Module 2: Decision-Making

Decision-making is an integral part of modern management. Every manager takes

hundreds and hundreds of decisions subconsciously or consciously making it as the key
component in the role of a manager. Decisions play important roles as they determine
both organizational and managerial activities. 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.

Decisions are made at every level of management to ensure organizational or business

goals are achieved. Further, the decisions make up one of core functional values that
every organization adopts and implements to ensure optimum growth and drivability in
terms of services and or products offered.

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.

Decision making is the process of making choices by identifying a decision, gathering

information, and assessing alternative resolutions. Using a step-by-step decision-
making process can help you make more deliberate, thoughtful decisions by
organizing relevant information and defining alternatives.

Kinds of Decisions
Decisions can be categorized into three basic classifications:

a. “Decisions Whether”
This type of decision is a yes/no or either/or decision. Before choosing the best
and most suitable choice, the person decides whether it is amenable or not.
 b. “Decisions Which”
These decisions are taken from a set of alternatives, which are compared to
each other for the most probable and beneficial option based on a set of criteria.

c. “Contingent Decisions”
These are decisions that were already identified but are set aside until the
conditions are approved and met. Many people have already created contingent
decisions but they keep it until an opportunity to apply the decision comes along.
Some factors, which may be considered as conditions for the decision to be
carried out are: time, price, availability, motivation, and energy.

Importance of Decision Making

Management is essentially a bundle of decision-making process. The managers of an

enterprise are responsible for making decisions and ascertaining that the decisions made
are carried out in accordance with defined objectives or goals.

Decision-making is the most important component of a manager’s activities. It plays the

most important role in the planning process. When the managers plan, they decide on
many matters as what goals their organization will pursue, what resources they will use,
and who will perform each required task.

The quality of managerial decisions largely affects the effectiveness of the plans made by
them. In organizing process, the manager is to decide upon the structure, division of work,
nature of responsibility and relationships, the procedure of establishing such responsibility
and relationship and so on.

10 Principles of Decision Making

 1. Subject-matter of Decision-making:
Decisional matters or problems may be divided into groups consisting of programmed
and non-programmed problems. Programmed problems, being of routine nature,
repetitive and well-founded, are easily definable and, as such, require simple and easy
solution. But in non-programmed problems, there is no continuing effect because they
are non-repetitive, non-routine, and novel.

2. Organizational Structure:
The organizational structure, having an important bearing on decision-making, should be
readily understood.

3. Analysis of the Objectives and Policies:

Proper analysis of the objectives and policies is needed for decision-making. The clear
definition of objectives and policies is the basis that guides the direction of decision-
making. Without this basis, decision-making will be aimless and unproductive.

4. Analytical Study of the Alternatives:

For decision-making, analytical study of all possible alternatives of a problem with their
merits and demerits is essential. This is necessary to make out a correct selection of
decision from among the alternatives.

5. Proper Communication System:

Effective decision-making demands a machinery for proper communication of information
to all responsibility centers in the organization.

6. Sufficient Time:
Effective decision-making requires sufficient time. It is a matter of common experience
that it is usually helpful to think over various ideas and possibilities of a problem for the
purpose of identifying and evaluating it properly.

7. Study of the Impact of a Decision:

Decision is intended to be carried out for the realization of the objectives of the
organization. As all business activities are inter-related and require co-ordination, it is
necessary that a study and analysis of the impact of any decision should precede its
application.

8. Participation of the Decision-maker:

The decision-maker should not only be an observer while others will perform as per his
decision. He should also participate in completing the work for which decision was taken
by him.

9. Flexibility of Mind:
The flexible mental disposition of the decision-maker enables him to change the decision
and win over the co-operation of all the diverse groups.
 10. Consideration of the Chain of Actions:
There is a chain relationship in all the activities of any organization. Different activities are
tied up in a chain sequence.

Decision Making Approaches

The major approaches to decision making can be classified into three: individual,
authoritarian and group method.

a. Individual
The individual makes the decision based on personal values and preferences. Individual
approach to decision making is challenging and difficult at times because some people
are too dependent on others for a sound decision. A conflict of values and preferences
also affects individual decision.

b. Authoritarian
In this approach, the decision relies on the leader or head of the group or team. As the
sole decision maker, the leader must make sure that sufficient knowledge is gathered in
order for the decision to be beneficial for the group. The leader must explain the chosen
alternative to the group in order to gain acceptance.

c. Group
This approach is otherwise known as consensus. The members brainstorm and share
ideas, discuss the considerations, and then implement on an agreed decision. A group
decision usually is more effective because everyone takes accountability for whatever
outcome there is.

Characteristics of Decision Making

1. Decision-making is based on rational thinking. The manager tries to foresee

various possible effects of a decision before deciding a particular one.
2. It is a process of selecting the best from among alternatives available.
3. It involves the evaluation of various alternatives available. The selection of best
alternative will be made only when pros and cons of all of them are discussed and
evaluated.
4. Decision-making is the end product because it is preceded by discussions and
deliberations.

5. Decision-making is aimed to achieve organizational goals.

6. It also involves certain commitment. Management is committed to every decision
it takes.
Guidelines for Decision Making

1. Define the goals.

2. Ensure that the decision will contribute to the goal.
3. Adopt a diagnostic approach to decision making.
4. Involve subordinates in decision making process.
5. Ensure successful implementation of the decision.
6. Evaluate the results., and
7. Be flexible and revise the decision which does not yield the desired results.

7 Steps to Effective Decision-Making Process

Step 1: Identify the decision

You realize that you need to make a decision. Try to clearly define the nature of the
decision you must make. This first step is very important.

Step 2: Gather relevant information

Collect some pertinent information before you make your decision: what information is
needed, the best sources of information, and how to get it. This step involves both internal
and external “work.” Some information is internal: you’ll seek it through a process of self-
assessment. Other information is external: you’ll find it online, in books, from other people,
and from other sources.

Step 3: Identify the alternatives

As you collect information, you will probably identify several possible paths of action, or
alternatives. You can also use your imagination and additional information to construct
new alternatives. In this step, you will list all possible and desirable alternatives.
Step 4: Weigh the evidence
Draw on your information and emotions to imagine what it would be like if you carried out
each of the alternatives to the end. Evaluate whether the need identified in Step 1 would
be met or resolved through the use of each alternative. As you go through this difficult
internal process, you’ll begin to favor certain alternatives: those that seem to have a
higher potential for reaching your goal. Finally, place the alternatives in a priority order,
based upon your own value system.

Step 5: Choose among alternatives

Once you have weighed all the evidence, you are ready to select the alternative that
seems to be best one for you. You may even choose a combination of alternatives. Your
choice in Step 5 may very likely be the same or similar to the alternative you placed at
the top of your list at the end of Step 4.

Step 6: Take action

You’re now ready to take some positive action by beginning to implement the alternative
you chose in Step 5.

Step 7: Review your decision & its consequences

In this final step, consider the results of your decision and evaluate whether or not it has
resolved the need you identified in Step 1. If the decision has not met the identified need,
you may want to repeat certain steps of the process to make a new decision. For example,
you might want to gather more detailed or somewhat different information or explore
additional alternatives.

What Can Prevent Effective Decision Making?

There are number of problems that can prevent effective decision. These includes:

1. Not Enough Information

If you do not have enough information, it can feel like you are making a decision
without any basis.

2. Too Much Information

The opposite problem, having so much conflicting information that is impossible to
see ‘the wood for the trees.’
3. Too Many People
Making decisions by committee is difficult. Everyone has their own views, and their
own values.
4. Vested Interests
Decision-making processes often founder under weight of vested interests. These
vested interests are often not overtly expressed, but may be a crucial blockage.
5. Emotional Attachments
People are often very attached to the status quo. Decisions tend to involve the
prospect of change, which many people find difficult.
6. No Emotional Attachment
Sometimes it’s difficult to make a decision because you just don’t care one way or
the other.