Chapter Seven

Decision Making
• Management and decision making, the
process of decision making, organizational
frame work for decision making, factor
influencing for decision making, decision
making styles by managers, implementation of
decision making
 Concept of decision making
• Decision making is the selection based on some
criteria from two or more possible alternatives.
• Decision making is defined as the selection of
course of action from among alternatives
• A decision is a course of action consciously
chosen from the relevant alternative for the
purpose of achieving desired goals.
• Decision making is the act of choosing one
alternative from among a set of alternatives.
• From the above definitions, it may be
concluded that decision-making is the process
of solving organizational problems by choosing
a specific course of action among various
alternatives. And it is a continuous function of
the manager to achieve organizational goals.
• Decision making is an indispensable component of
management process. It is also known as the
heart of management. In general terms decision
making is the process of selecting a best course of
action out of many available alternatives. It is the
process of identifying and defining the problems,
developing alternatives solutions, evaluating them
in terms of possible consequences and choosing
the best solutions among them and implementing
the decision effectively. It is necessary to operate
an organization smoothly and effectively to
achieve defined objective.
• Effective decision making requires an understanding
of the nature of problems to be solved and an
assessment of the situation in which the solution
has to be sought. Today's, decision making has
become a challenging task for managers. In an age
of accelerating changes, decision making job has
become more complex than ever. Therefore, the
managers who are able to assess the nature of the
problem, situation, and uncertainty are able to
make more effective decisions.
• A decision is defined as an act of making choices.
A choice or a decision is made from among two
or more alternatives or courses of actions. A
decision is an action on some problem, this shall
be done or sometimes, not to act, this shall go
on as before. Some decisions deal with quantity,
more of this, less of that, none of others. Some
decisions deal with quality, higher coverage,
better quality, better services.
• The most fundamental function of management is
decision making. It is at the centre of an
organization. Decisions are made every day. Some
decisions are minor and simple. Others are major
and complex. Every manager is involved in decision
making activities. Top level management for
example, determines organizational goals and
corporate strategies. Middle management
develops operational plans and tactical strategies.
Lower management determines production or
service schedules. All these functions of managers
involve decision making. In fact, decision making
connects all the functions of management.
• In the course of functioning, many situations
and problems may arise in various functional
areas of the organization. These problems
create obstruction and disturbances in the
performance of the organization. The
management needs to solve these problems in
the best possible way by considering
organizational interests and objectives.
• Therefore, a manager continuously involves in
the decision making process while setting
goals, determining plans and taking action,
formulating strategies and policies, assigning
jobs to subordinates, etc. The success of an
organization depends upon the decision
making ability of the manager and its
implementation in practical field.
 Features of decision-making

• Selective process: decision making is the process of

selecting a course of action form among many alternatives
to solve problems. Managers have to consider the various
factors before selecting a course of action. These factors
involve nature of organization, existing working
environment, objectives of the organization, time factors
and so on.
• Human and rational process: decision making is a mental or
human process and is needed in all types of organizations. A
manager has to make mental exercise to study the impact of
courses of action before taking a decision. He has to invest
his personal skills; experience, knowledge and capability to
study the courses of actions form various angles. Hence,
decision making is common in all types of organizations.
Therefore, it is known as a human and rational process
• Dynamic process: decision making is a
dynamic process. It is essential to consider the
time factor and existing environment,
whenever any course of action is taken for
implementation. Managers have to take
decisions at the right time for its effectiveness.
Besides, he has to consider future
environments, which may affect future
activities. Thus, decision making process is not
static but a dynamic process.
• Goal oriented process: decision making
focuses on the organizational objectives. In
course of functioning many problems may
arise in the organization. The management
has to solve all the problems in proper time
and also in a systematic manner by
considering organizational goals. Thus, right
decision at the right time contributes to
achieve predetermined objectives within the
defined time and standard.
• Continuous process: decision making is a
continuous process till the existence of the
organization. In the course of regular
performance, many problems may arise in
different time and situation. Accordingly,
managers have to solve those problems in
proper time so that the organizational
performance is smooth.
• Freedom to decision maker: managers have
freedom to take any kind of decision. As a chief
of the organization, a manager may take any
course of action to solve a problem by using
his own logic, idea, knowledge and experience.
However, he has to consider to positive impact
and organizational objectives while taking any
course of action. Thus the decision maker has
the freedom to take any course of action but
he has to consider organizational objectives.
• Positive or negative: a course of action may
either have positive or negative impact on
organizational performance. Managers have to
consider, as far as possible, the positive impact
of the course of action. He has to take a
decision selecting a course of actions where
positive impact prevails more than negative
impact.
 Types of decisions making
• Managers need to take different decisions on
the basis of item and requirement. Managerial
decisions may be divided into different types
on different basis which are discussed below.
 Programmed and non programmed decisions

• Programmed decisions are routine and

repetitive in nature. Managers can solve
problems without deep study by considering
the past decision for similar of problems.
Generally, such decisions are taken by first line
mangers on the basis of framework of policies,
rules, regulations and standard operating
procedures of the organization. In practice,
more than 90 percent of managerial decisions
are of this type.
• Non programmed decisions are also known as
unique or creative nature decision. In case of
such a decision, there are no existing policies or
standard operating procedures available to
guide the decision maker. According to Peter
Drucker, non programmed decisions are
strategic decisions and are regarded as truly
managerial decisions. Decisions such as
product diversification, changing marketing
strategy, dropping an existing product, new
investment and all policy decisions are of this
type.
  
Routine and basic decisions

• Routine decisions are related with day to day

operation of the organization. Such decisions are
taken promptly and also implemented in a similar
way. In regular activities of the organization, many
repetitive problems may raise. Such problems
create obstructions in the smooth performance of
the organization. The management has to solve
such problems in proper time, by remaining within
the rules and procedures of the organization. Such
types of decisions are taken by the lower level
management to continue organizational activities.
• The example of routine decision involve
exchange of work between co workers, repairs
and maintenance of machines, making
availability of raw materials for production
process etc. Generally, such decisions are
repeated in nature and are like programmed
decisions.
• Basic decisions are also known as strategic
decisions. Such decisions are necessary for long
run survival and growth of business activities of
the organization
• Generally, top level management is responsible
for taking such type of decisions. For such
decisions, creativity, through study of future
impacts, judgment are necessary. The examples
of such decision are, investment of extra capital,
expansion of business, replacement of plant and
machines, recruitment and selection of new staff
etc. These decisions are similar to non
programmed decisions and are taken by
considering long term visions of the organization.
 Organizational and personal decisions
Organizational decision are also known as formal or
official decisions. In such decisions, the decision
maker has to consider his official authority before
he comes to any decision. Besides, he has to fulfill
and the official procedures, system and formalities
for taking any decision. Generally, the decision
maker defines line authority for such decisions and
is implemented directly for organizational
betterment. According to the requirement and
situation, such authority can be delegated to other
officials. The examples of official decisions are
appointment promotion, transfer of employees etc.
• Personal decisions are also known as informal
or individual decisions. Such decisions are
taken on the basis of personal skill, knowledge
and capacity of the individuals. Such decisions
do not affect regular performance of the
organization because they are made on the
basis of personal interest, desire and necessity
of the decision maker. To get voluntary
retirement form service, reject promotion,
refuge to go for higher education etc are
examples of personal decisions. And personal
decisions cannot be delegated to others.
 Individual and group decision

• On the basis of involvement of persons in

decision making, decisions are classified in to
two: individual and group decisions. In
individual decisions, a single person is involved
in the decision making process like the general
manager, departmental manager etc. here,
the decision maker has to consider
organizational objectives and working
environment while taking decisions for this, he
has to use his personal knowledge, skill, idea
and experience to decide any matter
• In large organizations, the operational chief
executive has the sole authority to take
decisions, which are of operational nature. In
the similar manner, in small organizations like
sole trading concerns, the owner or manager
has the sole authority to take such decisions.
• In group decisions, a group of persons are involved
in the decision making process like the board of
directors, management committee, partners etc.
such decisions are taken in large organizations like
in joint stock companies, partnership firms,
cooperative organization etc. in such decisions, a
group of authorities discuss the subject matter in
detail and finally come to a decision through
mutual consent or majority of votes
 A group needs more time to take a decision but
such decisions become practical and easy to
implement. Generally, group decisions are
made for unique or creative nature of subject
matters. And such decisions are similar to non
programmed decisions.
 
  
Policy and operational decisions

• Policy decisions are taken by the top level

management and have long term impact in
the organized performance. These decisions
involve introduction of new rules, regulations
and program, amendment of existing rules,
introduction of new products or service etc.
generally, the top level management has to
consider the impact on future performance
while taking such decisions.
 
• Operational decisions are taken by the lower
level management and concerned with the
day to day works of the organizational. Such
decisions are taken for the implementation of
plans and policies formulated by the top level
management. These decisions involve change
in schedule of works, set up of machines and
equipments etc.
 Decision making conditions

• There are different conditions in which decisions

are to be made. Managers sometimes have an
almost perfect understanding of conditions
surrounding a decision, but in other situations they
may have little information about those conditions.
So, the decision maker must know the conditions
under which decisions are to be made. Generally,
the decision maker makes decision under the
condition of certainty, risk and uncertainty.
• Certainty: certainty is a condition under which the
manger is well informed about possible alternatives and
their outcomes. There is only one outcome for each
choice. When the outcomes are known that their
consequences are certain, the problem of decision is to
complete the optimum outcome. Similarly, if there are
more than one alternative, they are evaluated by
conducting cost studies of each alternative and then
choosing the one which optimizes the utility of the
resources. The condition of certainty exists in case of
routine decision, such as allocation of resources for
production, payment of wages and salary etc. There is
• Risk: a more common decision making
condition is a state of risk. In such a condition,
managers have knowledge about alternative
course of action but outcomes are associated
with probability estimates. It is more difficult
to predict future conditions without full
information, so the outcome of an alternative
cannot be accurately determined.
• Therefore, managers can guess the probable
outcome on the basis of their experience,
research and other available information. They
can choose an alternative with highest
expected outcome. However, such decisions
are largely subjective as no decision criteria
are fully reliable. Decision making under
conditions of risk has chances of an
impractical decisions.
• Uncertainty: a stage of uncertainty occurs when
managers are unaware of the problems they face.
They do not know all the alternatives, the risk
associated with them or the likely consequences
of each alternative. This uncertainty arises from
the complexity and dynamism of contemporary
organization and their environments. Managers
have limited information to calculate the degree
of risk, so statistical analysis is not possible.
• The condition of uncertainty arises when the
organization introduces a new or innovative
product or service, adopts new technology,
selects new advertising program etc.
• To make effective decision in uncertain conditions,
managers must acquire as much relevant
information as possible and approach the
situation from a logical and rational perspective.
Perception, judgment and experience always play
major roles in the decision making process.
However decision under uncertain conditions are
the most ambiguous condition for managers and
there is more possibility of error.
 Decision making process

• Decision making is a continuous and dynamic

process. It involves a series of steps. Managers
have to follow these steps while taking any
decision.
 Identification of problems:
• the first step of the decision making process is to
identify the main problems. Generally, problems
arise when there is deviation between actual and
planned performances. The reasons for the
deviation may be external and internal factors. It is
believed that identification of problems is the
completion of half of the decision making process. It
is similar to diagnosing a disease, which helps in
providing the right medicines to patients. Similarly,
when a problem is correctly understood, it becomes
easy to solve.
The manger should monitor the working
environment, symptoms of problems and root
cause of a problem. For this, he has to
consider the progress report form
subordinates, compare the actual
performance, and study the factors affecting
regular work. Besides, he has to use his skill,
intelligence, experience and judgment to
come to a conclusion.
 Analysis of problems:
After the recognition of problems, another step of the
decision making process is to analyze the problems. For
this, a decision maker has to accumulate all the facts,
data and information related with problems. The number
of facts and the volume of information depend upon the
nature and complexity of the problem. It is the part of
the decision maker to study the main organizational
performance. A quick analysis of the problems by
accumulating all related facts, data and information is a
must to find out the actual resource of t problems.
 Development of alternatives:
• A problem may have various alternative
solutions. Therefore, all possible solutions
should be identified and studied. The decision
maker should be creative and innovative to
identify all the alternative solutions. He has to
invest maximum time and effort to develop
many alternatives.
• There might be various sources for identifying
alternatives like records and files of problems,
opinions and views of experts, discussions with
customers, subordinates, creditors, etc. The
identification of a wide range of alternative
provides more freedom for brainstorming.
Therefore, managers should concentrate
themselves on developing and finding those
alternatives, which are strategic to the problems.
 Evaluation of alternatives:
• after development of alternative solutions,
each alternative should be studied and
evaluated in terms of the decision making
process. They should be studied by
considering the efforts involved and outcome
expected.
• Generally, the following queries should be taken into
consideration while evaluating any alternative
solution, firstly, whether the alternative solution is
feasible in terms of cost, time, legal constraints,
human and other resources, secondly, whether the
alternative is satisfactory for solving problems,
thirdly, whether the consequences of the alternative
are favorable to the organization. The evaluation of
alternatives by considering the above factors is
helpful in selecting a course of action. And
management has to consider both costs and benefits
of each alternative.
 Selection of best alternatives:
This is the final stage of the decision making process
after evaluation of various alternatives. In it, the
management has to select the best course of action
from many alternatives. Management also has to
consider both short term as well as long term
impact of alternative on organizational
performance.
 Implementation of alternatives
this is the operational part of the decision making
process. After the selection of the best
alternative, another task of the management is
to implement. Some decision makers might be
good in analyzing and determining alternatives
and selecting the best alternative but they might
not have efficient knowledge to implement such
decisions. However, the efficiency of the decision
maker is measured in terms of effective
implementation of a decision.
• Therefore, a decision maker has to provide
instructions to the operational authorities and
communicating them from time to time. He
should use his alternatives and communication
skills for successful implementation of the
decision. For this, the decision maker has to
delegate authority to the subordinates on the
basis of given responsibility. Management has to
consider that organizational objective can be
achieved only if the course of action is
implemented in the best possible way.
 Review of implementation
The outcomes of implementation should be
monitored and evaluated from time to time.
This is essential to know about the feedback
of the performance. The management has to
realize that only implementation of best
alternative will not fulfill the objectives of a
decision.
• A follow up and review of the actual achievement is
essential. In case the implementation does not give
the desired results, necessary modification in
procedures and technique can be made in time to
bring the work in the desired track. The system of
review of implementation contributes to developing
the appropriate decision in the right time.
Therefore, an effective follow up can control the
major deviation between work achieved and work
planned.
 Decision making styles

• Democratic decision making: When the leader gives up

ownership and control and allows the group member to
participate for decision making then it is called
democratic style of decision making. Majority vote will
decide the action. Advantages include a fairly decision,
and a certain amount of group participation. The
disadvantage of this style includes no responsibility and
delay decision. An individual is not responsible for the
outcome. In fact, even the group feels no real
responsibility because some members will say, "I didn't
vote for that." Lack of group and personal responsibility
seems to disqualify this style of decision making; however,
the democratic style does have its place in business.
 Autocratic decision making

• Autocratic decision making is when the leader maintains total

control and ownership of the decision. The leader is also
completely responsible for the good or bad outcome as a result
of the decision. The leader does not ask for any suggestions or
ideas from outside sources and decides from his or her own
internal information and perception of the situation. Advantages
include a very fast decision, and personal responsibility by the
leader, for the outcome. If an emergency situation exists, the
autocratic style is usually the best choice. The disadvantages are
varied and sometimes include less than desired effort from the
people that must carry out the decision. If the employee is
personally affected by the decision but not included when the
decision is made, morale and effort may or may not suffer. It is
not always predictable. If the outcome for the decision is not
positive, members of the organization begin to feel they could
have done a better job themselves and the leader may lose
credibility.
 Collective – participate decision making

• Collective - Participative decision making is

when the leader involves the members of the
organization. The leader asks and encourages
others to participate by giving their ideas,
perceptions, knowledge, and information
concerning the decision. The leader maintains
total control of the decision because, although
outside information is considered, the leader
alone decides. The leader is also completely
responsible for the good or bad outcome as a
result of the decision.
• The advantages include the group participation and
involvement. In most cases, the individual is informed
before the decision is implemented (no surprises) and
usually feels good about personal involvement. If the
leader is a good communicator, and listens carefully to
the information collected, he or she will usually have a
more accurate understanding of the situation and make
a better decision. The disadvantages of this style include
a fairly slow, time consuming decision; less security,
because so many people are involved in the decision.
 Consensus decision making style

• Consensus decision making is when the leader

gives up total control of the decision. The
complete group is totally involved in the
decision. The leader is not individually
responsible for the outcome. The complete
organization or group is now responsible for the
outcome. This is not a democratic style because
everyone must agree on the decision. If total
commitment and agreement by everyone is not
obtained the decision becomes democratic. The
advantages include group commitment and
responsibility for the outcome.
• Teamwork and good security is also created because
everyone has a stake in the success of the decision.
A more accurate decision is usually made, with a
higher probability of success, because so many
ideas, perspectives, skills and "brains" were involved
in the creation. The disadvantages include a very
slow and extremely time consuming decision. It is
also a lot of work getting everyone in the
organization involved. It takes skill and practice for a
group to learn how to work together.
 Factors that influence Decision Making
• Past experiences can impact future decision making.
Past decisions influence the decisions people make in
the future. It stands to reason that when something
positive results from a decision, people are more likely
to decide in a similar way, given a similar situation. On
the other hand, people tend to avoid repeating past
mistakes. This is significant to the extent that future
decisions made based on past experiences are not
necessarily the best decisions. In financial decision
making, highly successful people do not make
investment decisions based on past ruined outcomes,
rather by examining choices with no regard for past
experiences; this approach conflicts with what one
may expect
• Some individual differences may also influence
decision making. Research has indicated that
age, socioeconomic status influences decision.
• Age is an important factor as a result of age,
decision making performance may decline as
well. In addition, older people may be more
overconfident regarding their ability to make
decisions, which inhibits their ability to apply
strategies . Finally, with respect to age, there is
evidence to support the notion that older
adults prefer fewer choices than younger
adults .
• The situation: Time, location and other
situational also influence decision making.
• Organizational culture, Organizational
hierarchy, Policies and procedures, issues
within the organization can impact on the
decision making process.
• Too much information or information over-
load creates confusion. It reduces the
uncertainty. Information should be authentic,
reliable, adequate and must be available at
time. So enough time must be there to
analyze the problem. Information & delay in
decision making.
• Perception can be described as the way in
which individuals interpret their environment.
An individual's perception can influence how
they make decisions and solve problems. For
example, when information about a problem
needs to be gathered the individual's
perception will impact on where the
information is required and the type of
information regarded as relevant.
• A number of organizational issues can impact on the
decision making process. These issues include:
• Policies and procedures
• Organizational hierarchy
• Organizational politics
• Policies and Procedures
• Many organizations have formalized policies and
procedures which have been developed to resolve
common problems and to guide managers when making
decisions. For example, many organizations have
documented disciplinary procedures which guide managers
through a process of resolving issues with staff members.
• Organizational Hierarchy
• Organizational hierarchy refers to the management
structure of the organization. Most organizations have
different levels of management which carry with them
different degrees of authority. The degree of authority
directly impacts on the nature of the decisions an
individual can make. For example, a Customer Contact
Centre Team Leader cannot make decisions about the
overall goals of the organization. However, the Team
Leader can make decisions about how their team
contributes to the achievement of the organization's
goals
• Organizational Politics
• Organizational politics refers to behavior
displayed by individuals and groups which is
premeditated to influence others. Individuals
and teams will often use politics to:
• Advance their careers
• Advance their interests and ideas
• Increase their rewards
• Organizations are made up of individuals with
different beliefs, values and interests. These
differences are often the driving forces behind
organizational politics. For example, two teams
believe they require an extra team member.
Unfortunately the organization can only afford
one new employee. The two teams may well use
politics in an attempt to influence their manager
to allocate the new employee to their team. 
• Environmental issues are the external factors
that affect the organization. The types of
external factors that can have an effect on
decision making include:
• The market in which the organization operates
• The economy
• Government legislations and services