Decision-Making Process: Meaning, Steps, Factors, and Types

Today, this blog will take you through the decision-making process in management. It discusses various types, steps, and factors like biases, data use, and rationality, aimed at enhancing managerial effectiveness in different organisational contexts.

“Whatever a manager does, he does through making decisions.” – Peter F. Drucker

The decision-making process is among the core functions of management. For any manager, it is an essential extension of most management skills. 

Meaning of Decision-Making Process in Management

The decision-making process involves finding the best solutions among a series of alternatives, which finally aligns with business objectives. 

The manager must also make decisions effectively, considering the pressures of time and uncertainties. Along with that, the manager has to think of how they should incorporate provided data and involve team members by communicating with them about making the final decisions.  

In an organisation, the decision-making process exists across all levels of management. But the decision at the top level would vastly differ from the ones made on a lower level. Scholars like Ireland and Miller have mentioned that the upper management focuses on long term decisions. At the operational level, the decisions are mostly for short-term goal achievement. This is also why decision scholars also argue that 'management is decision-making'. Every manager, at any level, is supposed to learn the decision-making process then, which the section below discusses. 

Decision-Making Process in Management through 5 Steps

In general, there are five steps in the decision-making process in management. 

Identifying The Reason for Taking a Decision

In this step, you, the manager, have to determine the purpose, of what problem needs to be solved and why. It is important to question if the problem has a time constraint and who will be affected in the process – team members or stakeholders. 

This step is to help identify the decision that is quantifiable.   

Collecting the Necessary Information

Every problem is unique. You need to know the factors that are causing the problem or any information associated with it. 

It is important to utilise data in the decision-making process in management. Stats and figures provide an objective view of the problem at hand that can be justified. It is better than intuition or opinions, which are never accurate. 

The manager should be focused on collecting pertinent information that comes from internal (team/company) and external (generally outside team or company) sources. Simpler said than accomplished, reviewing such data can become too overwhelming. 

Predicting the Outcome

Once you know the purpose and have collected the necessary data, it is time to predict the consequences of taking any decision. Ideally, you can create a list of pros and cons of each decision you are about to take. Doing this will give you multiple perspectives. 

Also, you can weigh the potential outcome based on the current situation and the future. 

Look for alternatives paths, and evaluate them through simulations. You can combine the alternative paths or use a combination of some. 

Taking the Decision

Now that you are ready to predict outcomes after collecting the right information, the next step is enacting that decision with the best possible consequences. 

Assessing Your Decision

Maybe the decision you took led to positive outcomes. Or it introduced unexpected problems. Either way, evaluation helps you know where you are right or wrong. 

If the consequences do not turn up the way you considered positive, you can repeat the steps from the first again. 

Essential Factors to Consider in the Decision-Making Process in Management

Management Style

The type of management style plays a vital role in the manager’s decision-making process. Based on it, the manager may decide to consult with team members or not. Along with it, the manager needs to know about the resources available in the organisation. These aspects can be covered by going for tools such as SWOT Analysis or cost-benefit analysis. 

This is how managers approach the decision-making process in their organisations. 

Decision-Making Biases

Before taking any decision as a manager, they must ensure that the solutions do not fall under any biases, including, 

• Conformation Bias – Ignoring information that contradicts one’s belief system
• Overconfidence Bias – Overestimating the ability to control future events based on the decisions taken
• Sunk cost Fallacy – Continuing to invest in the wrong decisions as resources are invested already

Procedural Rationality and Political Behaviour in Organisations

Rationality and the nature of political behaviour of a company significantly affect the strategic decision-making process. While external market dynamics (stable or unstable) and how well the decision is implemented matter. But a logical, systematic process and the political behaviour comprising negotiations, group interests, etc, matter more.

This has been proven through a regression analysis by researchers, Dean and Sharfman.   

Representation of All Stakeholders

Managers have to ensure that any organisational decision to be made has to represent whoever is involved in the process. This includes employees, shareholders, teams, etc., and their individual perspectives. 

Use of Data and Analytics

As mentioned earlier, decision-making is more effective when it is data-driven. 

This is possible when the manager is collecting data from internal databases, surveys, etc. All such data must be verified. 

To uncover patterns, managers can utilise data analysis techniques such as descriptive statistics or predictive modelling. 

Data is not just crucial for coming up with a decision and weighing the pros and cons. It is equally essential for evaluating the decisions made. 

Types of Decision-Making 

1. Tactical Decision Making

• Nature: Tactical decisions are short-term decisions made to address specific issues and achieve immediate goals.
• Scope: They are focused on a particular aspect of the organisation, often a department or a specific project.
• Frequency: Tactical decisions are made frequently and are part of the day-to-day operations.
• Example: Adjusting the work schedule to meet a sudden increase in demand or revising the marketing strategy for a specific product.

2. Operational Decision Making:

• Nature: Operational decisions are more comprehensive than tactical decisions and are aimed at streamlining routine processes.
• Scope: They cover the entire organisation and are vital for its day-to-day functioning.
• Frequency: Operational decisions are made regularly, ensuring the smooth execution of established procedures.
• Example: Optimising inventory levels, refining production processes, or enhancing customer service protocols.

3. Strategic Decision Making

• Nature: Strategic decisions are long-term, high-stakes choices that shape the overall direction of the organisation.
• Scope: They have a broad impact, influencing the entire organisation and its future.
• Frequency: Strategic decisions are infrequent and are typically made after extensive analysis and planning.
• Example: Entering new markets, diversifying the product line, or adopting a new business model.

Parting Thoughts

Going for the right decisions is easier said than done. Hopefully, learning about the steps and factors can make your future approach to managerial decisions more effective. Take up some management courses and learn to apply such concepts in the real world.