INDEX

S.NO. TOPIC Page no.

1. INTRODUCTION 1
2. FUNDAMENTAL OF ‘DECISION’ 1 to 2
AND ‘DECISION MAKING’
3. FEATURES OF DECISION- 2 to 4
MAKING
4. ELEMENTS OF DECISION- 4 to 5
MAKING
5. RATIONALITY IN DECISION- 5 to 6
MAKING
6. TYPES OF DECISION-MAKING 6 to 8
7. PROBLEM ANAYLSIS AND 9 to 10
DECISION MAKING
8. DECISION-MAKING PROCESS 11 to 14
9. TECHNIQUES OF DECISION- 14 to 17
MAKING
10. CASE STUDY 18 to 19
11. CONCLUSION 19
12. BIBLIOGRAPHY 20
 INTRODUCTION

The thought process of selecting a logical choice from the available

options. When trying to make a good decision, a person must
weight the positives and negatives of each option, and consider all
the alternatives. For effective decision making, a person must be
able to forecast the outcome of each option as well, and based on
all these items, determine which option is the best for that
particular situation.

In psychology, Decision-making is regarded as the cognitive process

resulting in the selection of a belief or a course of action among
several alternative possibilities. Every decision-making process
produces a final choice that may or may not prompt action.
Decision-making is the process of identifying and choosing
alternatives based on the values and preferences of the decision-
maker.

FUNDAMENTAL OF ‘DECISION’ AND ‘DECISION

MAKING’

 CONCEPT OF DECISION:

DECISION is a choice made between two or more available

alternatives.

A DECISION may be defined, in terms of, commitment of

resources-raw-materials, machinery, time, efforts etc. in a
particular channel of thinking and action.

 CONCEPT OF DECISION MAKING:

DECISION MAKING is a process of selecting the best alternative

course of action; from among a number of alternatives given to

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Management or developed by it – after carefully and critically
examining each alternative.

DECISION MAKING is the process of choosing the best alternatives

for reaching objectives.

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

or more possible alternatives”.

 G.R.Terry

“Decision making is a course of action chosen by a manager as the

most effective means at his disposal for achieving goals and solving
problems”.

 Theo Haimann

FEATURES OF DECISION-MAKING

1. Decision Making Is a Selective Process

Decision making is the process of selecting a course of action from
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.

2. Decision Making Is Human and Rational Process

Decision making is mental or human process and is needed in all
types of organizations. A manager has to make mental exercise to
study the impact of course of action before taking a decision.
He/she has to invest personal skills, experience, knowledge and
capability to study the course of action from various angles.
Hence, decision making is common in all types of organizations.
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Therefore, it is known as human and rational process.
3. Decision Making Is a Dynamic Process
It is essential to consider 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, they have to consider future environments,
which may affect future activities. Thus, decision making process is
not static but dynamic process.

4. Decision Making Is 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.

5. Decision Making Is a 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. Managers have to solve
those problems in proper time so that the organizational
performance is smooth.

6. Freedom to Decision -Maker

Managers have freedom to take any kind of decision. As a chief of
organization, a manager may take any course of action to solve a
problem by using his/her own logic, knowledge and experience.

7. Positive or Negative Impact

A course of action may either have positive or negative impact on
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 Organizational performance. Managers have to consider, as far as
possible, the positive impact of the action before coming to a
decision.
8. Decision-Making is pervasive
There are three dimensions of the pervasiveness of decision making;
viz,
a. All managers in the management hierarchy take decisions,
within the limits of their authority, pertaining to their areas
of functioning.
b. Decision making is done is all functional areas of management
e.g. production, marketing, finance, personnel, research and
development etc.
c. Decision making is inherent in all functions of management
i.e. –planning, organizing, staffing, directing and controlling.

ELEMENTS OF DECISION-MAKING

1. DECISION MAKERS: They are the individuals or groups that

actually make the choice among alternatives.
Weak decision makers usually have one of the following
orientations:
a. Reception
b. Exploitive
c. Hoarding
d. Marketing-Oriented
2. GOALS TO BE SERVED: The goals that decision makers seek
to attain. These should often be organizational objectives.
3. RELEVENT ALTERNATIVES: A relevant alternative is one
that is considered feasible for solving an existing problem and
for implementation.
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 5. ORDERING OF ALTERNATIVES: The decision situation
requires a process or mechanism for ranking alternatives from
most desirable.
6. CHOICE OF ALTERNATIVES: This is the actual choice
between available alternatives. This choice establishes what we
call decisions.

RATIONALITY IN DECISION-MAKING

Rational decision making favors objective data and a formal

process of analysis over subjectivity and intuition.

of rational decision making assumes that the decision

maker has full or perfect information about alternatives; it also
assumes they have the time, cognitive ability, and resources to
evaluate each choice against the others.

This model assumes that people will make choices that will
maximize benefits for themselves and minimize any cost.

ASSUMPTIONS OF THE RATIONAL DECISION-MAKING MODEL:

The rational model of decision making assumes that people will

make choices that maximize benefits and minimize any costs. The
idea of rational choice is easy to see in economic theory. For
example, most people want to get the most useful products at
the lowest price; because of this, they will judge the benefits of a
certain object (for example, how useful is it or how attractive is
it) compared to those of similar objects. They will then compare
prices (or costs). In general, people will choose the object that
provides the greatest reward at the lowest cost.

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The rational model also assumes:

 An individual has full and perfect information on which to

base a choice.
 Measurable criteria exist for which data can be collected and
analyzed.
 An individual has the cognitive ability, time, and resources to
evaluate each alternative against the others.

The rational-decision-making model does not consider factors that

cannot be quantified, such as ethical concerns or the value of
altruism. It leaves out consideration of personal feelings, loyalties,
or sense of obligation. Its objectivity creates a bias toward the
preference for facts, data and analysis over intuition or desires

TYPES OF DECISION-MAKING

1. Programmed and non-programmed decisions:

Programmed decisions are concerned with the problems of

repetitive nature or routine type matters.

A standard procedure is followed for tackling such problems. These

decisions are taken generally by lower level managers. Decisions of
this type may pertain to e.g. purchase of raw material, granting
leave to an employee and supply of goods and implements to the
employees, etc. Non-programmed decisions relate to difficult
situations for which there is no easy solution.

These matters are very important for the organisation. For

example, opening of a new branch of the organisation or a large
number of employees absenting from the organisation or
introducing new product in the market, etc., are the decisions

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 which are normally taken at the higher level.

2. Routine and strategic decisions:

Routine decisions are related to the general functioning of the

organisation. They do not require much evaluation and analysis and
can be taken quickly. Ample powers are delegated to lower ranks
to take these decisions within the broad policy structure of the
organisation.

Strategic decisions are important which affect objectives,

organisational goals and other important policy matters. These
decisions usually involve huge investments or funds. These are non-
repetitive in nature and are taken after careful analysis and
evaluation of many alternatives. These decisions are taken at the
higher level of management.

3. Tactical (Policy) and operational decisions:

Decisions pertaining to various policy matters of the organisation

are policy decisions. These are taken by the top management and
have long term impact on the functioning of the concern. For
example, decisions regarding location of plant, volume of production
and channels of distribution (Tactical) policies, etc. are policy
decisions. Operating decisions relate to day-to-day functioning or
operations of business. Middle and lower level managers take these
decisions.

An example may be taken to distinguish these decisions. Decisions

concerning payment of bonus to employees are a policy decision.
On the other hand if bonus is to be given to the employees,
calculation of bonus in respect of each employee is an operating
decision.

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4. Organisational and personal decisions:

When an individual takes decision as an executive in the official

capacity, it is known as organisational decision. If decision is taken
by the executive in the personal capacity (thereby affecting his
personal life), it is known as personal decision.

Sometimes these decisions may affect functioning of the

organisation also. For example, if an executive leaves the
organisation, it may affect the organisation. The authority of
taking organizational decisions may be delegated, whereas personal
decisions cannot be delegated.

5. Major and minor decisions:

Another classification of decisions is major and minor. Decision

pertaining to purchase of new factory premises is a major decision.
Major decisions are taken by top management. Purchase of office
stationery is a minor decision which can be taken by office
superintendent.

6. Individual and group decisions:

When the decision is taken by a single individual, it is known as

individual decision. Usually routine type decisions are taken by
individuals within the broad policy framework of the organisation.

Group decisions are taken by group of individuals constituted in

the form of a standing committee. Generally very important and
pertinent matters for the organisation are referred to this
committee. The main aim in taking group decisions is the
involvement of maximum number of individuals in the process of
decision- making.

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 PROBLEM ANAYLSIS AND DECISION MAKING

It is important to differentiate between problem analysis and

decision-making. Traditionally, it is argued that problem analysis
must be done first, so that the information gathered in that
process may be used towards decision-making.

Characteristics of problem analysis

 Analyze performance, what should the results be against

what they actually are
 Problems are merely deviations from performance standards
 Problems must be precisely identified and described
 Problems are caused by a change from a distinctive feature
 Something can always be used to distinguish between what
has and hasn't been affected by a cause
 Causes of problems can be deduced from relevant changes
found in analyzing the problem
 Most likely cause of a problem is the one that exactly
explains all the facts

Characteristics of decision-making

 Objectives must first be established

 Objectives must be classified and placed in order of
importance
 Alternative actions must be developed
 The alternatives must be evaluated against all the objectives
 The alternative that is able to achieve all the objectives is
the tentative decision
 The tentative decision is evaluated for more possible
consequences
 The decisive actions are taken, and additional actions are

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  taken to prevent any adverse consequences from becoming
problems and starting both systems (problem analysis and
decision-making) all over again
 There are steps that are generally followed that result in a
decision model that can be used to determine an optimal
production plan
 In a situation featuring conflict, role-playing may be helpful
for predicting decisions to be made by involved parties

Analysis paralysis

Analysis paralysis is the state of over-analyzing (or over-thinking)

a situation so that a decision or action is never taken, in effect
paralyzing the outcome.

Information overload

Information overload is "a gap between the volume of information

and the tools we have to assimilate" it. Excessive information
affects problem processing and tasking, which affects decision-
making. Crystal C. Hall and colleagues described an "illusion of
knowledge", which means that as individuals encounter too much
knowledge it can interfere with their ability to make rational
decisions.

Post-decision analysis

Evaluation and analysis of past decisions is complementary to

decision-making. See also mental accounting and Postmortem
documentation.

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 DECISION MAKING PROCESS

Decision making is a daily activity for any human being. There is no

exception about that. When it comes to business organizations,
decision making is a habit and a process as well.

Effective and successful decisions make profit to the company and

unsuccessful ones make losses. Therefore, corporate decision making
process is the most critical process in any organization.

In the decision making process, we choose one course of action

from a few possible alternatives. In the process of decision making,
we may use many tools, techniques and perceptions.

In addition, we may make our own private decisions or may prefer

a collective decision.

Usually, decision making is hard. Majority of corporate decisions

involve some level of dissatisfaction or conflict with another party.

Let's have a look at the decision making process in detail.

STEPS OF DECISION-MAKING PROCESS

Following are the important steps of the decision making process.

Each step may be supported by different tools and techniques

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Step 1: Identification of the purpose of the decision

In this step, the problem is thoroughly analyzed. There are a

couple of questions one should ask when it comes to identifying
the purpose of the decision.

 What exactly is the problem?

 Why the problem should be solved?
 Who are the affected parties of the problem?
 Does the problem have a deadline or a specific time-line?

Step 2: Information gathering

A problem of an organization will have many stakeholders. In

addition, there can be dozens of factors involved and affected by
the problem.

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In the process of solving the problem, you will have to gather as
much as information related to the factors and stakeholders
involved in the problem. For the process of information gathering,
tools such as 'Check Sheets' can be effectively used.

Step 3: Principles for judging the alternatives

In this step, the baseline criteria for judging the alternatives

should be set up. When it comes to defining the criteria,
organizational goals as well as the corporate culture should be
taken into consideration.

As an example, profit is one of the main concerns in every decision

making process. Companies usually do not make decisions that
reduce profits, unless it is an exceptional case. Likewise, baseline
principles should be identified related to the problem in hand.

Step 4: Brainstorm and analyze the different choices

For this step, brainstorming to list down all the ideas is the best
option. Before the idea generation step, it is vital to understand
the causes of the problem and prioritization of causes.

For this, you can make use of Cause-and-Effect diagrams and

Pareto Chart tool. Cause-and-Effect diagram helps you to identify
all possible causes of the problem and Pareto chart helps you to
prioritize and identify the causes with highest effect.

Then, you can move on generating all possible solutions

(alternatives) for the problem in hand.

Step 5: Evaluation of alternatives

Use your judgment principles and decision-making criteria to

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evaluate each alternative. In this step, experience and effectiveness
of the judgment principles come into play. You need to compare
each alternative for their positives and negatives.

Step 6: Select the best alternative

Once you go through from Step 1 to Step 5, this step is easy. In

addition, the selection of the best alternative is an informed
decision since you have already followed a methodology to derive
and select the best alternative.

Step 7: Execute the decision

Convert your decision into a plan or a sequence of activities.

Execute your plan by yourself or with the help of subordinates.

Step 8: Evaluate the results

Evaluate the outcome of your decision. See whether there is

anything you should learn and then correct in future decision
making. This is one of the best practices that will improve your
decision-making skills.

TECHNIQUES OF DECISION-MAKING

Decision taken must be accurate and should not lead to confusion;

the decisions taken must also be scientific and available for
accuracy and verification. The important techniques that aid the
manager in decision making are operations research and other
quantitative techniques.

1. Operations Research:

Definition:"Operations Research is the application of methods of

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science to complex problems arising in the direction and
management of large system of men, machines, materials and
money in industry, business, government and defense".

Robert Thierauf:

"Operations Research utilized the planned approach and an

interdisciplinary team in order to represent functional relationships
as mathematical models for the purpose of providing a quantitative
basis for decision making and uncovering new problems for
quantitative analysis".

Operations Research helps the decision maker to make objective

decisions. OR does this by providing factual basis to guide and
support judgment, easing the burden of effort and time on the
executive.

Operations Research is a particular way of viewing the problem,

team, task force and mathematical reasoning to the alternatives
meant for solving them. The common approach in any operations
research is the construction and study of a mathematical model.

Some of the managerial problems usually subjected to operations

research analysis include production scheduling, inventory control,
sales policies, expansion of plant etc.

Management accountant holds key for the ultimate success or

failure of operations research. The quality of decision making will
improve with the application of mathematical model but the
feasibility of a mathematical model application will depend on the
adequacy and accuracy of accounting information. (More details on
OR at the later pages of this chapter).

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2. Models:

Model building is the central concept in the application of OR

while making use of quantifying models. Models are simple
convenient and relatively economic resource conservation device for
testing hypothesis.

Mathematical models help the optimization concept in decision

making. This is very important in the calculation and choice of
best possible alternative solutions for a given problem.

3. Simulation:

This technique is used to test the feasibility and possible outcome

of various decision alternatives. "Simulation is a quantitative
technique for evaluating alternative courses of action based upon
facts and assumptions with a computerized mathematical model in
order to represent actual decision making under conditions of
uncertainty.

4. Linear Programming:

This is defined as "How could a company with limited resources

make optimum use with their resources, combination for the
achievement of the desired objective, or goal was, the central idea
of this mathematical technique".

A linear or straight line relationship exists between variables and

that the limits of variation can be determined. It adopts an
analytical instead of intuitive approach in decision making. It is also
concerned with problem of planning. A group of complex
independent activities are expressed by means of developing
mathematical formula.

5. Games Theory:

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Games theory attempts to work out optimum solution in which an
individual in a given situation can develop a strategy irrespective of
what a competition does with maximizing gains or minimizing
losses. It involves mathematical study of tactics under conditions
of uncertainty.

6. PERT and CPM:

Programme Evaluation and Review Technique is useful to analyze

and control the timing aspects of programmes. In planning and
controlling a programme, PERT helps in obtaining lower costs and
reducing programme time, bringing about better utilization of
human and physical resources.

Critical Path Method (CPM) is a commonly used term for all

network analysis and for a particular version of these techniques.

PERT relies on three estimates, an optimistic, most likely and

pessimistic of the time each activity may take. CPM relies only
one 'most likely'.

7. Probability Theory Analysis:

Probability refers to a chance that a particular event will occur.

The events must be random and be effected by chance and not by
design. The probability of success is defined as the number of
successful outcomes divided by the total number of outcomes. It
cannot be denied that some element of probability does exist in all
decision making.

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 CASE STUDY

You are the managing director (MD) of ABC Ltd. In order to

increase the quantity of production, you plan to automate your
assembly line. New machines are bought and installed. Training
programmes are conducted to train the operators to operate the
new machines. Though technically everything has been installed
properly, yet production goes down. You show your concern over
the matter as to why should better productions methods and
techniques result in fall in production and set an enquiry. A
meeting of managerial heads is called. HR manager, Mr.Chaddha
found that workers fear loss of jobs because of increased
automation and no additional financial incentives are offered to
them for increased production. According to Mr.Chaddha, low
morale of workers is thus, the reason for low production. You
want to solve this problem in consulation with your subordinates.

QUESTIONS:

1. What steps will you take to solve this problem?

ANSWER: Managers should communicate and ensure to
win the trust of his employees.
2. Explain the conditions under which you are taking
decisions- certainty, uncertainty, risk.
ANSWER:
i) Certainty: increasing profits by introduction of
technologically advanced machinery.
ii) Uncertainty: adoption and acceptance by
employees.

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 iii) Risk: failure of the new ideas due to reasons
mentioned in the case.

CONCLUSION

When it comes to making decisions, one should always weigh the

positive and negative business consequences and should favor the
positive outcomes.

This avoids the possible losses to the organization and keeps the
company running with a sustained growth. Sometimes, avoiding
decision making seems easier; especially, when you get into a lot of
confrontation after making the tough decision.

But, making the decisions and accepting its consequences is the

only way to stay in control of your corporate life and time.

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 BIBLIOGRAPHY

WEBSITES:

 GOOGLE.COM
 WIKIPEDIA.COM

BOOKS:

 PRINCIPLES OF MANAGEMENT
-S.CHAND
 PRINCIPLES OF MANAGEMENT
- T.N. CHHABRA

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