Types of Decision Making in Business

By Natasha Gilani, eHow Contributor X

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Decsion making is an essential feature of organizations.

Decision making, an essential part of business activity, is designed to bring about preferred outcomes and reduce uncertainty. According to Richard L. Daft in his book "Organization Theory and Design," decision making can be thought of as the brain and nervous system of a business. It is carried out amid unclear information, changing factors, and contradictory points of view. There are typically four types of decision makers within an organization: directors, shareholders, managers and employees---all of whom make many successful, and some unsuccessful, decisions every day.
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Types of Decision Making in Management

Levels of Management Decision Making

1. Programmed Decisions

H. A. Simon introduced the idea of programmed decisions in his 1965 book, "The New Science of Management Decisions." Programmed decisions were defined as all those repetitive decisions undertaken by an organization on a recurring basis. Commonly related to daily activities, they are relatively simple, relying on historical data and previous solutions. The reordering of standard inventory, preparing monthly newsletters, handling employee discipline, and determining the salary of a new employee are all programmed decisions. According to Ricky W. Griffin and Gregory Moorhead in their book "Organizational Behavior: Managing People and Organizations," programmed decisions are more common at the lower tiers of an organization.

Nonprogrammed Decisions
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Nonprogrammed or unstructured decisions are all those that are made in response to unique and novel situations. Decisions to develop a new product line, extend the geographical scope of a company, enter a new service market, or relocate headquarters to another country are examples of nonprogrammed decisions. They require senior managers to evaluate intricate problems, analyze alternatives, and make strategic decisions that have significant consequences for an organization. Sponsored Links

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Strategic Decisions
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Strategic decisions are all those that are concerned with the long-term policy and general direction of a business. Such wide, far-reaching decisions affect the short-term goals and long-term performance of an organization. Strategic decisions are high-risk because their outcomes are largely unknown. They involve steering a company into new procedures and acquiring new resources. Strategic decisions are made by top managers. Strategic decision making is employed in the areas of financing, investment, product technology, production changes, and company alliances and integration. According to Vesa Savolainen in the book "Perspectives of Information Systems," strategic decisions are either unstructured, semistructured, or structured. Investment targets are unstructured strategic decisions, pricing decisions are semistructured, and marketing goals are commonly structured.

Tactical Decisions
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Tactical decisions are medium-term decisions whose outcomes are predictable. They are shorter in scope than strategic decisions. Examples of tactical decisions

are product allocation within a warehouse or an advertising campaign for a new product. Tactical decisions are often required to execute strategic decisions. According to John V. Petersen in the book "Absolute Beginner's Guide to Databases," strategic decisions focus on the goals of a company and tactical decisions focus on how to realize those goals.
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