Businesses of all sizes have to make many decisions each day - some are fairly simple and routine, whilst others are more complex and require significant management time and effort. Some examples of decisions that all businesses need to make are:
- Where should we locate the business?
- What goods should we produce?
- What price should we charge?
- What should we do if a supplier fails to deliver on time?
- Which job agency should we use to provide us with some temporary workers?
- Which employee appraisal system should we use?
Decision-making is the basic task of all managers in all departments of the business, and both in the private and the public sectors. These decisions are, effectively, designed to influence the actions of other people.
A strategic decision is one which is very high-risk and is likely to influence the overall long-term policy and direction of the business. As such, it is likely to be dealt with by senior management (e.g. what new products to develop).
A tactical decision is a fairly routine, predictable, short-term decision, which is normally handled by middle management (e.g. what price to charge for products). Other decisions which are repetitive, day-to-day and fairly risk-free are handled by lower-level management, and are generally referred to as operational decisions (e.g. how long should tea-breaks be?).
Businesses have to make decisions in order to achieve their objectives.
There are eight key stages involved in the traditional decision-making process:
- Set objectives. The decision-making process cannot proceed without an achievable, realistic and identifiable target to be met.
- Gather data. Use market research to collect as much information as possible from inside and outside the business, so to enable the decision-makers to have the necessary data with which to make an effective decision.
- Analyse the data. Look at the different courses of action and decide which ones look the most achievable and realistic to meet the objective.
- Make a decision. This stage is vital to the whole process. The decision-makers must ensure that they follow the correct course of action and do not reject a better alternative.
- Communicate. This to the whole organisation. The relevant people, both inside and outside the organisation, need to be informed about the decision and how it may affect them.
- Implement the decision. The course of action that has been decided upon is implemented, using the available resources of the business.
- Look at the results. Obtain as much feedback as possible concerning the recently implemented decision, from as many sources as possible.
- Evaluate the outcome. Did the decision work ? Was it the best course of action ? How can it be improved next time? What went wrong?
Businesses can rarely carry out their decision-making in a totally open and risk-free environment, and there are often many constraints which exist, that will limit the possible options available to a business. These constraints can be internal (such as the lack of available finance, or the lack of a multi-skilled workforce) and external (such as a rise in interest…