5.2.2 Classification of management decisions

The organization makes a large number of various decisions at various organizational levels. They are characterized by many features that reflect different sides of the decisions. The combination of these features allows for the classification of management decisions. The literature discusses various methods of such a classification for different sets of features [1, 2, 5, etc.]. Summarizing these methods, we can propose the following classification of management decisions (Table 4.1).

Table 4.1

Management Decision Classification

Different types of management decisions have different properties, they correspond to different ways of organizing procedures for their adoption, development methods, time and other resources for adoption and implementation, etc.

Individual decisions made by one person require less time to develop, since they do not need to be coordinated with other members of the group subject, they are characterized by a higher level of creativity and novelty. At the same time, individual decisions are characterized by a higher risk of errors, a smaller number of options under consideration, and, consequently, a high probability of making a non-optimal decision.

Modern problems of organizations are becoming more complex and require multidimensional consideration, and hence a variety of specialized knowledge. Therefore, at present, an increasing number of management decisions are being made on the basis of discussion, through the involvement of various specialists and through various organizational forms (working groups, commissions, committees, councils, etc.).

A group solution has several advantages over an individual one. The quality of a group decision is usually higher, since when developing it, a greater number of possible options are offered, these options are considered more versatile and reasonable, which reduces the possibility of making an erroneous decision. When a group decision is made, responsibility is distributed among the members of the group; therefore, it may be more risky, but also more effective. Involvement in the collective decision-making process enhances the motivation of the participants in this work, and the group decision itself is usually better perceived by the collective of the organization compared to the individual.

A significant disadvantage of a collective solution is its relatively low efficiency: the development of such a solution takes considerable time to form a group, prepare materials for discussion, familiarize the group members with the problem, discuss and coordinate opinions. The larger the group, the longer it takes for this work. Practice shows that groups consisting of no more than seven people work most effectively (this does not apply to mass forms of collective decision-making — conferences, meetings, congresses, referendums, etc., for which draft decisions are prepared by groups with a limited number ).

It should be noted that the collegial decision-making does not exclude the personal responsibility of the manager for him.

The adoption of operational decisions is associated with the need to either take urgent measures to achieve certain results, or to ensure the stability of production and technological processes. Depending on the specific circumstances and level of management, the concept of efficiency may have a different temporal meaning. Thus, in extreme circumstances, a management decision ^* can be made and executed in seconds or even a fraction of a second; operational decisions on the current production management can be made and implemented within a few minutes or hours.

Tactical and strategic decisions associated with the formation and achievement of the tactical and strategic goals of the organization.

The number of operational decisions taken in an organization usually exceeds many times the number of tactical and strategic decisions, but the most resource-intensive are strategic decisions. The distribution of total time spent on making these types of decisions in enterprises of large, medium and small size also has features: in small enterprises, most of the time is spent on operational decisions, and as the size of enterprises increases, the time spent on developing a strategy ^{* of} development increases significantly.

Classification of decisions according to the degree of formalization allows using different methods of organizing procedures for their adoption and development methods.

Programmed decisions are usually made in repetitive, standard situations and are the result of a certain sequence of steps or actions. Moreover, both the problem itself and the decision taken to solve it are well structured and formalized. The choice of decision must be made from a limited number of well-defined options using a standard procedure.

For example, if it is necessary to decide where to invest free capital: invest in certificates of deposit, government bonds or shares of a company, the choice is determined by simply calculating the amount of profit for each option and comparing them.

Unprogrammed decisions are made in situations of new, poorly structured, coupled with unknown factors, with incomplete and unreliable information. The choice of decision must be made from a variety of options, and the set of options cannot be complete. This does not allow to find a solution by building adequate mathematical models and requires the development of appropriate procedures leading to the solution of the problem. In this case, an important role is played by the qualifications, experience, intuition, and creative potential of the leader. When making complex unprogrammed decisions, formal models and procedures can be applied at individual stages.

Unprogrammed are decisions on defining the organization’s goals, its development strategy ^* , changing its structure, forecasting market conditions, etc. The number of such decisions increases with the size and complexity of organizations and the number of their external relations.

The relationship between programmed and unprogrammed solutions in an organization is different at different levels of management. At the upper levels, the proportion of unprogrammed solutions prevails, which decreases as the level of management decreases. In the lower echelon, decisions prevail, the adoption of which is carried out according to previously developed rules and procedures.

The way to substantiate a decision is characterized by the ratio of intuition and logic in the process of its adoption and reflects the psychological characteristics of the person making the decision.

An intuitive decision is a choice made only on the basis of the feeling that it is correct. The decision maker does not deal with the conscious weighing of the pros and cons of each alternative and does not need a thorough analysis of the situation. It is just that a person makes a choice (what is called insight or the sixth sense is an intuitive decision). Intuitive decisions play a big role, especially for senior executives. However, it must be borne in mind that a good solution based on intuition is based on a lot of experience, a correct understanding of the situation and a deep professional knowledge of the manager. A purely intuitive approach to decision making is fraught with a certain risk of making an erroneous decision.

The decision ^* , based on reasoning , is a choice based on knowledge and accumulated experience. Such decisions sometimes seem intuitive, since the logic of their adoption may not be obvious. When making such decisions, the manager uses the experience of resolving similar situations in the past, knowledge of the current situation and its differences from those encountered earlier and chooses an alternative that has already brought success, or modifies it in accordance with the existing differences in situations.

Reasoning as a basis for decision-making is characteristic of many daily management decisions in repetitive situations and, as already noted, is based on accumulated experience. However, reasoning alone will not be enough to make a decision in a new or very difficult situation, when the manager lacks relevant experience or the available information about the situation is not complete and reliable. Even in familiar situations, excessive reliance on past experience encourages the manager to make decisions by analogy. Because of this, the manager may miss a new, more effective alternative, not use the newly appeared opportunities.

Rational decisions, unlike those based on reasoning, do not depend on past experience. A rational decision is justified with the help of objective analytical actions based on the use of information that fully describes the problem situation and the possible consequences of alternative solutions. Such solutions are, as a rule, programmed and can be developed using technical means of automated information processing.

Most of the management decisions made in organizations are based on a combination of the considered approaches to their development: intuitive, reasoning-based and rational.

The conditions in which management decisions are made are characterized by the degree of certainty of the problem situation, that is, by the completeness and accuracy of the information describing this situation.

The decision is made under certainty , when there is complete and reliable information about the problem situation, goals, limitations and consequences of the decision. The problem itself and the situation ^* in which it arose are accurately described by a set of relevant characteristics. Goals and constraints are formally defined as objective functions and inequalities (equalities). The decision criterion is determined by the minimum or maximum of the objective function. All this allows us to construct a formal mathematical model of the decision-making problem and algorithmically find the optimal solution. To solve such problems, various optimization methods are used, for example, methods of mathematical programming. Decisions made under certainty conditions are also called deterministic .

At present, typical problems of a production and economic nature are formulated, for which optimal decision-making algorithms based on mathematical programming methods have been developed. Such tasks, for example, include the tasks of locating production facilities, allocating resources and jobs, managing inventory, transportation tasks, etc. The role of a person in solving problems of this class is to bring the real situation to a typical mathematical programming problem and approve the optimal solution.

Relatively few management decisions are made under certainty. However, often some elements of large decisions can be considered as defined.

Decision making under probabilistic certainty is carried out in cases where there is no reliable information about the problem situation, and each decision can lead to one of many possible outcomes, and each outcome has a certain probability of occurrence that can be calculated. The indicators characterizing the problem situation are also described using probabilistic characteristics, that is, the incompleteness and unreliability of the initial information is reflected in the probabilistic characteristics. The probabilistic characteristics themselves are already non-random, so it is possible to perform operations with them to find the optimal solution in the same way as with deterministic characteristics. The solution of such problems is based on the theory of statistical solutions.

Despite the fact that all random phenomena and factors accompanying the controlled process and affecting its result are well studied and all their necessary statistical characteristics are known, the outcome of the implementation of each specific solution is unknown, random. In this sense, the manager always risks getting the wrong result, which he or she focuses on, choosing the optimal solution based on the averaged statistical characteristics of random factors. Therefore, the considered type of decisions is also called decisions taken under risk .

The role of a person in solving problems by the methods of the theory of statistical solutions consists in setting the problem, that is, reducing the real problem to the appropriate model, determining the probabilities of events based on statistical data, and also in asserting the optimal solution obtained.

An example of a company’s decision made at risk is the decision to insure its fleet. In this case, the head does not know in advance whether there will be accidents, and if so, what they will cost. When making a decision, it is necessary to take into account statistics of the number of accidents and damage from them. Depending on the size of the car park, it is possible to determine the estimated amount of damage with a certain probability, and hence the insured amount. In fact, accidents can happen less, and losses can be greater.

Decisions made under conditions of uncertainty are characterized by a large incompleteness and unreliability of the initial information, the diversity and complexity of the influence of social, economic, political and technical factors. In this case, the manager cannot assess the probabilities of potential results with a sufficient degree of reliability. These circumstances do not allow building adequate mathematical models of problems for determining the optimal solution. Therefore, the main work on finding an acceptable solution is performed by a person. Formal methods and technical means are used by man in the decision making process as auxiliary tools.

In conditions of uncertainty, a manager can use two main possibilities.

The first is to try to get additional information and analyze the problem again. This often reduces the uncertainty of the situation and the complexity of the problem. By combining this additional information and analysis with accumulated experience, reasoning ability, or intuition, a manager can give a number of parameters a subjective or perceived probability.

The second possibility is to act in accordance with past experience, reasoning or intuition and make an assumption about the probability of events. This is necessary when there is not enough time to gather additional information or the cost of it is too great. Time and informational constraints are important when making management decisions.

The above shows that decision making under uncertainty is a more general case, and the conditions of certainty and probabilistic certainty are particular cases of decision making. Most management decisions in organizations are made in the face of uncertainty.

The specific type of solution is characterized by a set of considered features.