INDEX

S.NO.

TOPIC Page no.

1. INTRODUCTION 12. FUNDAMENTAL OF

‘DECISION’ AND ‘DECISION MAKING’

1 to 2

3. FEATURES OF DECISION-MAKING

2 to 4

4. ELEMENTS OF DECISION-MAKING

4 to 5

5. RATIONALITY IN DECISION-MAKING

5 to 6

6. TYPES OF DECISION-MAKING

6 to 8

7. PROBLEM ANAYLSIS AND DECISION MAKING

9 to 10

8. DECISION-MAKING PROCESS

11 to 14

9. TECHNIQUES OF DECISION-MAKING

14 to 17

10. CASE STUDY 18 to 1911. CONCLUSION 1912. BIBLIOGRAPHY 20

INTRODUCTIONThe 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-MAKING1. Decision Making Is a Selective ProcessDecision 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 ProcessDecision 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 ProcessIt 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 ProcessDecision 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-MakerManagers 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 ImpactA course of action may either have positive or negative impact on

3. 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-MAKING1. 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. Receptionb. Exploitivec. Hoardingd. 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.

4.5. 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. the model 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-MAKING1. 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 MAKINGIt 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-MAKINGDecision 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.

17.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.

CONCLUSIONWhen 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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BIBLIOGRAPHYWEBSITES:

GOOGLE.COM WIKIPEDIA.COM

BOOKS: PRINCIPLES OF MANAGEMENT

-S.CHAND PRINCIPLES OF MANAGEMENT

- T.N. CHHABRA

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