ASST PROF. JONLEN DESAASST PROF. JONLEN DESA

DECISION DECISION MAKINGMAKING

QUOTES

“Decision is a sharp knife that cuts clean and straight; indecision, a dull one that hacks and tears and leaves ragged edges behind it.” -Gordon Graham

“Where there is no decision there is no life.”- JJ Dewey

Peter Drucker rightly said that “whatever a manager does, he does through making decisions”.

WHAT IS A DECISION ????WHAT IS A DECISION ????

What are the various decisions that you take in your everyday day life & when?

A decision is a conclusion reached after a lot of consideration. Decision is choosing the best alternative for solving

a problem. Person who makes/takes a decision is a decision

maker. 3 Components of Decision Making: Choosing the best solution for dealing with

the problem. Managers have different alternatives when

making a decision. Managers have a purpose/goal when they

make a decision.

DEFINITION OF DECISIONDEFINITION OF DECISION

According to Haynes & Massie “ A decision is a course of action which is consciously chosen for achieving a desired result”.

DECISION MAKING (DM)

DM is the starting point of the management process. Its an integral part of the management process. It is rightly said that the first important function of management is to

take decisions on problems and situations. Success of the firm depends upon the implementation of successful

decisions. DM has a great impact on the firm. Duty of every manager to make sound & rational decisions. DM is necessary in all the functions of management. DM involves selecting & implementing the best course of action. DM is the heart of the management process.

DEFINITIONS OF DECISION DEFINITIONS OF DECISION MAKINGMAKING

According to George R. Terry, “ decision- making is the selection based on same criteria from two or more possible alternatives.”

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.”

FEATURES OF EFFECTIVE DECISION FEATURES OF EFFECTIVE DECISION MAKINGMAKING

DM Implies choice Continuous activity/ process Mental/ intellectual activity DM is based on reliable information/ feedback Goal oriented process Needs effective communication Responsible job DM is a Systematic process Means & not an end DM is a Pervasive process Goal oriented process Time consuming activity

ADVANTAGES OF EFFECTIVE DECISION ADVANTAGES OF EFFECTIVE DECISION MAKINGMAKING

DM sets the ball of management process rolling.

DM facilitates/ accelerates the management process.

DM facilitates follow up action DM is essential to face problems, opportunities

& challenges. DM facilitates business expansion & growth.

RIGHT & WRONG DECISIONS!!!RIGHT & WRONG DECISIONS!!!

“Sir, What is the secret of your success?” a reporter asked a bank president.

“Two words.”

“And, sir, what are they?”

“Good decisions.”

“And how do you make good decisions?”

“One word.”

“And sir, what is that?”

“Experience.”

“And how do you get Experience?”

“Two words.”

“And, sir, what are they?”

“Bad decisions.”

PROCESS OF DECISION MAKINGPROCESS OF DECISION MAKING

EFFECTIVE DECISION MAKINGEFFECTIVE DECISION MAKING

An effective decision can be defined as one which is action oriented, goal-directed & provides efficiency in execution or implementation.

Elements/ Qualification/ Requirements of effective Elements/ Qualification/ Requirements of effective decisions:decisions:

A. Action OrientedA. Action Oriented B. Goal-DirectedB. Goal-Directed C. Efficiency in ExecutionC. Efficiency in Execution

GUIDELINES FOR EFFECTIVE DECISION GUIDELINES FOR EFFECTIVE DECISION MAKINGMAKING

Define the goals and ensure that decisions to be taken will contribute for achieving the goals decided

Identification of a wide range of alternative courses of action

A careful consideration of the cost and risks of both positive and negative consequences that could follow from each alternative

Efforts should be made to search for new information relevant to the further evaluation of the alternatives. This is necessary as the quality of decision depends on the quality of information used in the decision making process.

Re-examination of the positive and negative effects of all known alternatives before making a final selection. Adopt a diagnostic approach to decision making.

Proper timing of decision & implementation without delay.

Involve subordinates in decision making process. As a result, there will be meaningful co-operation and participation of employees in the decision making as well as decision execution process.

Arrangements should be made for implementing the chosen course of action including contingency plans in the event that various known risks were actually to occur. In brief, ensure successful implementation of the decision taken.

Efforts should be made to introduce creativity and rationality in the final decision taken

Evaluate the results impartially and introduce suitable remedial measures, if required.

There should be flexibility/ flexible approach in the decision making and decision execution. It is desirable to revise the decision which fails to give desired/ expected results

DIFFICULTIES IN EFFECTIVE DECISION DIFFICULTIES IN EFFECTIVE DECISION MAKINGMAKING

• Incomplete/ inadequate information

• Unsupporting adverse environment

• Limited time and resources

• Ineffective communication

• Incorrect timing

• Non-acceptance by subordinates

TYPES OF MANAGERIAL DECISIONS TYPES OF MANAGERIAL DECISIONS

1. STRATEGIC/BASIC DECISIONS1. STRATEGIC/BASIC DECISIONS

Strategic or basic decisions are long term, important and are generally taken by the top management of organizations as lot of risks & uncertainties are involved.

It involves long term commitment & huge investment for execution. They relate to policy matters and so require a thorough fact finding

and analysis of the possible alternatives. These decisions are future oriented & hence should be taken

carefully. Strategic decisions are novel, complex & open ended. The variables

are uncontrollable. Launching a new product, expansion & modernization of new

plant, reorganization of business, decisions about location & size of firm, automation etc are examples of Strategic decisions.

2.ROUTINE/TACTICAL DECISIONS2.ROUTINE/TACTICAL DECISIONS• Routine decisions are not that important as compared

to Strategic Decisions. Also termed as Programmed Decisions.

• Routine decisions normal, repetitive & present oriented.

• They do not require collection of new data and can be taken without much consideration.

• Such decisions are taken generally by the executives at the middle and lower management levels.

• They do not involve any high risk or uncertainty.• Routine decisions are taken as per the policies &

procedures fixed by the company.• Decisions relating purchases, manpower, inventory,

working conditions, various facilities for employees, training etc are some examples of routine decisions.

3. ADMINISTRATIVE DECISIONS3. ADMINISTRATIVE DECISIONS

Administrative decisions normally relate to the structuring of company’s resources with a view of creating a maximum performance potential.

Decisions relating to delegation of authority and responsibility, distribution channels, management training and executive development are treated as administrative decisions.

Personnel managers take such decisions in consultation with higher authority.

Such decisions are related to the internal working of an organization.

4.PROGRAMMED AND NON-PROGRAMMED 4.PROGRAMMED AND NON-PROGRAMMED DECISIONSDECISIONS

• Programmed decisions are concerned with relatively routine and repetitive problems. Information on these problems is already available and can be processed in a pre-planned manner.

• Such decisions have short-term impact and are relatively simply. They are, made at lower levels of management.

• These decisions require little thought and judgment. The decision maker identifies the problem and applies the predetermined solution. For example, if an employee is habitually late comer he can easily be dealt with under the established procedure.

• Programmed decisions are also known as Structured Decisions

• Non-programmed decisions deal with unique or unusual problems. Such novel or non-repetitive problems cannot be tackled in a predetermined manner.

• These decisions are also known as unstructured decisions and are taken by the top level management who are well trained, qualified & experienced.

• They need proper judgment & creativity .• The problem should be analyzed & studied well and an

appropriate solution should be implemented to solve the same.

• No 2 managers will take the same decision. It varies from person to person.

• Organizational decisions reflect company policy. These are made in the interest of the organization.

• The executive makes decisions formally as a co. officer.• They can be delegated to others.• These decision are taken by the top level management in

the best interest of the company.

Personal decisions are made by an executive as an individual and not as a part of an organization. These decisions cannot be delegated.

Such decisions affects only the individual directly & may affect the firm indirectly.

Decisions, to purchase a car, or take VRS for better prospects are examples of personal decisions.

• When a decision is taken by an individual in the organization, it is known as individual decision. It is also known as one-head decision. These are quick & economical.

• These are concerned mainly with routine problems for which broad policies are available. Such decisions are generally taken in small organizations.

• Group decisions are those taken by a group of persons constituted for the purpose. Decisions taken by the board of directors or a committee are, examples of group decisions.

• Group decision making generally results in more realistic and well balanced decisions and encourages participative decision making.

Policy decisions are important as they bring substantial changes in the existing policies, procedures, programmes and strategies of the company . Such decisions affect the entire organization.

Policy Decisions are taken up by the top level management. Decisions relating to product, price are policy decisions.

Operational/ Tactical decisions are based on the policy decisions.

They are concerned with the day-to-day operations of an enterprise. Such decisions are taken by middle or lower level of management.

Such operative decisions are less important or even routine in character as they are taken in the light of policy framed.

The outcome of the decision is of short duration. Such decisions are based on policy decisions taken at a higher

level. A supervisor, for example, follows company policy and rules for handling disciplinary problems, grievances of workers.

Problem- solving decision is made to solve an existing or anticipated problems.

Opportunity decision is a positive action that takes advantage of potential growth or higher profits.

Whether a manager takes advantage of opportunities will depend on number of variables such as managers desire to take risk or to recognize opportunities when they occur .

• Ambitious and aggressive managers make initiative decisions. They seek out problems and opportunities and takes action that is not required in the normal course

• Here, such managers take special interest and initiative in taking decisions and in executing the same.

• Managers who are timid and fence-sitters play safe. They prefer to remain inactive until a decision is referred to them or can no longer be avoided because of crisis.

• Here, they can take the decision only when specific matter is referred to them for decision making.

A crisis decision is made under pressure. Crisis situations is characterized by surprise, stress, limited time and danger to high priority goals. A crisis decision may not be rational decision as it is taken under pressure.

Research decision can be made with a minimum time pressure. It does not involve any urgency and executives can take their time to arrive at the decision.

DECISION MAKING UNDER 3 SITUATIONSDECISION MAKING UNDER 3 SITUATIONS

RATIONALITY & DECISION MAKINGRATIONALITY & DECISION MAKING

Rational decisions are intelligent decisions.Rational decision making is introduced through the

human brain.Make use of “common sense” while making

decisions.Rational decision making involves analyzing of all

information & facts.It involves thorough reasoning, using your brain

well, understanding the complex situation, using all skills, knowledge & experience to arrive at a decision.

Rational decisions are scientific decisions and help provide better solution to an existing problem.

Rational decisions are sensible decisions.

DEFINITIONDEFINITION

According to A. Steiner, “A rational business decision is that which effectively and efficiently assures the advancement of aims for which the means are selected.”

Study all information relating to the problem under investigation independently & impartially.

Future situation should be given adequate attention through vision, foresight & imagination while finalizing the decision.

All alternative solutions should be prepared & studied in depth & impartially.

Decide which alternative to choose from many to arrive at the decision. Such decision will be a rational & sensible decision.

STEPS IN RATIONAL DECISION MAKINGSTEPS IN RATIONAL DECISION MAKING

Recognize the need for a decisionCollection of available information and data relating to the

problem under investigation.All available details relating to the problem under investigation

needs to be studied independently & impartially.The future situation needs to be given adequate attentions through

vision, foresight and imagination.All alternative solutions should be prepared and studied in depth

and also in an impartial manner The interest of the organization should be given top most

importance while studying various details and alternativesDecision is to be taken to select one alternative out of many

available. Such decision will be a rational decision.

BENEFITS

1) Beneficial to the organization 2) Achievement of business objectives 3) Raises morale of decision makers 4) Acceptable to employees and others 5) Solves business problems 6) Facilitates business expansion and growth 7) Facilitates optimum utilization of

resources 8) Raises overall efficiency and employee

motivation

LIMITATIONSLIMITATIONS

Inadequate information, data and knowledge

Uncertain environment

Limited capacity of decision-maker

Personal element in decision- making

Limited knowledge, skill, experience, maturity & judgment on the part of decision maker.

Decision may not be fully rational due to limited interest in the decision-making process by the decision-maker

Abnormal socio-economic situation may develope

CREATIVITYCREATIVITYThe ability to create something new or bring into

existence something original is called creativity. creativity. An ability to bring something into existence is being

creative.Innovation & Creativity are not the same.Creativity means bringing a new idea into existence,

while innovation means putting new ideas into practice.

Creativity stimulates innovation. Creativity can exist without innovation, but innovation cannot exist without creativity.

Innovations are creative ideas put into practice.Creative people use the right part of the brain more

because they are more imaginative.

CREATIVITY IN DECISION MAKINGCREATIVITY IN DECISION MAKING• Creativity is vital for successful decision making. It is

required to develop alternatives.• The role of creativity is maximum in generating alternatives

which can be considered for evaluation and selection. • Before any solution to a problem is decided, the solution

must be developed properly.• Creativity is required in the case of non-repetitive and

unique problems. Such problems are complex and cannot be solved by past experience.

• Decision makers have to be creative in decision making.

Creativity is the ability to develop new & useful ideas that lead to positive results.

A poor decision maker lack creativity. Creativity plays a useful role, as a creative manager is open

minded and do not follow the beaten track. Creativity is defined as “ the ability to formulate new

combinations from two or more concepts in mind.” Brainstorming & Delphi technique is a method used to

stimulate creativity.

Creativity does not take things for granted. It challenges the problem & aims at solving it.

It adopts new methods to get desired results. It evaluates & reassesses the problem from different angles. It finds new ways of doing things & rejects traditional

thinking. It does strictly follow the step by step DM process. Creativity ensures that novel ideas are put into practice. It questions authority & upsets routine to arrive at new

decisions. Creativity is flexible & more independent. It provides viable solutions to problems.

HOW TO INTRODUCE CREATIVITY IN DECISION MAKINGHOW TO INTRODUCE CREATIVITY IN DECISION MAKING

Managers can introduce an element of creativity in their decision- making if they are alert, intelligent, goal/ efficiency oriented and are willing to use their mental faculties to the maximum extent possible.

Even collective thinking, consultations with others, collection of new information and use of new techniques of decision making (e.g. computers, liner programming) are some methods useful for introducing an element of creativity in decision making.

Management should encourage such creativity in decision making by managers.

Managers should also develop the art of creativity by training their creative mind in the right direction.

A creative mind is a curious mind which has the capacity to approach a situation from different points of view.

Such a mind can look beyond obvious solutions to the problem and arrive at fresh dimensions.

Creative mind is the base of creativity in decision-making. Managers can develop this quality of creativity in their mind.

This will enable them to introduce creativity in their decision- making.

Creativity is vital for successful decision making. A creative manager is open minded & do not follow the beaten track.

METHODS/TECHNIQUESMETHODS/TECHNIQUESBRAINSTORMINGREVERSE BRAIN STORMINGDELPHI TECHNIQUEMIND MAPPINGSIX THINKING CAPSNOMINAL GROUP TECHNIQUE