“If I were given one hour to save the planet, I would spend 59 minutes defining

the problem and one minute resolving it,” Albert Einstein said.
problem An obstacle that makes it difficult to achieve a desired goal or purpose

What is Decision-Making?
Weihrich and Koontz defined decision-making as the selection of a course of action from among
alternatives. According to them, “it is the core of planning. A plan cannot be said to exist unless
a decision - a commitment of resources, direction or reputation - has been made.”
According to them, “it is the core of planning. A plan cannot be said to exist unless a decision - a
commitment of resources, direction or reputation - has been made.”

Decision Making: The Process and Managerial Practices

The main four steps involved in the decision-making process in greater detail. These steps
include:

(1) Recognising the need for a decision i.e., problem awareness, definition and understanding;

Problem recognition begins when a decision maker is alerted by signal that a decision is needed.

Every decision starts with a problem, a discrepancy between an existing and a desired condition.3

Problem awareness: first step of the decision-making process is in terms of the detection of
symptoms. On the detection of a decision occasion, a decision maker needs to identify the problem
exactly. For example, it would have been helpful for Fahim to specify that Rahim's poor sales
performance is due to a lack of motivation, to the unattractiveness of the rewards that are
associated with good sales performance.

Identifying and understanding a problem: The manager must develop a complete understanding of the
problem, its causes, and its relationship to other factors. This understanding comes from careful
analysis and thoughtful consideration of the situation RCA,FISHBON, 5 WHY

identified, diagnosed, and understood,

(2) Generating or searching for alternatives:
After a problem has been identified, diagnosed, and understood, a manager is ready to move into the
second stage of the decision-making process ⎯ the generation of a set of alternative solutions.

The detection of problems is followed by a generation of alternative solutions.

Managers should try to increase the number of alternatives by ingenuity, research and common
sense, and then choose the best one.

Strategic factors of problems actively hinder solution. So they need to be identified, analysed and
overcome.
In developing these solutions, decision makers first must specify the goals that they hope to
achieve through their decision.
they must also recognize that various constraints often limit their alternatives. Common constraints
include legal restrictions, moral and ethical norms, authority constraints, available technology,
economic considerations, and unofficial social norms.

Developing both obvious, standard alternatives and creative, innovative alternatives is generally useful.

A limiting factor, according to Weihrich and Koontz, “is something that stands in the way of
accomplishing a desired objective. Recognising the limiting factor in a given situation makes it
possible to narrow down the search for alternatives to those that will overcome the limiting
factors.”5 They defined the principle of the limiting factor as: “By recognising and overcoming those
factors that stand critically in the way of a goal, the best alternative course of action can be
selected.”6 Just as a physician's primary concern should be to diagnose the disease and direct his
treatment against the root cause of it, a businessman's foremost task is to ascertain and analyse
those factors, which are strategic to the problem, and which limit or restrict the chances of solution.

The limiting factors may be internal or external. Externally limiting factors may arise from the economic
conditions of a country, government restrictions, political instability, and so on and so forth.

(3) Evaluating each alternative:

Appropriate alternatives having been found, the next step in planning is to evaluate them and choose
the right one which will best contribute to goal achievement.

The process of evaluation is being aided by:

a) Quantitative and qualitative measurements: In comparing alternatives for achieving an

objective, people are likely to think exclusively of quantitative factors. These are factors
that can be measured in numerical terms, such as time or various fixed and operating
costs. No one would underestimate the value of such quantitative measurements or
analysis. But the success of a venture would be endangered if intangible or qualitative
factors were ignored. Qualitative or intangible factors are those that are difficult to
measure numerically such as the quality of labour relations, the risk of technical change, or
potential war situation in a region of the world. An excellent quantitative plan may be
destroyed by the adverse situation in any of the above factors. These serve to illustrate the
importance of attending to both quantitative and qualitative factors while alternatives are
being weighed against one another.
(b) Marginal analysis: This is done by utilising the techniques of marginal analysis to compare
additional revenues resulting from additional costs. Where the objective is to maximise
profits, this goal will be reached, as elementary economics teaches, when the additional
revenues and additional costs are equal. In other words, if the additional revenues of a
larger quantity are greater than its additional costs, more profits can be made by producing
 more. However, if the additional revenues of the larger quantity are less than its additional
costs, a larger profit can be made by producing less.
(c) Cost effectiveness analysis: It seeks the best ratio of benefits and costs; this means for
example, finding the least costly way of reaching an objective or getting the greatest value
for given expenditures. The best features of cost effectiveness analysis are that it focuses
on the outcome of a program, helps measure the potential benefits of each alternative
against its potential cost and involves a comparison of the alternatives in terms of the
overall advantages.
(4) Choosing form among the alternative solutions (choice-making)
After all the possible alternatives have been evaluated, managers are left with only one
remaining viable alternative, which becomes their ultimate decision. Normally, however,
several alternatives remain under consideration after the evaluation process. Thus the final
stage in the decision-making process involves making judgements and choices.
There are several quantitative and qualitative tools to help managers in selecting an
alternative. It is for the managers to decide ultimately what they want to accomplish in making
a decision. A manager has the following three decision criteria: Optimising, maximising and
satisficing.
To optimise a manager would like to find the best possible decision.
To maximise, managers must make a decision that meets the maximum number of criteria.
To satisfice, managers try only to find the first satisfactory solution.
Different approaches to decision-making promote the selection of one of these decision
criteria. Each is unique and dependent on the manner of choosing an approach by a manager.
The nature of the decision-making process can change quite considerably. Usually more time is
taken to maximise than to satisfice - and still more time to optimise, even if this is possible.

Limitation of Decision Making

Decision-making is a major part of planning. As a matter of fact, given an awareness of an
opportunity and a goal, the decision process leading to making a decision might be thought of as
(1) premising, (2) identifying alternatives, (3) evaluating alternatives in term of the goal sought,
and (4) choosing and alternative that is making a decision.
steps in rational decision making Recognize and define the decision situation; identify appropriate
alternatives; evaluate each alternative in terms of its feasibility, satisfactoriness, and consequences;
select the best alternative; implement the chosen alternative; and follow up and evaluate the results of
the chosen alternative
1. Recognizing and defining the decision situation :

Some stimulus indicates that a decision must be made. The stimulus may be positive or negative.

A plant manager sees that employee turnover has increased by 5 percent.

2. Identifying alternatives

Details: Both obvious and creative alternatives are desired. In general, the more important the decision,
the more alternatives should be generated.

The plant manager can increase wages, increase benefits, or change hiring standards.

3. Evaluating alternatives

Details: Each alternative is evaluated to determine its feasibility, its satisfactoriness, and its
consequences.

Increasing benefits may not be feasible. Increasing wages and changing hiring standards may satisfy
all conditions.

4. Selecting the best alternative

Details: Consider all situational factors, and choose the alternative that best fits the manager’s situation.

Changing hiring standards will take an extended period of time to cut turnover, so increase wages.

Is the alternative feasible? Yes Is the alternative satisfactory? Yes Are the alternative’s consequences
affordable? Yes then Retain for further consideration.

If no then Eliminate from consideration.

5. Implementing the chosen alternative

Details: The chosen alternative is implemented into the organizational system.

The plant manager may need permission from corporate headquarters. The human resources
department establishes a new wage structure.

6. Following up and evaluating the results

Details: At some time in the future, the manager should ascertain the extent to which the alternative
chosen in Step 4 and implemented in Step 5 has worked.

The plant manager notes that, six months later, turnover dropped to its previous level
Decision-Making Conditions:

Certainty A situation in which a manager can make accurate decisions because all outcomes are known.
Under conditions of certainty, the manager can anticipate the outcome of decisions.

For example, entrepreneurs and business managers in Sweden can be certain they will receive prompt
payment for goods and services when they decide to allow customers to make purchases through
financial services apps like iZettle and Trustly. As you might expect, the outcomes of most managerial
decisions are not as certain.

For example, the managing director of a company has just put aside a fund of Tk. 10,00,000 to cover the
renovation of all executive offices. This money is in a savings account at a local Sonali Bank that pays
7.50 percent interest. Half of the money will be drawn out next month and the rest when the job is
completed in 90 days. Can the managing director determine today how much interest will be earned on
the money over the next 90 days? Given the fact that the managing director knows how much is being
invested, the length of investment time, and the interest rate, the answer is yes. Investment of the funds
in a Sonali Bank branch is a decision made under conditions of certainty. The ultimate outcome in terms
of interest is known today.

Risk
Decisions are made under conditions of risk when the manager has to make decisions without complete
knowledge of the outcome of decisions.

A far more common situation is one of risk, conditions in which the decision maker is able to estimate
the likelihood of certain outcomes. Under risk, managers have historical data from past personal
experiences or secondary information that lets them assign probabilities to different alternatives.

Most managerial decisions are made under conditions of risk. Risks exist when the individual has some
information regarding the outcome of the decision but does not know everything when making
decisions under conditions of risk, the manager may find it helpful to use probabilities.

Let us consider the case of a company that has four contract proposals it is interested in bidding on. If
the firm obtains any one of these contracts, it will make a profit on the undertaking. However, because
only a limited number of personnel can devote their time to putting bids together, the firm has decided
to bid on one proposal only - one that offers the best combination of profit and probability that the bid
will be successful. This combination is known as the expected value. The profit associated with each of
these four contract proposals, as presented in Table 1, varies from Tk. 100,000 to Tk. 400,000. Notice
that the contract offering Tk. 400,000 is the least likely to be awarded to the company, but it offers the
smallest profit of the four. On which of the proposals should the firm bid? As the table shows, the
answer is number three. It offers the greatest expected value.

Uncertainty:

A situation in which a decision maker has neither certainty nor reasonable probability estimates
available.

Uncertainty remains in decision-making when the manager does not know anything about outcome of
the decision to be taken because of a lack of information. Under this condition, mathematical
techniques are fallen back upon.

Think of manager Mr. Fahim who is considering whether to finance a new building by taking a fixed
interest rate loan of 10 percent or a variable rate of loan that begins at 9 percent but could increase by 4
percent. Fahim might consider that, for the variable rate loan the best case rate is 9 percent. The worst
case rate is 13 percent. By taking this approach, he can at least reduce some uncertainty and get firmer
support for his decision.
Objectives are concrete steps that move you toward your goals.

Goals precede objectives in a well-run organization, creating an outline and a vision to be

filled in with specifics down the line.”

Objectives are footsteps. Goals are the path. Can’t complete one without the other.

objectives” as measurable steps toward a “goal.”

An objective is a specific commitment to achieve a measurable result within a preset deadline.

objective should state what is to be accomplished and when.

The Nature of Objectives

Objectives state end results, and overall objectives need to be supported by sub-objectives. Thus,
objectives form a hierarchy as well as a network.

A hierarchy ranges from a broad aim to specific individual objectives.

Peter F. Drucker suggests the following: market standing, innovation, productivity, physical and financial
resources, profitability, manager performance and development, worker performance and attitude, and
public responsibility.9 More recently, however, two other key result areas have become of strategic
importance: service and quality.

Examples of objectives for key result areas are the following: to obtain a 10 percent return on
investment by the end of calendar year 2005 (profitability); to increase the number of units of product X
produced by 7 percent by June 30, 2005 without raising costs or reducing the current quality level
(productivity).

Management by objectives (MBO) A process of setting mutually agreed-upon goals and using those
goals to evaluate employee performance

Management by objectives A comprehensive managerial system that integrates many key managerial
activities in a systematic manner and is consciously directed toward the effective and efficient
achievement of organizational and individual objectives.

Management by Objectives (MBO), a system that seeks to align employees'

objectives with the organization's goals. In this article, we'll look at how you
can use MBO to motivate and engage your team.
(MBO) basically it is a process through which goals, plans, and control systems of an organisation are
defined through collaboration between managers and their subordinates. Jointly they identify common
goals, define the results expected from each individual, and use these measurements to direct the
operation of their unit and to assess individual contributions.