DECISION MAKING

Decision Making
- Decision making is the selection of the best course of action from
among a set of alternatives.

- “Decision making is the selection based on some criteria from two or

more possible alternatives” – George R.Terry

- “Management decision making is a work the manager performs to

arrive at a conclusion and judgement” - Allen

- Decisions are made by managers depends on the situation, problem

and hierarchy.

- Decisions are made for solving problems, handling situations and

resolving crisis.
 - contd.,
- Made on functional areas such as production, marketing,
finance, personnel…etc.

- Success and failure of an orgn. depends on quality of

decisions.

- A manager who is able to take proper and timely

decision is supposed to be a good manager

- Decision making is most important tool of management.

 Characteristics of Decision making
- It is an intellectual process

- Process of choosing a course of action from among alternatives

- It is a continuous process prevailing in all business activities

- Aims at achieving the organizational objectives

- Always preceded by deliberation and reasoning.

- It is always related to the environment. A manager may take one

decision in a particular situtation and another in a different situation.
 Importance of Decision Making
1. Always aims at achieving the goals and Objective
- Goal oriented process
- Correct decisions at right time, right place and by right person can enable
the orgn. to achieve goals and objectives

2. Timely taken decisions help in reducing uncertainity

3. It is a job of choosing right alternative from among a set of alternatives.

- Requires an ability to select right alternative. A single mistake in decision
making may cause damage to the whole orgn.

4. Decision making is the essence of management

5. Decision making is a pervasive activity

- Exist in every part of the orgn.
- Involves in all managerial function
 Types of Decisions
1. Routine(Tactical) and Strategic(Basic) Decision

- Routine or tactical decisions are made repetitively following certain established rules,
procedures and policies.

- These decisions can be taken without much deliberation

- Do not require any special effort by the manager

- Generally taken by managers at the middle and lower level management

Eg. A manager can decide whether an employee’s absence from work is excused or not based on
the personnel policy.

Strategic or basic decisions are taken generally by the top and middle mgt.

- Higher the level of manager, the more strategic decisions he is required to take.

- They relate to policy matters and so require thorough fact finding and analysis of the possible
alternatives.
 Contd..
2. Personal and Organizational decisions

- Personal decisions are made by a single individual.

Eg. Decision to retire early, to resign the post, to go on leave. These

decisions affect the orgn. in an indirect way.

Organizational decisions are made by managers in their formal

capacity

Such decisions reflect the basic policy of the company

Eg. Decisions relating to payment of dividend, capacity utilization,

adoption of new production technology,
 Contd…
3. Programmed and Non-programmed Decisions
- Programmed decisions are made by lower level managers.
- To facilitate day to day working, the lower level managers have to take some
decisions for better performance
- Decisions are taken with a broad policy structure
- Rules and policies are established well in advance to solve such recurring
problems quickly
Eg. Granting leave to employees, purchase of materials..etc.

4. Non-programmed decisions arise because of unstructured problems.

There is no standard procedure for handling such problems
Eg. If a large number employees absent themselves from work without any
information, such a problem cannot be dealt in routine manner. It has to be dealt
with as an unstructured problem and the decision should be taken by the chief
executive.
Non- programmed decisions require thorough study of the problem and scientific
analysis of the situation.
 Contd…
5. Major and minor decisions :

- Major decisions are taken by top management

- Major decisions may bring a major change in policy and strategy
that affects the total orgn.

Eg. Decision relating to the purchase of big generator worth of Rs10

Lakhs is a major decision

Minor decisions are generally taken by lower level managers

Minor decisions are aimed at fulfilment of major decisions

Eg. Purchase of spare parts for the generator is minor decision

 Decision Making Process
1. Identification of problem
2. Analysis of identified problem
3. Developing alternative course of action
4. Evaluation of alternative course of action
5. Selecting the best alternative
6. Implementation and follow-up
 Contd..
1. Identification of problem :

- The problem may relate to the external

environment

- Managers should use their knowledge and

experience to identify the exact nature of the
problem

- Decision maker has to identify the probem

along with their importance, nature..and so on
 Contd..
2. Analysis of identified problem :

- The identified problem must be studied indepth

- All the relevent information should be

collected, studied and arranged in sequential
order

- This enables the decision maker to understand

the problem and of probable decision.
 Contd..
3. Developing alternative course of action :

- The manager has to determine the available alternative courses of action

that could be used to solve the problem.

- The following points must be taken into account while developing the
alternatives.

i. Only realistic alternatives must be included in the list

ii. Factors like various laws and regulations, policies, cost, psychological
aspects…etc should be kept in mind
iii. Techniques like brain storming and group participaltion must be effectively
used
iv. While listing alternatives, the negative aspects should be ignored.

- Some alternatives may be developed by managers quickly by experience

and others may be generated through research, analysis and creative
thinking.
 Contd..
4. Evaluation of alternative course of action

- The manager should try to comapare the merits and

demerits of each alternative through some criteria such
as the element of risk involved, time consumed,
efficiency, resourses available of implementation,
results expected..etc.

- Both qualitative and quantitative factors should be

taken into account

- The decision maker has to use his wisdom, foresight,

ability and experience for every probable solution
 Contd..
5. Selecting the best alternatives :

- Manager selects the alternative that will maximize the

results in terms of existing objectives

- The best alternative is selected by screenin and

conducting a critical evaluation to eliminate the large
number of alternatives

- Various organizational plans, policies, rules, basic

philosophy of mgt. and other human factors are given
due weightage.
 Contd..
6. Implementation and follow-up

- The best alternative selected has to be communicated to those

members of the orgn. who are concerned with the problem

- The methodology of implementing the decision is required to be

communicated

- Effectiveness of decision in achieving the desired goals depends

on its implementation

- Follow-up system is to be established to evaluate the

implemented decisions.
 Problems in decision making
1. Correctness of decisions :

- If the decision is not correct then it will be a waste of money and efforts

- If proper facts and figures are not available then decision will be based on wrong premises.

2. Decision at appropriate time :

- It is important to take decisions at the most appropriate time

- The decisions will be of waste if not taken at correct time

3. Effective communication of decision :

- The communication of decisions to the persons for whom they have been taken is another
administrative problem faced by the mgt.

- The dcisions should be communicated in language in which they are well understood by the
receiver

- If the decisions are not communicated properly then the purpose will not be served
 Contd..
4. Participation in decision making :

- The best way of arriving at important decisions is to get the views of concerned
persons before finalising them

- Often the view points of those persons may not be taken into consideration

- To avoid such situations mgt. should try to involve more and more persons in
decision making process.

5. Organizational environment :

- Organizational environment will have an influence on decision making process.

- If the environment is conducive then there will be proper co-operation and mutual
understanding among employees.
 Techniques or Basis of
Decision making
1. Intuition :

- It is a power to come to a conclusion immediately

- Characterised by the inner feelings of the persons

- They take decisions without any careful analysis and reasoning.

- Such decisions are generally influenced by their previous

experience, knowledge, wisdom, mental capacity and other
personal qualities.

- There is every possibility that such decisions may prove to be

incorrect as they are not based on proper reasoning and analysis.
 Contd..
2. Facts :

- A careful decision maker relies on reliable information and facts.

- He collects factual information and analyse it in the context of the

problem.

- The decision maker arrives at decisions only after knowing and

analysing the things.

- He takes more time, may involve more money and energy

- But this extra time, money and energy minimize the chances of
incorrect decisions.
 Contd..
3. Experience :

- Past experience of a person becomes a good basis for

taking decisions.

- When a similar situation arises the manager can rely

on his past decisions and takes the similar decisions.

- Experience should not be followed blindly.

- The new situation should be analysed on the basis of

past experience.
 Contd..
4. Considered opinions :

- Some managers used considered opinions as a basis for decision

making.

- Besides pertinent statistics, opinion are also given due weightage.

- These consultations may be in the form of group discussions/meetings

getting opinions from subordinates as well as superiors.

- The manager discusses the problem with his colleagues.

- He expects free exchange of ideas, views and opinions from those with
whom he discusses.

- After listening and considering their views and opinions, the manager
arrives at a decision.
 Contd..
5. Operation Research :

- The traditional methods of taking decision on the basis of intuition, experience are
replaced by systematic techniques based on analysis of data.

- It is one of the techniques used by modern management for deciding important

matters.

- It helps managers by providing scientific basis for solving organized problems.

6. Linear Programming :

- This technique is used to determine the best use of limited resources for
achieving given objectives.

- Linear programming can be used for solving problems in areas like production,
transportation, warehousing…etc.