UNIT -2

DECISION MAKING
DECISION MAKING
 The word decision is derived form the Latin word
“Decis” which means cutting away or cutting off to
come to a conclusion. Thus decision making
means choosing one alternatives from available
different alternatives
 Decision making is both managerial and
organizational process
 “Decision making is selection based on some
criteria from two or more possible alternatives “–
G.R. Terry
 “Decision making is a blend of thinking deciding
and acting.”
Type of Decisions
 1 Programmed Decisions: P.D are routine repetitive
having set of procedure deal with low risk and can be
easily delegated. Policies ,rules and regulating are
established well in advance to solve recurring nature
of problems example: problem related to employee
promotion, transfer and termination are solved
through pre-decided policies and procedure.
 2 NON-Programmed Decisions: NPD are new unique
challenging highly risky and difficult decisions. These
type of decision leads to difficult situation for which
there is no easy solution. Exmple. Is a new unit is to
be settled or started or any of the old unit is to be
closed or change in product line or design
 3Strategic Decision:These are basic long term, vital
and very imp. Managerial Decisions, it is based on
actions and probable actions of the competitors.
These are non repetitive in nature and are taken after
careful analysis and evaluation of many alternatives.
 Features:
 S.D are very crucial for the whole organisation
 These are based on basic objectives and policies of
the org.
 S.D directly contribute to the achievement of
organisational objectives
 These are generally non programmed decisions
which is made under the conditions of partial
ignorance.
 4 Tactical Decision: T.D relates to day to day
operations of the organisation and has to be taken
very frequently.
 T.D are derived out of the strategic decisions eg.

Purchase of raw materials assigning duties to

employees etc.
Features:
 These decisions are taken as programmed one and

one of repetitive in nature.

 The out come of tactical decisions is shot-term in

nature and affect only some part of the

organization.
 As T.D have to taken at middle or lower level.
 5 Organisational Decisions: When an individual takes as
an executive or in official capacity it is known as
organisational decisions. Most of the time decision taken
by the executive are of organisational nature.such
decisions affect the functioning of the organisation
directly.
 6 Personal Decisions: These decisions are those decisions
which are taken by the individuals in his personal capacity
and are concerned with particular individual.these decisions
affect only one’s personal life.but some times these
decisions also affect the working of the organisation.
 Other classification of Decisions:
 1) Major decisions
 2) Minor decisions
 3) Individual decisions
 4) Group Decisions
 5) Referred Decisions
Steps in Decision Making
 1) Problem Identification: A manger should identify and
define the real problem. A problem well defined is half
solved. Problem generally arise becouse of disparity
between “what is and what should be”.There may be
multiple causes for an orgnaisational problem and the
manager has to clearly identify those causes.
 2) Disgnosing and analysing the problem: to diagnose
the problems quickly and correctly all relevant facts and
information must be collected and analysed.It implies
knowing the real cause and understanding the problem.
The problem should be well understood in terms of its
element. Its magnitude, its urgency and its relations with
other problems.

 3)Developing alternatives: A wide range of alternatives
increase the freedom of decision makers. A problem can
be solved by many ways but one of them is the best. All
possible ways should be thought and analyzed. A good
decision maker should not try to solve the problem only
on very first alternatives. A good decision maker should
discover only those alternatives which are strategic or
critical to the problem.
 4) Analysis and evaluation of alternatives: After the
identification of the various alternatives the next step is
to analyze each alternatives which seems important in
its pros and cons in relation to each other. The
alternatives should be evaluated in relation to time and
money involved. Only those alternatives which have
good prospects should be screened out.
 5) Selection of the best alternatives: Experience is
the best teacher and history repeats itself. After all
the various alternatives are being evaluated the
decision maker is to select the best alternative.
 In selection of the best alternatives generally these
three approaches are followed:
 A) Experience: generally past experience acts as the
guide. The difficulties and problems encountered
earlier can be well judged and collective measures
can be taken in advance.
 B) Experimentation: under this approach each
alternative is put in practice, results are observed
and the alternatives which shows the best results
may be chosen.
 C) Research and Analysis: this approach considered to
be the most effective technique when a major decision
is involved , it involves a search of relationship among
the most critical variable , constraints and premises
that bear upon the goal sought.
 6) Implementation of decisions:once the best
alternative is chosen or selected it is put into action .
Decision making is not complete unless the decision
maker comes to knew its result.It is desirable that the
language of the decision should be simple andy easy
to understand.
 7) Follow Up: The implementation of the decision
should be constantly monitored. It is not enough to
take a decision , it should also be seen whether it is
properly implemented or not.
Techniques for decision making

Decision Making Aids

For one shot or non

For Routine or programmed
Programmed
Decision
1-intiuition
2- experience
1-Habits 3- considered
2-standard opinion
procedure and 4- facts
methods 5- quantitative
3- policies
4- organizational
structure
 Experience- experience is the best teacher and should
be used for making rapid and quick decision. It provide
guide for decision making. An experience d person takes
less time in decision making.
 Facts- These are considered to be the best basis of
decision making. A decision based on facts has its roots
and such decision would be sound and proper. The
information facts and figures has become a major tool in
managerial decision making e.g. facts collected in test
marketing may provide the basis for decision making.
 Intuition: Decision making by intuition is based upon the
inner feeling of the person the takes the decision as per
his attitudes, nature, perception, mind set, and
conscious. He thinks about the prallem and an answer is
found in his mind. Decision are quick but some time
may be wrong.
 Considered options: When many brains sets together
better decisions or ideas can be taken e.g. a marketing
manager before deciding whether to market a new
product or not, will like to see marketing statistic as
well as considered opinion before finally making a
choice.
 Quantitative Decision making Technique :
 Operations Research: under this technique like
decision making the manager takes the decision with
the help of statistical mathematical technique which is
highly scientific approach.
 Linear programming: It is one of the latest scientific
technique for managerial decision making. It is a
mathematical technique for the purpose of allocating
the limited resource in an optimum manner.
 Queuing theory: It is also known as waiting line theory.
The theory is applied to any situation which needs
balancing of increasing cost. This theory uses
mathematical techniques to balance the cost waiting
line verses cost of preventing waiting lines by the
increased services.
 Replacement theory: Replacement theory gives
emphasis that new technique and improved machinery
help in increasing profitability. In manufacturing and
service industries machinery, equipment plant etc.
becomes obsolete in a certain period and ask for
replacement decision. Decision are required for their
replacement. In case replacement is not being done at
proper time , the cost of the production nay go up and
efficiency may go down. that is why management have
to take the decision in advance. And such decisions are
being taken on the basis of replacement theory.
 Game Theory: game theory is used when the
problem is concerned basically with action of the
competitors. this theory assumes that the opponents
will carefully consider what the decision maker may
do before he selects his own strategy.
 Network analysis: In fact network analysis is used for
planning and controlling the project activities.
According to network analysis a project is divided
into small operations arranged in logical sequence.
Example of NA= PERT(programme evaluation and
review technique) CPM= Critical Path Method)
 Delphi method: It is group decision technique. This
technique is used for long term forecasting
planning. It is used to determine programme
alternatives to expose presumption of information
leading to different judgment.
 Decision Tree:It is a visual device and graphic
method for illustrating all the chance that
available while taking a decision. It is a
graphical method.