“Sometimes you make the right decision, sometimes you make the decision right.”
Phillip C. McGraw
How do you know if you have made the right decision? How to make decisions the right way? In order to answer the first question, you need to know the different types of decisions and their specifics. The answer to the second question will unfold in the next unit “Decision making”.
The different decision types are based on specific criteria for categorization. One decision may fall within several groups if it meets the criteria. Figure 2 presents the framework for categorizing decisions.
Figure 2. Framework for categorizing decisions
Source: Adapted and extended from Serafimova, D. (2015). Teoria na upravlenieto [Management theory]. Varna: Univ. izd. Nauka i ikonomika.
The criterion “management level” is based on the position you have in the hierarchy of your organization. If you are a team leader/line manager, your decisions will be mostly operational. They will be focused on day-to-day activities (e.g. which client to call first; whether to send John or Fred to the negotiations with this new prospective partner). At a higher position (mostly department managers – marketing manager, production manager, etc.), you will make predominantly tactical decisions (e.g. how to organize the new marketing campaign; do you need additional marketing experts in your department?). The strategic decisions are reserved to the top management level – you are the CEO and you need to decide which market to penetrate, which technology to develop or where to build your Gigafactory!
Some of your decisions will be very specific (e.g. how to solve the problem with Mark always coming late for work) and they will influence only certain people/activities/departments of the organization, whereas others will be more general and will have an impact on the whole company (e.g. let’s introduce a QMS at our company; what changes should we make to the structure of the compensation packages of our employees?).
Another important criterion for the classification of decisions is time. Pay attention – it is not just time you need to make your decision (obviously this should not take forever). It is the period of time over which your decision will have influence that matters. In other words, how long will the effect of your decision last? Short-term decisions have a timeframe between a day and several months. An example of such a decision may be when one of your colleagues gets sick and you need to decide what to do in order to complete an urgent order – work overtime or find a replacement for the week. Medium-term decisions normally cover a period of one year, but the main factor is the length of the business cycle of your company. Therefore, for some companies, these decisions may cover six months (e.g. what marketing campaign to launch for your new smartphone) or two years (e.g. production decisions in a ship manufacturer). Long-term decisions have a timeframe of more than one year and their impact may even go beyond 5-10 years (e.g. what technology to use for expanding your mobile network in Canada).
The management cycle is known /to every manager and every single step of it is related to various decisions to be made: planning (what to do), organizing (how to do it, with what resources), motivating (what incentives to provide for your team), controlling (when to control, which will the critical points be) and changing (what to improve for the next cycle) decisions.
A very popular system for the classification of decisions is the one developed by Herbert Simon, dividing decisions into programmed and nonprogrammed ones. The first type is “determined by past experience as appropriate for a problem at hand” (Schermerhorn, Osborn & Hunt, 2002, p. 115). On the other hand, nonprogrammed decisions are “created to deal uniquely with a problem at hand”. The main differences between these two types of decisions are presented in Table 3.
Table 3. Comparison of programmed and nonprogrammed decisions
Source: Gibson, J., Ivancevich, J., Donnelly, J., & Konopaske, R. (2012). Organizations: Behavior, Structure, Processes. New York: McGraw-Hill, p. 465.
All decisions are made in different circumstances. A variety of factors influence the way you are going to make certain decisions. The probability of the problem is a critical criterion that distinguishes three types of decisions:
- made in complete certainty – all factors and their influence are known to you and you have all the necessary information (in reality this situation is very rare; an example may be a controlled environment for a laboratory experiment);
- made in a risk environment – you can measure the risks associated with different factors and you have an idea of the probability of the potential outcomes (how an increase in the product price will influence the company revenues);
- made in uncertainty – you do not have all the information and often it is very hard to estimate the risks; most of the decisions fall in this category which means it is very hard to make the best (or even the optimal) decision; in this case, you need to find a satisfying solution to your problem (how to deal with breach of internal information or how to retain your best expert).
Assignment: Read the Case S: Making Decisions the Right Way – Which Decision Type Should I Choose? (Case Study 2). Answer the included questions and explain how you have identified the type of the decision that you have made. How will changing the type of your decision (e.g., from short-term to long-term) influence the outcome of the situation?
All these decisions can be made alone (individually) by yourself or you can work together with a team in order to make a group decision which will take into account the opinions of the other people involved in the decision-making process. The next unit will walk you through the stages of this process.