Meaning of Decision Making:

Decision Making is an important function in management, since

decision-making is related to problem, an effective decision-making
helps to achieve the desired goals or objectives by solving such
problems. Thus the decision-making lies all over the enterprise and
covers all the areas of the enterprise.

Scientific decision-making is well-tried process of arriving at the

best possible choice for a solution with a reasonable period of time.

Decision means to cut off deliberations and to come to a conclusion.

Decision-making involves two or more alternatives because if there
is only one alternative there is no decision to be made. R.S. Davar
defined decision-making as “the election based on some criteria of
one behavior alternative hum two or more possible alternatives. To
decide means ‘to cut off’ or in practical content to come to a
conclusion.”

According to McFarland “A decision is an act of choice where

in an executive forms a conclusion about what must i»
done in a given situation. A decision represents behavior
‘chosen from a number of possible alternatives.”

Henry Sisk and Cliffton Williams defined “A decision is the

election of a course of action from two or more
alternatives; the decision making process is a sequence of
steps leading lo I hat selection.”

Decision-making is the selection based on some criteria from two or

more possible alternatives. “-—George R.Terry

A decision can be defined as a course of action consciously chosen

from available alternatives for the purpose of desired result —J.L.
Massie

A decision is an act of choice, wherein an executive forms a

conclusion about what must be done in a given situation. A decision
represents a course of behaviour chosen from a number of possible
alternatives. -—D.E. Mc. Farland

From these definitions, it is clear that decision-making is concerned

with selecting a course of action from among alternatives to achieve
a predetermined objective.

Following elements can be derived from the above

mentioned definitions:
1. Decision–making is a selection process and is concerned with
selecting the best type of alternative.
2. The decision taken is aimed at achieving the organisational goals.

3. It is concerned with the detailed study of the available

alternatives for finding the best possible alternative.

4. Decision making is a mental process. It is the outline of constant

thoughtful consideration.

5. It leads to commitment. The commitment depends upon the

nature of the decision whether short term or long term.

Main Elements of Decision Making:

The main elements of decision-making are as follows:

1. Concept of Best Decision:

Rational decisions must conform the basic concept of good decision.

Curdiff and Still:

Mentions three keys to rational decision-making:
(i) Conceptualization,

(ii) Information,
(iii) Prediction.

are the three main keys to rational decision-making. The problem

should be thoroughly analysed and all possible alternatives be folly
considered.

Rational decisions require:

(a) Intelligence,

(b) Insight, and

(c) Lot of experience.

2. Organisational Environment of the Company:

Organisation environment also exert great influence on decision-
making. Some organisations believe in rigid centralisation while
others have faith in decentralisation and leave the routine decision-
making function with the departmental heads.

Further, in the interest of the company it has been suggested that

the policy matter decision must be left with the top management
and leave the ordinary day to day routine matter decisions to the
various departmental heads. External, Social, Political and
Economic environment also influence decision-making. But instable
political conditions in the country are not conducive to important
decision-making.

3. Psychological Elements:
In psychological elements personal traits like preferences,
intellectual maturity experience, educational standard, social and
religious designation and status etc., of the person responsible for
the decision-making also exert great influence on decision-making.

Further in company the manager’s habits, temperament, social

environment, upbringing domestic life and political learning’s all
have to trace his choice of alternative, consequently on his
decisions.
4. Timing of Decisions:
Decisions must be taken at the appropriate time keeping in view the
prevailing conditions. Marketing aim should also be taken into
consideration and time required for achieving the aim. Any decision
taken in time leaves a lasting impression on the mind of those who
are affected by the decision.

5. Communication of Decisions:
When a particular decision has been taken it must be
communicated properly in time to the persons concerned. Decision
should be communicated to the subordinate executives in a
courteous, simple and understandable language. There should not
be any ambiguity in the language written. It should be in a vary
simple language.

6. Participation of Employees:
Participation of the employees in decision-making makes its
implementation easier. Employees participation has certain
advantages and it ensures loyalty of the employees towards the
organisation. It arouses the feeling of oneness with the company
and the decision taken are considered as superior. It helps in
enhancing the efficiency of the organisation which helps in attaining
the goals of the organisation.

Characteristics of Decision Making

Following characteristics of decision making may be visualized by the study and
analysis of aforesaid definitions and some other definitions:

1. Mental and Intellectual Process

Decision making is a mental and intellectual process because whatever decisions

are taken, they are based on logical deliberations to make them more rational. For
which intelligence, knowledge, experience, educational level, and mental facilities
are essential.

Similarly, in decision making, the voice of inner conscious is also important, along
with intellectual logic.
2. It is a Process

Decision making is a process to find out the solution to any problem or for the
achievement of a specific result, problems are well analyzed, during the course of
decision making.

Facts are obtained and analyzed and alternative solutions are developed and the
best possible alternative is selected and at the end, the decision is taken and
implemented.

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3. It is an Indicator of Commitment

This is an indicator of commitment because decision making ties up with the result of
its decision.

The decision maker has to bear the result the decisions of in one or the other form.

Not only that, but decision making is also the indicator of commitment because, for
its implementations, individual and collective efforts are required.

4. It is a Best Selected Alternative

Decision making is the best-selected Alternative.

The best alternative is selected, out of two or more possible alternatives, for solving
any problem.

5. Decision Making might be Positive or Negative

Decision making is positive or negative. The decision of implementing any plan to do

some work is positive, whereas the decision not to do any work or not to implement
and plan is negative.

Hence, negative decisions are also as good decisions, as are the positive
decisions.

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Diagram.

6. It is the Last Process

Decision making is the last stage of the process because the result of the work is
derived from it.
This result is derived after detailed logical deliberations about various possible
alternatives.

That is why, decision making which is the last process, is the conclusion of the
intellectual analysis, discussions, deliberations, comparative and analytic study of
the alternatives.

7. Decision Making is a Pervasive Function

Decision making is a pervasive function because it is used in all business and non-
business organizations, for all managerial activities, all the levels of Management,
and in all countries, etc.

Decision making, being a pervasive function, many Scholars regard decision

making and management as synonymous.

8. Continuous and Dynamic Process

This is a continuous process because decisions are to be taken continuously in the

business organizations, for routine and Special Tasks.

Besides, it is a dynamic also, because the situations and circumstances of each

decision are different than the situations and circumferences of the preceding
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9. It is a Measurement of Performance

Decision making is a measurement on the basis of which the success or failure and
execution or non-execution of the decisions taken by the managers depends.

Hence, the evolution of the efficiency of managers etc. is possible by the

measurement of decision making.

10. It is a Human and Social Process

Decision making is a human and social process also because all human factors are
to be kept into consideration, before final selection of any particular alternative, in
the decision-making process.

Similarly, it also includes the use of intuition and Justice.

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11. It is n Art and Science, Both

Decision making is an art because decisions are taken for achieving certain pre-
decided objectives, which is possible only by using knowledge, talents, imagination,
and foresightedness.

Besides, decisions making is science also, since in decision making certain

sequences are used in a particular sequence.

Principles, causes, and outcome of decision making have the relationship. 8 Role
and Responsibilities of Managerial Economist.

12. Other Characteristics

 New decision emerges from the decision making process.

 Decision making is synonymous of Management.
 Decision making is part of planning.
 The forecast is part of decision making.
 Decision making is different from the decision.

Principles of Decision Making:

Eminent authors of management are of this opinion that on right
and appropriate decisions, the success and failure of the enterprise
depend. Therefore, a manager has to take all precautions before
arriving at a decision.

Following are the important principles which may be

taken into consideration while taking decision:

1. Marginal Theory of Decision-Making:

This theory has been suggested by various economists. Economists
believe that a business undertaking works for earning profits. To
earn profit is their prime-motto. That is why they agree that the
manager must take every decision with the aim in view that the
profit of the organisation goes on increasing till it reaches its
maximum.

The marginal analysis of the problem is based on law of diminishing

returns. With extra unit of labour and capital put in production, the
production increases but it increases at a proportionately reduced
rate.
From every extra unit of labour and capital the production
diminishes and a time comes when the increase in production stops
with ‘zero’ as the production of the last unit used there in. At this
stage a decision is taken to the effect that no additional unit of
labour and capital now is required to be introduced in the
production.

Production of the last unit is marginal one where-after further in-

production of extra-unit becomes un-economical or non-yielding.

The marginal principle can be effectively and while taking

decision on matters relating to:
(i) Production,

(ii) Sales,

(iii) Mechanisation,

(iv) Marketing,

(v) Advertising,

(vi) Appointment and other matters, where marginal theory can be

scientifically and statistically used and a good decision is rendered
possible.

2. Mathematical Theory:
There are few other theories like—venture analysis, game theory,
probability theory, waiting theory. On the basis of which a manager
analyses a given fact and takes decision accordingly. This has given
rise to a scientific approach to the decision-making process.

3. Psychological Theory:
Manager’s aspirations, personality, habits, temperament, political
leanings and social and organisational status, domestic life,
technological skill and bent of mind play an important role in
decision-making. They all in some form or the other leave an impact
on the decision taken by the manager.
He is also bound by his responsibilities and answerability. Decision-
making is a mental process and the psychology of those who are
deliberating and of the person who takes the final decision has a
definite say in decision-making.

4. Principle of Limiting Factors:

The decisions taken are based on limited factors nevertheless they
are supposed to be good because of the simple fact that under the
circumstances it was the only possibility.

From this principle it emerges that though there are numerous

alternative available to a decision-maker but he takes cognizance to
only those alternatives which suit the: (i) time, (ii) purpose, and (iii)
circumstances and which can be properly and thoroughly analysed
considering the human capacity and then finally one of the
alternatives is chosen which form the basis of a decision.

5. Principle of Alternatives:
Decision is an act of choice. It is a selection process. Out of many
available alternatives the manager has to choose on which he
considers best in the given circumstances and purpose.

6. Principle of Participation:
This principle is based on human behaviour, human relationship
and psychology. Every human being wants to be treated as an
important person if it is not possible to accord him a V.I.P.
treatment. This helps the organisation in getting maximum from
every person at least from those who have been given the place of
importance and honour.

Participation signifies that the subordinates even if they are not

concerned should be consulted and due weightage should be given
to their viewpoint. Japanese do this. Japanese business or
institutions or government make decisions by consensus.

This makes all of them feel that they are very much part of the
decision. The Japanese mostly debate a proposed decision
throughout its length and breadth of the organisation until there is
an agreement.
A few may disagree with Japanese method of decision-making
because they may agree that it is not suited to our conditions. Such
a method involves politicking, delays the decisions and sometimes
may result into indecisiveness. But workers participation in
decision-making can be ensured by the Japanese method.

Those favouring Japanese method and workers participation

advance the argument that decisions are important. But according
to modern thinking the decision should not be within the purview of
only a selected few. Those who are to carry out the decisions must
be actively associated with their decision-making also.

The principle of participation mostly aims at two things:

(1) It aims at the development and research of all possible
alternatives. If larger number of people concerned are asked to
search for alternatives on the basis of which decisions are expected
to be taken then greater participation is assured which is surely an
important aim of this principle.

(2) This principle asks for debating and deliberating by more and
more people, so as to know the mind of all and to assess the possible
reaction of a particular decision which the manager has in mind.

Importance of Decision Making

Briefly, the importance of decision making may be understood, by the following
points:

1. Selection and Continuous Operation of Business

Various important decisions are required to be taken before starting any business.

There are so many businesses in the world, out of them, which business should
be undertaken and why, from where to arrange finances and in what volume and
where from the seek technical advice? All these are important questions, which need
sound decisions.

The decisions are required, when alternatives and resources for any work
undertaken in scarcity. That alternative is the best from which most profitable
outcome may be derived, by using least resources.
Hence, decision making is the indicator of advancement and life of the business.
Nondecisive position may put it to a sad end.

2. Helpful in Determination of Objectives and Achieving Them

The basic objective to establish and to operate any institution is to achieve specific
objectives and goals. These act as the guiding factors for all activities of that
institution.

Determination of objectives in itself is a high-level decision making. Future activities

and modalities of functioning decided, in accordance with the objectives, so that
these may be achieved.

Hence, the decision making regarding the determination of the objectives for the
Institution, and also for achieving them has been accepted as the ‘backbone’.

3. Maximum and Best Use of Available Resources

The best and maximum use of physical and human resources of production
substantially depends upon the effectiveness of the decision making.

If the decisions are practical and useful, maximum exploration of the resources, their
use at the minimum cost and reducing of the leakages will be quiet easier.

Not only that, but productivity may also be favorably increased.

4. Execution of Managerial Functions

Decision making is the “Key of Management functions and synonymous of

Management.” No Activity may be undertaken in any enterprise or institution without
proper decision making.

Decision making is essential for all activities of every institution, right from
planning to enforcing controls, otherwise, the accomplishment of the tasks will not
possible.

If it is said that the management functions are dependent on decision making, it will
not be an exaggeration.

5. The Success of Overall Institution

It is said that good and timely decisions may yield success for the institution,
whereas bad and delayed decisions may push the whole institution to peril.
Hence, decision making is essential for the whole institution, since it provides
Momentum to it, continuously operates the institution, provides a higher outcome at
low cost and sustains the existence of the institution.

In this regard, Lavanswitch has said that “Decision making may ultimately affect the
institution.”

6. Technical Changes and Complications

Consistently ongoing changes in the technical field and the complements of the
business world have added to the importance of decision making.

Importance of Decision Making in Business

Today the risks are much more, as compared to the past and the decision making in
present times effects a large number of people and the large volume of capital.

Similarly, various sections of the society are also affected by the business decision
making, as society is highly interrelated.

7. Solving the Problems

While explaining decision making as the process of solving the problems, it may be
said that in this process, we search various alternatives for solving the problems and
select the best of them.

In this way, the problems may be solved by good and effective decision making.

8. Measurement of Managers Success

The decisions taken by the managers are very important for achieving the objectives
and goals of the Institutions because their success or failure depends on these
decisions.
If any institution advances ahead speedily on the way of progress, to achieve its
objectives and goals, Its managers are regarded to be intelligent, capable and
efficient.

Their efficiency is proved by the art of taking timely and economically proper
decisions.

That is why “Quality of decisions taken by the managers is the measurement of their
effectiveness and utility in the organization.”

9. Less Risk

In present-day business and non-business areas, the lot of risks may be seen. To
reduce them, solid decisions are required to be taken.

These decisions should completely based on facts, knowledge, constructive

approach, rational etc., so that the decisions of the managers may be more reliable,
and business and non-business risks may be reduced.

10. Emphasis on Professionalising the Management

Decision making is a mental and intellectual activity. Effective decision making

depends upon the Talent, skills, and efficiency of the persons making decisions.

Since decision making is the measurement of the success of the business, it is

essential that decision making may be good. Good and effective decisions may be
taken only by those managers, who are specialist in it.

According to John McDonald, “A professional manager is a professional decision

maker.” Decision making substantiates the fact of professionalizing the
management.

11. Determination of Business Policies

Decision making is of distinct importance for the determination of business policies,

the reason being that the management has to prepare various reports on economic
and non-economic issues and general and specific policies, etc. relating to the
business.

These reports present information about the objectives and activities of various
departments and sub-departments.

For performing this function, the management has to take several decisions.
12. To Offset Changes and Uncertainty

Future is always uncertain and changing. So, this is not necessary that the decisions
taken presently may be enforced in future also, with the sum economy.

Although no decision maker may remove the risks altogether, he may remain
cautious by taking suitable decisions.

Besides, decision making has also a substantial role in making suitable changes in
the elements of planning and constituents, for the development and expansion of the
organization.

Seven most essential steps involved in decision

making process are:

1. Define the problem, 2. Analysing the problem, 3. Developing

alternative solutions, 4. Selecting the best type of alternative, 5.
Implementation of the decision, 6. Follow up, 7. Monitoring and
feedback!

Decision-making is concerned with the selection of one alternative

course of action from two or more alternative courses of action.

Precisely it can be stated as a choice-making activity.

These steps can be explained as under:

1. Define the problem:

The first and the foremost step in the decision-making process are
to define the real problem. A problem can be explained as a
question for and appropriate solution. The manager should
consider critical or strategic factors in defining the problem. These
factors are, in fact, obstacles in the way of finding proper solution.
These are also known as limiting factors.
For example, if a machine stops working due to non-availability of
screw, screw is the limiting factor in this case. Similarly fuse is a
limiting or critical factor in house lighting. While selecting
alternative or probable solution to the problem, the more the
decision-making takes into account those factors that are limiting or
critical to the alternative solutions, the easier it becomes to take the
best decision.

Other examples of critical or limiting factor may be materials,

money, managerial skill, technical know-how, employee morale and
customer demand, political situation and government regulations,
etc.

2. Analysing the problem:

After defining the problem, the next important step is a systematic
analysis of the available data. Sound decisions are based on proper
collection, classification and analysis of facts and figures.

There are three principles relating to the analysis and

classification as explained below:
(i) The futurity of the decision. This means to what length of time,
the decision will be applicable to a course of action.

(ii) The impact of decision on other functions and areas of the

business.

(iii) The qualitative considerations which come into the picture.

3. Developing alternative solutions:

After defining and analysing the problem, the next step is to develop
alternative solutions. The main aim of developing alternative
solutions is to have the best possible decision out of the available
alternative courses of action. In developing alternative solutions the
manager comes across creative or original solutions to the
problems.

In modern times, the techniques of operations research and

computer applications are immensely helpful in the development of
alternative courses of action.

4. Selecting the best type of alternative:

After developing various alternatives, the manager has to select the
best alternative. It is not an easy task.

The following are the four important points to be kept in

mind in selecting the best from various alternatives:
(a) Risk element involved in each course of action against the
expected gain.

(b) Economy of effort involved in each alternative, i.e. securing

desired results with the least efforts.

(c) Proper timing of the decision and action.

(d) Final selection of decision is also affected by the limited

resources available at our disposal. Human resources are always
limited. We must have right type of people to carry out our
decisions. Their calibre , understanding, intelligence and skill will
finally determine what they can and cannot do.

5. Implementation of the decision:

Under this step, a manager has to put the selected decision into
action.
For proper and effective execution of the decision, three
things are very important i.e.,
(a) Proper and effective communication of decisions to the
subordinates. Decisions should be communicated in clear, concise
and understandable manner.

(b) Acceptance of decision by the subordinates is important. Group

participation and involvement of the employees will facilitate the
smooth execution of decisions.

(c) Correct timing in the execution of decision minimizes the

resistance to change. Almost every decision introduces a change and
people are hesitant to accept a change. Implementation of the
decision at the proper time plays an important role in the execution
of the decision.

6. Follow up:
A follow up system ensures the achievement of the objectives. It is
exercised through control. Simply stated it is concerned with the
process of checking the proper implementation of decision. Follow
up is indispensable so as to modify and improve upon the decisions
at the earliest opportunity.

7. Monitoring and feedback:

Feedback provides the means of determining the effectiveness of
the implemented decision. If possible, a mechanism should be built
which would give periodic reports on the success of the
implementation. In addition, the mechanisms should also serve as
an instrument of “preventive maintenance”, so that the problems
can be prevented before they occur.
According to Peter Drucker, the monitoring system should be such
that the manager can go and look for himself for first hand
information which is always better than the written reports or other
second-hand sources. In many situations, however, computers are
very successfully used in monitoring since the information retrieval
process is very quick and accurate and in some instances the self-
correcting is instantaneous.

TYPES OF DECISION MAKING:

The following are the main types of decisions every
organization need to take:

1. 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 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.

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.