Managerial decision making is a part of every organization’s daily operations. Inside every organization managers make decisions on a daily basis that affect the organization’s future. Decision making is the process of thinking through possible options and then selecting the one to follow. The quality of managerial decision making has an impact which can be quite significant, on the performance and productivity of the organization and its stakeholders. The decisions that the top management makes on a regular basis affect the future of the organization and its stakeholders.
For example, there are several types of decisions that the management makes like investing in a project or not, adopting new technology, or introducing a new product line. While good decisions can help the organizations find faster growth, poor decisions can lead an organization to bankruptcy. Managers at the lower levels also make decisions and even if their decisions do not have a significant impact on the overall performance of the organization, they still have a tremendous impact on their coworkers and team members. Basically, these decisions can be of two types including programmed and non-programmed decisions which we will deal with in detail in the next section.
Programmed decisions are the decisions managers make repeatedly and can use a set of rules for guiding their programmed decision-making process. These decisions can be fairly simple or complex. However, the criteria used for making these decisions is either well known or generally easy to estimate with a high degree of accuracy. For example, when a supply chain manager has to order raw materials, the key things he will consider for his decision include the number of raw materials to be ordered, anticipated production, existing stock, and anticipated length of time for the delivery of the final product. To aid with making programmed decisions, managers often develop some mental shortcuts or heuristics to help them make their decisions.
Heuristics are often good at saving time and helping the manager generate an adequate solution in a short period of time. While this may not apply in all situations and in some conditions a manager might be needed to apply deeper cognitive processing for generating an optimal solution, most of the time, heuristics can yield good solutions. It is because as managers gain experience by making the same decisions repeatedly, their experience helps them to know what to expect and how to react when making the same decision next time. Managers can also easily teach programmed decision making to others. Suppose there is a new decision-maker in the team and a manager needs to teach him how to make programmed decisions. The manager can clearly lay out the rules and the criteria and how they are related to the outcomes before the new decision-maker to teach him how to reach a good decision. Since programmed decisions do not require in-depth mental processing, they are also termed as low involvement or routine decisions.
Non Programmed decisions:
Nonprogrammed decisions are generally related to more complex situations. They are novel unstructured decisions that are based on criteria that are not well defined and therefore may require much more mental processing than the programmed decisions. In the case of non-programmed decisions, the chances of the information being incomplete or ambiguous are higher and to arrive at a good decision, a manager may need to exercise some thoughtful judgment and creative thinking. The non-programmed decisions are not made regularly and they also require higher involvement or a lot more mental processing. This is why they have also been termed as non-routine or high involvement decisions.
For example, there is a new technology in the market that can help grow the rate of production or can drive higher ROI in marketing. A manager has to decide whether to adopt this technology or not. He already uses a technology that is effective at this job. However, the new technology brings some new features and if adopted by the competitors first it could help them gain an edge over his company faster. There are several unknowns to weigh in a situation of this type.
For example, the manager may be required to decide if the new technology will really be better at accomplishing the job than the existing technology. Will it be adopted widely or will there be another technology to replace it soon in the market? So, the best thing that the manager can do is to gather all the information he can in this regard and then make an educated guess on its basis. Clearly, non-programmed decisions are more challenging than programmed decisions.
Decision-making process for nonprogrammed decisions:
Managers can use mental shortcuts in the case of programmed decisions but in the case of the non-programmed decisions, they will need to take a more systematic approach. It is generally a six-step process and the steps are listed below:
Recognizing that a decision needs to be made.
In a situation where a non-programmed decision needs to be made, the first step is to recognize the need for making a decision. For example, when a manager has to select whether to suggest adopting new technology, he first recognizes the need to decide between the old and new technologies.
Generating several alternatives.
The second step is the process of making programmed decisions is generating several alternatives. For example, in the current situation, the manager can select to continue with the existing technology or he can select the new technology in place of the existing one. He also has other alternatives before him like keeping both the technologies and trying them together before adopting one of the two. He can also decide to keep the existing technology aside and try only the new technology for a limited period of time before finally deciding which one of the two is more efficient.
Analyzing the alternatives.
Now that the manager has generated several alternatives in the previous step, he will analyze each one to know the merits and demerits of each alternative. He will focus upon the various aspects of each alternative and then analyze the costs involved in each one as well as how each alternative will affect the operations and outcome. In this way, he will conduct a deeper analysis of each alternative to know which one is most effective in the current situation.
Selecting an alternative
After having conducted an analysis of all the alternatives he evaluated, the manager will select the alternative he considers to be the most effective of all.
Implementing the selected alternative
Having selected the most effective alternative, the manager will implement it. For example, if he selected to buy the new technology, he will implement it in this step.
Evaluating the effectiveness of the implemented alternative.
At last, it is time to evaluate the outcome. Once the manager has implemented the selected alternative, he will wait for the results to start coming. Once results have started coming, he will analyze if his decision has been effective and is generating the desired results. This is done to ensure the quality of decision making. If the results are satisfactory, it will show that his decision has qualified as a good decision. Otherwise, the manager can go back to the fourth step and select a different alternative than the chosen one and then repeat the rest of the process.
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