An introduction to managerial decision-making

For better or worse, our decisions and those of the other members of our organization define today’s realities and tomorrow’s outcomes. In a world that is becoming increasingly knowledge based, more and more members of a business are making impactful decisions every day; thereby extending decision-making’s importance from the boardroom to the desks of the vast majority of professionals.

Decision-making can be categorized based on the time frame in which associated actions will yield observable outcomes. Near-term decisions are frequently supported by predetermined guidelines to enable more rapid decision-making while long-term decisions, clouded by the ever increasing uncertainty of changing circumstances, rely more heavily on broad philosophical principles and decision-maker experience. The four general decision-making categories are:

Near-Term Decisions: decisions supported by policies, procedures, schedules, and regulatory guidelines

Category One: immediate actions taken in response to emerging circumstances as directed by procedure. These decisions seek to take advantage of in-the-moment opportunities or avoid negative consequences associated with rapidly changing circumstances. Decisions in this category should be supported by procedural guidance whenever possible to improve consistency and predictability of response; thereby minimizing the company's risk exposure. Examples include: buying or selling of commodities when a target price is reached and actions taken in response to changing operating system conditions.

Category Two: day-to-day choices regarding activities and resource allocations. These decisions have immediate impact on the organization and may have unrecognized or less predictable long-range impacts. Decisions of this type are often supported by pre-established performance guidelines, policies, and schedules. Examples include: daily work scheduling and task assignment and procurement choices between vendors for one-time purchases.

Long-Term Decisions: decisions made in the absence of procedural guidelines and shaped by market trends, regulatory policies, and societal norms

Category Three: intermediate range decisions made in response to more slowly evolving trends where it is believed a particular desired outcome may be achieved in the days, weeks, or months ahead if a particular course of action is pursued today. Decisions in this category may have both near- and long-term impacts on the organization. While not directly supported by policies, procedures, or regulatory guidelines, these decisions often leverage guiding principles or intent to establish a target end state. Examples include: decisions made in response to slowly degrading equipment where failure is probable, supplier selection where contracts will be entered into for annualized periods, equipment leases other than hourly or daily rentals, monthly scheduling, and hiring and termination decisions for first line supervisor positions and below.

Category Four: long-range or strategic decisions define near- and long-term actions seeking to achieve results that will be years in the making. While influenced by the organization’s mission, vision, values and regulatory policies, these decisions are largely shaped by broader market trends. Subsequently, decisions of this type have the greatest degree of uncertainty because of their long time horizon and the heightened uncertainty associated with market prediction over time. Examples include: construction of new facilities, replacement of major equipment, expansion of product lines, mergers and acquisitions, and hiring and termination decisions for executives and senior managers.

Regardless of their outcome time frame and the immediacy in which they are made, all decisions go through a similar process that begins with condition recognition and ends in action. Phases of decision-making include:

Identification Phase: condition evolution, condition recognition, condition reporting

Scope and Significance Identification Phase: condition scoping, condition resolution cost-benefit and risk assessment, action need determination, action response prioritization

Action Plan Development Phase: alternative development (including risk and cost-benefit assessments for each alternative), alternative selection, and communication and action plan development (for the selected alternative)

Action Plan Implementation Phase: action and communication plan implementation, follow-up condition monitoring, decision evaluation, and action plan adjustment

Organizational Capabilities and Cultural Development Phase: decision-making process training, performance expectations established and reinforced, questioning attitude developed and reinforced, decision-making self-assessment and lessons learned communication

The final phase, Organizational Capabilities and Cultural Development, is an enabler of decision-making. This phase occurs on an ongoing basis; creating an organizational mindset that enables both the recognition of decision opportunities and helps the business learn and grow from its decision-making successes and shortfalls. Strong execution of the Organizational Capabilities and Cultural Development Phase is a hallmark of organizational excellence.

About the Author

Karen K. Juliano is the creative force behind the elegant professionalism that is StrategyDriven. As StrategyDriven's Editor-in-Chief and Director of Communications and Marketing, she oversees all content development and publishing.

About StrategyDriven

StrategyDriven provides executives and managers with the planning and execution tools needed to create greater organizational alignment and accountability for the achievement of superior results. We believe creation of a clear, forward-looking strategy, translatable to the day-to-day activities of all organization members, is critical to realizing success in today's fast paced market environment. Not only does a compelling, well executed strategy align individuals to a common purpose, it ensures that purpose best serves the company's mission. To learn more, visit us at http://www.StrategyDriven.com.