Decision-makingDecision-making can be regarded as the cognitive process resulting in the selection of a belief

or a course of action among several alternative possibilities. Every decision-making process

produces a final choice that may or may not prompt action. Decision-making is the study of

identifying and choosing alternatives based on the values and preferences of the decision maker.

Decision-making is one of the central activities of management and is a huge part of any process

of implementation.

Overview[edit]

Human performance with regard to decisions has been the subject of active research from

several perspectives:

Psychological : examining individual decisions in the context of a set of needs, preferences

and values the individual has or seeks.

Cognitive : the decision-making process regarded as a continuous process integrated in the

interaction with the environment.

Normative : the analysis of individual decisions concerned with the logic of decision-

making and rationality and the invariant choice it leads to.[1]

Decision-making can also be regarded as a problem-solving activity terminated by a solution

deemed to be satisfactory. It is, therefore, a reasoning or emotional process which can

be rational or irrational and can be based on explicit assumptions or tacit assumptions. Rational

choice theory encompasses the notion that people try to maximize benefits while minimizing

costs.[2]

Some have argued that most decisions are made unconsciously. Jim Nightingale states that "we

simply decide without thinking much about the decision process."[3] In a controlled environment,

such as a classroom, instructors might try to encourage students to weigh pros and cons before

making a decision. This strategy is known as Franklin's rule. However, because such a rule

requires time, cognitive resources and full access to relevant information about the decision, this

rule may not best describe how people make decisions.[citation needed]

Logical decision-making is an important part of all science-based professions, where specialists

apply their knowledge in a given area to make informed decisions. For example, medical

decision-making often involves a diagnosis and the selection of appropriate treatment.

Some[which?] research using naturalistic methods shows, however, that in situations with higher time

pressure, higher stakes, or increased ambiguities, experts use intuitive decision-making rather

than structured approaches – following a recognition primed decision that fits their experience –

and arrive at a course of action without weighing alternatives. Recent robust decision research

has formally integrated uncertainty into its decision-making model.[citation needed] Decision

analysis recognized and included uncertainties in its theorizing since its conception in 1964.[citation

needed]

A major part of decision-making involves the analysis of a finite set of alternatives described in

terms of evaluative criteria. Information overload occurs when there is a substantial gap between

the capacity of information and the ways in which people may or can adapt. The overload of

information can be related to problem≠ processing and tasking, which effects decision-making.[4] These criteria may be benefit or cost in nature. Then the problem might be to rank these

alternatives in terms of how attractive they are to the decision-maker(s) when all the criteria are

considered simultaneously. Another goal might be to just find the best alternative or to determine

the relative total priority of each alternative (for instance, if alternatives represent projects

competing for funds) when all the criteria are considered simultaneously. Solving such problems

is the focus of multi-criteria decision analysis (MCDA), also known as multi-criteria decision-

making (MCDM). This area of decision-making, although very old, has attracted the interest of

many researchers and practitioners and is still highly debated as there are many MCDA/MCDM

methods which may yield very different results when they are applied on exactly the same data.[5] This leads to the formulation of a decision-making paradox.

In regards to management and decision-making, each level of management is responsible for

different things. Top level managers look at and create strategic plans where the organization's

vision, goals, and values are taken into account to create a plan that is cohesive with the mission

statement. For mid-level managers, tactical plans are created with specific steps with actions that

need to be executed to meet the strategic objective. Finally, the front-line managers are

responsible for creating and executing operational plans. These plans include the policies,

processes, and procedures of the organization. Each must take into account the overall goals

and processes of the organization.

The environment can also play a part in the decision making process. It is important to know that

environmental complexity is a factor that influences cognitive function and well being.[6] A

complex environment is an environment with a large number of different possible states which

come and go over time.[7] It is in different states at different times and different in different places

as opposed to the same all over.[7] Peter Godfrey-Smith, professor at Stamford University, states

"whether a particular type of complexity is relevant to an organism depends on what the

organism is like- size, needs, habits and physiology." [7] Studies done at the University of

Colorado have shown that more complex environments correlate with higher cognitive function

meaning a decision can be influenced by the location. The experiment measured complexity in a

room by the number of small objects and appliances present whereas a simple room had less of

those things. Cognitive function was greatly affected by the higher measure of environmental

complexity[6] making it easier to think about the situation and make a better decision.

Rational and irrational decision-making[edit]

In economics, it is thought that if humans are rational and free to make their own decisions, then

they would behave according to rational choice theory.[8] This theory states that people make

decisions by determining the likelihood of a potential outcome, the value of the outcome,

multiplying the two, and then choosing the more positive of the two outcomes. For example, with

a 50% chance of winning $20 or a 90% chance of winning $10, people are thought to be more

likely to choose the first option (.50 X $20 = $10 : .90 X $10 = $9 :: $10 > $9).[8]

In reality, however, there are some factors that affect decision-making abilities and cause people

to make irrational decisions, one of them being availability bias. Availability bias is the tendency

for some items that are more readily available in memory to be judged as more frequently

occurring.[8] For example, someone who watches a lot of movies about terrorist attacks may think

the frequency of terrorism to be higher than it actually is.

Information overload[edit]

Information overload is "a gap between the volume of information and the tools we need to

assimilate it."[9] It is proven in some studies[which?] that the more information overload, the worse the

quality of decisions made. There are five factors:

Personal Information Factors: personal qualifications, experiences, attitudes etc.

Information Characteristics: information quality, quantity and frequency

Tasks and Process: standardized procedures or methods

Organizational Design: organizations' cooperation, processing capacity and organization

relationship

Information Technology: IT management, and general technology

Hall, Ariss & Todorov with an assistant Rashar phinyor (2007) described an illusion of

knowledge, meaning that as individuals encounter too much knowledge it actually interferes with

their ability to make rational decisions.[10]

Problem analysis & decision-making[edit]

It is important to differentiate between problem analysis and decision-making. The concepts are

completely separate from one another. Traditionally, it is argued that problem analysis must be

done first, so that the information gathered in that process may be used towards decision-

making.[11]

Problem analysis

Analyze performance, what should the results be against what they actually are

Problems are merely deviations from performance standards

Problem must be precisely identified and described

Problems are caused by a change from a distinctive feature

Something can always be used to distinguish between what has and hasn't been affected by

a cause

Causes to problems can be deducted from relevant changes found in analyzing the problem

Most likely cause to a problem is the one that exactly explains all the facts

Decision-making

Objectives must first be established

Objectives must be classified and placed in order of importance

Alternative actions must be developed

The alternative must be evaluated against all the objectives

The alternative that is able to achieve all the objectives is the tentative decision

The tentative decision is evaluated for more possible consequences

The decisive actions are taken, and additional actions are taken to prevent any adverse

consequences from becoming problems and starting both systems (problem analysis and

decision-making) all over again

There are steps that are generally followed that result in a decision model that can be used

to determine an optimal production plan.[12]

In a situation featuring conflict, role-playing may be helpful for predicting decisions to be

made by involved parties.[13]

Decision planning[edit]

Making a decision without planning is fairly common, but does not often end well. Planning

allows for decisions to be made comfortably and in a smart way. Planning makes decision-

making a lot more simple than it is.

Decision will get four benefits out of planning: 1. Planning give chance to the establishment of

independent goals. It is a conscious and directed series of choices. 2. Planning provides a

standard of measurement. It is a measurement of whether the decision-maker is going towards

or further away from goals. 3. Planning converts values to action. Thinking twice about the plan

and deciding what will help advance the plan best. 4. Planning allows for limited resources to be

committed in an orderly way. Always govern the use of limited resources. (e.g. money, time, etc.)[14]

Analysis paralysis[edit]

Analysis paralysis is the state of over-analyzing (or over-thinking) a situation, or citing sources,

so that a decision or action is never taken, in effect paralyzing the outcome.

Everyday techniques[edit]

Decision-making techniques can be separated into two broad categories: Group decision-

making and individual decision-making techniques.[15]

Group decision-making techniques[edit]

Consensus decision-making  tries to avoid "winners" and "losers". Consensus requires that a

majority approve a given course of action, but that the minority agree to go along with the

course of action. In other words, if the minority opposes the course of action, consensus

requires that the course of action be modified to remove objectionable features.

Voting-based methods .

Range voting  lets each member score one or more of the available options. The option with the highest average is chosen. This method has experimentally been shown to produce the lowest Bayesian regret among common voting methods, even when voters are strategic.[citation needed]

Majority  requires support from more than 50% of the members of the group. Thus, the bar for action is lower than with unanimity and a group of "losers" is implicit to this rule.[citation needed]

Plurality , where the largest block in a group decides, even if it falls short of a majority.

Delphi method  is structured communication technique for groups, originally developed for

collaborative forecasting but has also been used for policy making.

Dotmocracy  is a facilitation method that relies on the use of special forms called Dotmocracy

Sheets to allow large groups to collectively brainstorm and recognize agreement on an

unlimited number of ideas they have authored.

Individual decision-making techniques[edit]

Pros and cons: listing the advantages and disadvantages of each option, popularized

by Plato and Benjamin Franklin.[16][17] Contrast the costs and benefits of all alternatives. Also

called "rational decision-making".

Simple prioritization : choosing the alternative with the highest probability-weighted utility for

each alternative (see Decision analysis).

Satisficing : examining alternatives only until an acceptable one is found. Contrasted

with maximizing, in which many or all alternatives are examined in order to find the best

option.

Elimination by aspects: choosing between alternatives using Mathematical psychology [18]  The

technique was introduced by Amos Tversky in 1972. It is a covert elimination process that

involves comparing all available alternatives by aspects. The decision-maker chooses an

aspect; any alternatives without that aspect are then eliminated. The decision-maker repeats

this process with as many aspects as needed until there remains only one alternative[19]

Preference trees: In 1979, Tversky and Shmuel Sattach updated the elimination by aspects

technique by presenting a more ordered and structured way of comparing the available

alternatives. This technique compared the alternatives by presenting the aspects in a

decided and sequential order. It became a more hierarchical system in which the aspects are

ordered from general to specific[20]

Acquiesce to a person in authority  or an "expert"; "just following orders".

Flipism  e.g. flipping a coin, cutting a deck of playing cards, and other random or coincidence

methods.[21] Or prayer, tarot cards, astrology, augurs, revelation, or other forms of divination,

superstition or pseudoscience.

Taking the most opposite action compared to the advice of mistrusted authorities (parents,

police officers, partners...)

Opportunity cost : calculating the opportunity cost of each options and decide the decision.

Bureaucratic: set up criteria for automated decisions.

Political: negotiate choices among interest groups.

Participative decision-making  (PDM): a methodology in which a single decision-maker, in

order to take advantage of additional input, opens up the decision-making process to a group

for a collaborative effort.

Use of a structured decision-making method.[22]

Individual decision-making techniques can often be applied by a group as part of a group

decision-making technique.

A need to use software for a decision-making process is emerging for individuals and

businesses. This is due to increasing decision complexity and an increase in the need to

consider additional stakeholders, categories, elements or other factors that effect decisions.

Stages of group decision-making[edit]

According to B. Aubrey Fisher, there are four stages or phases that should be involved in all

group decision-making:[23]

Orientation. Members meet for the first time and start to get to know each other.

Conflict. Once group members become familiar with each other, disputes, little fights and

arguments occur. Group members eventually work it out.

Emergence. The group begins to clear up vague opinions by talking about them.

Reinforcement. Members finally make a decision and provide justification for it.

It is said that critical norms in a group improves the quality of decisions, while the majority of

opinions (called consensus norms) do not. This is due to collaboration between one another, and

when group members get used to, and familiar with, each other, they will tend to argue and

create more of a dispute to agree upon one decision. This does not mean that all group members

fully agree; they may not want argue further just to be liked by other group members or to "fit in".[24]

Decision-making steps[edit]

Each step in the decision-making process may include social, cognitive and cultural obstacles to

successfully negotiating dilemmas. It has been suggested that becoming more aware of these

obstacles allows one to better anticipate and overcome them.[25] The Arkansas program presents

eight stages of moral decision-making based on the work ofJames Rest:

1. Establishing community: creating and nurturing the relationships, norms, and procedures

that will influence how problems are understood and communicated. This stage takes

place prior to and during a moral dilemma.

2. Perception: recognizing that a problem exists.

3. Interpretation: identifying competing explanations for the problem, and evaluating the

drivers behind those interpretations.

4. Judgment: sifting through various possible actions or responses and determining which is

more justifiable.

5. Motivation: examining the competing commitments which may distract from a more moral

course of action and then prioritizing and committing to moral values over other

personal, institutional or social values.

6. Action: following through with action that supports the more justified decision. Integrity is

supported by the ability to overcome distractions and obstacles, developing

implementing skills, and ego strength.

7. Reflection in action.

8. Reflection on action.

Other decision-making processes have also been proposed. One such process, proposed by

Pam Brown of Singleton Hospital in Swansea, Wales, breaks decision-making down into seven

steps:[26]

1. Outline your goal and outcome.

2. Gather data.

3. Develop alternatives (i.e., brainstorming)

4. List pros and cons of each alternative.

5. Make the decision.

6. Immediately take action to implement it.

7. Learn from and reflect on the decision.

Cognitive and personal biases[edit]

Biases usually creep into decision-making processes. Many different people have made a

decision about the same question (e.g. "Should I have a doctor look at this troubling breast

cancer symptom I've discovered?" "Why did I ignore the evidence that the project was going over

budget?") and then craft potential cognitive interventions aimed at improving the outcome of

decision-making.

Here is a list of commonly debated biases in judgment and decision-making.

Selective search for evidence (aka confirmation bias; Scott Plous, 1993). People tend to be

willing to gather facts that support certain conclusions but disregard other facts that support

different conclusions. Individuals who are highly defensive in this manner show significantly

greater left prefrontal cortex activity as measured by EEG than do less defensive individuals.[27]

Premature termination of search for evidence. People tend to accept the first alternative that

looks like it might work.

Cognitive inertia . Unwillingness to change existing thought patterns in the face of new

circumstances.

Selective perception. We actively screen out information that we do not think is important

(see also prejudice). In one demonstration of this effect, discounting of arguments with which

one disagrees (by judging them as untrue or irrelevant) was decreased by selective

activation of right prefrontal cortex.[28]

Wishful thinking . A tendency to want to see things in a certain – usually positive – light, which

can distort perception and thinking.[29]

Choice-supportive bias  occurs when people distort their memories of chosen and rejected

options to make the chosen options seem more attractive.

Recency. People tend to place more attention on more recent information and either ignore

or forget more distant information (see semantic priming). The opposite effect in the first set

of data or other information is termed primacy effect.[30]

Repetition bias. A willingness to believe what one has been told most often and by the

greatest number of different sources.

Anchoring and adjustment . Decisions are unduly influenced by initial information that shapes

our view of subsequent information.

Group think . Peer pressure to conform to the opinions held by the group.

Source credibility bias. A tendency to reject a person's statement on the basis of a bias

against the person, organization, or group to which the person belongs. People preferentially

accept statement by others that they like (see prejudice).

Incremental decision-making and escalating commitment. We look at a decision as a small

step in a process and this tends to perpetuate a series of similar decisions. This can be

contrasted with "zero-based decision-making" (see slippery slope).

Attribution asymmetry . People tend to attribute their own success to internal factors,

including abilities and talents, but explain their failures in terms of external factors such as

bad luck. The reverse bias is shown when people explain others' success or failure.

Role fulfillment. A tendency to conform to others' decision-making expectations.

Underestimating uncertainty and the illusion of control. People tend to underestimate future

uncertainty because of a tendency to believe they have more control over events than they

really do.

Framing bias . This is best avoided by using numeracy with absolute measures of efficacy.[31]

Sunk-cost fallacy . A specific type of framing effect that affects decision-making. It involves an individual making a decision about a current situation based on what they have previously invested in the situation.[32] A possible example to this would be an individual that is refraining from dropping a class that that they are most likely to fail, due to the fact that they feel as though they have done so much work in the course thus far.

Prospect theory . Involves the idea that when faced with a decision-making event, an

individual is more likely to take on a risk when evaluating potential losses, and are more

likely to avoid risks when evaluating potential gains. This can influence one's decision-

making depending if the situation entails a threat, or opportunity.[33]

Reference class forecasting was developed to eliminate or reduce cognitive biases in decision-

making.

Post-decision analysis[edit]

Evaluation and analysis of past decisions is complementary to decision-making; see also mental

accounting and postmortem documentation.

Cognitive styles[edit]

Influence of Myers-Briggs type[edit]

According to behavioralist Isabel Briggs Myers, a person's decision-making process depends to

a significant degree on their cognitive style.[34] Myers developed a set of four bi-polar dimensions,

called the Myers-Briggs Type Indicator (MBTI). The terminal points on these dimensions

are: thinking and feeling; extroversion and introversion; judgment andperception;

and sensing and intuition. She claimed that a person's decision-making style correlates well with

how they score on these four dimensions. For example, someone who scored near the thinking,

extroversion, sensing, and judgment ends of the dimensions would tend to have a logical,

analytical, objective, critical, and empirical decision-making style. However,

some[who?] psychologists say that the MBTI lacks reliability and validity and is poorly constructed.

Other studies suggest that these national or cross-cultural differences exist across entire

societies. For example, Maris Martinsons has found that American, Japanese and Chinese

business leaders each exhibit a distinctive national style of decision-making.[35]

Optimizing vs. satisficing[edit]

Main article: Maximization (psychology)

Herbert A. Simon coined the phrase "bounded rationality" to express the idea that human

decision-making is limited by available information, available time and the mind's information-

processing ability. Further psychological research has identified individual differences between

two cognitive styles: maximizers try to make an optimal decision, whereas satisficers simply try to

find a solution that is "good enough". Maximizers tend to take longer making decisions due to the

need to maximize performance across all variables and make tradeoffs carefully; they also tend

to more often regret their decisions (perhaps because they are more able than satisficers to

recognise that a decision turned out to be sub-optimal).[36]

Combinatorial vs. positional[edit]

Styles and methods of decision-making were elaborated by Aron Katsenelinboigen , the founder

of predispositioning theory . In his analysis on styles and methods, Katsenelinboigen referred to

the game of chess, saying that “chess does disclose various methods of operation, notably the

creation of predisposition – methods which may be applicable to other, more complex

systems.”[37]

In his book, Katsenelinboigen states that apart from the methods (reactive and selective) and

sub-methods (randomization, predispositioning, programming), there are two major styles:

positional and combinational. Both styles are utilized in the game of chess. According to

Katsenelinboigen, the two styles reflect two basic approaches to the uncertainty: deterministic

(combinational style) and indeterministic (positional style). Katsenelinboigen's definition of the

two styles are the following.

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The combinational style is characterized by:

a very narrow, clearly defined, primarily material goal; and

a program that links the initial position with the final outcome.

In defining the combinational style in chess, Katsenelinboigen writes:

The combinational style features a clearly formulated limited objective, namely the capture of

material (the main constituent element of a chess position). The objective is implemented via a

well-defined, and in some cases, unique sequence of moves aimed at reaching the set goal. As a

rule, this sequence leaves no options for the opponent. Finding a combinational objective allows

the player to focus all his energies on efficient execution, that is, the player's analysis may be

limited to the pieces directly partaking in the combination. This approach is the crux of the

combination and the combinational style of play.[37]

The positional style is distinguished by:

a positional goal; and

a formation of semi-complete linkages between the initial step and final outcome.

“Unlike the combinational player, the positional player is occupied, first and foremost, with the

elaboration of the position that will allow him to develop in the unknown future. In playing the

positional style, the player must evaluate relational and material parameters as independent

variables. ... The positional style gives the player the opportunity to develop a position until it

becomes pregnant with a combination. However, the combination is not the final goal of the

positional player—it helps him to achieve the desirable, keeping in mind a predisposition for the

future development. The pyrrhic victory is the best example of one's inability to think

positionally."[38]

The positional style serves to:

create a predisposition to the future development of the position;

induce the environment in a certain way;

absorb an unexpected outcome in one's favor;

avoid the negative aspects of unexpected outcomes.

Katsenelinboigen writes:

"As the game progressed and defense became more sophisticated the combinational style of play declined. ... The positional style of chess does not eliminate the combinational one with its attempt to see the entire program of action in advance. The positional style merely prepares the transformation to a combination when the latter becomes feasible.”[39]

Neuroscience[edit]

Decision-making is a region of intense study in the fields of systems neuroscience,

and cognitive neuroscience. Several brain structures, including the anterior cingulate

cortex(ACC), orbitofrontal cortex  and the overlapping ventromedial prefrontal cortex  are

believed to be involved in decision-making processes. A recent neuroimaging study[40] found

distinctive patterns of neural activation in these regions depending on whether decisions

were made on the basis of perceived personal volition or following directions from someone

else. Patients with damage to the ventromedial prefrontal cortex  have difficulty making

advantageous decisions.[41]

A common laboratory paradigm for studying neural decision-making is the two-alternative

forced choice task (2AFC), in which a subject has to choose between two alternatives within

a certain time. A study of a two-alternative forced choice task involving rhesus

monkeys found that neurons in the parietal cortex not only represent the formation of a

decision but also signal the degree of certainty (or "confidence") associated with the

decision.[42] Another recent study found that lesions to the ACC in the macaque resulted in

impaired decision-making in the long run of reinforcement guided tasks suggesting that the

ACC may be involved in evaluating past reinforcement information and guiding future action.[43] A 2012 study found that rats and humans can optimally accumulate incoming sensory

evidence, to make statistically optimal decisions.[44]

Emotion appears able to aid the decision-making process. Decision-making often occurs in

the face of uncertainty about whether one's choices will lead to benefit or harm (see

also risk). The somatic-marker hypothesis is a neurobiological theory of how decisions are

made in the face of uncertain outcome. This theory holds that such decisions are aided by

emotions, in the form of bodily states, that are elicited during the deliberation of future

consequences and that mark different options for behavior as being advantageous or

disadvantageous. This process involves an interplay between neural systems that elicit

emotional/bodily states and neural systems that map these emotional/bodily states.[45] A

recent lesion mapping study of 152 patients with focal brain lesions conducted by Barbey

and colleagues provides evidence to help characterize the neural mechanisms ofemotional

intelligence.[46][47][48]

Although it is unclear whether the studies generalize to all processing, subconscious

processes have been implicated in the initiation of conscious volitional movements. See

theNeuroscience of free will.

Psychiatry[edit]

Schizophrenia has been found to have the highest rate of impaired decision-making among

psychiatric disorders; depression is second, and bipolar disorder third.[49]

Decision-making in adolescents vs. adults[edit]

This section needs additional citations for verification. Please

help improve this article by adding citations to reliable sources.

Unsourced material may be challenged and removed. (May 2014)

During their adolescent years, teens are known for their high-risk behaviors and rash

decisions. There has not, however, been that much research in this area. Recent

research[citation needed] has shown, though, that there are some differences in cognitive processes

between adolescents and adults during decision-making. Researchers have concluded that

differences in decision-making are not due to a lack of logic or reasoning, but more due to

the immaturity of psychosocial capacities, capacities that influence decision-making.

Examples would be impulse control, emotion regulation, delayed gratification and resistance

to peer pressure. In the past, researchers have thought that adolescent behavior was simply

due to incompetency regarding decision-making. Currently, researchers have concluded that

adults and adolescents are both competent decision-makers, not just adults. However,

adolescents' competent decision-making skills decrease when psychosocial capacities

become present.

Recent research[citation needed] has shown that risk-taking behaviors in adolescents may be the

product of interactions between the socioemotional brain network and its cognitive-control

network. The socioemotional part of the brain processes social and emotional stimuli and

has been shown to be important in reward processing. The cognitive-control network assists

in planning and self-regulation. Both of these sections of the brain change over the course

of puberty. However, the socioemotional network changes quickly and abruptly, while the

cognitive-control network changes more gradually. Because of this difference in change, the

cognitive-control network, which usually regulates the socioemotional network, struggles to

control the socioemotional network when psychosocial capacities are present.[clarification needed]

When adolescents are exposed to social and emotional stimuli, their socioemotional network

is activated as well as areas of the brain involved in reward processing. Because teens often

gain a sense of reward from risk-taking behaviors, their repetition becomes ever more

probable due to the reward experienced. In this, the process mirrors addiction. Teens can

become addicted to risky behavior because they are in a high state of arousal and are

rewarded for it not only by their own internal functions but also by their peers around them.

This is why adults are generally better able to control their risk-taking because their

cognitive-control system has matured enough to the point where it can control the

socioemotional network, even in the context of high arousal or when psychosocial capacities

are present. Also, adults are less likely to find themselves in situations that push them to do

risky things. For example, teens are more likely to be around peers who peer pressure them

into doing things, while adults are not as exposed to this sort of social setting.[50][51]

Decision making in hydrocarbon field development[edit]

Decision making, and associated frameworks, are extensively used in hydrocarbon field

development [52], where time-dependent decisions such as number, type, locations, controls,

and drilling sequence of new wells are to be determined.

A business aims to generate value for its owners, customers and other stakeholders. It must decide how to combine valuable resources – typically buildings and equipment, materials, people and knowledge – in such a way that the value of the output exceeds the costs of the input.As resources flow into or out of a business, information flows too. Much of this information leaves a footprint in the form of financial data as the activities along a business’ value chain result in financial outcomes. These are reported in financial statements including the cash flow and income statements as well as the formal balance sheet. Traditional accounting is concerned with reporting on a business in financial terms about its past performance.

Management accountants

Management accountants go beyond this to prepare both financial and non financial information to support the business. They combine the relevant expertise of a traditional professionally qualified accountant with an understanding of the drivers of cost, risk and value in a business. This enables them to provide analysis and insights which are used to improve future performance.CIMA, the Chartered Institute of Management Accountants, is the world’s leading professional body of management accountants. CIMA trained management accountants help to lead the process of strategy formation in a business. Strategy is the plan for achieving objectives. However, strategy only points the way. Many decisions – large and small – must be made. Management is all about decision making and management accountants play a vital role in providing the crucial evidence that helps managers to make the right decisions.Detecting, monitoring and evaluating risk is a very important element of this process. Management accountants use their accounting know-how to factor risk into decisions to help senior managers make realistic plans. The effectiveness of this depends on good communication. Even the best information has little value if not received by the right staff in the right format at the right time.

Types of Decision Making

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Levels, Styles, Processes

It’s not often realised that there are different types of decision making. 

Although this may seem obvious it’s not always understood. And even when it is, decision types may not be fully

considered when decisions are being made.

Improve your decision making by considering some important variables.

In this article we introduce our series on types of decision making. From here you can link to pages which explain

how decisions are affected by such variables as:

Decision levels - An  Initial Decision Making Technique

Decision styles - Decision Making Styles

Decision processes (rational) - Rational Decision Making Model

Decision processes (intuitive) - Intuition and Decision Making

According to Ohio State University management professor, Paul C. Nutt, we only get about 50% of our decisions

in the workplace right! Half the time they are wrong, so there is clearly plenty of scope to improve on our decision

making processes. Hopefully this series of articles will help you to imrove those odds.

Perhaps the obvious place to start is to ensure a decision really needs to be made. If you haven’t done so

already, you might like to read our article: Decision Making Lesson 1: Do You Need to Make One! Once you’ve

done this, and you’re sure a decision needs to be made, the next thing to think about is the level of decision that

needs to be made.

Types of Decisions Making: Decision Levels

The first of our types of decision making variables is the level of the decision. When faced with a decision, try

asking yourself questions such as:

How complex is the decision?

How important is the decision?

How strategic is the decision?

Our article: An Initial Decision Making Technique addresses these questions and more. Use it to help you make

an intial assessment of the level of decision you’re about to make. For example, the level of engagement you

may need from others or the level of risk possibly associated with making the decision. It will help you to filter

decision making variables before adopting an appropriate decision making process.

Types of Decision Making: Styles

Types of Decision Making: ProcessThere are various types of decision making style. These can be categorised

by the degree to which other people participate in the process. There is good evidence to support the argument

for involving others in decision making. However, participation can also be a time consuming activity. Again,

there are questions to be asked. Such as:

To what extent should you involve others in decision making?

In what conditions might participation techniques work best?

Our article: Decision Making Styles looks at two of the best known models relating to participative decision

making.

Types of Decision Making: Process

A third way to categorize decision making is by the processes used. These can vary from classical, rationalistic,

decision making processes to less structured, subjective methods.

In our article: Rational Decision Making, we discuss a classical approach to decision making. This approach

consists of a sequence of structured steps, designed to rationally develop a desired solution. Typically these

steps progress from problem/opportunity identification to the selection of preferred alternatives.

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One of the principle assumptions of a rational decision making process is that human beings make rational

decisions. However, often there is a wide range of factors which determine our decisions, many of which

are not rational. In many situations, decisions have to be made with incomplete and/or insufficent information.

In this context, an understanding of intuitive decision making approaches is useful. Intuition and Decision

Making introduces some recent thinking on how people make decisions. In contrast to rational processes,

intuitive decision making is less structured, and places more emphasis on feelings, perceptions and judgements,

rather than facts and analysis.

Perhaps though, the best solution is not “either/or”. Possibly the most practical of decision making skills is the

ability to combine a rational approach with intuitive insights. If you have time, have a look at this video of

Canadian thought-leader, Malcolm Gladwell. He’s at his entertaining and persuasive best in discussing the

differences between rational and   intuitive decision making .

Once you’ve finished with Gladwell’s take on decision making, use these articles and our great-value resources

to inform your understanding and practice.  Different types of decision making require different approaches,

something we particularly address in our e-guide: Making Better Decisions

TYPES OF DECISIONS & DECISION MAKING PROCESSMonday, Dec 8 2008 

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A decision is a choice made between 2 or more available alternatives.

Decision Making is the process of choosing the best alternative for reaching objectives.

Managers make decisions affecting the organization daily and communicate those decisions to other organizational members.

Some decisions affect a large number of organization members, cost a great deal of  money to Carry out, or have a long term effect on the organization. Such significant decisions can have a major impact, not only on the management systems itself, but on the career of the manager who makes them.

Other decisions are fairly insignificant, affecting only a small member of organization members, costing little to carry out, and producing only a short term effect on the organization.

TYPES OF DECISIONS:

PROGRAMMED DECISIONS: 

Programmed decisions are routine and repetitive, and the organization typically develops specific ways to handle them. A programmed decision might involve determining how products will be arranged on the shelves of a supermarket. For this kind of routine, repetitive problem, standard arrangement decisions are typically made according to established management guidelines.

NON PROGRAMMED DECISIONS:

Non programmed decisions are typically one shot decisions that are usually less structured than programmed decision.

5 ELEMENTS  OF THE DECISION SITUATION:

1. The Decision Makers

2. Goals to be served

3. Relevant Alternatives

4. Ordering of Alternatives

5. Choice of Alternatives

DECISION MAKING PROCESS:

Decision making steps this model depicts are as follows:

1. Identify an existing problem                                                          

2. List possible alternatives for solving the problem                       

3. Select the most beneficial of these alternatives.                           

4. Implement the selected alternative.                                              

5. Gather feedback to find out if the implemented alternative is solving the identified problem.