DECISION MAKING

Introduction: Decision making is also one of the functions of the management The management Executive take a number of decisions every day They are not able to discharge their duties without taking any decision A decision may be a direction to others to do or not to do thus a decision may be rational or irrational The success of management depends upon the quality of decision Emotional decision leads to a lot of confusion so, the decision making is an important work of the superiors. Definition: George R. Terry Decision making is the selection based on some criteria from two or more possible alternative. Process of decision making Introduction: Decision making is not an easy job A decision making is affected by a number of factors. So, the manager can take good decisions by adopting a procedure A manager may not be able to take good decision if he fails to follow a sequential set of steps The decision making process depends upon the nature of problem and the nature of organization. The following is the simple process followed in taking a decision in normal situation 1. Identification of a problem: Identification of a problem means recognition of a problem. Problem arises due to difference between what is and what should be The changes of business environment from the main reason for creating of a problem Then, the manager should find the causes of a problem. This is not an easy job. Finding of causes of a problem is used to take quality decision. The manager should continuously watch the decision making environment and understand the real problem and its causes

2. Diagnosing the problem: There is a slight difference between problem identification and diagnosing the problem A doctor can diagnose the disease of a patient, a patient cannot find out what is the real disease. But a doctor can do so with the information given by a patient. Information is very useful to the doctor In management, the manager is acting as a doctor while diagnosing the problem. 3. Collect and analyses the relevant information: The next step is that required at various levels information should be collected by a manager. Then the manager has to study the information with great care .it is very useful to analyze the problem from different angles. The manager should see that only relevant in information alone is collected and analyzed. 4. Discovery of alternative course of action: Creative thinking is necessary to develop or discover many alternative course of action if there is no need of taking a decision. If there are more and more of alternatives, the manager will have more freedom to take a decision. A problem can be solved in many ways at the same time; a solved problem should not arise again in the future. 5. Analyzing the alternative: Next the procedure and continues of available alternatives are analyzed. Some alternative offer maximum benefit than others. An alternative is employed with other alternatives the decision maker can prepare a list of limits for each alternative. 6. Screening of alternative: The available alternatives are screened in the order of maximum benefit derived from them.

Each alternative is evaluated in terms of risk involved in implementing them. Both tangible and intangible factors are considered while evaluating or screening each alternative. Tangible factors include profits earned, time taken, money invested, rate of returns on investment, rate of depreciation etc.., Intangible factors include public relations, goodwill of company, loyalty of employees etc..,

7. Selection of best alternative: Now, the decision maker can select the best alternative after careful evaluation. An alternative which gives maximum benefits to the organization is selected. At the same time, the selected alternative should fit with the organizational objectives. The following approaches may be adopted while selecting an alternative A. Experience. B. Experimentation. C. Research and analysis. 8. Conversion of decision into action: The future course of action is scheduled on the basis of selected alternative or decision. Here the manager has to consider the policy of the management. The selected alternative decision is communicated to concerned persons. This communication facilities easy implementation of decision. The language of decision should be simple and easily understandable.

9. Implementation: Next, the manager has to implement decision to achieve desired goals.

 Decision making process comes to an end with the actual implementation is equally important to the selection of alternatives. Implementation plan should provide for time and procedure sequence. Necessary resources should also be allocated and responsibility for specific tasks should be assigned to individual. 10. Verifying the decision: It is duty of every manager to see whether the decision is properly implemented or not. Verification of implementation of decision ensures the achievement of objectives. The selected alternative may be an ill-chosen one and might cause loss to the organization. This can be measured with the help of verifying the decision if the manager feels that the selected alternative is not the best one; an amendment may be made to achieve desired goals.

Models and techniques:A quality decision may be taken by the manager if he adopts certain principles. These principles are discussed below. 1. Marginal theory of decision making:Many economist have suggested marginal theory of decision making They believe that a business is started to earn profits A manager must take a decision which results in maximizing the profits. Therefore, economists argue that the very purpose of an organization is aimed at maximizing profits. Decision making should be based on marginal analysis. Here the manager adopts the principle of law of diminishing returns. If the management appoints additional labor and uses additional capital, the

production may be increased proportionately at reduced rates. This marginal principle is applied while taking decisions taking to sales, advertisement, promotion, training and the like. 2. Mathematical theory:Venture analysis, game theory, probability theory and waiting theory are some of the mathematical theories. A manager takes a decision on the basis of mathematical theory. Mathematical theory gives scientific approach to the manager while taking a decision. 3. Psychological theory:A manager takes a decision on the basis of this aspiration, technological skills, personality, and social status. Though the manager is expected to take a decision confined to the scope of his responsibility and authority, there is an impact of psychology over the decision. The reason is that decision making is a mental process. 4. Principal of alternative:If there is only on alternative to solve a problem, there is no need of taking a decision. Decision is a selection process. The entire alternative are evaluated and screened in the order of their usefulness. Finally, the best alternative is selected according to the circumstances and purpose. 5. Principle of limiting factors:The fundamentals of a problem are studied. An inference or a conclusion is drawn on the study; the manager takes a decision with the help of decision with the help of conclusion or inference. The decision may be based on a limiting factor. The limiting factor may be time, cost or resources. Decisions are supposed to be good and the limiting factor is considered while taking a decision. The reason is that this decision can be implemented in a particular situation. 6. Principle of participation:This principle is based on human behavior and human relationship. Each and every person wants to be treated as an important person. So the management may

allow the employees to have a say in the process of decision making.

MANAGEMENT BY OBJECTIVES
Meaning of objectives: Every institution or organization is established for the purpose of achieving some objectives An individual, who starts a business, has the objective of earning profits. A charitable institution, which starts school and colleges, has the objective of rendering service to the public in the field of education. So, the objective may differ from one organization to another organization. But anyhow, each organization has its own objectives

Management by objectives (MBO) MBO is a management system in which each member of the organization effectively participates and involves himself. This system gives full scope to the individual strength and responsibility. It creates self control and motivates the manager into action before somebody tells him to do something. MBO is a system where in the superior and the sub ordinate managers of on organization jointly identifies its common goals. Process of MBO The MBO process is characterized by the balance of objectives of the organisatioin and individual. The process of MBO is explained below. 1. Defining organizational objectives:o Initially organizational objectives are framed by the top level employees of on organization then, it moves downwards. o The definition of organizational objectives states why the business is started and exists.

First long term objectives are framed short term objectives are framed taking into account the feasibility of achieving the long term objectives. 2. Goals of each section:o Objectives for each section, department or division are framed on the basis of overall objectives of the organization. o Period with in which these objectives should be achieved is also fixed. o Goals or objectives are expressed in a meaning full manner

3. Fixing key result area:o o o o Key result areas are fixed on the basis on the basis of organizational objectives premises. Key result areas (KRA) are arranged on a priority basis. KRA indicate the strength of an organization. The examples of KRA are profitability, market standing innovation etc,

4. Setting subordinate objectives or target:o o o The objective of each subordinate or individual are fixed. It is preferable to fix the objectives at lower level in quantitative units. There should be a free and frank discussion between the superior and his subordinate.

5. Matching resources with objectives:o o The objectives are framed on the basis of availability of resources. If certain resources (technical personnel or scarce raw material) are not adequately available, the objectives of an organization are changed accordingly.

Benefits of MBO:The benefit of MBO are explained below 1) Managers are involved in objectives setting at various level of management under MBO and this commitment ensures hard work to achieve them. 2) MBO process helps the managers to understand their role in the total organization.

3) Manager recognizes the need for planning and appreciates the planning. 4) MBO provides a foundation for participative management sub ordinates are also involved in goal setting. 5) Systematic evaluation of performance is made with the help of MBO. 6) MBO motivates the workers by job enrichment and makes the jobs meaningful.

Problems and limitations of MBO:The problems and limitations MBO arises due to the application of the MBO these are discussed below. 1 .MBO fails to explain the philosophy: Most of the executives do not know how MBO workers, What is MBO and why is MBO necessary and how participants can benefit by MBO. 2. MBO is a time consuming process: Much time is needed by senior people for framing the MBO. Next, it leads to heavy expenditure some times, manager and frost rated over MBO, MBO requires heavy paper work. 3. MBO only on short-term objectives:MBO emphasizes only on short term objectives and does not consider the long term objectives 4. Goal setting problem:The status of subordinates is necessary for proper objectives setting, but this is not possible in the process of MBO.

POLICY FORMULATION
Meaning of policy:Policy is a norm or guideline which is used to take a decision for achieving objectives in consideration of the organizational climate. Definition:L.M Prasad define policy A policy is the statement or general understanding which provides guidelines in decision making to member of on organization in respect to any course of action. Formulation of policy:The process of policy formulation involves the following steps. i. Identification of area : Management has to identify the area of the policy. In other words, areas have to be finding out for which the policy is to be for which the policy is to be formulated. Even the existing policy may be changed in this manner. A management could have clear cut idea only after selecting the area for policy formulation. Organizational objectives play a vital role in the formulation of a policy. Objectives are foundation for policy formulation. The reason is that the policy is formulated in order to achieve the objectives.

ii.

Objectives:

iii.

Analysis of environment :-

A policy reflects the circumstances under which such a policy is formulated. A policy is formulated according to situation. Management tries to achieve objectives under any situation analyze the environment before policy formulation. Analysis of environment refers to the analysis of external factors Corporate analysis refers to the analysis of internal factor. The strength, weaknesses, opportunities and threats of on organization are taken into account while formulating a policy. This type of analysis gives a clear picture of the functioning of the organization. The next step in the formulation of a policy is the collection of information. An intelligent person may be appointed to collect the information in the case of small organization. In the cases of big organization or multinational organization, a committee may be formed and assigned the duty of collecting the information. Information can be collected not only from within the organization but also from outside the organization. Collected information may be analyzed to assess the value of information. Widespread consultation and discussions are held with for analyzing the information. Management can select anyone of the policies among the appraised policies which is most suitable to a particular situation. The appraisal process of policies facilitates the management to select or formulate the best policy. The policy draft should be sent to the top management at the right time for its approval. The top management has to approve the policy only after considering whether a policy represents the objectives of the organization or not. The approved policy should be communicated to the concerned person.

iv.

Corporate analysis:

v.

Collection of information:-

vi. Analyzing the information: vii. Selection of a policy:

viii. Approval of policy:

ix.

Communicating the policy:

Besides, an educational programmer may be conducted to educate the employees as how to apply the new policy.