BBA unit 1

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Decision
making
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Techniques of Decision Making

 NOMINAL GROUP :The nominal group technique is a structured decision making

process in which group members are required to compose a comprehensive list of
their ideas or proposed alternatives in writing NGT is designed to help with group
decision making by ensuring that all members participate fully.
 NGT follows these steps: 7-10 individuals are brought together to participate in a
structured exercise that includes the following steps:
 Team members are presented with a problem, challenge or issue
 Individual team members silently and independently write down their ideas about
how to tackle the problem.
 Each team member presents an idea to the group.
 Individuals silently and independently vote on each idea.
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Techniques of Decision Making contd..
 DELPHI TECHNIQUE: This approach, called the Delphi Technique, is similar to NGT in
several respects, but also differs significantly in that the decision-makers never actually
meet. Its greatest advantage is that it avoids many of the biases and obstacles associated
with interacting groups (that is, groups where the members meet face-to-face)
 DELPHI follows these steps:
 Select a group of individuals who possess expertise in a given problem area
 Survey the experts for their opinions via a mailed questionnaire.
 Analyze and distil the experts' responses.
 Mail the summarized results of the survey to the experts and request that they respond once
again to a questionnaire.
 If one expert's opinion sharply differs from the rest, he or she may be asked to provide a
rationale.
 process is repeated several times, the experts usually achieve a consensus
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Techniques of Decision Making contd..
 STEPLADDER TECHNIQUE :A problem-solving structure recently proposed as a solution to
the problem of unequal participation in groups. The technique is intended to improve group
decision-making by structuring the entry of group members into a core group. Encourages all
members to contribute on an individual level before being influenced by anyone else. This
results in a wider variety of ideas, it prevents people from "hiding" within the group, and it
helps people avoid being "stepped on" or overpowered by stronger, louder group members.
 Step 1: Before getting together as a group, present the task or problem to all members. Give
everyone sufficient time to think about what needs to be done Step 2: Form a core group of
two members. Have them discuss the problem. Step 3: Add a third group member to the
core group. The third member presents ideas to the first two members BEFORE hearing the
ideas that have already been discussed.
 Step 4: Repeat the same process by adding a fourth member, and so on, to the group. Allow
time for discussion after each additional member has presented his or her ideas. Step 5:
Reach a final decision only after all members have been brought in and presented their
ideas.
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Techniques of Decision Making contd..
 Marginal Analysis: used to find out how much extra output will result if one variable(raw mtrl,
machine, worker, etc) is added. Useful for evaluating alternatives
 Financial analysis: used to estimate the profitability of an investment, to calculate the payback
period and to analyze cash outflows and inflows.
 Break-Even Analysis: (total revenue = total cost, and profit is nil). Enables the decision-maker to
evaluate the available alternatives based on price, fixed cost and variable cost per unit.
 Ratio analysis: an a/c tool for interpreting a/cng info. Useful to find out the relationship b/w two
variables., to interpret financial statements to determine the strengths and weaknesses of a firm,
historical performance and current financial condition.
 Operation Research = research of operations. -involves the practical application of quantitative
methods in the process of decision-making.
 Decision tree Analysis: a graphical representation of the decision process indicating decision
alternatives, states of nature, probabilities attached to the states to the states of nature and
conditional benefits and losses.
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Management By Objectives (MBO)
 Management by objectives (MBO), also known as management by results (MBR), is a process
of defining objectives within an organization so that management and employees agree to the
objectives and understand what they need to do in the organization in order to achieve them.
 It is a systematic and organized approach that allows management to focus on achievable
goals and to attain the best possible results from available resources
 This MBO concept was popularized by Peter Drucker. It suggests that objectives should not be
imposed on subordinates but should be decided collectively by a concerned with the
management. This gives popular support to them and the achievement of such objectives
becomes easy and quick.
 “A process whereby superior and subordinate managers of an Organization jointly define its
common goals, define each individuals major areas of responsibility in terms Of results
expected of him and use these measures as guides for operating the unit and assessing the
contribution of each of its members ."George Odiome
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Steps in MBO…

 Setting of Goals
 Approval of Goals
 Revision of Job Description
 Establishment of Check point
 Performance review
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Essentials of making MBO effective

 Top Management Support

 Training for MBO

 Formulating clear objectives

 Effective feedback

 Encouraging participation
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Rationality in decision making
 Rationality is the ability to follow a systematically, logical,
thorough approach in decision making.
 Thus, if a decision is taken after thorough analysis and reasoning
and weighing , the consequences of various alternatives , such a
decision will be called an objective or rational decision.
 Gross suggested three dimensions to determine rationality :

 (a) the extent to which a given action satisfy human interest.

 (b) feasibility of means to the given end

 (c) consistency
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Models of decision making

 Rational Economic Model

 Administrative Model
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Rational economic model
 The classical management thinkers stressed that managerial decisions must be
rational .
 They argued that decision maker is an economic man and guided by economic
considerations in choosing solution to a problem.
 This model is prescriptive and suggests how decision makers should behave .
 It is based on the following assumptions :
 The decision maker intends to maximise economic gains.
 He is fully rational uninfluenced by emotions
 He can identify and analyse the problem clearly and precisely.
 He has full information about various alternatives and is able to evaluate them
intelligently to find out which alternatives is the best.
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Administrative Model: Concept of
Bounded rationality
 In actual practice, managers take decisions which involve combination of intuition and
rational thinking.
 A person makes decision not only on absolutely logical analysis of facts but also on his
intuition , value system and way of thinking , which are subjective in nature.
 Assumptions: an individual does not study and analyse the problem fully because of
personal bias, indifferent attitude etc.
 An individual aims at satisfactory solution rather than rational decision.

 An individual may adopt a course of action which according to him , will meet goals
effectively.
 An individual does not always have full information and knowledge of all the alternatives
and its alternatives.