DECISION MAKING IN BUSINESS

INTERNAL ASSESSMENT CONTENT:-

• Analysis of different types of decision and can be related to the objectives of a business

• Explanation of the role of managers in decision making

• Development and evaluation of SWOT analysis

• Justification of content of SWOT analysis

THE TYPES OF DECISION

• STRATEGICSTRATEGIC

• Concern the general direction and overall policy of the business

• They will be long termlong term decisions• Tend to be high risk• Made by high level managers

TACTICAL

• Made as a result of strategic decisions• Tend to be medium term• They are tactical because their

outcome is more predictable• Less risk involved• Can be made by middle or high level

managers

OPERATIONAL

• Lower level decisions• Sometimes called administrative or

routine decisions• Short term• Carry little risk• Many made every day in business• Made by low level staff

EXAMPLE

• Strategic Decision - Tesco decide to introduce a Financial Service - Savings Account

• Tactical Decision - what interest to charge

• Operational Decision - date to send out the statements

WHY MAKE DECISIONS?

• Making the ‘right’ decision should allow a business to achieve its objectives

• Choices always exist

• Problems must be solved

Who makes the decisions?

• STRATEGIC DECISIONS:-

• The sole trader• Partners in a partnership• Directors or high level management• Government ministers• Office bearers in charities or clubs

Tactical decisions

• Most people in senior positions• Middle managers• Divisional directors

Operational decisions

• Section head• Manager• Team leader• Supervisor• Individual worker

• On a day-to-day basis

• Managers play a vital role in decision making in an organisation

• They make different types of decisions• They try to achieve the aims of the org• They use different methods of decision-

making• They can be effective (or not)

• When analysing the role of a manager analyse what they do to make decisions, do they use a model, are they effective etc

THE DECISION MAKING PROCESS

• A model has been developed to assist managers when making decisions

• This outlines the steps that should be followed to enable a quality quality decisiondecision to be made

• The model is called POGADSCIEPOGADSCIE

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CCOMMUNICATEDECISION

IIMPLEMENTDECISION

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Quality of decisions made Quality of decisions made in the organisationin the organisation

• How can organisations ensure that their managers consistently make high quality decisions?

• How can organisations improve the quality of the decisions that their management make?

• Management Training – computer simulations

• Ensure information given to management is of a high quality

• Ensure staff are using a decision making process

• Back up staff who take risks – UK staff are too cautious

• Ensure that staff if promoted positions are suitable and have a good attitude

HAVE A MISSION STATEMENT

• Ensure that your staff know what your aims are

• Ensure that they are aware of the mission statement – publicise it thoroughly

• FIND MISSION STATEMENTS

What should be included in a Mission Statement

• Product or Service information• Intended customers• Benefits offered• Why the business has a

competitive edge• Aims and objectives• Responsibilities

How can employees be included in the decision

making process?• Group meetings• Questionnaires• Joint Consultation• Works councils• Quality circles• Profit sharing• Suggestion boxes

• Voting• Manager integration• Brainstorming• Union

representatives

Why should employees be involved in the decision making

process?• Motivation• Work rate• More ideas• Employee loyalty• Improved quality• Better decisions

• Reduces conflict• Reduces labour

turnover• Meet objectives• Good working

environment

MORE DECISION MAKING MODELS

Aim:- to assist managers when faced with difficult

decisions

Before making a decision questions must be answered.

• Where are we now?

• What do we want to achieve?

• What does the future hold?

• To find out the answers we can carry out an INTERNALINTERNAL and EXTERNALEXTERNAL audit

• INTERNAL AUDITINTERNAL AUDIT

• STRENGTHS

• WEAKNESSES

• EXTERNAL AUDITEXTERNAL AUDIT

• OPPORTUNITIES

• THREATS

• Strengths of the organisation

• Weaknesses of the organisation

• Opportunities in the external environment

• Threats in the external environment

• A SWOT analysis is intended to convert identified weaknesses into strengths, and seeming threats into opportunities

THE ROLE OF MANAGERS IN DECISION MAKING

What is the role of Management in DM?

• What do managers do?

• Delegate• Issue resources• Supervise• Lead

Fayol 1916Fayol 1916

PLANORGANISECOMMAND

CO-ORDINATECONTROL

Henri Fayol

• THE 5 FUNCTIONS OF MANAGEMENT

• French Management Theorist• Classical School of Management

PLANNING

• Set aims• Make policies• Identify future opportunities• Rate priorities for action• Analyse problems and make

decisions

ORGANISING

• Allocate available resources between different demands

• Decide who does what• Create responsibilities and

communication channels• Delegate authority

COMMANDING

• ‘The buck stops here’• Give leadership• Understand people and involve

them in teamwork• Creating incentives• Resolving grievances

CO-ORDINATING

• Bringing together planning, organising and commanding

• Conceptual View of the whole organisation required

CONTROLLING

• Checking progress of planned action

• Coping with failure and emergencies

• Supervising – keep in touch with what is happening in the business

Also added recently:-

• Delegate – make subordinates responsible for tasks

• Motivate – encourage others to carry out tasks effectively

Another theory about management…..

• The art of management - GROUP

MakeDecisions

about

DECISION MAKING

THE PROBLEMS

Decision Making Models• Using a structured DM Model has various

disadvantagesdisadvantages

• The time-scale required to go through the process

• The ability to gather all the information required

• The difficulty of coming up with alternative solutions

• Lack of creativity• There are always various constraints to

consider

Decision Making Constraints

• INTERNAL

• Finance• Company Policy• Corporate Culture• Staff Behaviour

• EXTERNAL

• Legislation• Competition• Lack of

technology• The economy

Decision Making Models

• ADVANTAGESADVANTAGES

• Time – taking time means a decision is more likely to be effective

• Quality of decisions are improved due to quantity of information

• Less likely that decisions will be problematic if a logical approach is followed

SUMMARY

• AIDS TO DECISION MAKING

• POGADSCIE• SWOT ANALYSIS• BRAINSTORMING• PEST ANALYSIS• TRAINING OF MANAGEMENT

ROLE OF MANAGEMENT

• Did management use a decision making model?

• Look for evidence of problems, gathering information, alternative solutions etc