Decision-Making Processes in Organizations: Types, Overview

Decision-Making Processes in Organizations: Types, Overview
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  • 0:02 Decision-Making Processes
  • 1:07 Identify the Required…
  • 2:15 Identify Participants…
  • 2:55 Forms of Decision-Making
  • 4:37 Lesson Summary
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Lesson Transcript
Instructor: Rodney Michael

Rodney has taught university accounting classes and has a doctorate in accounting.

In this lesson we will explore the ways that businesses make decisions. You will also learn about the characteristics of common decision-making processes.

Decision-Making Processes

If you think about it, a business is just like you and I in some respects. For example, every day we have to make decisions about things ranging from trivial details, like eating salad or tacos for lunch, to life-changing events, such as career choices. So does a business. Obviously, we should devote more time and brainpower to making a career decision than we should deciding what to have for lunch, and the same is true for a business.

If you choose a salad for lunch, then determine later that tacos would have been better, there is no real penalty. But, if you decide to quit your job and change professions, a bad decision could lead to financial ruin. Businesses can also make some routine decisions without incurring severe penalties. However, on issues of major significance, incorrect decisions can lead to failure of the organization.

I have my favorite ways to approach personal decisions and you have yours. Let's take a look at some of the ways that businesses approach their decisions. Decision-making processes within a business are often guided by a formalized decision-making logic or plan.

Identify the Required Decisions

One such approach involves three general steps. In the first step of the decision making process, the business must identify the decisions that need to be made. These range from day-to-day operating decisions to strategic decisions that must be made by top management. This step is important for three reasons. First, it helps to ensure that the decision is actually made. Did you ever get busy and forget to do something important? I know I have, so I tend to keep a reminder list for things I really need to do.

Second, standard policies and practices can be created to simplify and support low-level decisions. For example, assume that a company has three separate departments, and each annually selects a vendor for office supplies. It might be more efficient for upper management to select one vendor to satisfy the needs of all three departments. Another approach might be to provide formal guidelines for vendor selection that would be used by all three departments.

The third reason is to facilitate advance scheduling for the activities, such as meetings and data gathering, that might be required as part of the decision-making process.

Identify the Participants & Define the Rules

The second step is to define the people responsible for the decisions identified in the first step. In other words, the business needs to identify who should participate in the decision-making process. Upper management should use its time wisely by delegating operating decisions to lower levels. On the other hand, operating managers should involve upper management in decisions that may affect the business as a whole.

The third step is to define the broad rules of the game. This includes such things as selecting the final decision-makers, stating the types of information that are required, defining the decision criteria, and specifying how the decisions will be evaluated.

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