Management Decision Making: What is it, Process, Techniques, and Tools

What is Management Decision Making?

In simple terms, decision making is the process of making choices by recognizing the problem, gathering information about feasible solutions, and finalizing the best alternative.

This process is carried out through an intuitive or logical process, or a combination of two. Intuition is all about using your gut feeling to take a stand on the possible course of action. In contrast, a logical process uses facts and figures to make scientifically sound decisions.

Intuition is an acceptable way of decision-making; nevertheless, it is often more suited when the decision is easy, personal, or needs to be made quickly. More complex judgments typically need a more formal, systematic approach that incorporates both intuition and logical reasoning. It is critical to avoid rash reactions or intuitions in such scenarios, majorly in business decisions. 

You live in an era of digitalization where new information is generated every second at a rapidly increasing rate. And it circulates all around the globe, 24 by 7. This means the amount of historical records you have in databases spread across the globe is huge. And not making use of it seems totally delinquent. That is why organizations are increasingly relying on business and data analytics to guide their decision-making.

Next, in this ‘what is decision making’ tutorial, you will explore the process of corporate decision-making.

Why Decision Making Matters

Making informed, sound, and collaborative decisions can help build a solid organizational direction and have a favorable impact on costs. 

Characteristics of Decision Making

Decision-making is a skill that comes from training and experience. Here are a few characteristics of decision-making. 

• Rational-thinking

Rational thinking involves fixing goals and objectives, systematically analyzing options, and choosing the right path using logic and evidence. However, this also involves considering emotions apart from cold logic. 

• Process

Every efficient task needs a robust process to make it consistently successful. Decision-making is also familiar with this fact. It also must have a process that starts at a stage, has specific steps, and has an end. And this process must consider conscious, unconscious, and emotional factors. 

• Selective

A management decision is highly selective, and you can only use the trial and error method if that costs you money. You must ensure that each selection has clear evidence of a positive impact on the organization. 

• Purposive

The management decision has a purpose. For example, you decide to improve the state of the organization; it could be improving profits or employee lifestyles. This characteristic comes into play very early in the decision-making process as objectives. 

• Positive

While making a management decision, you aim for positive outcomes. This characteristic differs from a scientific decision; you don’t need a positive result. However, any negative impact due to management decisions will cost the company capital and reputation. 

• Commitment

Commitment is necessary for any success; however, managers need to have a strong commitment because of the number of opposition they will face and the responsibility they shoulder. To successfully make management decisions, you need to commit to defending them and seeing through them.

• Evaluation

Management decision-making involves lots of evaluation; you must see all the angles. In addition, you must have several backup plans when your first one fails, requiring meticulous evidence evaluation while making a decision. 

Decision Making in an Organizational Context

The modern business environment is replete with examples of corporations that have made strategic mistakes, most of which are the result of poor judgments made by CEOs and management in these firms. For example, the recent crash of Netflix stocks along with the substantial drop in subscriber count. All of this is because of statements made by Netflix’s CEO Reed Hastings in one interview. He talked about launching an ad segment for the low-cost Netflix packs, which led to a horrendous ripple in the share market. Hence, thinking about every statement, initiative and announcement are increasingly critical in an organizational setup.

Another overarching rule in decision making is that the decision-maker must have legitimacy and power over the individuals on whose behalf they are choosing. In other words, decision-makers succeed only when the persons or groups involved in the process respect and obey their choices. Another important aspect of organization-wide decision making is finding the right data. Having incomplete or incorrect information (data) frequently leads to analysis paralysis, which is another label for poor decision-making skills.

Moving forward, in this ‘what is decision making’ tutorial, you will discover a step-by-step approach to making effective organizational decisions.

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What is the Decision Making Process? 

The step-by-step decision-making process can lead to more deliberate and effective judgments. So, go ahead and discover the involved steps one by one.

1. Identify Your Goals

The first step in mastering the art of decision-making is to clarify your objectives. When it comes to making a professional decision, you should have a rough idea about which direction you want to follow. Once you've narrowed down your objectives, you'll be able to make more informed judgments. Try to define the nature of judgement you want to make.

2. Make Use of the Elimination Process

Along with what you want to achieve with your judgment, evaluating what you don’t is also critical. Making smart judgments might be difficult if you're still trying to determine what you want to do. However, if you know what you want to avoid, the process of elimination might make certain decisions easier.

3. Use SWOT Analysis Method

SWOT is an acronym that stands for Strengths, Weaknesses, Opportunities, and Threats. The SWOT analysis is an excellent decision-making tool since it allows you to determine the pros and cons of a certain decision readily. All you have to do is draw a rectangular shape, divide it into four parts and label each section of the table with SWOT parameters. The image given below portrays the sample SWOT metrics.

In the next step, you will fill all the positives and negatives of your initiative. Focus more on what connects strengths and opportunities when you complete your selection. Anything that is continually linking threats and vulnerabilities should preferably be avoided.

4. Simulate Feasible Outcomes

While simulating probable outcomes isn't a reliable approach to predicting what will happen after you make a decision, there are certain ways to simulate what is more likely to happen because of your decision. If you’re familiar with project management concepts, some of your learnings can be applied here to visualize the outcome of your decision. Scientific methodologies such as problem trees, SCQA (situation, complexity, question, answer), and MECE (mutually exclusive, collectively exhaustive) can also help you add a touch of science to your decision making.

5. Choose Best Alternative

After you've analyzed all of your options and created a solid visual picture of the repercussions of each, you're ready to choose the one that appears to be the greatest fit for you. If you cannot decide the course of action, ask for help from your colleagues, leadership team, and friends. 

Decision-Making Process in Management with Example

The decision-making process is essential to successfully making the right decisions by weighing various factors, including cost and benefits. This process allows you to make reliable decisions even during stress, which otherwise would be wrong. Read on the understand the decision-making process in management.

• Establishing Objectives

Establishing objectives involves clearly stating the steps you have to take to achieve a goal. They are the essential steps that help you measure progress. While establishing objectives ensures you get input from all the team members. Therefore, the objectives should be simple, specific, and measurable. 

For example, for hiring an employee, the first objective is to specify the type of qualification you are looking for in the employee. For this, you need to evaluate your organization for skill gaps. 

• Identify the Decision

Decisions mean choosing an option from many. So identifying the decision involves understanding the option types you need; this step does not require you to have the options ready. But it requires brainstorming what kind of list you need to make. 

Identifying the decisions helps you directly focus on the problems. If you don't identify the decision, you might get confused due to the sheer number of things you must do. 

For example, to specify the type of qualification you want in a recruit, you have to list all the possible qualifications that a candidate might have in that field. Of course, you don't make a list in this step, but you identify that this is the list you need. 

• Gather Appropriate Information

Information gathering is the next step; you can only identify all the choices. These steps involve surveys, case studies, reports, etc. Several agencies exist solely to research and supply this information, including market studies and predictions. 

Ensure that you organize the information collected in a meaningful way. Otherwise, they become challenging when you review the information before deciding.

For example, to understand the potential qualifications, you should look at the syllabus of various institutions. This way, you will know a candidate's qualifications after completing a particular course.

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• Identify the Alternatives

From the information gathered, you need to identify suitable options. Here, you make a list based on the parameters that fulfil your objectives. For example, these parameters could be costs, effectiveness, available resources, time consumption, etc.

For example, you will create a list of qualifications a candidate must possess. Each item in the list will be a group of skills and education that would help your organization. 

• Weigh the Evidence

Weighing the evidence means looking at the alternatives you listed in the last step and prioritizing them based on efficiency. To weigh evidence effectively, you need to find a parameter to measure. Then you can compare this parameter of all the choices and understand the effectiveness. 

For example, you look at various companies and analyze their employee. As a result, you will find a correlation between certain groups of skills of their employees and the success of the organization. This way, you can order the items on the list.

• Choose Among the Alternatives

Further brainstorming will allow you to choose the most suitable alternative. This step also involves assessing each alternative and gathering suggestions from stakeholders. You might need to defend your list; however, keep an open mind while discussing with the people involved. 

For example, you need to decide which qualifications are most suitable for your organization. 

• Take Action

After deciding on an alternative, the next step is to finalize and move on to the next objective. Again, it's important not to overthink at this point, or completing the objective in time would be challenging. 

For example, move on to the next objective after deciding the qualifications you want in a recruit: setting the salary.

• Review the Decision

Of course, taking action means you must still return to the decision. Based on the results of the action, ensure that your decision is right. You may be wrong sometimes, but you must only rework the decision without panicking. 

For example, you may not get applications with the necessary qualifications after publishing the vacancy. On the other hand, it might be because people with those specific qualifications demand a higher salary. In that case, you might need to tweak the qualifications or adjust the salary. 

Decision Making Techniques and Tools 

Up to this point, we’ve merely mentioned the need for research in coming up with alternatives for management decision-making. The following is a list of techniques and tools a manager can use to explore different options to land upon a chosen decision:

Marginal Analysis

Marginal analysis helps organizations allocate resources to increase profitability and benefits and reduce costs. An example from indeed.com is if a company has the budget to hire an employee, a marginal analysis may show that hiring that person provides a net marginal benefit because the ability to produce more products outweighs the increase in labor costs.

SWOT Diagram

This tool helps a manager study a situation in four quadrants:

• Strengths: Where does the organization excel compared to its competition? Consider the internal and external strengths.
• Weaknesses: What could the organization improve? 
• Opportunities: How can the organization leverage its strengths to create new avenues for success? How could addressing a specific weakness provide a unique opportunity?
• Threats: Determine what obstacles prevent the organization from achieving its goals.

Decision Matrix 

A decision matrix can provide clarity when dealing with different choices and variables. It is like a pros/cons list, but decision-makers can place a level of importance on each factor. According to Dashboards, to build a decision matrix:

• List your decision alternatives as rows
• List relevant factors as columns
• Establish a consistent scale to assess the value of each combination of alternatives and factors
• Determine how important each factor is in choosing a final decision and assign weights accordingly
• Multiply your original ratings by the weighted rankings
• Add up the factors under each decision alternative
• The highest-scoring option wins

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Pareto Analysis

The Pareto Principle helps identify changes that will be the most effective for an organization. It’s based on the principle that 20 percent of factors frequently contribute to 80 percent of the organization’s growth. For example, suppose 80 percent of an organization’s sales came from 20 percent of its customers. A business can use the Pareto Principle by identifying the characteristics of that 20 percent customer group and finding more like them. By identifying which small changes have the most significant impact, an organization can better prioritize its decisions and energies.

Decision-Making Styles 

Decision-making means choosing the best option among different choices based on a set of goals or criteria. It involves carefully analyzing each option, considering its advantages and disadvantages, and then selecting the one that is most likely to help achieve the desired outcome. Good decision-making skills can help improve leadership qualities and it is important to understand your own decision-making process and recognize the different decision-making styles that exist, such as psychological, cognitive, and normative. Effective decision-making requires critical thinking, problem-solving skills, and the ability to evaluate information objectively, and it is essential for success both in personal and professional life.

1. Psychological

The psychological approach to decision-making is all about understanding how people make decisions in real life. It looks at the cognitive and emotional processes that affect decision-making and tries to identify common patterns or biases that can influence decision-making. This approach aims to help people make better decisions by addressing these factors, such as by improving decision-making skills or being more aware of biases. Decision-making can be influenced by many things, like feelings, habits, and the situation you're in. By recognizing the importance of improving decision-making skills and being aware of biases, this approach aims to promote more effective decision-making. It also recognizes the potential negative consequences of complex decisions made by individuals, groups, and communities, especially when decision-making happens in uncertain situations.

2. Cognitive

The cognitive decision-making style is an analytical and logical approach that involves evaluating information to make decisions based on facts, evidence, and logic. It considers various options and chooses the best one based on specific criteria. Decision-making is a cognitive process where individuals choose the best course of action based on certain criteria. Different strategies have been proposed across various fields, and a fundamental cognitive decision-making process and mathematical model are described, including the Real-Time Process Algebra (RTPA). This process can be applied in different systems such as cognitive informatics, software agent systems, expert systems, and decision support systems.

3. Normative

The normative approach to decision-making is based on following prescribed theories that outline the "correct" way to make decisions. These theories may be based on ethical principles, social norms, or other standards. The goal of this approach is to make decisions in a consistent and ethical manner, with a focus on maximizing social welfare or achieving other desirable outcomes. However, this approach may not always reflect the realities of decision-making in practice and may not consider individual preferences or contextual factors.

Types of Decision-Making in Management 

1. Routine and Basic Decision-making

Routine decision-making, on the other hand, refers to the process of making decisions that are made regularly and involve choosing between a few options that the decision-maker is familiar with. Examples of routine decision-making include setting work schedules, ordering supplies, and approving routine expenses. Managers make routine decisions in the daily functioning of the organization, and they often delegate these decisions to their subordinates.

Basic decision-making refers to the process of making simple decisions that do not require much evaluation or analysis. Examples of basic decision-making include setting work schedules, ordering supplies, and approving routine expenses. Managers make basic decisions in the daily functioning of the organization, and they often delegate these decisions to their subordinates.

2. Personal and Organizational Decision-making

Personal and organizational decision-making are two distinct types of decisions that managers make. An organizational decision is made on behalf of the organization and is related to the organization's operations, policies, or strategic plans. These decisions can be delegated to subordinates and usually have a significant impact on the organization's success. Examples of organizational decisions include setting production targets, choosing suppliers, or investing in new technology.

In contrast, a personal decision is a decision made by a manager that is not related to the organization in any way. These decisions are related to the manager's personal life within the organization and cannot be delegated to subordinates. Examples of personal decisions include what to eat for lunch, what mode of transportation to use for commuting, or what hobby to pursue outside of work.

3. Individual and Group Decision-making

Individual decision-making is when one person makes a decision in an official capacity, often in smaller organizations or with an autocratic management style. Examples include a CEO investing in a new product or a manager firing an employee.

Group decision-making involves a collective of employees and managers making decisions through a collaborative process. Multiple viewpoints and perspectives are considered. Examples include a team of managers deciding on a marketing strategy or a board of directors deciding on a merger or acquisition.

4. Programmed and Non-Programmed Decision-making

Programmed decision-making refers to decisions that are repetitive in nature and follow a specific set of procedures. These decisions are typically made by lower-level managers and are implemented on a daily basis. Examples of programmed decisions include setting work schedules, granting employee leave, and ordering routine supplies. These decisions are not typically long-term and can be changed at any time.

Non-programmed decision-making, on the other hand, relates to decisions that are not routine and arise from unstructured problems. These decisions are usually made by upper-level management and have a long-term impact on the organization. Examples of non-programmed decisions include launching a new product line, entering a new market, or responding to a crisis situation.

For example, a programmed decision could be approving routine expenses such as office supplies or travel expenses, as the process for approval is already in place and does not require much thought. In contrast, a non-programmed decision could be deciding to invest in a new technology that requires significant analysis and research to determine if it is viable for the company's long-term success.

5. Policy and Operating Decision-making

Policy decision-making is the process of making decisions that establish the overall direction, goals, and objectives of an organization. These decisions are made by top-level executives and have a long-term impact on the organization as a whole. Examples of policy decisions include setting strategic goals, defining the company's mission, and determining the organizational structure.

Operating decision-making, on the other hand, relates to the day-to-day operations of an organization. These decisions are made by lower-level managers and employees and are focused on implementing the policies and plans established by the top-level executives. Examples of operating decisions include managing inventory, scheduling production, and addressing customer service issues.

6. Tactical and Strategic Decision-making

Tactical decision-making refers to the process of making decisions that help implement the plans and policies established by higher-level management. These decisions are more short-term in nature and are usually made by middle and lower-level managers. Examples of tactical decisions include scheduling production, managing inventory, and resolving customer service issues.

Strategic decision-making, on the other hand, refers to decisions that have a significant impact on the long-term success of the organization. These decisions are usually made by upper and middle-level management and require careful analysis and evaluation. Examples of strategic decisions include entering a new market, developing new products or services, and investing in new technology.

7. Planned and Unplanned Decision-making

Planned decision-making refers to decisions that are made in advance and are part of an established process. These decisions are based on predetermined criteria and often involve a systematic approach to problem-solving. Examples of planned decision-making include budgeting, project planning, and performance evaluations.

Unplanned decision-making, on the other hand, refers to decisions that are made in response to unexpected events or situations. These decisions may not follow a predetermined process or have established criteria. Examples of unplanned decision-making include crisis management, responding to customer complaints, and adapting to changes in the market or industry.

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Decision-Making Pitfalls

Taking a systematic approach to decision-making helps managers avoid making quick decisions without adequately considering the consequences to the organization or their reputation. Some of the pitfalls of decision-making include: 

• Consultation ambiguity: This can be a scenario where a group of employees all feel like they have a vote in a decision or when a manager asks for input but doesn’t consider a group’s views. It’s important for a manager to solicit feedback but to make sure that contributors understand it’s the manager’s final decision.
• Avoiding discomfort: Sound management decision-making requires leaders who do not confuse their need for comfort with making the best decision. Some of the most effective decisions involve a degree of discomfort for the manager.
• Appearing indecisive: Sometimes, a systematic decision-making process has a downside. Being too rigorous in evaluating every possible angle can draw out the process and open the risk of appearing indecisive. Keep stakeholders informed about the timeline for a decision.
• Blind spots: People have particular perspectives and ways of thinking that can create blind spots, which may be important for an effective decision but cannot be readily apparent. It can be helpful to seek input from trusted colleagues to provide a different perspective.
• Groupthink: This occurs when a group’s members want to minimize conflict and reach a comfortable decision at the expense of a critical evaluation of other ideas and viewpoints. It’s important to explore alternatives a group may not have considered.

Learn From Past Mistakes to Improve Your Decision Making

Most humans make mistakes now and again - after all, you are just human, and no one is flawless. Even if you make poor judgments, reflecting on them can help you improve your future decisions. Try to figure out what went wrong and how you might avoid making the same mistakes in the future. Lessons learned from prior failures can open doors to new ways of approaching problems and possible alternatives, ultimately assisting you in mastering the art of decision-making.

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Conclusion

Decision making is one of many project management skills professionals can obtain or refine by enrolling in PMP® Certification Training. In this project management certification program, professionals learn the leadership and operational skills necessary to oversee and execute large, complex, transformational projects.