DECISION MAKING

UNIT – II
Decision Making
 Decision-making is an integral part of modern
management. Essentially, Rational or sound
decision making is taken as primary function of
management.
 A decision can be defined as a course of action
purposely chosen from a set of alternatives to
achieve organizational or managerial objectives or
goals.
 Decision making process is continuous and
indispensable component of managing any
organization or business activities. Decisions are
made to sustain the activities of all business
activities and organizational functioning.
Definition of Decision Making
 According to the Oxford Advanced
Learner’s Dictionary the term decision
making means - the process of deciding
about something important, especially in a
group of people or in an organization.
 Trewatha & Newport defines decision
making process as follows:, “Decision-
making involves the selection of a
course of action from among two or
more possible alternatives in order to
arrive at a solution for a given
problem”.
Importance of Decision Making:
 Throughout the business cycle, it is required to supply,
financial, technical or other information as an input to help
making decisions at higher management levels, for achieving
maximum return on the assets of the business enterprise.
Decisions are usually made to attain the objectives of the
business. In business, whether the enterprise is big or small,
changes in condition occur, shifts in personnel take place,
unforeseen contingencies arise.
 Moreover, just to get wheels started and to keep them
moving, decisions must be made. Every aspect of
management functions, such as planning, organizing, and
control is determined by decisions, the result of which is the
performance in the organization. Decision making is vital to
all management activities. It helps set definite objectives,
prepare plans of action, determine organizational structure,
motivate personnel and introduce innovations.
Decision-Making Process

A decision-making process is a series of

steps taken by an individual to determine
the best option or course of action to
meet their needs. In a business context, it
is a set of steps taken by managers in an
enterprise to determine the planned path
for business initiatives and to set specific
actions in motion.
1. Specific Objective
 The need for decision making arise in
order to achieve certain specific objective.
Every action of human being is goal
directed & it is true for decision making
as well. Therefore, the starting point in
any analysis of decision making involves
the determination of whether a decision
needs to be made. Setting of objective
itself is the outcome of an earlier
decision.
2. Problem Identification
 In this step, the problem is thoroughly
analysed.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?
Cont…
 1. Diagnosis
 It is used as a process of identifying the
sign & symptom of a problem. A
symptom is a set of condition that
indicates the sign of a problem.
 2. Analysis
 The analysis of a problem requires to find
out who would make decision, what
information would be needed, and from
where the information is available.
3. Search for Alternatives
A thorough diagnosis defines both a
specific problem & the situation in which
the problem exists. A problem can be
solved in several ways. Further, if there is
only one way of solving a problem, no
question of decision arises.Therefore, the
decision maker must try to find out
various alternatives available in order to
get the most satisfactory result of a
decision.
4. Evaluation of Alternatives
 Use your judgment principles and
decision-making criteria to 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.
5. Choice of Alternatives
A comparison is made among the likely
outcomes of various alternatives & the
best one is chosen.
 i) Experience
 Managers can choose alternative based on
their past experiences if they have solved
similar problems earlier.
Cont…
 ii) Experimentation
 This involves that a particular alternative
is put in practice, result is observed, & the
alternative giving the best result is
selected.
 iii) Research & Analysis
 It is the most certain method of selecting
an alternative, specially when major
decisions are involved.
6. Action
 Once the alternative is selected it is put
into action. Decision-making being a
continuous & ongoing process, must
ensure that the objectives have been
achieved by the chosen alternative.
 The implementation of decision may seen
as an integral aspect of decision.
7. Results
 When the decision is put into action, it
brings certain result.These results must
correspond with objectives, the starting
point of decision process, if good decision
has been made & implemented properly.
Thus, results provide indication whether
decision making & its implementation is
proper.Therefore, managers should take a
follow-up action in the light of feedback
received from the results.
Types of Decisions
Strategic Decisions and Routine/
Tactical Decisions
 As the name suggests, routine decisions are those
that the manager makes in the daily functioning of the
organization, i.e. they are routine.
 Such decisions do not require a lot of evaluation,
analysis or in-depth study. In fact, high-level managers
usually delegate these decisions to their subordinates.
 On the other hand, strategic decisions are the
important decisions of the firm. These are usually
taken by upper and middle-level management. They
usually relate to the policies of the firm or the
strategic plan for the future.
 Hence such decisions require analysis and careful
study. Because strategic decisions taken at this level
will affect the routine decisions taken daily.
Programmed Decisions and Non-
Programmed Decisions
 Programmed decisions relate to those functions that are
repetitive in nature. These decisions are dealt with by
following a specific standard procedure. These decisions are
usually taken by lower management.
 For example, granting leave to employees, purchasing spare
parts etc are programmed decisions where a specific
procedure is followed.
 Non-programmed decisions arise out of unstructured
problems, i.e. these are not routine or daily occurrences. So
there is no standard procedure or process to deal with such
issues.
 Usually, these decisions are important to the organization.
Such decisions are left to upper management. For example,
opening a new branch office will be a non-programmed
decision.
Policy Decisions and Operating
Decisions
 Tactical decisions pertaining to the policy and planning of
the firm are known as policy decisions. Such decisions are
usually reserved for the firm’s top management officials.
They have a long term impact on the firm and require a
great deal of analysis.
 Operating decisions are the decisions necessary to put
the policy decisions into action. These decisions help
implement the plans and policies taken by the high-level
managers.
 Such decisions are usually taken by middle and lower
management. Say the company announces a bonus issue.
This is a policy decision. However, the calculation and
implementation of such bonus issue is an operating
decision.
Organizational Decisions and
Personal Decisions
 When an executive takes a decision in an
official capacity, on behalf of the
organization, this is
an organizational decision. Such decisions
can be delegated to subordinates.
 However, if the executive takes a decision
in a personal capacity, that does not relate
to the organization in any way this is a
personal decision. Obviously, these
decisions cannot be delegated.
Individual Decisions and Group
Decisions
 When talking about types of decisions, let us
see individual and group decisions. Any
decision taken by an individual in an official
capacity it is an individual decision.
Organizations that are smaller and have an
autocratic style of management rely on such
decisions.
 Group decisions are taken by a group or a
collective of the firm’s employees and
management. For example, decisions taken
by the board of directors are a group
decision.