon repetitive in nature
Simple and have a small impactComplex and have a long term impact
Pre-established policies and procedures are usedNot used
Information regarding these problems is readily availableNot easily available
Consumes less time and effortsDemands time and discretion
Lower ExecutivesTop Management


 Various Techniques of Decision Making
  • Group Discussions
  • Brainstorming
  • Delphi technique
  • Marginal Analysis
  • Cost-Benefit Analysis
  • Ratio Analysis
  • Financial Analysis
  • Break-even Analysis
  • Operations research
  • Pareto Analysis etc.
Importance of Decision Making
  • Optimum and efficient utilization of resources
  • Aids in Problem solving and facing business challenges
  • Helps in business growth and achieving objectives
  • Facilitates effective management and Innovation
  • Motivates employees and improves overall business performance

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