Programmed & nonprogrammed decisions
Types of Decisions and Problems
A decision is a choice made from available alternatives. For example, an accounting manager’s selection among Colin, Tasha, and Carlos for the position of junior auditor is a decision. Many people assume that making a choice is the major part of decision making, but it is only a part of it.
Decision making is the process of identifying problems and opportunities and then resolving them. Decision making involves effort both before and after the actual choice. Thus, the decision of whether to select Colin, Tasha, or Carlos requires the accounting manager to ascertain whether a new junior auditor is needed, determine the availability of potential job candidates, interview candidates to acquire necessary information, select one candidate, and follow up with the socialization of the new employee into the organization to ensure the decision’s success.
Programmed and nonprogrammed decisions
Management decisions typically fall into one of two categories: programmed and nonprogrammed. Programmed decisions involve situations that have occurred often enough to enable decision rules to be developed and applied in the future. Programmed decisions are made in response to recurring organizational problems. The decision to reorder paper and other office supplies when inventories drop to a certain level is a programmed decision. Other programmed decisions concern the types of skills required to fill certain jobs, the reorder point for manufacturing inventory, and selection of freight routes for product deliveries. Once managers formulate decision rules, subordinates and others can make the decision, freeing managers for other tasks. For example, when staffing banquets, many hotels use a rule that specifies having one server per 30 guests for a sit-down function and one server per 20 guests for a buffet.
Nonprogrammed decisions
are made in response to situations that are unique, are poorly defined and largely unstructured, and have important consequences for the organization. Perhaps one of the greatest nonprogrammed decisions of all time was Boeing’s decision to build the 707. During World War II, the B52 bomber had shown that Boeing had “the right stuff” for building jet air- craft, but no one had considered that the airlines would even be interested in buying jets. Converting to jet technology would be massively expensive for the airlines. Boeing’s CEO, Bill Allen, had to decide whether to stick with the defense products that the company knew best or follow his conviction that the real growth would be in the civilian sector. In 1952, he asked Boeing’s board to invest $16 million in building the world’s first transatlantic commercial jetliner. By the time the 707 rolled off the production line, Boeing had invested $185 million in it—that was $36 million more than Boeing’s net worth the previous year. Essentially, Allen was betting the company’s future, and it paid off. The 707 changed the course of history for Boeing and altered the course of the entire industry. Many nonprogrammed decisions, such as the ones at Priceline and Boeing, are related to strategic planning because uncertainty is great and decisions are complex. Decisions to develop a new product or service, acquire a company, build a new factory, enter a new geo- graphical market, or relocate headquarters to another city are all nonprogrammed decisions.