DECISION-MAKING MEANING Decision-making is an important job of a manager. Everyday he has to decide about doing or not doing a particular thing. A decision is the selection from among alternatives. “It is a solution selected after examining several alternatives chosen because the decider foresees that the course © selects will be more than the of action hi others to further his goals and will be accompanied by the fewest possible objectionable consequences.”? It is the selection of one course Oo! f action from two or more alternative courses of action. In the words of MacFarland, “A decision is an act of choice wherein an executive forms a conclusion about that must be done in a given situation. A decision represents a course of behaviow’ mbsigen from a number of possible alternatives.”? The way an executive ci or decides the course of ‘action from among Various alternatives is an act of decision-making. George Terry says, “Decision: aking is the selection based on some Cr ible alternatives.”? Thi fenia from two or more Poss qhoush there are many asjernatives available for we ager but he has to choose the st Out of them. Characteristics decision-making ‘The manager tries to forsee a particular one. . ics Of i 1. Decision-making is based on rational thinking. rious possible effe before deciding, Bd gs a i (b Manely = Sonee 7 Exeantive Decision-Makings PO a Sear snacmitian Co, New York, 1974, p: 60- Macrarta ce, 03. Fl caer + rae’ 90d Pa the Seorge Terry ragermies of Managements Tromewood, TT s Richard: O. Irwity 1977, p. 168.en ~o Business Organisation and Management 15.2 9 fr lternatives available. is ting the best from among al ‘ ; 3 Is 2 Process eaies of various alternatives available. The selection of bes 3: It involves a ee made only when pros and cons of all of them are discussed and alternative 4. Soret is the end product because it is preceded by discussions and |. Decision- deliberations. ; — 5, Decision-making is aimed to achieve organisational goals. 6 It also involves certain commitment. Management is committed to every decision it takes. Nature of Decision-Making A decision is always related to some problem, difficulty or conflict. Decisions help in solving problems or resolving conflicts. There are always differences of opinions, judgements, etc. Managerial decision helps in maintaining group effectiveness. All problems may not require decision-making but merely the supply of information may be sufficient. For example, when will different groups report for re-orientation ? The supply of information about training programme may be enough. Decision problems necessitate a choice from different alternatives. A number of possibilities are selected before making a final selection. Decision-making requires something more than a selection. The material requiring a decision may be available but still a decision may not be reached. A decision needs some sort of prediction for the future on the basis of past and present available information. The effect of a decision is to be felt in future so it requires Proper analysis of available material and a prediction for the future. If decision premises do not come true, then decision itself may be wrong. Sometimes decisions are influenced by adopting a follow-the-leader practice. The leader of the group or an important manager of a concern sets the precedent and others silently follow that decision. Whatever has been decided by the leader becomes a guide for others and they also follow suit. The decisions may also emerge from answers to pertinent questions about the problem. Such answers try to narrow down the choice and help in making a decision. PROCESS/STEPS INVOLVED IN DECISION-MAKING A decision cannot be taken in isolation. It is conditions and future expectations. Once a decisi reverse it. It is pertinent to discuss the problem considering various possibilities. Decision-making involves the following steps : 1, Defining the Problem. The first step in decision-making is to find out the correct problem. It is not easy to define the problem. It should trouble and what will be its possible manner that an immediate decision is taken, If the problem is not correctly defined then the efforts and money spent on a wrong decision will go waste. Moreover, 4 wrong problem may create fresh difficulties instead of solving them, Before defining the problem the manager has to identify critical or strategic factor of the problem. Chester Bernard has pointed out that the theory of the siretegic factor is influenced by past experience, present ion is taken then it becomes difficult to involved and then take a decision aftersh will be a strategic or limiting factor in thi Refined then it will be easily solved. So the first i of problem. the first important factor isthe determination 2. Analysis of Problem. After defining the should collect all possible information aa Ee eee sir pe eutcietl bb abe al deceiae oe att Gorell neemaen omnia aa ty seldom get sufficient information which they would have liked to care Saale may be costly to get additional information or further information may not be possible. In the words of Peter Drucker, “To make a sound decision, it is not necessary to have all the facts ; but it is not necessary to know what information is lacking in order to judge how much of a risk the decision involves, as well as the degree of precision and rigidity that the proposed course ‘of action can afford.” Whatever information is available should be used to analyse the problem. If there are deficiencies in information then manager must judge the degree of risk involved in the decision. 3. Alternative Courses of Action. Every problem has a number of solutions. If there is only one solution then there is no ‘need for decision- making. A manager must fy to find out various alternatives in order to get satisfactory results of a decicion. Unless manager develops several ‘alternative solutions, he is only ioe ones el into the either or kind of thinking: Having more alternatives is a Be aes against wrong decisions. It should be kept in mind that ale papetined guarantee of wisdom or of the right decision. But at least they pre’ wrong decision. ; The: natives even in discouraging SO ewe of the oS ee oe replacement betas spr new pia Serer be ices before managers jes, could become ® mise consolidate this pian ‘vith another Plat ‘a other Bement has to evaluate the distrib f similar products Of Oe firms. The Traless otherwise all possible Various 2 iterative proposals then take @ age tiv’ : 7 ' . Seer developed aia pat _ arious alternatives, the next step is to 4. Evaluation of Alternatives: After develo rious fd cons of different propos evaluate them and select the NT desirable consequences of adopting each should be foreseen. THe © atercise will enable the manag ranative shoul 3 involved in each course Of action. The alternatives should be evaluates situations. For example, the plant .d money involved in them. in relation {0 tire ad be selected. A decision in my shi hich gives ‘maximum econo! 'y Sequences as COm| ro Only that alternative W! haximore favourable consed actnat alternmen one altemative rs have simi good prints then roecomes others. When more one @ two or more alternatives bined. 208 enki aifcut wp make a new alternativess in such a situation. levelop arch Heats yn i ted proverbs like ‘history repeats itself’ or ‘experiens.. 5 eee eee in decision-making, The past experience acts -e at the itficaltes faced and problems encountered earlier can be well judged and Collective ea can be taken in advance. The past experience should not blindly be relied upon. In case the situations in the past and at Present are similar then earlier alternative may be selected. But there may be a change in situation and the old decisions ma not hold good in future. Hence the decisions should not be the same, While relying on experience the conditions prevailing in the past, at Present and possible effects in future should be properly considered before making a decision. The experience is an, asset with a manager but it should not be blindly relied upon. 6. Experimentation, Experimentation is used in scientific enquiry. The alternatives are put to actual practice and the one giving better results is selected. Experimentation, however, is not possible in management. It will be costly to put every alternative tp Practice. However, it may be used in a limited way. For example, when a new product is put in the market, it can be marketed in a limited area to see the Teaction of always be better to take a decision on the basis of facts, study, analysis of results, etc. ~ Taking Decision and Following up. When various alternatives then a final decision is taken. The decision is communicated to for action. The implementation of a decision will require the co-operation of subordinates. They should be properly briefed about various aspects of the decision. It is not enough to take a decision, it should also be seen implemented or not. The follow up action of a decision may show that it is was based on certain wrong premises or facts. In such situations the decision should be reviewed and necessary changes may be made if Tequired. To follow up is also an important aspect of decision-making, BASIS FOR DECISION-MAKIN ‘making has become a nf the concerned persons whether it is properly complex problem. A number of techniques, extending Ses are used for decision-making process. The selection s upon the judgement of decision-maker. Following techniques of decisi influences, psychological make-up and these things play a vital role in taking decision. The past knowledge, training and experience of the decision maker plays an important role in intuitive decisions. ; With this technique of decision-making, decisions are taken quickly and the gece making capability of the person is also used. In case the intuition of the decisisim Making = ae _____.. 5 Sctive decision making must mez senate? When does a person thi a 'nd the ability to analyse properly variow maker is wrong then decision will also be i oo ak re ere so be incorrect. The other techniques of decision- facts. Facts are considered to be the best basis of decisi : lecision-making, A decisis on facts has ne poeta in factual data, Such decisions will be ott ahpore ‘the trereasing use of computers has helped in systematic analysis of data. The information has become a major tool in managerial decision-making, Pr It may not be possible to secure all relevant isi qenorally, complain of insufficient information. Weta conta that acts soul be properly diagnosed, classified and interpreted. Facts alone may not be sufficient for Fecision-making. The imagination, experience and beliefs of the decision-making, also required to comprehend the facts in proper perspective. Experience. Past experience of a person becomes a good basis for taking decisions. When a similar situation arises then the manager can rely on his past decisions and takes similar decisions. The person sees and understands things in terms of concepts with which he is familiar. Experience should not be followed blindly. The new situations Should be analysed on the basis of past knowledge. A successful decision in the past may not prove useful this time also, on the other hand, a decision once failed need wat be avoided for all times in future. Though past experehee is a good basis but present situations should be properly ‘analysed and assessed before taking a decision. Considered Opinions. Some managers use considered opinions as a basis for decision” making. Besides pertinent statistics, opinions 2° also given due weightage. Somethings discussed and considered by more persons become logical and may form a sound basis for decision-making. A marketing manager, ‘before deciding whether to market a new product or not, will like to s°° marketing statistics as well as considered opinions before finally making a choice 5. Operations Research. The traditional met ; i intuition, experience, etc. are replaced by systematic techniques based on analysis of data. The operations research is on of the techniques used by modem management for deciding important matters. It helps managers by providing scientific basis for i i i nents of the solving organisational problems invo! tion of components organisation. ; Hf Linear Programming. This technique is used to determing the bet ue ues resources for achieving given objectives: ‘This method is based on this (Ste pion that there exists a linear relationship betwert variables and that the Hint of variation could be ascertained. Linear programme ‘can be used for solving pro lems in areas like production, transportation, warehousinB, ete. > thods of taking decision on the basis of ving interac 2 RATIONALITY IN_DECISION MAKING 7 rationality in decision making It is said that ree! ty There is an aj bility of igreement on the desiral Y be rational. There Sos or decides rational. "is that the decision Cnt cals. He shoul ive courses: of action ment of a goal. Rationality de (4 also have full information nin the light of goals alternative courses of action for reaching {he B 5 alternatio~s cromneton sought. There should also be a desire to select the best solutions by selecting the which will satisfy the goal achievement. characterised by behavioural nexus between ends and means. If appropriate means to reach desired ends, the decision is rational. It is not possible to have complete rationality in decision making, Particularly in very difficult to recognise all the available alternatives for reaching the goals. particularly true when it involves apportunities to do something which has not before. Thirdly, all the alternatives may not be evaluated Properly even wit techniques like computers. Limitation on Rationality ‘Business Organisation and Managemen, alternative Herbert A. Simon defines rationality in terms of objective and intelligent action, Iti, are chosen Managing, The decisions are affected for future and it invariably involves uncertainties. Secondly, & It may be been done ith the modem There is a limitation on rationality. The limitations of time, information and certaint limit rationality even though managers try to be rational. They must settle f for limited rationality or bounded rationality. Managers cannot be completely rational in actual practice, they sometimes allow their dislike of risk to interfere with their desire to reach best solution, under the circumstances. Mostly the risk element acts as a limitation on rationality. Many managers try to play safe, as for as possible, some try to take risk within the limits of rationality and in the light of nature and size of risk involved. DECISION MAKING ENVIRONMENT Decision making involves the selection of one of the alternatives available. A decision taken at present will have effect in future. A decision-maker tries to visualise the conditions in future and take decisions accordingly. So decisions are made in an environment of atleast Some uncertainty. There are certain risks involved in decision making and the conditions vary from certainty to complete uncertainty. The strategy of taking decisions under different conditions vary. The conditions under which decisions are taken are as follows Certainty Under the conditions of certainty, people are reasonably sure about what will happen when they take a decision. The required information is available and it is reliable and the sil cause and effect relationships are known. The manager makes decisions under such ituations at different times with the same results. Under such situations a deterministic model is used, in which all factors are assumed to be exact with the chance playing 20 tole. Risk In a risk situation, factual information may exist but it may be insufficient. Most of the business decisions are taken under risk conditions. The available information does not answer Grerall questions about the outcome of the decision. A manager has to develop estimates of the likelihood of the various states of events occurring. The estimates may be based on past experience, other available information or intelligence. In order to improve decision-making ‘under these conditions, one may estimate the objective probabilities of an outcome by usingpeasio : ed Je, mathematical models. On the other hand, sul 2 [457] m| fo for Pad experiences miey’ be used. Ties jective probability, based on et in taking decisions under such conditi Oa number of tools available which help uncertainty Under conditions of uncertainty a manager has only little information and he is not gure about its reliability also. Since the manager does not have proper information on which qe can develop, the best he can do is to be aware that he has no chance of predicting the events. The interaction of various variables cannot be evaluated for taking decisions. The decision making under uncertainty is a difficult proposition. For example, if a company wants to enter a foreign market, if may not be sure about the consumer preference for the product, economic situation, above all the political conditions. The conditions in a new market may to fluctuate that proper decision taking becomes a problem. The use of a number of modern techniques may improve the quality of decisions under uncertain conditions. The use of risk analysis, decision trees and preference theory can help in making proper decisions under those situations. Different decisions differ in nature and si while some may have to be carefully evaluated. Various decisions are discussed as follows: programmed Decisions Programmed decisions are of a routine nature and are taken within the specified procedures. These decisions are made with regard to routine and recurring problems Which require structured solutions. A manager is not required to go through the problem solving procedures again and again for taking programmed decisions. The decision rules = isi ne tarefully and intelligently so that lower esearch Tab Oe oe ee ialoi without making references to higher level exeeuti ecutives are able to take th 5 : e Managerial levels. No judgement or discretion *® neaded to find out solutions to such Probes levels. No facigerie consistent fora relatively longer Period of Sans #h : Many solutions. fnich are unique and non-repetitive. _ Jems which are unique ; ae Now programmed | decisons se ea js not available, Such decisions are ™ade under new and elie ‘cireumstances. The standard and pre-determined procedi ies and rules are rendered ineffective in programmed decisions because every decision will have to be taken em ae programmed ‘decisions are usually made for solving unstructured Probiean® n scp y: Noneps ee time to time. Every problem has to be restructured and analysed by pon ‘by using his skill, judgement and creativity. For example, a Se by the manager by USE Tr ase of new machinery, opening a nev branch, Appin ans adding 2 DEM" Rive are all nor-programmed decsion® and require separate a “ention for each decision. 1. Programmed and Non-