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.

It is widely believed that the element of rationality should also be present in decision making. In this regard, it is said that the decisions taken by the managers can be effective if they are also rational. However, the meaning of the term rationality, particularly in the context of decision-making, is not clear. The purpose of decision-making is to achieve an objective. Rationality requires that the person making the decision should be aware of the alternative courses of action that can be used to achieve the objectives. Similarly, the person should have complete information and also the ability to properly analyze the alternative courses of action available for achieving the objective. At the same time, it is also required that there should be the desire to find the appropriate solution and for this purpose the selected alternative should be capable of achieving the objective. In this regard, rationality can be described in terms of objective and intelligent action. In case of rationality, there is also a behavioral nexus present between the ends and means. This means that if the appropriate means have been selected for achieving the desired ends, the decision can be described as a rational. However it is not possible that there can be complete rationality in the process of decision-making, particularly in case of management decisions. The decisions are made for future and therefore there is always a certain amount of uncertainty involved in it. In the same way, it is also very difficult to identify the entire alternative that may be available to achieve the objectives. This can be particularly true in cases where an opportunity may be involved to do the things that have not been done earlier. Even the latest software may not be able to properly evaluate all the available alternatives.

Rationality also has other limitations. These limitations are related with time, information and also related with certainty. Therefore, although the managers want to be rational while making a decision, they have to satisfy with limited rationality only. The reality is that the managers cannot be totally rational while making a decision. For example, sometimes the aversion to risk that is present among the managers may interfere with the desire of the managers to select the possible solution. In this way, the element of risk may also act as a limitation. A large number of managers want to play it safe and therefore, they take risk only by remaining within the limits of rationality and also, keeping in view the size and nature of the risk.

The process of decision-making can be quite complex. In this regard, there are different techniques ranging from mathematical analysis to guesswork that can be used by the managers for making a decision. In this regard, the selection of the appropriate technique depends on the judgment of the person who is going to make a decision. However, the below mentioned techniques are generally used for making a decision:

1. Intuition: In case of decision-making on the basis of intuition, the inner feelings of the person making the decision are relied upon. In this case, the decision is made by the person on the basis of his or her conscience. The person considers the problem and then an answer to the problem appears in the mind of the person. In this case, it needs to be noted that each person has his own influences, preferences and psychological makeup. All these things have a significant impact on the decision made by the person. In the same way, the past experiences, training and knowledge of the person making the decision also play an important part in case of the decisions made on the basis of intuition.

2. Facts: It is generally believed that the decisions made on the basis of facts are the best decisions. The reason is that a decision that has been made on the basis of facts is based on factual data. Due to this reason, these decisions are sound and proper. At the same time, there are a number of software programs that can help in analyzing a large number of facts and data. In this way, these days, most managers rely upon the analysis of data while making a decision. However, there can be circumstances where it may not be possible to collect all the relevant facts while making a decision. Most of the managers complain regarding the fact that all the facts are not available to them while making a decision. At the same time, it is also very important that all the facts have been properly classified and interpreted by the managers. In this way, a decision cannot be made only on the basis of facts. In this process, the experience, knowledge and the beliefs of the person making the decision also play an important role as the help in analyzing the facts.

3. Experience: The past experiences of the managers also play a role in making a decision. For example, if a manager had to deal with a similar problem in the past also, a similar decision can be taken by the manager in the present case if the earlier decision had proved to be successful. At the same time, experience also plays an important role because all the facts are comprehended by a person in view of the experiences that a person has. However, the past experiences should not be followed blindly. Each new situation should be analyzed independently. The reason is that even if a particular decision has proved to be successful in the past, it is possible that the same decision may not work at present also. In the same way, it is not necessary that a decision that has failed in the past will not be successful in the future also. Therefore, past experience of the managers can help but it should not be the only basis for making the decision.

4. Considered Opinion: Considered opinion can also be used by the managers as a basis for making the decision. The reason is that apart from the relevant facts, opinions are also important in the process of decision-making. When a particular problem has been considered by a large number of persons, it may appear as a logical and sound basis for making the decision. For example, while making a decision regarding a new product, a marketing manager may take into account the relevant marketing statistics but at the same time, the considered opinions of different people may also help in making the final decision.

5. Operations Research: while traditionally, decisions were taken by the managers on the basis of their experience or intuition but these days, systematic techniques are also available to the managers for analyzing data. One such technique is known as operations research which is used by the managers while taking important decisions. In this way, the technique of operations research can help the managers in taking the appropriate decision as it provides the scientific basis to solve the problems in which the interaction of base components of the organization is involved.

6. Linear Programming: The technique of linear programming is used for deciding how the limited resources available with the organization can be used in the best possible way so that the objectives can be achieved. This technique is based on the assumption that a linear relationship is present between variables and the limits of variations can be certain. In this way, the technique of linear programming can be used for making decisions in the fields of production, warehousing or transportation.