Decision-Making Techniques- Different types of decisions

Decision-Making Techniques

Decision-making implies a system in which an individual selects a particular sequence of actions among various substitutes to obtain a desirable result. Decision-making aims to bridge the gap between the active position and the desirable option. The Decision-making process avails the resources to achieve future goals through effective problem solving and utilizing business opportunities. Here, let’s know about the Decision-Making Techniques.

In short, a decision is a choice selected from various available substitutes.

Decision Making Strategy

While some decisions are made spontaneously, others are time and energy-consuming and require a lot of tricks and strategies to execute the preferable action for a desirable outcome.

Every choice we make either makes or breaks a business or a career. It involves complex and incomprehensible interpersonal issues.

Strategies involved are-

  • A thorough investigation of the situation
  • Design a constructive environment
  • Create good alternatives
  • Explore your options from various alternatives
  • Select the best option from substitutes
  • Gauge your plan
  • Communicate your preferable option and take desirable action to execute the plan
  1. A thorough investigation of the situation
  • Assess the key factors by carefully understanding your situation.
  • Identify whether the problem is real or something rooted deeply which involves other factors too rather than a strategic approach.
  • Look beyond the conventions.
  • Consider all interpersonal factors while reaching a decision.
  1. Design a constructive environment
  • Decide after assessing which people to consider while making a decision.
  • Explore the situation with the people involved in the decision and gain support and advice from them.
  • Have group coordination and consider other people’s decisions too.
  1. Make good substitutes
  • The wider the options the better will be the final decision.
  • Having multiple options may seem complicated at first, but it will help to go deeper and access the problem more deeply and from various angles.
  • Brainstorming is an excellent method of generating ideas and gauge the situation more deeply and widely.
  1. Explore your options from various alternatives
  • When you have a good list of substitutes, assess the pros and cons of each, the risk involved, and the implications of each situation.
  • You should be aware of the potential risk involved and the cost to manage.
  • Evaluate your options very carefully taking into account the feasibility, risks, and implications.
  1. Select the best option from substitutes

If you are facing various criteria to select an option, you can use various techniques like-

  • Decision Matrix Analysis to compare options more reliably and genuinely.
  • Paired Comparison Analysis- It is used to assess which options carry more weightage as per your decision.
  • Delphi Technique- It is used to have a fair and impartial decision. It is used when the members involved in the decision want to be anonymous. This technique involves the use of cycles of the unknown, written discussions and arguments, supported by a facilitator. The participants involved in the decision-making don’t know each other.
  1. Gauge your decision before executing the plan

Cross-check your decision with other alternatives before making it the final one. Hindsight is important to assess the situation and the selected decision more rigorously.

  1. Communicate the decision and execute the plan

After making a decision, communicate it with the people involved. The decision should be communicated in an interactive, informative, and inspiring way. 

What are the common decisions involved in an organization?

  1. Goals and objectives of an organization
  2. Organizational structure
  3. Design of an organization
  4. Budget
  5. Time-period
  6. Staff issues like salaries, wages, working hours, promotion, recruitment, and demotion
  7. 4P’s of Marketing- Product, Price, Place, and Promotion
  8. Research

Different types of decisions

  1. Basic decisions

The basic decisions are regarding a particular problem or situation. For example- large investments are required in the launch of a new project.

  1. Personal decisions

Individual decisions that a person makes. It is an informed decision, not a part of an organization.

  1. Individual decisions

The individual decisions are taken by a single individual as a part of normal routine work as per the policies of an organization.

  1. Rational decisions

Rational decisions are made after a careful and thorough investigation of the problem. It is taken after evaluating the rest of the alternatives. The final decisions are made as per logical facts and figures.

  1. Irrational decisions

These decisions are made based on intuitions or experiences of the decision-maker and not on logical facts and figures.

  1. Programmed decisions

These decisions are made as per pre-established rules and regulations by the lower-level executives. These are routine and repetitive decisions. They are easy to make and require less time and energy.

  1. Routine decisions

These decisions are made during the normal course of business. They are repetitive and need small investments.

  1. Organizational decisions

These are formal decisions made by people working in an organization and decisions are part of that organization.

  1. Group decisions

These decisions are made for a particular purpose by a group of people or committee involved with the same goal.

  1. Unprogrammed decision

These decisions are made without any prior pre-established rules and regulations. They are made for a unique problem faced by the organization. These are complex decisions, utilizing lots of time and energy.

Techniques of Decision-making

  1. Group Discussion
  2. Brainstorming
  3. Delphi technique
  4. Marginal Analysis
  5. Cost-Benefit Analysis
  6. Ratio Analysis
  7. Financial Analysis
  8. Break-Even Analysis
  9. Operations Research
  10. Pareto Analysis
  11. Linear Programming
  12. Game Theory
  13. Simulation
  14. Decision Tree
  15. Waiting line Analysis
  1. Group Discussion

It is also known as collaborative decision-making or collective decision-making. In this, individuals collectively decide on the various alternatives. The final decision is the collective choice of all the members, and not attributed to a single individual.

  1. Brainstorming

Brainstorming comes under the creative tool in the decision-making process in which a decision is made after assessing the list of different ideas put forward by the members involved for a particular situation.

Brainstorming functions on four values-

  • Consideration of the quality
  • Withhold criticism
  • Welcome the ‘think out of box’ ideas
  • Combine and improve ideas
  • The Image Think rule
  1. Delphi Technique

It is a structured interactive method that relies on a panel of experts. It involves group decisions by surveying a panel of experts. This technique is usually conducted by questionnaire. It assesses the agreeability of experts and laypeople on a given situation. 

In the Delphi technique, a committee of experts is first assembled. Estimated challenges are set and distributed among the experts. Then experts’ justifications are evaluated. Feedback is then given to the experts who then review their forecasting situations in the light of feedback. 

  1. Marginal Analysis

This technique involves the addition of an extra input variable to figure out the result of the output. It is useful in evaluating the alternatives in the decision-making process. It figures out the additional benefits of a situation by adding an extra variable compared to the extra cost incurred by that same variable. This technique is used by companies as a decision-making process to maximize their potential gains. 

For Example, if a company has in its budget to hire another employee, it uses marginal analysis to figure out that the potential profits acquired by adding that person outweigh the cost involved in hiring. 

  1. Cost-benefit Analysis

It is also known as benefit-cost analysis. It is a strategic approach to evaluate the strengths and limitations of the given alternatives to determine the most potent option to achieve the goal and maximize the benefits with minimum cost involved. 

It involves the following steps-

  • Specify the alternatives
  • Assess the costs and benefits
  • Identification of impacts of each option and select the measurement standards
  • Calculate the impact over the life of the proposed modulation
  • Monetize the impacts by placing dollar values

The cost-benefit analysis is knowing the cost and gauging the benefit associated with that cost.

  1. Financial Analysis

It is useful in assessing the benefit of an investment, to calculate the payback period. It is also used to evaluate the influx and outflow of cash.

Payback Period- The period taken for the cash benefits to compensate for the original charges of an investment. 

  1. Ratio Analysis

It is a quantitative method of gaining insight into a company’s fluidity, operational productivity, and benefits by taking into account its financial statements such as balance sheet and income statement. 

  1. Break-Even Analysis

It is a decision-making tool that assesses at which point the company or the new product or service will gain the benefit. It is a type of financial calculator to evaluate the number of services or products a company needs to sell to compensate for the cost involved. 

The break-even point is the measurement of the margin of safety. 

Three types of break-even analysis are-

  1. Average per-unit sales price
  2. Average per-unit cost
  3. Monthly fixed costs
  1. Operations Research

It involves the practical use of quantitative techniques in decision-making. Decision-making makes use of logical, scientific, and mathematical methods to obtain realistic solutions for problems. It is sometimes known to be a subfield of mathematical sciences. It is an analytical method of problem-solving. Problems are first narrowed down to smaller sections and then evaluated by mathematical examination. 

Steps involved in Operations Research are-

  • Constructing the problem
  • Drawing a model to explain the process under study
  • Deriving solutions from the constructed model
  • Testing the model and the solution obtained
  • Signifying control over the solution
  • Implementing the solution
  1. Pareto Analysis

It is a formal technique of decision-making where various alternative courses of action are competing for attention. The decision-maker calculates the profit from each course of action then selects the most effective action to gain the maximum benefit.

  1. Linear programming

It involves the allotment of meager or limited resources of an organization to obtain a specific goal. The word ‘linear’ means that the relation between different variables is proportionate. The term ‘programming’ means to develop a particular mathematical model to generate outputs when the resources are limited. To apply the technique, the situation involves two or more activities competing for scarce resources and all relations among the situation must be linear. 

  1. Game Theory

It makes use of rational strategies to obtain goals. It chooses the best strategy, taking into consideration one’s actions as well as of the competitors. It is based on the assumption that every component in the game is reasonable and keen to win it. The opponent carefully evaluates what the decision-maker will do before he/she makes his strategy.

Concepts used in Game Theory are-

  1. Minimax- minimizing the maximum loss
  2.  Maximin- maximizing the minimum gain
  1. Simulation

It is a modular technique to represent a real or an existing system. It is chiefly used to comprehend complex problems that can’t be solved by any other means. 

For Example, computers are used for simulation in recent years. The model includes different variables and the relationship between them.

Simulation technique is used to develop-

  • Strategies of price
  • Disposition strategies
  • Determining resource allocation
  • Logistics, etc.
  1. Decision Tree

It is based on a mathematical tool that enables a decision-maker to evaluate different courses of action and opt for the best substitutes. A decision tree graphically represents an alternative course of action and the possible outcomes involved with the associated risks in each action. 

  1. Waiting line method

It is also known as a queuing system. It is a mathematical model that represents the problem arising with the flow of customers towards the facility providing services or products. The model helps the management system in balancing the cost associated with the waiting and the cost of service provided.

The characteristics of a waiting-line model are-

  • The possibility that no customers are in the system
  • The average number of customers in the system
  • The average number of customers in the system including those that are being served
  • The average time a customer spends in a waiting period

What is the importance of decision-making?

  1. Maximum consumption of the accessible resources
  2. Helps in solving problems and facing challenges in the organization
  3. Expanding business and meeting its goals
  4. Facilitates effective innovation and management
  5. Employee motivation and improvement in the overall performance of the business

Decision-making skills

  • Intuition- It is the skill to reach something instantly without the aid of logical facts and figures or conscious reasoning. It is based on one’s feelings or any past experiences.
  • Foresight- This is the skill that involves predicting the outcome of a particular decision. 
  • Critical Thinking- this is the capability to think rationally and analyze the situation, then coming up with the final decision. It is based on logical thinking and critically analyzing the situation. It involves a thorough examination of a situation by comparing the pros and cons of the possible alternatives. 
Decision-Making Techniques
  • Emotional Intelligence- This skill makes use of emotional intelligence, i.e., knowing and understanding other people’s emotions for making decisions. 
  • Self-control- this skill involves the emotional regulations to control extreme emotions to make decisions logically and critically.

How to improve decision-making skills?

  1. Listen to your three brains
  • Cephalic (head). This is the site of reasoning and logical thinking, creativity, and empathy. 
  • Cardiac (heart). This is the site of passion, compassion, kindness, and values. 
  • Enteric (gut). This is the site of courage, self-protection, and your core traits. 
  1. Follow the 12-steps approach

This skill involves managing time and learning self-discipline. Empower the skills of gratitude, progress, courage, acceptance, honesty, connection, etc.

  1. Pressure Test

Evaluate the time and cost involved in making a no-decision. Then you can assess the time needed in making a decision. By evaluation of no decision period, one can take the call into action. 

  1. Take the advice of stakeholders first

Consider what the stakeholders and the people matter to us would call appropriate for a leaser to do. Take them into consideration and get smarter decisions quickly.

  1. Assign an antagonist

Create strong counter-arguments for every decision you make. Appoint a third-party critique whose function is to act as an antagonist and overturn the decision. This allows you to have another stronger and opposite perspective. 

  1. Have a roadmap

Have a clear roadmap or matrix through which you make your decision. Create decision-making formulae and follow them to reach the desired goals.

  1. Clarification of goals

Clarify your goals daily. Make a list of your priorities and what you’re going to accomplish this year, month, and week. 

  1. Set a short deadline

Set a specific date and time when to take the decision. The longer time you take, the more complicated it can get. Take the time in-between this period to gather relevant data to support your decision. This is a practice and needs time and commitment to become easier and natural. 

Taking better and effective decisions are the qualities of a better leader. A collaborative approach of group discussion and brainstorming plays a chief role in the decision-making process. Analyzing the situation both logically and critically with taking intuition into consideration is what makes a person a better leader.

Decision-Making Techniques- Different types of decisions

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