Introduction to Management ing non-programmed decisions must ueat each situation 2s UGE and ne DO ines need to invest enormous amounts of time, enerey and Ai eg Dupre the situation from al perspectives. Tntuition and expences ot TRajor factors ik\non-programried decisions. Managers should SS fe convert as Than decisions adossible into programmed ones. Many organilsrns ‘yeat routine a ech a8 Wecisions involving iaventory contol, supplies, tteston and der dealaalary deci. a special decision areas requiring unique s'wtons, Some fo programmed decisions forthe greater part, so that the of these can be converted int Sronager can devote mosdime and effort towards taking, decisions that are not programmable. DECISION-MAKING UNDER CERTAINTY, UNCERTAINTY AND RISK Managers make decisions for events that are likely 0 occ in the Hi ‘Sometimes they have an almost perfect understanding of the conditions ‘surrounding a decision, they hav gr umes, they have very litle understanding of the condo Every tt Sta making situation has some aspects that are unknown, and are Wor difficult to Gredic These include considerations such asthe reaction of 8 ‘competitor to a price Pronge, the reliability of a new supplier, the use, of & Promsné ‘but untried dresogy. the actual productivity of newly installed machines, ° ‘Based on the UGegee of certaimny involved, every decision-making situation falls into on of three Categories: (1) cerainty, (2) risk, and (3) uncertainty Decision-making under Certainty ‘A condition of catainty exists when the decision-maker knows Witt reasonable A condition atthe. alteratives are, what conditions are associated sit each certainty whstd the outcome of each altemative. Under conditions of stern: altemaive, Sisuable, and reliable information on which to base, decison see anne and effect relationships are known and the futures, ety aratictable under conditions of certainty. Such conditions ex ce ‘of routine and retttve decisions concering the dxy-o-day operations ofthe business. Decision-making under Risk q hen a manager lacks perfect information or whenever an information 25) wise, isk arses. Under a state of isk, the decision maker has incomplete ee tion about available altematives but has a good idea of the probability of inter foreach allemative, Wile making decisions under 2 stat of Fi ‘managers outcomes rine the probability associated with each aterative on the basis of the available information and his experience. Decision-making under Uncertainty os! siicam decisions rade in. (oy comple enirnment ae Gms Most significa, “carat, Condiions of uncertainty exist when, $e TE nes 8 orb nd evehung sina sta of, The dein ; envionment eb altematves, the sks asociated with Ch, i, isnot ava Och atermatve rte probable. The manager does nt Po fo one tg information about the altematives and whatever informal ‘availabl 1 Compe mpletety reliable n the fe of such ora, ma may note om Tpvons about the situation in orGer 10 provide make cert agtnon-making, They have t0 depend upoo ther Judgement ‘experience for making decisions.‘Managerial Decision-making Modern approaches to decision-making under uncertainty ‘There are several modem techniques to improve the quality of decision-making under conditions of uncertainty. The most important among these are (1) risk analysis, (2) decision trees and (3) preference theory. Risk analysis ‘Managers who follow this approach analyze the size and nature ofthe risk involved in choosing a particular course of action. For instance, while launching a new product. manager tas to carefully analyze each of the following variables the cost of launching the product, its production cost, the capital investment required, the price that can be set forthe produc, the potential market size and what percent of the total market it will represent Risk analysis involves quantitative and qualitative risk assessment, risk management and risk communication and provides managers with a better understanding of the risk and the benefits associated with a proposed course of action. The decision represents a trade-off between the risks and the benefits associated with a particular course of action under conditions of uncertainty. Decision trees ‘These are considered to be one of the best ways to analyze a decision. A decision-tree approach involves a graphic representation of alternative courses of action and the possible outcomes and risks associated with each action. By means of a “tree” diagram depicting the decision points, chance events and probabilities involved in various courses of action, this technique of decision-making allows the decision- maker to trace the optimum path or course of action, “Decision tees” are discussed in ‘detail inthe later part ofthe chapter under the head “Decision-making techniques" ference or utility theory is another approach to decision-making under conditions of uncertainty. This fh is based on the notion that individual attiudes towards risk vary. Some ls are willing to take only smaller risks (“risk averters”), while others are follow them for instance, if there were a 60 percent chance of a decision being right, it might seem? g are 40 percent. The attitudes towards tsk vary with events, ‘Top-level managers usually take the largest amount of risk. ‘who make a decision that risks millions of rupees of the company in a given program With a 75 percent chance of success, are not likely to do the same with their own money. Mreover, a manager willing to take a 75 percent risk in one situation may not be willingp do so in another. Similaly, a top executive ‘might launch an advertising campaign having a 70 percent chance of success but right decide against investing in plant and machinery dnless it involves a higher probability of success. \ Though personal attitudes towards risk vary, sue are certain, Firstly, atitudes the decision being wi ‘with people and positior However, the same mana, towards risk vary with situations, ie. some people arSxisk averters in some situations and gamblers in others. Secondly, some people have ‘high aversion to risk, while others have a low aversion. Most managers prefer to b&\risk averters to a certain extent, and may thus also forego opportunities. When the stakes are high, most ‘managers tend to be risk averters; when the stakes are small, the} tend to be gamblers, 151Ree er] A\ Employs interactive processing: The rapid response time of a DSS permits interactive processing se and conirol resis with the user: The use and control of the DSS rests with the sky and not the central information management department, An MIS is \ DSS if, and only if, it is designed with the primary objective of ‘managerial ded¥gion support. Thus, a DSS is a specialized MIS designed to support a differences. In compariska to a MIS, a typical DSS provides more advanced analysis and greater access to’ vaNious models that can be used by managers to examine a situation more thoroughly. Moreover, a DSS tends to be more interactive than a MIS, It enables managers to cominunicate directly (often back and forth) with computer programs that control the systdm and to obtain the results of various analyses almost immediately. Finally, a DSS offpn relies on information from external sources as well as from the internal sources that bre largely the domain of the MIS. STEMS APPROACH TO DECISION-MAKING elements of the planning environment extend beyond the boundaries of an ise. Hence, itis not possible to make decisions in a closed-system environment. ince each department or unit of an enterprise is a subsystem of the entire ‘enterprise, managers ofthe organizational units must be responsive to the policies and programs of other-organizational units and of the whole enterprise. When a manager ‘makes a decision, he-has to take info account the thinking and attitudes of others within the enterprise, as they are also a part of the system. Even in a closed-system model, a manager has to make seyeral assumptions regarding the environmental forces that inftuence the organization. However, while taking into account the various elements, the ingaager does not give up his role as decision- maker, It is not advisable to make thé-decision process unnecessarily democratic. I Subordinats or others may have an immedne o mete interest in any decision tobe taken. The manager must decide which, ifany, of his subordinates he needs to consult in respect of any issue, The manager is the decisiog-maker who must select a course of action from among the alternatives, taking into ac2apnt the events and forces in the environment, . GROUP DECISION-MAKING + In many major organizations, decisions are often made by groups rather than by individuals. Group decision-making is practiced in many large and complex organizations. ‘Many studies have shown that groups make better decisions than individuals. As the old adage goes, “Two heads are better than one.” A major reason why group decision-making is more effective than decision-making by individuals is that more information is available in a group setting. In group decision-making, several individual members contribute their ideas before a decision is made.