The process of decision making is stated as the cognitive process that results in the selection of the course of action or belief among the number of alternatives that are possible to take place. The decision making process helps to make the final choice. It is not important that all the decision making process prompt an action with the final choice that has been made through that decision making process. It is basically the process of choosing and identifying the alternatives that has been based on the values and vision of the decision maker. Many things depend upon the decision maker and hence it is important to make the things with correct vision and mind set. It is basically the activity of problem solving which gets terminated on finding the solution that should be satisfactory for the problem holder. In this process less or more rational or irrational is based upon the tacit or explicit knowledge or beliefs. There are different perspectives through which human performance can be judged. The psychological aspect helps to examine the decision of the individual in the context of the set of needs, values and preferences.

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It is very important that the management of the organization always takes the correct decisions. The reason is that if a wrong decision has been taken at any level, it can create problems for the whole organization. However it is also true that despite the best efforts of the management, there are certain problems that may arise during the process of decision-making. These problems related with decision making can be described as follows:-

1. The Timing of Decision: A difficulty that is generally faced by the management while taking a decision is related with the timing of the decision. The reason is that it is very important that the decision should be made at the most opportune time. Therefore, deciding the most appropriate time for taking the decision is a problem in itself. The decision will not be effective if it is not taken at the appropriate time.

2. Need for Correct Decisions: The managers are required to decide if the decision taken by them is correct or not. In case the decision is not correct, a lot of time and money will be wasted. It needs to be mentioned that the correctness of the decision depends on the capabilities of the person making the decision as well as on the information available regarding the problem and the analysis of such information. For example if correct facts are not available with the managers, the decision may be based on incorrect premises. Therefore, the premises should be based on the correct problem and they should also be properly analyzed so that a correct decision can be made.

3. Effective Communication: After a decision has been taken by the management of the organization, it is also required that the decision should be properly communicated to all the persons for whom the decision has been taken. For this purpose, the decision needs to be communicated in such a way that it can be easily understood by these persons. On the other hand, if the decision taken by the management has not been properly communicated to all the persons who have the responsibility to implement the decision, the decision will not be implemented effectively and as a result, it will remain on paper only. Therefore, the management has to deal with various communication barriers and communicate the decision properly.

4. Participating in Decision Making: It is considered that the best way to take an important decision is to hear the views of all the persons that are concerned with the decision before making the final decision. By receiving the views of different persons concerned with the decision, a wider viewpoint regarding the problem can be achieved. However, it has been seen that the top level management of the organization takes all the important decisions at its own level and other persons are not allowed to take part in this process. In this way, the authority of taking significant decisions is confined to a few persons only. However, such a situation can create problems in the effective implementation of the decision. While taking a decision, the views of the persons who are going to be directly impacted by the decision should also be considered. Therefore, in order to avoid such a situation, the management should allow all the concerned persons to participate in the decision-making.

5. Decision Environment: The physical and organizational environment also has an impact on the process of decision-making in an organization. In case favorable environment exists for decision-making, mutual understanding and cooperation are also present. The result is that all the decisions are accepted by others in good spirit and in the same way, these decisions are also implemented effectively. At the same time, such atmosphere also allows the scope for creative thinking and research.

6. Implementing Decisions: Sometimes, the management of the organization may also face problems in implementing a particular decision. Therefore, after a decision has been made by the management, it is also equally important that sincere efforts should be made to implement the decision. The managers and their subordinates play an important role in the implementation of the decisions. Therefore, the managers can consult their subordinates or they may also take advice from specialists but the final decision has to be made by the managers themselves. At the same time, it is also the responsibility of the manager to ensure that the decision is being implemented properly. On the other hand, if a decision proves to be unsuccessful, the manager has to face criticism. In this way, the implementation of a decision may also create problems that have to be handled by the managers.

The different theories that are related with decision making are as follows:-

1. Marginal Theory: in case of this theory, the emphasis is on increasing the profit. According to the advocates of this theory, profits can be increased when the marginal costs of inputs are the same as the marginal revenues. In this regard, the marginal cost is the additional cost of producing an additional unit and on the other hand, the marginal revenue is related with the extra revenue achieved from such a product. Therefore, in case of a difference between the marginal costs and revenues, maximum profit cannot be achieved. In such a case, either additional revenue will be generated at less additional costs or vice versa. However, it has been seen that it is very difficult to find the marginal point for each factor of production because the cooperation of every person is required for carrying these functions.

2. Psychological Theory: In case of this theory, the emphasis is on the maximization of customer satisfaction. According to this theory, the manager plays the role of an ‘administrative man’ instead of being an economic man. Therefore, the manager tries to protect the economic interests of the organization and at the same time, efforts are made to increase customer satisfaction. The manager selects a particular alternative that is also capable of helping the customers. Therefore, the psychological theory provides that the interests of the consumers should always be kept in mind while taking a decision.

3. Mathematical Theory: In mathematical theory, various models are used. Therefore it is also called the operations research theory. Generally the techniques that are used in mathematical theory include linear programming, network theory, Monte Carlo technique, simulation models etc. In this case, the analyst defines the problem and uses symbols for unknown data and then makes efforts to solve the problem. As compared to the other theories, mathematical theory is much more systematic.

There are four basic standards that can be used for deciding the nature of the decision and also the level of authority that should make the decision. These are:-

i. The degree of futurity in the decision;

ii. The impact of the decision on other functions or on the business as a whole;

iii. The number of quantitative factors in the decision; and

iv.The decision is rarely taken or it has to be taken periodically.

1. Organizational and Personal Decisions: when a particular decision has been taken by a person as an executive of an organization, such decision can be considered as an organizational decision. The impact of such decision can be felt on the working of the entire organization. The power of taking an organizational decision can also be delegated by a superior to the subordinates. On the other hand, an executive can also take a decision that is related with himself. Such decisions are known as personal decisions. Generally the effect of these decisions is on the personal life of the decision-maker. At the same time, the authority of taking such decision cannot be delegated to others.

2. Routine and Strategic Decisions: The routine decisions have to be made periodically and therefore there are certain established procedures, policies and rules regarding these decisions. The routine decisions have to be made regarding the day-to-day affairs of the organization. For the purpose of making these decisions, fresh information or discretion is not required. The routine decisions are generally taken by the middle or the lower level management of the organization. On the other hand, the strategic decisions are related with significant matters and therefore they have to be taken by the top-level management of the organization. These strategic decisions are related with policy matters and therefore, different alternatives have to be developed and analyzed. The strategic decisions have an impact on the organizational structure, objectives, finances and the working conditions etc. The strategic decisions are basic and the effect of these decisions can be felt for a long time.

3. Programmed and Non-programmed Decisions: The programmed decisions are of a routine nature and no specific procedure has to be followed for taking these decisions. The effect of these decisions is short-term and these decisions are taken by the lower level management of the organization. For example, the decision to make routine purchases or to grant a leave can be described as programmed decisions.

4. Policy and Operating Decisions: The policy decisions are used for deciding the basic policies related with the organization. These decisions are taken by the top management of the organization. The policies that have been decided by the top management also act as the basis for the operating decisions. No decision can be taken that goes beyond the policy framework. In this way, the policy decisions are very important and their impact is also long-term. On the other hand, the operating decisions are less significant. These are related with the day-to-day operations of the organization. The operative decisions are taken while keeping in view the policies that have been decided by the organization. The operative decisions are taken by the middle and the lower level management because in these decisions, real execution and supervision is also involved. For example, the decision to grant bonus to the employees of the organization can be described as a policy decision but once this decision has been made, the exact amount that is going to be paid to each employee will be an operated decision.

5. Individual and Group Decisions: The classification of decisions as individual and group decisions is based on the number of persons that are involved in the process of making the decision. Therefore if only one person has taken the decision, it can be described as an individual decision. Such decisions are generally taken by the owners of small businesses. Even in case of large organizations, it is possible that the major decisions may be taken by one person alone. Generally the individual decisions are also programming decisions. But when a group of persons is involved in taking the decision, it is described as a group decision. For example, the decision taken by the board of the company can be described as a group decision. Generally group decisions are very significant for the organization and they are related with policy matters. As a result, these decisions have to be taken by the group after comprehensive discussions by the persons who have the responsibility to take the decision. However, a major problem that is present in case of group decisions is the problem of delay.

As mentioned above, the process of decision-making involves selecting the most appropriate alternative out of the various alternatives that are available to the managers. At the same time, the decision taken by the managers at present will also have an effect on future. For this purpose, the decision-making process involves the visualization of the conditions that may be present in future. Therefore, it can be said that there is at least a certain amount of uncertainty present in the decision-making process. Certain risks are related with the process of decision-making and the conditions may also vary from certainty to complete uncertainty. Due to this reason, the strategy of making decisions under different conditions may also vary. Therefore the different conditions under which the decisions have to be taken can be described as follows:-

1. Certainty: When the certainty conditions are present, it can be reasonably expected by the managers what is going to happen when a particular decision has been taken by them. In this case, the required information is available and such information is also a reliable. In the same way, the cause and effect relationship is also known. The result is that the decisions taken by the managers under these situations at different times provide the same results. In these situations, the managers use a deterministic model, and it is assumed that all the factors are exact and there is no role for chance.

2. Risk: In a risk situation, although the factual information may be present but it can be insufficient. Mostly the managers have to take business decisions under risk situations. The reason is that the information available with the managers does not provide answers to the overall questions regarding the outcome of the decision. The manager is required to develop estimates regarding the likelihood of different events taking place. These estimates can be based on past experiences or on the other information or intelligence. Decision-making under these conditions can be improved if the managers can estimate the objective chances of an outcome by using certain methods like the mathematical models. On the other hand, the managers may also use subjective probability that is based on their experience and judgment. For this purpose, several tools are available to the managers that can help in taking decisions under risk conditions.

3. Uncertainty: In case of uncertainty conditions, very little information is available to the managers and the managers are not sure regarding the reliability of such information. Due to the reason that the managers do not have proper information, the managers should be aware of the fact that they are not in a position to predict the events. It is not available to the managers to evaluate the interaction of different variables for the purpose of making the decision. As a result, it becomes difficult to take a decision on this uncertainty conditions. However, there are certain techniques that can be used by the managers for making a better decision under uncertainty conditions. For example, they may use decision trees, risk analysis and preference theory for making the right decisions in uncertainty conditions.