Principles of Management, 6e

P C Tripathi & P N Reddy

Chapter 5
Decision-Making

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 Meaning of a Decision

 A decision is a choice between two or more alternatives.

 This implies three things:
i. When managers make decisions they are choosing—they are
deciding on the basis of some conscious and deliberate logic.
ii. Managers have alternatives available when they are making a
decision.
iii. Managers have a purpose in mind when they make a decision.

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 Nature of a Decision

 Rationality in Decision-making
 Limited, or "Bounded" Rationality
 Role of Intuition in Decision-making
 Decision-making under Certainty Vs Uncertainty
 Element of Risk
 Role of Creativity and Innovation

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 Types of Decisions

 Programmed and Non-Programmed Decisions:

 In the case of programmed decisions, since each manager is

guided by the same set of rules and policies.

 In case of non-programmed decisions, since each manager may

bring his own personal beliefs, attitudes and value judgements
to bear on the decision process.

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 Types of Decisions

 Major and Minor Decisions

 Long term and short term effects
 Impact of the Decision on Other Functional Areas
 Recurrence of Decisions
 Routine and Strategic Decisions:
 Routine decisions require little deliberation and money and are taken by
managers at lower levels,
 While strategic decisions require lengthy deliberation and large funds and
are taken higher levels managers.

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 Types of Decisions
 Sequential and Bear-by-the-Tail decisions
 Individual and group decisions
Individual decisions are taken where the problem is of a routine nature,
and the analysis is simple and where definite procedures to deal with
the problem.
Important and strategic decisions which may result into some change in
the organisation are generally taken by a group.
Devil advocacy and Group think
Group Decision-making:
- Consultative Approach
- Participatory Approach
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 Types of Decisions

 Heuristics and intuitive decisions

 Heuristics are rules of thumb which organisations evolve
from their experience for use in recurring decision
situations.
 In intuitive decisions, the decision-maker relies on his
intuition or hunch.

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 Types of Decisions
 Simple and Complex Decisions

Outcome Certainty

Decision High Low

Simple Routine decisions Judgemental decisions,

e.g. SOP e.g. product promotion

Complex Analytical decisions Adaptive decisions

e.g. product mix e.g. diversification

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 Steps in Rational Decision Making

Measuring
Recognize Developin and
Diagnosing Follow-
Deciding g comparing Implement
the the up of
Priorities Problem
Alternative the Decision
Problem Solutions consequence Action
s

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 Recognizing the Problem

First of all, it is necessary to search the environment for the existence

of a problem.
 When there is a deviation from past experience
 When there is a deviation from the plan
 When other people bring problems to the manager
 When competitors outperform the manager’s organization

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 Deciding Priorities among Problems

 A manager should set a sequence for them on the basis of strategic

considerations.
 Subordinates and top management
 Pareto analysis

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 Diagnosing the Problem

 In order to distinguish between symptoms and sources of trouble,

every problem should be correctly diagnosed.
 “Five Whys” approach forces a manager to ask “Why” ideally five
times can be used in simple situations.

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 Developing Alternative Solutions or Courses of
Action

 Generally, for every problem there are alternative solutions.

 While developing various alternatives, a manager should always
keep in mind their feasibility.
 The manager should have clear recognition of all those limiting
factors which can make the alternative difficult.

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 Measuring and comparing the consequences of
alternative solutions
 This involves a comparison of the quality and acceptability of
various solutions.
 The quality of a solution must be determined after taking into
account its tangible and intangible consequences.

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 Converting the Decision into Effective Action

 A decision is not complete until someone has been assigned

responsibility to carry it out.
 The communication of decision should be carried out to the
employees in clear and unambiguous terms.

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 Follow-up of Action

 The action should be continuously followed up, to ensure whether

the decision is achieving its desired purpose.
 Changing conditions necessitate new decisions and the process
begins again.

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 Rationality in Decision-Making
(Models of Decision-Making Behavior)

The Continuum of Decision-Making

Behavior

Administrative
Economic Man
Man Model/ Social Man
Model/ Economic
Bounded Model
logic Model
Rationality Model

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