Decision-Making : Definition, Importance and Principles

A decision is an act of selection or choice of one action from several alternatives.

The process of choosing a correct and successful course of action from two or more alternatives in order to achieve a desired outcome is known as decision-making. Management is all about making decisions.

According to P. F. Drucker – “What­ever a manager does he does through making decisions.” All matters relating to planning, organising, direction, co-ordination and control are settled by the managers through decisions which are executed into practice by the operators of the enterprise. Objectives, goals, strate­gies, policies and organisational designs are all to be decided upon in order to regulate the performance of the business.

Decisions underpin the entire management process. Decisions are needed for both addressing issues and maximising the benefits of available opportunities. Correct decisions minimise the complexity, uncertainty, and variety of organisational environments.

Importance of Decision-Making:

Management is essentially a bundle of decision-making process. The managers of an enterprise are responsible for making decisions and ascertaining that the decisions made are carried out in accordance with defined objectives or goals.

Decision-making plays a vital role in management. Decision-making is perhaps the most important component of a manager’s activities. It plays the most important role in the planning process. When the managers plan, they decide on many matters as what goals their organisation will pursue, what resources they will use, and who will perform each required task.

When plans go wrong or out of track, the managers have to decide what to do to correct the deviation.

In fact, the whole planning process involves the managers constantly in a series of decision-making situations. The quality of managerial decisions largely affects the effectiveness of the plans made by them. In organising process, the manager is to decide upon the structure, division of work, nature of responsibility and relationships, the procedure of establishing such responsibility and relationship and so on.

In co-ordination, decision-making is essential for providing unity of action. In control, it will have to decide how the standard is to be laid down, how the deviations from the standard are to be rectified, how the principles are to be established how instructions are to be issued, and so on.

The ability to make good decisions is the key to successful managerial performance. The managers of most profit-seeking firms are always required to take a wide range of important decision in the areas of pricing, product choice, cost control, advertising, capital investments, dividend policy, personnel matters, etc. Similarly, the managers of non-profit seeking concerns and public enterprises also face the challenge of taking vital decisions on many important matters.

Decision-making is also a criterion to determine whether a person is in management or not. If he participates in decision-making, he is regarded as belonging to management staff. In the words of George Terry: “If there is one universal mark of a manager, it is decision-making.”

Principles of Decision Making:

Effective decision involves two important aspects—the purpose for which it is intended, and the environmental situation in which it is taken. Even the best and correct decision may become ineffective if these aspects are ignored; because in decision-making there are so many inside and outside chains of unavoidable reactions.

If certain principles are followed for decision-making, such multidimensional reactions can mostly be overcome.

These principles are stated as follows:

1. Subject-matter of Decision-making:

Decisional matters or problems may be divided into groups consisting of programmed and non-programmed problems. Programmed problems, being of routine nature, repetitive and well-founded, are easily definable and, as such, require simple and easy solution. Decision arrived in such programmed problems has, thus, a continuing effect. But in non-programmed problems, there is no continuing effect because they are non-repetitive, non-routine, and novel. Every event in such problems requires individual attention and analysis and its decision is to be arrived at according to its special features and circumstances.

2. Organizational Structure:

The organizational structure, having an important bearing on decision-making, should be readily understood. If the organizational structure is rigid and highly centralised, decision-making authority will remain confined to the top management level. This may result in delayed and confused decision and create suspicion among the employees.

On the contrary, if the organizational structure provides scope for adequate delegation and decentralisation of authority, decision-making will be flexible and the decision-making authority will be close to the operating centres. In such a situation, decision-making will be prompt and expected to be more effective and acceptable.

3. Analysis of the Objectives and Policies:

Proper analysis of the objectives and policies is needed for decision-making. The clear definition of objectives and policies is the basis that guides the direction of decision-making. Without this basis, decision-making will be aimless and unproductive.

4. Analytical Study of the Alternatives:

For decision-making, analytical study of all possible alternatives of a problem with their merits and demerits is essential. This is necessary to make out a correct selection of decision from among the alternatives.

5. Proper Communication System:

Effective decision-making demands a machinery for proper communication of information to all responsibility centres in the organisation. Unless this structure is built up, ignorance of decision or ill-informed decision will result in misunderstanding and loose co-ordination.

6. Sufficient Time:

Effective decision-making requires sufficient time. It is a matter of common experience that it is usually helpful to think over various ideas and possibilities of a problem for the purpose of identifying and evaluating it properly. But in no case a decision can be delayed for an indefinite period, rather it should be completed well in advance of the scheduled dates.

7. Study of the Impact of a Decision:

Decision is intended to be carried out for the realisation of the objectives of the organisation. A decision in any particular area may react adversely in other areas of the organisation. As all business activities are inter-related and require co-ordination, it is necessary that a study and analysis of the impact of any decision should precede its application.

8. Participation of the Decision-maker:

The decision-maker should not only be an observer while others will perform as per his decision. He should also participate in completing the work for which decision was taken by him. This experience will help him in decision-making in future. The principle of participation in work of the decision-maker will enable him to understand whether the decision taken is practical and also guide him in forthcoming decisional matters.

9. Flexibility of Mind:

This is critical in decision-making since no decision can please everyone. Decisions can be thrown off by the decision-rigid maker's mental set-up. The decision-adaptable maker's mental state allows him to change his mind and gain the cooperation of all the various parties.

10. Consideration of the Chain of Actions:

There is a chain relationship in all the activities of any organisation. Different activities are tied up in a chain sequence. Any decision to change a particular work brings change in other related works also. Similarly, decision-making also proceeds following the chain of action in different activities. Therefore, before taking a decision one should consider the chain relationship among different activities.