Decision Making

Unit 4

Unit 4
Structure 4.1 Introduction 4.2 Definition 4.3 Features of Decision Making 4.4 Importance of Decision Making 4.5 Types of Decisions 4.6 Rationality in Decision Making 4.7 Process of Decision Making 4.8 Administrative Problems in Decision Making 4.9 Exercise

Decision Making

4.1 Introduction
Decision Making involves choosing among alternatives. A managers ability is judged by the quality of decisions he makes. The manager has to decide which step will be most appropriate and profitable in a given situation.

4.2 Definition
According to Massie A decision is a course of action which is consciously chosen for achieving a desired result. According to Mary Niles Decision Making takes place in adopting the objectives and choosing the means and again when a change in the situation creates a necessity for adjustments.

4.3 Features of Decision Making

i) It implies a choice i.e. choosing among two or more alternative courses of action. ii) It is a continuous process.
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iii) It is human process as it involves mental work. iv) Decision Making is a end process preceeded by reasoning and deliberation. v) It may be negative and may just be a decision not to act. vi) There is the concept of commitment in every decision. The manager is committed to a decision not only from the time he takes it but also till he implements it successfully. vii) It is not identical with problem solving. viii) It relates the means to the end. ix) It depends upon the situation.

4.4 Importance of Decision Making

According to Melwin T. Copeland Administration is a decision making process and authority is responsibility for making decisions and for ascertaining that the taken decisions are carried out. In the business enterprise changes in condition occur, shifts in personnel take place, unforeseen contingencies arise, moreover, just to get wheels started and to keep them rotating decisions must be made.

Decision Making is the nearest of planning. It is an important function of management. A management without decisions is like a man without a backbone. Every aspect of management function is determined by decisions only. The days of hit and miss methods of management are replaced by new and scientific technique. Therefore decision making is vital to all management activities. It helps to setup definite objectives, prepare plans of action, determine organisational structure, motivate personnel and introduce innovations.

4.5 Types of Decisions

i) Programmed and Non-Programmed Decision: Programmed decisions deal with routine or repetitive problems. Such problems being repetitive in nature needs a standard procedure for handling such problems by the

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managers at the appropriate level. The top executive need not waste his valuable time and energy in dealing with such problems. Eg.: If there is a habitual absenteeism in the company a set of rules and regulations will be there according to which the concerned officer can take action on such worker. Such problems need not be referred to the top executive.

Non-Programmed decisions are caused by unexpected problems which cannot be solved so easily. Eg.: If a large number of workers remain absent without informing, it becomes a problem requiring non-programmed decision. Such problems should be referred to the top executives only who will have to study its causes and consequences and then take an appropriate decision.

ii) Major and Minor Decisions: Decisions which have far reaching consequences and which involve huge expenditure are called major decisions Eg.: Purchase of costly plant and machinery. Major decisions will be taken by the top executive. Decisions which involve less expenditure are called minor decisions. They are taken by the officer in charge. Eg.: Purchase of ink and paper for office use. iii) Policy and Operating Decisions: Policy decisions are of great importance and affect the entire enterprise. They are taken by the top management. Eg.: Decision whether to give bonus or not. Operating decisions are taken to put the policy into action. It is taken by lower level management. Eg.: Calculating the bonus amount in respect of each worker is an operating decision. iv) Organisational and Personal Decisions: When the executive takes a decision in his official capacity it becomes organisational decision. Eg.: The sales mangers decision to visit distant branches. Decisions taken by the
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executive in his personal capacity are personal decisions (eg.) the decision of a manager to go on leave for one month. v) Long term, Departmental and Non-economic Decisions: In long term decisions, longer period is covered and risk is more. Such decisions are taken by top executives. Departmental decisions relates to a particular department and is made by the concerned head. Decisions relating to non-economic factors are non-economic decisions. Eg.: Decisions relating to moral behaviour of the workers. vi) Individual and Group Decisions: When a decision is taken by an individual in the organisation it is called as individual decision. Such decisions are taken in small organisations. When a decision is taken by a group of individuals it is groups decision. vii) Routine and Strategic Decisions: Routine decisions are made repetitively following certain established rules, procedures, policies etc. They do not require collection of new data and are always taken by manager at middle and lower level. Strategic Decisions or basic decisions are more important and are taken by top level management. They relate to policy maters. So it requires collection of information and analysis of alternatives Eg.: Sending samples of a product to the Government investigation centre is a routine decision. Cutting down the price of a product is a strategic decision.

4.6 Rationality in Decision Making

A manager can take a decision by intuition or rationally. If a decision is taken without considering carefully all the alternatives it is called decision by intuition. Decision by intuition are subjective.

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If a decision is taken after analysing and measuring the consequences of different alternatives it is called rational decision. This needs sufficient reasoning and logical thinking. It is a systematic way of decision making. In actual practice every individual takes decision both by intuition and by rationality. This was called as The principle of bounded rationality by Herbert Simon. He emphasized that a person makes decision not only on absolute logical analysis of facts but also by his intuition, value system and way of thinking which are subjective in nature. The subjectivity in decision making arises due to the following:

i) The individual does not want to study and analyse the problem because of his perception. ii) The individual does not have full knowledge of the alternatives and their consequences. iii) The individual interprets the organisational goals in his own way. iv) The individual is lazy or careless in taking the decision. v) He may be indifferent towards the consequences of his decisions. The rationality of the individual is bounded by these limitations. The concept recognises that a man cannot be expected to have full knowledge and information and his capacity to perceive the information is not unlimited. Therefore the traditional concept of complete rational and economic man cannot work in practice. A man has only bounded rationality and this concept helps in understanding the actual behaviour of decision maker. A decision maker is bound to be effected by subjective factors even though he is otherwise rational.

4.7 Process of Decision Making

The decision making process involves the following steps: i) Diagnosing and defining the problem. ii) Analysing the problem and fact finding. iii) Developing alternatives.
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iv) Selecting the best alternative. v) Putting the decision into practice. vi) Follow up. i) Diagnosing and defining the problem: A problem well defined is half solved. Defining the problem is not an easy task. Much time is to be spent in pointing out the problem. But it is worth spending the time because many bad decisions are made due to wrong analysis of the problem. The manger has to identify the real problem because problems which appear to be seen in the organisation may not be true problems.

ii) Analysing the problem and fact finding: After finding the problem the manager should analyse it. It involves classifying the problem and gathering information. Classifying is necessary in order to know who should take the decision and who should be consulted in taking it. Classification should be done on the basis of nature of the decision, impact of decisions on other functions, periodicity of decisions, limiting or strategic factor relevant to the decision.

After classification information has to be collected which needs certain decision on the part of the manager. He must decide what type of information is to be needed, how it has to be collected, what time and money he needs to collect the information. It is necessary that the manager should know how to use it. It is a point to be noted that fact finding should be solution oriented.

iii) Developing alternative: The purpose of finding alternatives is to make the best decision. After considering carefully the desirable courses of action he can select a best alternative. If this is not considered the manager cannot take good decisions because he is guided by his limited imagination and makes him skip of an important planning principle i.e. the principle of alternatives.

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Alternatives exists for every decision problem. Effective planning involves a search for alternatives. However the development of alternatives cannot provide a person with the imagination which he lacks. There is no guarantee that the best solution will be arrived at if alternatives are found out. iv) Selecting the best alternative: In order to make a final choice, measurement of the alternative in terms of its result is necessary. This can be done by the following methods: 1) Intuition: Choosing a solution that is good at that time. 2) By rational way: Choosing the alternative by measuring the consequences of various alternatives. Peter Drucker has given the following criteria for measuring the results of alternatives: 1) Risk: Risk is involved in all solutions. A manager has to measure the risk involved against expected gains. 2) Economy of effects: The decision to be chosen should ensure the maximum possible economy of efforts, money and time. 3) Situation or timing: The choice of the action depends upon the present situation. 4) Limitation of resources: In selecting alternatives primary importance should be given to the limiting factors. With the help of these elements a managers has to compare the various alternatives and select one which is the best in that situation. v) Putting the decision into action: A manager is not only concerned with the task of decision making but also with its implementation. He has to take steps to implement the decision. At this stage he may have to face resistance from the subordinates. This has to be over come by the manager. In order to make the sub-ordinates committed to the decisions, it is essential that they should be allowed to participate in the decision making process.

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6) Implementation of desired results have to be achieved the the manager and vi) Follow up: If the Decision: When a decision is finalized manager has to his subordinates should carry it out with all energy and zeal. Even if the check the results at every step after putting the decision into action. This is manager has consulted many of his subordinates and outside specialists he needed because has to the decision is good, one will come to know whatThe decisions taken 1) If accept the responsibility for decisions taken. to do when faced by becomes meaningless if they are not implemented. the same situation. 2) If the decision is bad, one will know what not to do in the next time. 3) If the decision is bad and one follows up soon corrective action may be

4.9 Exercise

1. Define possible. Decision-making. Explain its features and importance. 2. Explain the different types of Decisions. 3. Explain the different steps involved in decision-making process.

4.8 Administrative Problems in Decision Making

1) Correctness of Decision: To make correct decision, the manager should analyse the situation and he should have confidence in his ability in solving the problem. If the collected information is correct and if it is properly analysed, the decision made is bound to be correct. 2) Decision Environment: If the general environment in the company is satisfactory there will be mutual Co-operation and proper understanding which helps the manager to get timely information and take quick decision. 3) Timing of Decisions: Decisions without any purpose and timing are not at all business decisions. Further a decision has no meaning if it is not taken at the right time. 4) Effective Communication: Decisions taken must be communicated to those for whom they are meant and in the language known to them. Further the decision communicated must be clear, simple, logical and free from ambiguity. 5) Participation in Decision Making: The philosophy behind participation in decision making is that the manager should invite suggestions from the subordinates before taking a final decision to make them implementable easily.

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