Decision Making Process

Decision making process is a systematic approach consisting of following steps:

1
2
3
4

5
6

Identify the problem: the decision making process begins with the
recognition of the problem that requires a decision. At this stage a manager
should identify and define the real problem.
Diagnose the problem: Diagnosing the real problem implies analyzing it in
terms of its magnitude, its urgency and its relation with other problems.
Discover Alternatives: the next step is to search for various possible
alternatives, time and cost constraints should be kept in mind.
Evaluate alternatives: Once the alternatives are discovered, the next stage
is to evaluate each feasible alternative. It is the process of measuring the
positive and negative consequences of each alternative. Management must
set some criteria against which alternatives can be evaluated like risk, timing,
number of resources required, efforts required etc.
Select the best alternative: after evaluation, the optimum alternative is
selected, that will maximize the results under given condition.
Implement and follow up: once the decision is made it needs to be
implemented. Necessary resources should be allocated and responsibility for
specific task should be assigned to individuals.

HERBERT SIMON MODEL

Decision-making is a process in which the decision-maker uses information to arrive at a
decision. The core of this process is described by Herbert Simon in a model. He describes the
model in three phases as shown in the figure below:
I.
Intelligence: raw data collected, processed and examined, Identifies a problem calling
for a decision.
II.
Design: inventing, developing and analyzing the different decision alternatives and
testing the feasibility of implementation. Assess the value of the decision outcome.
III.
Choice: select one alternative as a decision, based on the selection criteria.

In the intelligence phase, the MIS collects the data. The data is scanned, examined, checked and
edited. Further, the data is sorted and merged with other data and computations are made,
summarized and presented. In this process, the attention of the manager is drawn to all problem
situations by highlighting the significant differences between the actual and the expected, the
budgeted or the targeted.
In the design phase, the manager develops a model of the problem situation on which he can
generate and test the different decision alternatives, he then further moves into phase of selection
called as choice.
In the phase of choice, the manager evolves selection criteria such as maximum profit, least cost,
minimum wastage, least time taken and highest utility. The criterion is applied to the various
decision alternatives and the one which satisfies the most is selected.
In these phases, if the manager fails to reach a decision, he starts the process all over again and
again. An ideal MIS is supposed to make a decision for the manager.

Sources of Information
There are 2 major sources of information
1. Primary Sources
2. Secondary Sources

1. Primary Sources
These sources gather 2 types of data

a) Primary Data
b) Secondary Data

Primary and Secondary Data: Data are the raw materials used for obtaining
information
Data is derived from number of sources, both internal as well as external.
If the data is collected for the first time by the researcher, it is classified as Primary
Data.

If the data is borrowed by the researcher from other sources, it is referred to as

Secondary Data
2. Secondary Sources
It includes internal as well as external records. Sources like newspaper, magazines, trade
journals, government, policy documents, and web sites are all secondary sources of data.

Types of Information
The information can be classified in a number of ways to provide better understanding.
1. Action and Non-action

a) Action Information: The information which induces action is called an Action

Information
Ex: When attendance of students for a particular subject falls down to 40%, it calls
for immediate action
b) Non-action Information: These type of information communicates only the status of a
situation
Ex: While watching a live cricket match, we understand that Indias current run rate is
4 per over whereas its required run rate is 7 per over. We have this information but
this is non-action information.

2. Recurring Information
a) Recurring: The information that is generated at regular intervals.
Ex: Monthly sales report, accounts statement

b) Non-Recurring: These types of information are non-repetitive in nature.

Ex: Financial analysis or report on market research

3. Internal and External information

a) Internal: The information generated through the internal sources of the organization.
b) External: The information through the external sources. Ex: Govt, reports, industry
surveys etc.
DATA WARE HOUSE

A data warehouse is a subject-oriented, integrated, time-variant and nonvolatile collection of data in support of management's decision making
process.
Subject-Oriented: A data warehouse can be used to analyze a particular
subject area. For example, "sales" can be a particular subject.
Integrated: A data warehouse integrates data from multiple data sources.
For example, source A and source B may have different ways of identifying a
product, but in a data warehouse, there will be only a single way of
identifying a product.
Time-Variant: Historical data is kept in a data warehouse. For example, one
can retrieve data from 3 months, 6 months, 12 months, or even older data
from a data warehouse.
Non-volatile: Once data is in the data warehouse, it will not change. So,
historical data in a data warehouse should never be altered.

3-tier architecture of Data Warehouse

The bottom tier : Back-end tools and utilities are used to feed data
into the bottom tier from operational databases or other external
sources.
The middle tier is an OLAP server that is typically implemented using
either (1) a relational OLAP (ROLAP) model, or (2) a multidimensional
OLAP (MOLAP) model, that is, a special-purpose server that directly
implements multidimensional data and operations.
The top tier is a front-end client layer, which contains query and
reporting tools, analysis tools, and/or data mining tools (e.g., trend
analysis, prediction, and so on).

Advantages of Data Warehouse

Competitive advantage is gained

Increased productivity of corporate decision-makers
Empowering end-users to perform any level of ad-hoc queries or
reports

Disadvantages of Data Warehouse

huge time is required to extract, clean, and load the data into the
warehouse
problems like incomplete data are associated with the source systems
in some cases the required data is not captured by the source systems
which may be very important for the data warehouse purpose
warehouse deals with similarity of data formats between different data
sources, so there can be compatibility problems
High maintenance cost and efforts

Applications
Cell phone analyses cell behavior and evolve pricing strategies, discount
schemes based on pattern of mobile call service usage.
LIC has a data warehouse of millions of policy holders, the study helps
them to analyze the business in terms of policy holders, social status,
duration of policies, popular policies etc.

Consumer goods industry uses data warehouse for product movement

tracking. It inculcates a transparent behavior between consumer and
customer market.
Tourism Industry analyses data in tourist traffic in terms of country,
length of stay, number of visits, transportation preferences and hotels to
plan development of tourism business.
RBI use data warehouse to understand what influences money markets
and study individual banks, their position. This helps RBI to evolve more
intelligent regulatory , mechanism.
Hospitals and health care industry analyses data from warehouse on
patients, disease treatment, success and failure to plan health care
resources and their effective deployment.

Rational Decision Making

A Rational decision is the one which effectively and efficiently ensures the achievement of the
goals for the decision is made. If it is raining, it is rational to look for the cover so that you do not
get wet. If you are in business and want to make profit, then you must produce goods and sell
them at price higher than cost of production. In reality there is no right or wrong decision but a
rational and irrational decision.
Basically it is a logical, sequential model where the emphasis is on listing many potential
options and then working out which is the best. Often the pros and cons of each option are also
listed and scored in order of importance.
The rational aspect indicates that there is considerable reasoning and thinking done in order to
select the optimum choice. Because we put such a heavy emphasis on thinking and getting it
right in our society, there are many of these models and they are very popular. People like to
know what the steps are and many of these models have steps that are done in order.
People would love to know what the future holds, which makes these models popular. Because
the reasoning and rationale behind the various steps is that if you do x, then y should happen.
However, most people have personal experience that the world usually doesn't work that way.
Rational decisions are made on the following assumptions:

The problem is clear and unambiguous

A single, well-defined goal is to be achieved
All alternatives and consequences are known
Preferences are clear
Preferences are constant and stable
There are no time or cost constraints
Final choice will maximize economic payoffs

Characteristics of Rational Decision Making:

Decision making will follow a process or orderly path from problem to solution.

There is a single best or optimal outcome. Rational decisions seek to optimize or

maximize utility.
The chosen solution will be in agreement with the preferences and beliefs of the
decision maker.
The rational choice will satisfy conditions of logical consistency and deductive
completeness.
Decision making will be objective, unbiased and based on facts.
Information is gathered for analysis during the decision making process.
Future consequences are considered for each decision alternative.
Structured questions are used to promote a broad and deep analysis of the
situation or problem requiring a solution.
Risk and uncertainty are addressed with mathematically sound approaches.

DATA BASE
Data base consists of logically related data stored in a single logical data
repository.
In simpler words, A database is basically a collection of information organized
in such a way that a computer program can quickly select desired pieces of
data.
Databases are organized by fields, records, and files. A field is a single piece
of information; a record is one complete set of fields; and a file is a
collection of records.
For example, a telephone book is analogous to a file. It contains a list of
records, each of which consists of three fields: name, address, and telephone
number.

A database system is composed of:

Hardware
Software
People
Procedure
Data

Types of Databases
Based on number of users:
Single user database supports only one user at a time
Multiuser database supports multiple users at the same time
Based on database location:
Centralized Database: data located at a single site
Distributed Database: data distributed across several sites
Based on Extent of use:
Operational database: supports a companys day to day operations

Data Warehouse: stores data used for tactical or strategic decisions

Data Mart
A data mart contains a subset of corporate wide data that is of value to a
specific group of users or to a particular department. The scope is confined to
specific related subjects.
E.g. Marketing data mart may confine its subjects to customers, items
and sales.

Characteristics
Data mart aims to meet a departments needs
Data mart is easy to design, build and test
An organizations can build many data marts independently as the need
evolve
A data marts source can be data warehouse, another data mart, or an OLTP
system.

Types of decisions:
Programmed decisions: it involves situations that have occurred often i.e.
these decisions are those that have been made persistently in the earlier
period that managers have developed rules of guidelines to be applied when
certain situations are expected to happen.
In programmed decision making there will be no error in the decisions
because it is a routine and managers usually have the information they need
to create rules and guidelines to be followed by others. But sometimes it can
cause error, but not of big kind.
Programmed decision making are always used in daily routine to keep the
organization running smooth. That is why they have rules and guidelines to
make a decision.
Non-Programmed Decisions: these are made in response to the situation
that are unique, are properly defined and largely unstructured. This type of
decisions making does not need rules of guidelines to be followed because
the situation is unexpected or uncertain.
Non-Programmed decision have more chance of errors and difficult for
managers to handle as it is inherently challenging. Managers must rely on
their intuition to quickly respond to an urgent concern.

COST- BENEFIT ANALYSIS

Costbenefit analysis (CBA), sometimes called benefitcost analysis
(BCA), is a systematic process for calculating and comparing benefits and
costs of a project, decision or government policy .
Cost is the value of money that has been used up to produce something, and
hence is not available for use anywhere.
Benefit are the monitory values of desirable consequence of economic
policies and decisions.
An individual will choose an action if:
Benefits (B) > Costs (C)
or
Net Benefits (NB) = B - C > 0.
CBA has two purposes:
1 To
determine
if
it
is
a
sound
investment/decision
(justification/feasibility),
2 To provide a basis for comparing projects. It involves comparing the
total expected cost of each option against the total expected benefits,
to see whether the benefits outweigh the costs, and by how much.

Steps in personal Selling process

Personal Selling consists of the following steps.
1. Pre-sale preparation: The first step in personal selling is the selection, training and motivation of
salespersons. The salespersons must be fully familiar with the product, the firm, the market and the
selling techniques. They should be well-informed about the competitor's products and the degree of
competition. They should also be acquainted with the motives and behavior of prospective buyers.
2. Prospecting : It refers to locating or searching out prospective buyers who have the need for the
product and the ability to buy it. Potential customers may be spotted through observation, enquiry and
analysis of records of existing customers. Social contacts, business associations and dealers can be
helpful in the identification of potential buyers.
3. Approaching : Before calling on the prospects, the salesperson should fully learn their number, needs,
habits, spending capacity, motives, etc. Such knowledge helps in selecting the right sales appeal. After
such learning, the salesperson should approach the customer in a polite and dignified way. He should
introduce himself and his product to the customer. He should greet the customer with a smile and make

him feel at home. He should introduce himself and his product to the customer. In case he is busy with
some other customer, he should assure the new customer that he would be attended very soon. The
salesperson has to be very careful in his approach as the first impression is the last impression.
4. Presentation : For this purpose, the salesperson has to present the product and describe its features
in brief. The presentation should be matched with the attitude of the prospect so that the salesman can
continuously hold his attention and create interest in the product.
5. Demonstration: In order to maintain customer's interest and to arouse his desire, the sales-person
must display and demonstrate the product. He has to explain the utility and distinctive qualities of the
product so that the prospect realizes the need for the product to satisfy his wants. He should not be in a
hurry to impress the customer and should avoid controversy. He may suggest uses of the product and
may create an impulsive urge to possess the article by appealing to human instincts.
6. Handling objections: A sale cannot be achieved simply by creating interest and desire. Every
customer wants to make the best bargain for the money he is spending. Presentation and demonstration
of the product are likely to create doubts and questions in his mind. The salesman should clear all doubts
and objections without entering into a controversy and without losing his temper. Testimonials, moneyback guarantee, tact and patience are popular means of winning over s hesitant buyers. The salesman
should convince the customer that he is making the best use of his money by purchasing the product. For
this purpose, the salesman should prove the superiority of his product over the competitive products. He
should not lose patience if the customer puts too many queries and takes time in arriving at any decision.
If the customer does not buy even after meeting rejections, the salesman should let him go without
showing temper. He must believe in the universal rule that the customer is always right.
7. Closing the sale: This is the climax or critical point in the personal selling process. Completing the
sale seems to be an easy task but inappropriate handling of the customer can result in loss of sale. The
salesman should not force the deal but let the customer feel that he has made the final decision. He
should guide the customer in making the choice without imposing his own view. Some adjustment in price
or other concession may sometimes be necessary for a successful closing. The salesman should show
the same interest in the customer which he exhibited during approach stage. Sales should be closed in a
cordial manner so that the customer feels inclined to visit the shop again. In closing the sale, the article
should be packed properly and handed over to the customer with speed and accuracy. Once the customer
has purchased the article, the salesman should show and suggest an allied product. For instance, he may
suggest socks, ties, handkerchiefs, vests, etc., to a customer purchasing a shirt. This is known as
additional sales and requires great skill and tact.

8. Post-sale follow-up : It refers to the activities undertaken to ensure that the customer is satisfied with
the article and the firm. These activities include installation of the products, checking and ensuring its
smooth performance, maintenance and after-sale service. It helps to secure repeat sales identify
additional prospects and to evaluate salesman's effectiveness