Chapter—7 Decision-Making
Definition of Decision-Making Decision-making is the process of selecting a course of action from among alternatives. A decision involves a choice i.e. choose the best one from different options/alternatives/choices. It is goal-oriented.
Elements of Decision Making The decision-maker The decision problem The environment in which the decision is to be taken Objectives of the decision-maker The available alternative course of action The expected outcome from various alternatives The final choice of the alternative taken
Decision Making Process 1. Defining the problem 2. Classifying objectives 3. Identifying evaluation criteria: Cost, performance and risk involved are to be assessed. 4. Model building: analysing through computer simulation, to assess the likely consequences of various alternatives. 5. Evaluating results 6. Taking final decision: The best possible solution is selected. 7. Feedback or following up the decision: To ensure that the decision is properly implemented and that no deviations occur.
Techniques of Decision Making Scientific management techniques ( Cost control and managerial control ) Human relation techniques ( motivation and leadership) Empirical techniques (Experiences of successful managers) Financial techniques (Development of accounting methods and procedures, cost accounting and budgetary planning) Mathematical model techniques (Operations Research techniques) Decision theory techniques ( Both quantitative and qualitative aspects are investigated in the analysis of decision problems ) Decision support system (understanding and improving the manager's decision-making ability by adopting available and suitable technology)
Classifications of Decisions Managerial decisions may be classified as: Organizational and Personal (Manager or superior take organizational decisions; but Subordinate can himself take the personal decision) Routine and Strategic (Lower level management can take routine decisions by following the rules; Top level management can take strategic decisions) Programmed and Non-Programmed (Programmed decision are repeated/ routine, depends upon established criteria; Non programmed decision are strategic in nature and are not repeated , e.g.: improving customer satisfaction Policy and Operative (Policy are framed by top level; lower level management can take Operative decisions) Individual and Group (decision for himself; decision for the department) Major and Minor (big; small) Long-term (decision is taken for a longer period)
Principle of Limiting Factor In choosing from among alternatives: primary attention must be given to those factors that are limiting or strategic to the decision involved. For instance, if a machine fails to operate for lack of a screw, the screw is the limiting factor.
Evaluating the Decision Managers can evaluate their decisions by many factors: Size or length of commitment (If a decision involves heavy expenditure or it is for long period, then it must be refer to the top level management) Flexibility of plans ( inflexible course of action, must take priority; flexible plans less priority) Certainty of goals and premises (certainty of goals, less important decisions; uncertainty of goals, more important) Human impact (Where the human impact of a decision is great, its importance is high e.g. a decision to put payroll on computers)
Difficulties in the Decision Making Incomplete information (insufficient data or information) Unsupporting environment (Other managers/top management are against or not supporting) Ineffective communication Incorrect timing Non-acceptance by subordinates