BBA 820: MANAGERIAL FUNCTIONS

DECESION MAKING

1.10 Introduction
Decisions are made to achieve goals through suitable follow-up actions.
 Decision-making is a process by which a decision (course of action) is taken.
 Decision-making lies embedded in the process of management.
According to Peter Drucker,
"Whatever a manager does, he does through decision-making".

1.20 Definitions of Decision-making

The Oxford Dictionary defines the term decision-making as:-

"the action of carrying out or carrying into effect".

a) According to Trewatha & Newport,

"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".

1.30 Steps Involved In Decision Making Process

Drucker recommended the scientific method of decision-making which, according to him,

involves the following six steps:

In his book “'The Practice of Management' published in 1955. Drucker recommended the
scientific method of decision-making which, according to him, involves the following six steps:
 Defining / Identifying the managerial problem,
 Analyzing the problem,
 Collecting relevant data
 Developing alternative solutions,
 Selecting the best solution out of the available alternatives,
 Converting the decision into action, and
 Ensuring feedback for follow-up.

1. Defining / Identifying the managerial problem,

 Identification of the real problem before a business enterprise is the first step in the
process of decision-making.
 The manager should search the 'critical factor' at work.
 It is the point at which the choice applies.
 While diagnosing the real problem the manager should:-
 consider causes
 find out whether they are controllable or uncontrollable.
2.Analyzing the Problem

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Here, the following four factors should be kept in mind:
 Futurity of the decision,
 The scope of its impact,
 Number of qualitative considerations involved, and
 Uniqueness of the decision.
3.Collecting Relevant Data

 The next step is to obtain the relevant information/ data about it.
 There is information flood in the business world due to new developments in the field of
information technology.
 All available information should be utilised fully for analysis of the problem.
 This brings clarity to all aspects of the problem.
4.Developing Alternative Solutions:
 Only realistic alternatives should be considered.
 It is equally important to take into account time and cost constraints and psychological
barriers that will restrict that number of alternatives.
5. Selecting the Best Solution:
 The alternative thus selected must be communicated to those who are likely to be
affected by it.
6. Converting Decision into Action:
 The manager has to convert 'his decision into 'their decision' through his leadership.
7. Ensuring Feedback:
 Feedback is the last step in the decision-making process.
 The manager has to make built-in arrangements to ensure feedback for continuously
testing actual developments against the expectations.

1.40 Decision Making Methods

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  Each decision-making method has its strengths and is appropriate under certain
circumstances
 .Each also has particular consequences for the group’s future operation.
 An effective group understands each method of decision making well enough to choose
the method that is best for them
1.41 Decision by Authority without Group Discussion

The President calls an unscheduled emergency meeting.

Advantages:
 useful for simple, routine decisions
 good if very little time is available
 helpful if group members lack the skills and information to make the decision any other
way
Disadvantages:
 advantages of group interaction are lost
 one person is not always a good resource
 no commitment to implementing the decision
 resentment and disagreement may result in sabotage and deterioration of group
effectiveness

1.42 Decision by Expert

The treasurer creates the organization’s budget.
Advantages:
 useful when the expertise of one person is superior and little is gained from group
discussion
 takes less time than group discussion
Disadvantages:
 difficult to determine who the expert is
 no commitment to implementing the decision
1.43 Decision by Averaging Individuals’ Opinions

The Vice President calls members of the executive board and asks “What’s a good weekend to
have our retreat?”
Advantages:
 useful when it is difficult to get group members together to talk
 can be useful for simple, routine decisions
Disadvantages:
 not enough interaction between members to gain the benefits of group discussion
 no commitment to implement the decision
 unresolved conflict and controversy may damage group effectiveness in the future

1.44 Decision by Authority after Group Discussion

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Organization president solicits input on potential recruitment efforts, however, He/She makes
the final decision on what events to hold.
Advantages:
 uses the resources of group members more than some other methods
 gains some benefits of group discussion
Disadvantages:
 does not develop a commitment to implement the decision
 does not resolve the controversies and conflicts among group members
 members compete to impress the designated leader or tell the leader what they think
the leader wants to hear
1.45 Decision by Minority

Fundraising Committee decides to send letters to alumni members soliciting donations.

Advantages:
 can be used when not everyone can meet to make a decision
 helpful when only a few members have relevant resources
 useful when board member’s commitment is not needed to implement the decision.
Disadvantages:
 does not utilize the resources of group members.
 does not establish wide spread commitment to implement the decision.
 full benefit of group interaction is not obtained.
1.46 Decision by Majority Vote

Organization holds an election for new officers.

1.60 Assumptions of the Rational Decision-Making Model

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 1. Problem Clarity-
 The problem is clear and unambiguous.
2. Known Options-
 The decision-maker can identify all relevant criteria and viable alternatives.
3. Clear Preferences-
 Rationality assumes that the criteria and alternatives can be ranked and
weighted.
4. Constant Preferences-
 Specific decision criteria are constant and that the weights assigned to them are
stable over time.
5. No Time or Cost Constraints-
 Full information is available because there is no time or cost constraints.
6. Maximum Payoff-
 The choice alternative will yield the highest perceived value.

1.70 Limitations To Sound Decision Making

 Time Consuming
 Compromised Decisions
 Subjective Decisions
 Biased Decisions
 Limited Analysis
 Uncontrollable Environmental Factors
 Uncertain Future
 Responsibility is Diluted