Decision making is the process of making choices. It is the central activity of all management. Managers make decisions or choices, such as what products to sell, in which markets to sell those products, what organizational structure to use, and how to direct and motivate employees.
There are three steps in decision making:
1. Intelligence: Searching the environment for conditions calling for a decision.
2. Design: Inventing, developing, and analysing possible courses of action.
3. Choice: Selecting a course of action.
The nature of the information required by managers varies by management level. Strategic level managers require information that allows them to assess the environment and to project future events and conditions. Tactical management requires information that is focused on relevant operational units. Operational management needs information that is narrower in scope, more detailed, more accurate, and that comes largely from within the organization.
The kind of information required to make a decision is also heavily influenced by the decision’s structure or lack thereof. Structure is the degree of repetition and routine in the decision. Structure implies that we have seen this very decision before and have developed procedures for making the decision. We can use the degree of structure inherent in each decision-making step to categorize the decisions as structured or unstructured. We define structured decisions as those for which all three decision phases are relatively routine or repetitive. In fact, many decisions are such a routine that a computer can be programmed to make them. Consider, on the other hand, the decision-making process that managers undertake in choosing what research and development projects to pursue in the next year. This is only one example of what we classify as an unstructured decision, one for which none of the decision phases are routine or repetitive. The following diagram summarizes several concepts introduced in this section and also helps us to understand the nature of the characteristics associated with information used by the three levels of management for decision making. Further, this figure indicates the proportion of structured and unstructured decisions handled by the three management levels.
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