After reading this article you will learn about the programmed and non-programmed decisions.
Programmed Decisions:
Decisions related to structured situations, where the problem is more or less routine and repetitive in nature are known as programmed decisions. For example, problems related to leave are solved by policy relating to leave rules. Employees who take leave according to leave rules Eire granted leave and those who do not follow the leave rules may not be granted leave. The routine problems may not always be simple.
There may be complex routine problems. For example, production department follows a routine that managers order for inventory when it reaches the re-order point. If there is sudden increase in demand for the product, managers cannot wait for inventory to reach the re-order point to make fresh orders. Orders are placed before this level is reached. Ordering inventory is, thus, a problem of routine nature but ordering inventory before the re-order point is a routine but complex problem.
In either situation, managers depend on pre-established criteria for taking decisions. Various policies, schedules and procedures guide these decisions and, therefore, policies and procedures should be as clear as possible. Since decisions are based on pre-defined standards, they do not require much of brainstorming and are taken normally by middle and lower-level managers.
Managers do not think of innovative ways to solve the routine problems. Therefore, they can concentrate on important and crucial activities. These decisions also involve some amount of certainty, i.e., outcomes of these decisions are, by and large, known.
Various types of programmed decisions are:
(1) Organisational decisions
(2) Operational decisions
(3) Research decisions, and
(4) Opportunity decisions.
Non-Programmed Decisions:
These decisions are taken in unstructured situations which reflect novel, ill-defined and complex problems. The problems are non-recurring or exceptional in nature. Since they have not occurred before, they require extensive brainstorming. Managers use skills and subjective judgment to solve the problems through scientific analysis and logical reasoning.
Subjective judgment is based on assessment of the situation. In objective judgment (in case of programmed decisions), past experience forms the basis for decision-making. These decisions involve fair degree of uncertainty since outcomes of decisions are not always known. These decisions are based on partial ignorance as the alternatives and their outcomes cannot be known in advance. They are taken in the context of changing, dynamic environmental conditions.
For example, increase in advertising expenditure, effective salesmanship, upgraded technology, quality controls, brand image and reasonable prices are expected to increase sales and profits. If, despite all this, profits are declining, it requires immediate decision-making and such decisions are non-programmed decisions.
These decisions are taken by top-level managers. As we move up the organisational hierarchy, the need for taking non-programmed decisions increases.
Different types of non-programmed decisions are:
(1) Personal decisions,
(2) Strategic decisions,
(3) Crisis intuitive decisions, and
(4) Problem-solving decisions.
There is no clear line of demarcation between programmed and non-programmed decisions. Decisions are neither totally programmed nor non-programmed. They are a combination of both and lie on continuum of decision; between totally programmed decisions at one end of the continuum and totally non-programmed decisions at the other end.
A brief description of different types of programmed and non-programmed decisions is given below:
1. Organisational and personal decisions:
These decisions reflect use of authority. Decisions taken in interest of the organisation are organisational decisions and decisions taken for personal interests are personal decisions. Organisational decisions can be delegated but personal decisions cannot.
Managers are officially authorised to make organisational decisions but they do not have authority to make personal decisions. They are based on personal biases. For example, firing an employee because he does not conform to rules is an organisational decision but firing due to personal enmity is a personal decision.
2. Operational and strategic decisions:
These decisions reflect scope of decision-making processes. Operational decisions are taken as a matter of routine. They relate to daily operations and aim to achieve short-term objectives of the firm. They are taken by middle and lower- level managers within the framework of policies and procedures and allow limited use of discretion by managers. Their impact is also limited and short-range in nature.
These decisions affect part of the organisation and are based on pre-defined policies and procedures. For instance, purchase of stationery and raw material are day-to-day decisions which affect only the purchase department and are taken according to pre-defined procedures defined for the purchase department.
Decisions related to important and non-recurring problems are called strategic decisions. Managerial skill and judgment are used to make these decisions. They relate to long-term goals of the company, define relationship of the organisation with the environment and are risky in nature. They are taken by top-level managers. Decisions to update the technology, launch a new plant or change the policies are strategic decisions.
These decisions affect the whole or major part of the organisation and contribute directly to organisational objectives. They are usually not based on past experience and involve a major departure from earlier business practices regarding various business decisions like expansion of business in international markets, diversification, change in marketing mix etc.
Strategic decisions involve three important elements:
(a) Result element:
It specifies the result (objective) to be achieved through the decision.
(b) Action element:
It specifies the action to be taken to achieve the result.
(c) Commitment element:
It specifies the dedication, loyalty and commitment with which people who are responsible for taking action to achieve results are involved in making the decisions.
3. Research and crisis—intuitive decisions:
These decisions reflect urgency of decision-making. Decisions which involve regular survey of the market are research decisions and decisions made under situations of crisis or emergency are crisis — intuitive decisions. For example, decision to allocate funds to Research and Development for product designing is a research decision; decision to increase production of medicines because of earthquake or war is a crisis-intuitive decision.
4. Opportunity and problem-solving decisions:
These decisions reflect foresightedness. Managers forecast opportunities to promote organisational growth. The decision to grow and diversify (market penetration and market development) is an opportunity decision.
Problem-solving decision solves a specific problem. For example, decision to enter into new markets even when the company is making profits in the existing market is an opportunity decision and decision to drop a product line because it is unprofitable is a problem-solving decision.
(Market penetration increases sale of existing products to the existing and new customers in the existing markets and market development increases sale by entering into new markets with same products or products with minor modifications).