cHAPTER

Decision Making

SYNOPSIs
41 Meaning ot Decison
42 Importance of
Making
43 Process ot
Decision Making
Decision Making
44 Techniques of
Decision Makinc
Review Questions
Decision Making 79

4.1I CONCEPT /MEANING OF DECISION MAKING

Amanager's life is filled with making
decisions after decisions.
Decision making is a function of management at all levels top
level, middle level and lower level, although the nature and significance of
decisions made by them may vary from manager to manager and situation
to situation.

Decision making involves choosing a course of action from

several alternative courses of action. Decision making, the actual selection of
) course of action trom among alternatives, is at the core of planning.
Decision making is a matter of planning organisational objectives and the
steps that will be used to achieve them. The need for decision making
will arise only when there are alternatives/options. If there is no option,
there is nothing to decide. It is a part of every manager's job because they
must constantly choose what is to be done, who is to do it and when it is to
be done. Decision making must be regarded as a step in planning. It is the
process concerned with searching and evaluating alternatives to a problem
and selecting the best alternative.
Decision making is a process of selection from aset of alternative
courses of action which is thought to fulfil the objectives of the decision
problem more satisfactorily than others. It is a course of action which is
consciously chosen for achieving a desired result. A decision is something
that takes place prior to the actual performance of a course of action that
has been chosen. Decision making is an act of choice wherein a manager
selects a particular course of action from the available alternatives in a given
situation. Managerial decision making involves the entire process of
establishing goals, defining tasks, searching for alternatives and developing
plans in order to find thebest answer to the decision problem.
Whatever a manager does, he does through decision making says Peter
Drucker. Decision making embraces all the functions of management
-planning, organising, staffing, directing and controlling.

4.2 IMPORTANCE / SIGNIFICANCE OF DECISION MAKING

William Moore says that 'management means decision making'. In
the words of Peter Drucker, "whatever a manager does, he does through
decision-making." Herbert A. Simon described decision-making as
Syhonymous with managing. Joseph A. Literer felt that decision making is
the Core of managerial activity.
 Principles of Marnageme

80 survive
without
effective decision making.
function of management.
SeDecimsto'2
No
making
business
is an
can
essential part of
embedded deeplyin
every
the
management process. Decision
functions and covers all the areas
Demaofciksiinothegn
makinglies managerial bound up and go
spreads over all the
Management and
decisionmaking are
knowingly Or side
by
enterprise.
manager makes decisions
constantly,
unknowingly
before doing arnd
side. Every and deciding
making involves thinking
has to take a SO iS
Decision function. Every
manager
number
presentin every
managerial
organising, staffing, directing and controling.
planning managing,
of decisions while making is often called the essence of
That is why, decision deeply interlinked. The
planning are
Decision making and procedures, programmes, strategie:
determination of objectives, policies,
manager should be able to make Sound
making. A
etc. involves decision manager has to make up his mind
quicki,
decisions. On certain matters, a
of the moment decisions all the time. While taking
He need not make spar careful fact finding analysis of
he gets enough time for
many decisions, When a manager decides, he
alternatives and choosing the best alternative.
decisions are of routine nature
chooses a course which is the best. Some
of thinking and systematic
and some are of strategic nature involving a lot
and scientific analysis.
The following points indicate the importance of decision-making :
(1) Best Course of Action :
Decision making makes it possible to adopt the best course of action in
carrying out a given task. When there are differernt ways of performing a
task, it becomes necessary to find out the best way and that is what decision
making is all about. The course of action finally selected should produce the
best results.

(2) Optimum use of resources :

By choosing the best method of doing any work, decision making
ensures optimum use of the enterprise resources, namely, men, machines,
materials and money. Resources are always scarce and therefore, it is
necessary to make as proper use of the same.
(3) Problem Solution :

Decision making helps to find a solution to any

place. For example, if an organisation faces the problem in a woTh
such a problem cannot be problem of low productivity:
ignored and it
remedy. To find a remedy, the actual becomes necessary to find
identified after which corrective action maycause of the problem must 0
be taken. If
attitude is found to be the root employee
negativemanagement
cause of low
productivity, the
 Decision Makina
81
)
mayhaveto decide on the right course of action to be adopted to change

sucha
negative employee attitude.
(4)Promotes Efficiency:
Decision making helps to identify the best course of action in each
situation and thereby promotes efficiency. The course of action finally
qiven
selected should be acceptable to both the workers and the management.
Satisfied workers put in their best efforts and this results in higher output.
share
Higher output satisfies the management and it may come forward to
with the workers. Thus, there is improvement in the overall
the gain
efficiency ofthe organisation.
(5) Conflict Resolution :
The conflicts in an organisation are resolved through decisions. For
example,the workers may want better pay and improved working conditions
management avoids
and put forth their views to the management. If the
to give up.
taking a decision on the matter, the workers are not going
a
Therefore, a decision becomes necessary. Such a decision need not be
that is
one-sided decision. The management may evolve a formula
acceptable also to the workers.
(6) Permeates all Managerial Functions :
such as
Decision making permeates through all managerial functions
it is through the
planning, organising, directing and controlling. In planning, and
process of decision making that objectives and policies are laid down
what to produce, what to sell,
the manager decides marny things such as relates to the
where, when, how and so on. In organising, decision making
organisation, division of work,
choice of structure, nature and form of
In directing, decision
delegation of authority, fixing of responsibility etc.
deciding the orders and
making relates to determining the course,
etc. In controlling the
instructions tobe given, providingdynamic leadership standards, strategic
performance
decisions relate to the laying down of
so on.
control points, procedure for control and

4.3PROCESS OF DECISIONMAKING:
follows :
Thesteps in decision making are as
(1) ldentify the problem :
decision making process is to identity the problem that
The first step in
problem well defined is half solved.
requires a decision. A not
should be spent on defining the problem as it is
Sufficient time that is
problem and to see the fundamental thing
always easy to define the
 82 Principles of Management (F.Y.BMS
causing the trouble and that needs correction. Clear definition of -Sem th2)e
problem is very important, as the right answer can be found onlu to a
question. ight
(2) Analysing the problem
The next step in decision making is the analysis of the problem
which:
involves classifying the problem and gathering information. Classification
necessaryin order to know who should take the decision and who shoula L
consulted in taking it. Without proper classiciation, the
effectiveness
of
the
decision may be jeopardised. The problem should be classified keeping .
view the following factors :
(i) the nature of the decision whether it is strategic or it is routine,
(ii) the impact of the decision on other functions,
(ii) the futurity of the decision,
(iv) the periodicity of the decision, and
(v) the limiting or strategic factor relevant to the
decision.
(3) Collection of Data

Collection of right type of information is very important in

making. A lot of information is required to classify any decision
must decide what type of problem. A manager
this. Before gathering the
information he requires and how he can
obtain
time and money he can spend in
information, one must be clear as to how
much
one gathers the facts to analyse a gathering the information he needs. When
problem,
alternative courses of action. So, one must he wants facts that relate to
alternatives and then collect information that know will
what are the several
help in comparing the
alternatives.
(4) Developing alternative solutions or courses of action :
The next step in the
decision-making process is to develop alternative
solutions. The object of finding alternative solutions is to make the best
decision, after a careful consideration of the most
action. For example, the
if desirable courses of
consider various alternativesmanagement wants to fill up a vacancs, it
such as whether to should
recruit from outside or to promote
appoint a relative of the previous from within or
for every problem,
there are emplovee. Thus,
before taking the final decision. alternatives and they should be evaluated
(5) Review of key factors :
While
taken care developing alternatives, the principle of limiting factor has to be
of. A limiting
factors is one that stands in
the way of
Decision Making 83
accomplishing the desired goal. t is a key factor in decision-making. lf such
for
factors are properly identified, themànager can confine his search
alternativestothose which will overcome the limiting factors.
be
Depending upon the situations faced, the limiting factor may
inadequate funds, shortage of human resources, old machines or lack of
marketingskills.

(6) Selectingthe
best alternative :
In order to make the final choice of the best alternatives, one will nave
has laid down four
to evaluate all the possible alternatives. Peter Drucker
alternatives. They are
criteriain order to weigh the consequences of various
of resources.
risk. economy of effort, situation or timing and limitation
use
three basic
While selecting an alternative managers can

approaches. They are

(i) Past Experience
(ii) Experimentation
(iii) Research and Analysis
:
(7) Implementation of decision
put into action/ practice. It is
After an alternative is selected, it is
involves communication of
implemented. Implementation of decision
obtaining acceptance of the decision
decision to all concerned employees, and
establishing procedure and time sequence. For implementation,
and into practice.
putting the decision
getting subordinatessupport for
to make the decision acceptable, a manager must explain what
In order they
involves, what is expected of the people and what benefits
the decision subordinates to participate in the
should allow his
will get. A manager from them regarding
inviting suggestions
decision making process by
alternative courses of action.

(8) Follow Up :
the results after putting the decision into practice.
It is better to check
required for the following reasons.
Follow up of decision is
good one, one will know what to do if faced
(a) If the decision is a
again.
with the similar problem to do the nevt
not
decision is abad one, one will know what
(b) If the
time.
bad and one tolloW up soon enough, corrective
(c) Ifthe decision is a
possible.
action may still be
 Principles of Management (F.Y.BMS
84 In order to achieve proper follow up, the management should devise an -Sem 2)
efficient system of feedback information. This information will be very Useful
future
corrective measures and in taking right decisions in
in taking the 4
1 2

Identify Analysing
the
Collection
of
Developing
alternative
the
Probiem Problem data Solutions
6
Selecting Review
Implementation the best of
Follow Up of
alternative Key Factors
Decision

Fig.Steps in Decision - making

4.4 TECHNIQUES OF DECISION MAKING

In order to evaluate the alternatives, certain techniques have been

developed, which help in making objective decisions. Some of the
techniques of decision making are as follows :
1.Marginal Cost Analysis
The technique is also known as marginal costing as under it the
additional revenues from additional costs are compared. The profits are
maximum at the level where marginal revenues and marginal costs are
equal. Marginal analysis can also be used in comparing factors other than
cOsts and revenues. For example, in order to find the optimum output of a
machine, one can vary inputs against out-put, until the additional inputs
equal the additional output. This would be the point of maximum efficiency
of the machine. Break-even analysis is the modification of this technique
which tells the management, the point of productionwhere there is no profit
and no loss.
2. Cost-Benefit Analysis
It is a technique of weighing alternatives where the optimum solution
cannot be reduced conveniently to monetary terms as in the case of
marginal cost analysis. It is used for choosing among alternatives to identify
apreferred choice when objectives are far less specific than those expressed
by such clear quantities as sales, costs or profits. For example,
social
obiectives may be to reduce pollution of air and water which lacks precision.
Cost models may be developed to show cost estimates for each
andbenefit models to show the relationship between each alternative
alternative and its
effectiveness. Then, synthesizing models, combining these results, may be
made to show the relationships of costs and
alternative. effectiveness for eacn
Decision Making 85
3. Operations Research
Operations Research has been defined as the scientific method of
analysis of decision problems to provide the executive the needed
quantitativeinformation in making these decisions. The object of operations
research is to provide the managers with a scientific basis for solving
organizational problems involving the interaction of components of the
organisation, In days gone by executive decisions used to be taken on the
basis of intuition, subjectivity or past experiences even in big organisations.
Operations research seeks to replace this process by an analytic, objective
quantitative basis based on information supplied by the system in
and
operation and possibly without disturbing the operation.
Operations research is widely used in modern business organization.
For example, inventory models are used to control the level of inventory.
Linear programming is usetul for allocation of work amongindividuals in the
organization. Sequencing theory helps the management to determine the
other
sequence of particular operations. In addition to these there are
techniques like queuing theory, games theory, reliability theory and
marketing theory which are important tools of operations research which
take decisions.
can be used by the management to analyse the problems and
4. Linear Programming
determining the
Linear programming is a technique devised for
objective. It is
optimum combination of limited resources to achieve a given
relationship between
based on the assumption that there exists a linear
be ascertained. It is
variables and that the limits of variations could
objectives are
particularly helpful where input data can be quantified and
such problem areas as
subject to definite measurement. It is applicable in
location and utilization of
production planning, transportation, warehouse Linear
minimum cost.
production and warehousing facilities at an overall
minimisation of a linear function of
programming involves maximisation or
objective function subject to a set of
several primary variables known as
known as constraints.
some real or assumed restrictions

5. Network Analysis
and controlling the project
Network analysis is used for planning operations which are
down to small
activities. Under this, a project is broken
is to decide the sequence of
engaged in a logical cycle. The next step
diagrammay be drawn to present
Operations to be performed. A network The diagram will
operations involved.
ne relationship between all the show the inter-dependence of
the flow plans. It will also
Teveal gaps in the activities which should be
point out
various activities of project and techniques
initiated. A number of network
COmpleted before the others are
 Principles of Management (F.) Y.BMS
86

have been developed of which PERT (Programme

Evaluation and D
and Review -Sem2
Technique) and CPM (Critical Path Method) have become very popular
|REVIEW QUESTIONSOet

Q.1. Explain the following concepts :

(1) Decision making
(2) Decision making process
(3) Marginal Cost Analysis
(4) Cost-Benefit Analysis
(5) Operations Research
(6) Linear Programming
(7) Network Analysis
Q.2. Answer the following questions :
(1) Explain the concept of decision-making.
(2) What is decision making?
(3) Explain the importance of decision making.
(4) Decision making is the essence of
management." Explain.
(5) "Whatever a manager does, he does through decision making." Explain.
(6) Explain the steps in decision making. OR
Explain the process of decision making.
(7) Explain the techniques of decision making
Q.3. Write short notes on the following :
(1) Concept of Decision Making
(2) Importance of Decision Making
(3) Steps in Decision Making /Process of
decision making
(4) Techniques of decision making