QUESTION BANK ANSWERS

Unit V: Managerial Decision Making

Question 1. What are the advantages of group decision making?
Answer 1. The advantages of group decision making are
1. You will receive more diversity in the availability of opinions.
This advantage speaks to the diversity that is in your group. Whenever you bring in
people from different educational backgrounds, family environments, and personal
experiences, then you will receive a wide array of perspectives that can help you to
reach a better overall decision in almost any situation. People who come from unique
situations will always have different ideas than a group of individuals who all have a
similar life story to share. When you can engage the help of a number of people who can
all come up with different ideas, then there are several new alternatives that can
become available that wouldn’t be present otherwise.
2. It promotes greater interest and participation from the rest of the team.
You need to have dedicated and interested people on your team when decisions need to
be made because that is the only way that you can get some buy-in for the process. This
advantage is necessary in the personal and professional choices that may be necessary.
When people are asked to engage in a process that could impact their needs, then they
are typically willing to look for innovative ideas, efficient plans, and active participation
to create a successful outcome that works for everyone.
3. You’ll create more understanding and positivity within the team.
People are resistant to change when they don’t understand why a shift in perspective is
necessary. There are times when the wheel doesn’t need to be reinvented, after all. It is
also essential to realize that without communication and discussion, any decisions that
do get made will encounter resistance when there is no explanation as to why a new
series of events is suddenly necessary. By engaging the entire group in a discussion
about what needs to happen, you will create more acceptance of the final outcome. You
may receive some interesting or exciting suggestions or opinions that could move you in
an unexpectedly better direction because there is a fresh perspective available.
4. It creates an opportunity to create collective contributions.
The average decision made by a single individual can be partial or biased in its outcome.
These choices usually work in the favor of the person who is in charge of implementing
the solutions that are necessary. By moving the final choice to a group scenario, there is
less power in the leadership’s influence over everyone else. It is a process that removes
the barriers of discussion monopolies that can force people into a specific outcome
which might not be the best solution in those circumstances. By reducing the risks of
bias and partiality, it becomes possible to reach an outcome that can favor a majority of
the people in the ground.
5. You can take advantage of team building opportunities.
Active participation in the decision-making process creates a unique team-building
opportunity for the entire group. You are inspiring healthy debate and passionate
discussions about important topics when you embrace this concept personally or
professionally. Some of those conversations might be difficult, but any action that works
to proactively coordinate the efforts of team members can result in an efficient
outcome. This process also creates a secondary advantage where the skills of each team
member can slowly transfer over to others in the group, creating individual benefits as
the organization continues to improve at the same time.
6. It promotes the idea that collective thinking is an advantage.
Group decision making is beneficial because it offers a diverse set of views that work
toward a creative, positive outcome for each person involved with the process. It sets
the stage for compromise because it can reduce the impact of extreme views while the
group can also strive toward a meaningful result that might be outside of the usual
framework of what they do. The entire process becomes advantageous to the teams
willing to go through this investment because the eventual outcome is to create
something that is mutually beneficial to everyone.
7. Group decision making can increase the strength of an organization.
Change happens whenever a decision is made, whether it is by a single leader or an
entire group. When people can come together to discuss the issues that they will face
when change occurs, then the resiliency of the organization and the team will increase.
The chances that a cost-effective answer that works within an acceptable structure will
be discovered increase when this advantage is present. By increasing the strength of the
entire team, the organization benefits too because the executive leadership is only as
good as the people who are working at an entry-level position. This advantage
eventually leads to a higher job satisfaction rating up and down the chain-of-command
because there are more opportunities to learn from one another.
8. It is a process that allows a team to take advantage of a smart risk-taking
opportunity.
Many people are unwilling to take a risk because of the potential exposure they have to
the final outcome. When you place these individuals into a group setting, then the risk
levels spread out to each team member instead of residing with a single person. That
makes it more likely for the entire group to take a chance on an innovative solution
instead of remaining with the status quo. Organizations benefit from this process
because innovation typically leads to better revenues. By encouraging smart risks
where the payoff benefits are greater than a potential loss, it is easier for the entire
team to find new ways to grow.

Question 2. What are the disadvantages of group decision making?

Answer 2. The disadvantages of group decision making are
1. The group decision-making process can take a significant amount of time to
complete.
When you have a lot of time available before a decision must be made, then engaging
with the entire group can create many advantages. If you need to reach a conclusion
rapidly, then an individual choice instead of a group one is a better solution to pursue.
That’s because it takes more time for team members to reach a consensus when
compared to a supervisor who can make a unilateral decision for everyone. Every
member of the group adds a time need to the decision-making process. That means a
two-member group will reach a choice faster than a 200-member group, but both will
be slower than the team who relies on their leader to make the choice for everyone.
2. You can receive irrelevant opinions and ideas with the group decision-making
process.
Everyone will bring their unique ideas to the table when you encourage a group
discussion. This process can provide a number of benefits, but it can also turn into a
choice where each person works harder at protecting their best interests instead of
promoting the general welfare of the team. It is a disadvantage that can highlight the
disparities found in the group, which can eventually lead to a reduction in efficiencies or
quality in the final choice. People can also bring ideas to the table that they think are
based on expertise, but are really evidence of a lack of knowledge. You can have people
fighting for irrelevant opinions that have nothing to do with the subject at hand because
everyone thinks that their stance is the correct one.
3. Some people refuse to share their perspectives during group decision making.
There are times when people decide to remain silent during a group discussion because
they have nothing that they want to add to the conversation. They have decided before
this process that they’re going to “roll with the punches” and follow whatever outcome
occurs. This disadvantage can create a room full of silence where the leader is still
expected to come up with the final decision. Some team members might decide to stay
silent because of social pressures as well. It can be a negative component of this process
that can lead teams toward the wrong decision because there are too many loud voices
that drown out the softer, quieter tidbits of expertise that get shared.
4. Groups can have a different priority than what the decision requires.
The group decision-making process creates a number of ideas that come up for
discussion. It is not unusual for everyone to focus on a specific number of them,
sometimes just 1-2 alternatives, instead of trying to look at the bigger overall picture.
Their focus can be based on what their best interests are in that situation, the popularity
of the people proposing the idea, or other factors that may not be consequential to the
final result. This disadvantage can lead to a limitation of choices instead of an expansion
of them. Groups can find themselves stuck to only a few ideas because of their
stubbornness. It is a process which results in less efficiency instead of more when it
occurs.
5. The final choice can go against the outcomes of an organization.
Most group discussions will eventually get to a point where the decisions carry out the
mission, vision, and objectives of the organization. Then there are the times when the
choices made and carried out by the group does not always accomplish the goals that
are necessary in the situation. If there is not agreement in the group with the desired
wish of the organization, either personally or professionally, then it can lead to
disruptive behavior in the future. This process results in fewer goals reached,
movement away from the mission, and objectives that have no bearing on what the final
outcome must be.
6. Groups reduce the amount of accountability that occurs in the workplace.
When one person makes a decision for everyone, then the positive or negative
accountability that occurs because of that process can ensure the appropriate outcomes
can happen. If a group makes a decision that fails, then there is uncertainty on who to
blame. Is the whole group responsible for the outcome? What about the people who
objected to the final decision, yet they still get lumped in with everyone else despite
their opposition? When groups decide to take more risks when employing this process,
then there is a possibility that a greater, more valuable reward becomes possible. It also
means people will be quick to assign blame instead of taking responsibility for an
outcome that fails to live up to its full potential. Leaders in this situation are the most
likely to use this disadvantage to shift the blame to someone else.
7. It can result in an overuse of authority.
Group discussions are designed to create more unity and harmony within the workplace
environment. The idea is that by getting people onto the same page at the earliest
possible stage, it becomes easier to reach the objections, goals, and vision of the
organization. This process is similar to what occurs in the family environment as well.
There are times when an opinion can be influenced by someone in authority over them,
which allows a leader to dominate the discussion. This disadvantage can cause some
members of the group to become less involved with team activities, which increases the
risk of more silos.
8. Group decision making can cause everyone to see themselves as a leader.
Organizations require people to be in leadership positions because there needs to be
individuals in charge of team development, project implementation, and mentorship.
When the group decision-making process is a top priority, then there can be times when
multiple members of a team can start thinking that they are in a leadership role with
their company. Most workers will use the little bit of power they’re given in this process
to benefit themselves and their organization, but it can also cause a few people to think
that they are in charge. When you have team members outside of the supervisor or
manager handing out assignments, enforcing company policy, and even trying to
manage disciplinary actions, then this disadvantage can reduce the amount of creativity
that is available in the workplace.
9. People in a group can decide to “go with the flow.”
One of the most significant problems with the group decision-making process is that
team members can decide that their top priority is to avoid conflict instead of fighting
for their ideas. This disadvantage can quickly lead to a problem that is call “group
think.” You can spot it happening when the loudest voice in the room is the one getting
all of the ideas to pass. Discussions don’t need bullies to create a successful outcome. An
organization needs people to be brave enough to support their concepts while
providing evidence that it could be a meaningful solution.
Question 3. What are the different forms of group decision making?
Answer 3. The most common forms of group decision making are:
 Interacting groups
 Delphi groups
 Nominal groups

1. Interacting groups
One of the most common forms of group decision making is an interacting group. It is a
decision-making group in which the member only discusses, argue about and agree on
the best alternative. The group arrives at a decision after discussing the pros and cons of
various alternatives. An advantage of this method is that the interaction between people
brings forth many new ideas and improves understanding between members of the
group. A major disadvantage of this form of group decision making is that political
factors can influence it to a great extent. It fosters group dynamics that tend to limit the
creative process.
2. Delphi groups
Members with expertise and relevant information concerning an issue are selected to
make the decision regarding that issue. Questionnaires are sent to the group members
who record their answers in writing. The group members do not meet face-to-face.
Replies of all the members to the questionnaires are summarised and feedback to them
are sent for review. They are asked to make the decisions again in view of the additional
information. This process is repeated until a satisfactory decision is made. This
technique is mostly used for the decisions relating to demand forecast, project market
trends, identify future problems, predict the future state of finance, production etc.
3. Nominal groups
It motivates individual creativity. Members form the group for namesake and operate
independently, originate ideas for solving the problem on their own, in silence and in
writing. Members do not communicate well with each other so that strong personality
domination is evaded. The group coordinator either collects the written ideas or writes
them on a large blackboard so that each member of the group can see what the ideas
are. These ideas are further discussed one by one in turn and each participant is
motivated to comment on these ideas in order to clarify and improve them. After all
these ideas have been discussed, they are evaluated for their merits and drawbacks and
each actively participating member is needed to vote on each idea and allot it a rank on
the basis of priority of each alternative solution. The idea with the highest cumulative
ranking is selected as the final solution to the problem.
Question 4. What are the various techniques of decision making?
Answer 4. The various techniques of decision making are:
1. Marginal Analysis:
This technique is used in decision-making to figure out how much extra output will
result if one more variable (e.g. raw material, machine, and worker) is added. In his
book, ‘Economics’, Paul Samuelson defines marginal analysis as the extra output that
will result by adding one extra unit of any input variable, other factors being held
constant. Marginal analysis is particularly useful for evaluating alternatives in the
decision-making process.
2. Financial Analysis:
This decision-making tool is used to estimate the profitability of an investment, to
calculate the payback period (the period taken for the cash benefits to account for the
original cost of an investment), and to analyze cash inflows and cash outflows.
Investment alternatives can be evaluated by discounting the cash inflows and cash
outflows (discounting is the process of determining the present value of a future
amount, assuming that the decision-maker has an opportunity to earn a certain return
on his money).
3. Break-Even Analysis:
This tool enables a decision-maker to evaluate the available alternatives based on price,
fixed cost and variable cost per unit. Break-even analysis is a measure by which the
level of sales necessary to cover all fixed costs can be determined. Using this technique,
the decision-maker can determine the break-even point for the company as a whole, or
for any of its products. At the break-even point, total revenue equals total cost and the
profit is nil.
4. Ratio Analysis:
It is an accounting tool for interpreting accounting information. Ratios define the
relationship between two variables. The basic financial ratios compare costs and
revenue for a particular period. The purpose of conducting a ratio analysis is to
interpret financial statements to determine the strengths and weaknesses of a firm, as
well as its historical performance and current financial condition.
Operations Research Techniques:
One of the most significant sets of tools available for decision-makers is operations
research. An operation research (OR) involves the practical application of quantitative
methods in the process of decision-making. When using these techniques, the decision-
maker makes use of scientific, logical or mathematical means to achieve realistic
solutions to problems. Several OR techniques have been developed over the years.
1. Linear Programming:
Linear programming is a quantitative technique used in decision-making. It involves
making an optimum allocation of scarce or limited resources of an organization to
achieve a particular objective. The word ‘linear’ implies that the relationship among
different variables is proportionate. The term ‘programming’ implies developing a
specific mathematical model to optimize outputs when the resources are scarce. In
order to apply this technique, the situation must involve two or more activities
competing for limited resources and all relationships in the situation must be linear.
2. Waiting-line Method:
This is an operations research method that uses a mathematical technique for balancing
services provided and waiting lines. Waiting lines occur whenever the demand for the
service exceeds the service facilities. Since a perfect balance between demand and
supply cannot be achieved, either customers will have to wait for the service (excess
demand) or there may be no customers for the organization to serve (excess supply).
When the queue is long and the customers have to wait for a long duration, they may get
frustrated. This may cost the firm its customers. On the other hand, it may not be
feasible for the firm to maintain facilities to provide quick service all the time since the
cost of idle service facilities have to be borne by the company. The firm, therefore, has to
strike a balance between the two. The queuing technique helps to optimize customer
service on the basis of quantitative criteria. However, it only provides vital information
for decision-making and does not by itself solve the problem. Developing queuing
models often requires advanced mathematical and statistical knowledge.
3. Gaming Theory:
This is a systematic and sophisticated technique that enables competitors to select
rational strategies for attainment of goals. Game theory provides many useful insights
into situations involving competition. This decision-making technique involves selecting
the best strategy, taking into consideration one’s own actions and those of one’s
competitors. The primary aim of game theory is to develop rational criteria for selecting
a strategy. It is based on the assumption that every player (a competitor) in the game
(decision situation) is perfectly rational and seeks to win the game.
4. Simulation:
This technique involves building a model that represents a real or an existing system.
Simulation is useful for solving complex problems that cannot be readily solved by other
techniques. In recent years, computers have been used extensively for simulation. The
different variables and their interrelationships are put into the model. When the model
is programmed through the computer, a set of outputs is obtained. Simulation
techniques are useful in evaluating various alternatives and selecting the best one.
Simulation can be used to develop price strategies, distribution strategies, determining
resource allocation, logistics, etc.
5. Decision Tree:
This is an interesting technique used for analysis of a decision. A decision tree is a
sophisticated mathematical tool that enables a decision-maker to consider various
alternative courses of action and select the best alternative. A decision tree is a
graphical representation of alternative courses of action and the possible outcomes and
risks associated with each action. In this technique, the decision-maker traces the
optimum path through the tree diagram. In the tree diagram the base, known as the
‘decision point,’ is represented by a square. Two or more chance events follow from the
decision point. A chance event is represented by a circle and constitutes a branch of the
decision tree. Every chance event produces two or more possible outcomes leading to
subsequent decision points.
Question 5. What is the limitation of rational decision making?
Answer: The following are the limitation of rational decision making:
 It is very difficult for mangers to be completely rational in their decision making
since decisions are taken keeping the future in mind, and the future is very
uncertain.
• It is very difficult to determine all the alternative courses of action that might be
followed to accomplish a goal.
• Rational decision making becomes almost an impossible task when one has to
explore areas which have been ventured into before
• In most cases, all possible alternatives generated cannot be thoroughly analysed,
even with sophisticated analytical techniques and computers
• Even though the decision maker strives to be completely rational, sometimes
limitations of information, time and certainty, curb rationality
• Sometimes, managers allow their risk-avoiding tendency to disrupt their rational
decision-making process.

Question 6. What is the process of decision making?

Answer 6. The following are the process of decision making:
Step 1: Identify the decision
You realize that you need to make a decision. Try to clearly define the nature of the
decision you must make. This first step is very important.
Step 2: Gather relevant information
Collect some pertinent information before you make your decision: what information is
needed, the best sources of information, and how to get it. This step involves both
internal and external “work.” Some information is internal: you’ll seek it through a
process of self-assessment. Other information is external: you’ll find it online, in books,
from other people, and from other sources.
Step 3: Identify the alternatives
As you collect information, you will probably identify several possible paths of action, or
alternatives. You can also use your imagination and additional information to construct
new alternatives. In this step, you will list all possible and desirable alternatives.
Step 4: Weigh the evidence
Draw on your information and emotions to imagine what it would be like if you carried
out each of the alternatives to the end. Evaluate whether the need identified in Step 1
would be met or resolved through the use of each alternative. As you go through this
difficult internal process, you’ll begin to favor certain alternatives: those that seem to
have a higher potential for reaching your goal. Finally, place the alternatives in a
priority order, based upon your own value system.
Step 5: Choose among alternatives
Once you have weighed all the evidence, you are ready to select the alternative that
seems to be best one for you. You may even choose a combination of alternatives. Your
choice in Step 5 may very likely be the same or similar to the alternative you placed at
the top of your list at the end of Step 4.
Step 6: Take action
You’re now ready to take some positive action by beginning to implement the
alternative you chose in Step 5.
Step 7: Review your decision & its consequences
In this final step, consider the results of your decision and evaluate whether or not it has
resolved the need you identified in Step 1. If the decision has not met the identified
need, you may want to repeat certain steps of the process to make a new decision. For
example, you might want to gather more detailed or somewhat different information or
explore additional alternatives.

Question 7. What is the difference between Management Information System and

Decision Support System?
Answer:

MIS DSS
An information system that evaluates, An information system that supports business
analyses and processes an organisation’s or organisational decision-making activities
data to produce meaningful and useful
information based on which the
management can take right decisions

Supports structured decision making Supports unstructured or semi-structured

decisions

Provides information to support internal Provide information to support specific

operations situations

Uses a large volume of data as the input and Uses a low volume of data as the input and
gives a summarised report as the output gives a decision analysis as the output

Focuses on operational efficiency Focuses on making effective decisions

Used by middle and low-level management Used by senior managers and analysts