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2. Organizing: This is nothing but putting human and non-human resourcestogether. This includes bringing people together in a structure of hierarchy of

authority and responsibility. Thus, it includes selection of personnel, training of

people and filling vacant post as and when the need arises. It also includes putting

together non-human resources like raw material, capital, tools, equipments, etc.

Human resource Non-Human resource

Recruitment/Selection, Training, filling vacant posts

3. Actuating/Directing/Leading/Motivating: This is the next function where amanager tells people what they need to do and how best it can be done. Thus,

other than definition of tasks, authority and responsibility, it also involves

communication, leading and motivating. Thus, along with handing over of tasks

in which communication and clear communication has a major role of play.

Thus, what people need to do should be communicated clearly. Plus, a manager

should guide and positively influence the work of his subordinate. A manager

also needs to motivate his subordinates.

Thus Actuation/Directing includes

Leadership Communication Motivation

Tools, equipments,

finance, raw-

material etc

Guiding and

influencing

work of

subordinate

Different methods to

pass orders and

information

should

be clear to be

effective

To improve job

performance

Financial

incentives

bonus, perks,

increase in

salary

Non-financial

recognition,

promotion,

praise,

opportunities of

advancement

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4. Controlling:This is a function of management which involves the evaluation of work done. The idea

behind controlling as a function of management is to see whether the objectives have

been achieved or not. Thus, it is a way to check the achievement of the targets.

Controlling involves:

1. Establishing standards of performance2. Measuring current performance3. Checking it against standard performance4. Taking action if current performance is below standard performance or does not

meet standard performance.

5. Representation: This is an additional function of management which explains theadditional role of a manager. This involves the work of a manager where a manager

needs to represent the company in front of stakeholders, labour unions, government,

suppliers, clients, financial institutions etc.

6. Role of Manager: This are also the functions of management as the role performed by

managers are the functions that they perform. These include:

a. Interpersonal rolei. As a figurehead1. Attending to dignitaries, wedding of employees, taking

clients for meals

ii. Leaderthis is to ensure that there is unity of direction1. To motivate his subordinates2. To guide his team

iii. Liaison: TO create contacts inside and outside the companyb. Informational role

i. Monitor: Here he has to perform the role of a monitor to check ifeverything is as per what is required. To be a effective monitor the

manager seeks information from:

1. Contacts outside the company2. From employees who give him information of things

happening inside a company

ii. Disseminator: The give information is known as dissemination ofinformation. A manager performs this role by providing useful

information to his bosses as well as subordinates. This information

can be useful to the bosses to take effective decisions. It can be

useful to the subordinates as it will help them to work better.

iii. Spokesperson: speaks on behalf of the company with labourunions, government, consumers, financial institutions, etc.

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c. Decision role:i. Entrepunuer: a manager performs the role of entrepunuer by taking

up innovation. That is bringing new ideas about product or

methods to be used

ii.

Disturbance handler: as a disturbance handler a manager solvesstrikes or helps clients that are facing a situation of bankruptcy

iii. Resource allocator: It takes the decision of allocating resourcesamong various sections of a company as per the need of the

sections. He also allocates authority and responsibility to all

iv. Negotiator: He acts as a negotiator on behalf of the company wherehe negotiates with labour unions or the government for the benefit

of the company.

Nature of management

1. Management is a discipline: Management is considered a discipline as it includeswell-defined concepts and principles that are helpful in managing an organization.

2. Management is a group of people: Management is also considered as a group ofpeople who are performing the role of managers or performing the managerial

functions

3. Management is a process: Management is a process as it involves various steps tocarry out various activities and sub-activities like planning, organizing, actuating,

controlling and other such steps. It is also a process as it occurs over a period of

time.

4. Management is multidisciplinary: Management is said to be multidisciplinary asutilizes tools and concepts of various other disciples like mathematics, statistics,

Economics, anthropology, sociology, etc.

5. It is based on flexible principles: Management is based on flexible principles andnot rigid principles. This means the principles of management change as per the

change in environment. Thus, if there is change in culture of a set of people then

the principles of organizing that people can also change.

6. Management is an art and a science: Management is both an art and a science. Itis a science because:

Like another other discipline of Science, management is a systematicbody of knowledge which is unbiased and orderly

The methods of inquiry or research used in management are systematic,scientific and empirical (that is based on practical facts and not

speculations)

It uses scientific tools and methodologies to analysis data. Thus, use ofstatistical tools are common in management

Results of management research are communicable, objective orunbiased. This means that the solutions of management research arereplicable. They can be used to solve similar problems elsewhere.

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However, management is not an exact or precise science as it is based on human

behaviour which keeps changing. This is why management is considered a part of

behavioural science. However, management research is able to tell us a tendency or

probability, which is close to being precise.

2. Management as an Art:

Art is how a particular work can be performed or accomplished Art is personal skill or creativeness Skill in performance depends on the experience of a person, observation,

education level etc.

Thus Management as an art is a skill of getting good work done from others. The Science part of management provides managers with the education of actual

principles of management or the theory. However, management as an art is the

actual application and effective application of the principles that not only requireseducation but also skill or creativeness

Thus, management is both an art and a science7. Management as a profession: Management is a profession as it is a body of

knowledge and no profession can be practised without knowledge. Similarly people

can only entre the profession by applying the knowledge. Like other professions,

management also has a professional association which has clearly defined ethical

codes of conduct

8. Management is not the same as administration: there are three different views toexplain the difference between management and administration. These are:a. As per Sheldon, Spiegel and Milward:

i. Administration involves thinking. Thus, making policies, plans, anddeciding on objectives is administration. Top level management is

involved in administrative activities

ii. While management involves doing. Thus, executing or implementingthe policies, plans and decisions is management. Middle or lower level

management is involved in management activities.

b. As per EFL Brech and othersi. Management is the generic term that includes administration

ii. Thus administration is a branch of management which includes twofunctions of management, i.e., planning and control.

iii. Functions of management include Administrative management (upperlevel management) and operative management (middle and lower

level management)

c. As per Peter Drucker

i. The difference between management and administration is that they are

used in different fields

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Administration is used in non-business institutions like Army,government, religious institutions, etc

Management is governance of business enterprises Economic performance or profit making becomes an important part of

management. Thus managers will always consider profit and loss before taking a decision. However, in administration there are no

economic considerations. For example government will buy food grain

at high price and distribute it at subsidized rate for the welfare of the

people.

CHAPTER - EVOLUTION OF MANAGEMENT THOUGHT: MANAGEMENT

YESTERDAY AND TODAY

Management though evolved from classical times to modern times. It is divided into

classical approach, neo-classical approach and modern approach.

1. Classical approach: This consists ofa. Scientific management: This approach to management was pioneered by

Fredrick Winslow Taylor (1856-1915). He is considered the father of

scientific management and made very important contributions to scientific

management. He made the following important contributions which are

classified under scientific management. These are:

i.

Time and Motion study: He carried a time and motion study todecide the standard time required to complete a job. He used a stop

watch to study the time required. Thus, he found the best time and

way to do a job.

ii. Differential payment: Once the standard number of piece during afixed time was found he devised incentives to increase production.

He suggested that those who produce less than the standard should

get lower piece rate and those producing more than standard

should get a bonus or incentive.

iii. Drastic reorganization of supervision: He suggested two thingshere:

1. Job planning should be by the supervisor or manager ratherthan individual workers. This is to set a standard in methods

and bring uniformity

2. To have more foremen, each performing a functionalrelation.

iv. Scientific recruitment and training: he suggested that the managersshould ensure scientific selection of workers through proper

procedures. He also suggested proper training of workers to bring

uniformity in work and increased efficiency.

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v. Friendly cooperation between management and workers: Ratherthan conflict between the two, there should be cooperation and

friendship between the two to develop common interest in

increasing productivity.

Limitation of the approach:

Economic incentives do not always work: A person may have other needs otherthan financial needs like ego needs, security need. Thus, economic incentives

may not work on a worker every time.

Time and motion study not scientific: as per this criticism two persons doing thesame job may take different times. So there is no such thing as one best way or it

is difficult to come to a standard performance.

System of functional foremanship breaks the principle of unity of command: Thisleads to confusion, mismanagement, fatigue among workers, etc.

Increased resentment among workers: As methods, tools and techniques werechanged as per the suggestions by Taylor, there was a lot of resentment among

workers

b. Administrative management: Given by Henry Fayol. He is considered the father of

administrative management. He suggested 14 principles of management. These are:

vi. Division of work: Various works like planning, organizing,directing and controlling should be separated and handled by

specialistsvii. Authority and responsibility: A manager should have the authority

to get work done from others but should also bear responsibility for

the decisions and action taken.

viii. Discipline: He suggested ways to maintain discipline by1. Appointing good supervisors at all levels2. Clear and fair agreement between employers and employees3. Judicious application of penalties

ix. Unity of command: This means that each employee should getcommand from one supervisor only. If it is not done so then it may

lead to conflict in command which may lead to confusion and

indiscipline

x. Unity of direction: There should be complete unity betweenindividual and organizational goals.

xi. Subordination of personal interest: Individual interest of moremoney, status, etc should be held lower than the general interest of

the organization.

xii. Remuneration: Fair payment of remunerations should be there.This effects workers morale and efficiency. Remuneration to be

paid should be based on the capacity of the firm, general livingconditions, productivity of workers, etc.

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xiii. Centralization: Whether centralization or decentralization shouldbe practised or what degree of it should be practised would depend

on the size of the organization, the activity of the organization, etc.

xiv. Scalar Chain: There should be a proper chain of hierarchy ofauthority and responsibility from the highest to the lowest level. Hesuggested that in principles a proper path or chain of

communication should be followed. But for quick decisions these

links can be jumped

xv. Order: There should be order in work. For that there should beproper selection of people, right kind of duties to right kind of

people and a proper organization. This will maintain order and not

create chaos.

xvi. Equity: managers should be free of bias and personal likes anddislikes. There should be justice

xvii. Stability of tenure: Security of job is an essential condition formotivation of workers to work better.

xviii. Initiative: A manager should give enough scope to his juniors totake initiative, since that is the first step towards innovation.

xix. Esprit de corps: This means team spirit, which should be createdamong workers. Unity is a great source of strength and has a

positive influence on job performance.

Limitation of Administrative management

Unity of command and division of work are contradictory principles The suggestions were based on limited research. As a result suggestions or

conclusions not replicable

Principles suggested are not flexible This approach was based on the assumption that organizations are closed system,

but in reality they are open systems.

c.BureaucracyMax Weber is considered the father of Bureaucracy. In 1910 he studied

various organizations and came up with the suggestion that bureaucratic system of

management is more effective, as it is based on merit and not hereditary. The importantfeatures of bureaucratic administration are as follows:

xx. Systematic division of work: There is systematic division of workxxi. Standard rules: There are standard rule in the functioning of a

bureaucratic system. That is why personnel require special training

to understand these rules and implement them effectively.

xxii. Principle of hierarchy is followed: There is a lower officer workingunder the control of a higher supervisor.

xxiii. Knowledge and training necessary: There is emphasis onknowledge and training for the personnel. It is on the basis of the

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knowledge and training that the authority granted to the personnel

is considered legitimate.

xxiv. Paper work: Administrative acts, decision rules are recorded inwriting. That is why there is a lot of paper work involved.

xxv.

Rational selection: People are selected on the basis of the merit.This is because scientific methods of selection are used like

selection tests, interviews etc.

Limitation of Bureaucratic approach

Overconfirmity to rules Buck-passing Displacement of goals No real right to appeal Rigid structure Inability to satisfy needs of mature individuals.

II.Neo-classical approach: this includes:

1.Human relations approach

Scientific and administrative management approach were not able to answer onquestions of ideal human resource management

These approaches were not able to explain the relation between productionefficiency and work-place harmony

It was the human relations approach that was able to explain the people side orhuman side

This approach was inspired by the Hawthorne experiments which were done byElton Mayo from 1927 to 1932 in Western Electric Company in USA on 29,000

workers. These experiments were done in four stages:

xxvi. Illumination experiment1. In this experiment it was tested if there is a correlation

between illumination and workers productivity. Varioustests were done on groups of workers. Later on, 2 groups

were tested where one group was put under controlled

lighting while another group faced varying levels of

illumination. It was found that illumination affected

production marginally.

xxvii. Relay assembly test room:1. In this experiment various other factors were changed like

illumination, rest pauses, length of rest pauses, length of

working hours, and other physical conditions

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2. A group of six women were chosen for this experiment.These women were good friends with each other.

3. The result of this experiment showed a marginal difference between the productivity level of women when the

conditions of working were proper and when they wereimproper. This was because:

A. The women felt very important to be part ofan experiment

B. They worked in a tension-free environmentC. There was high-cohesion or very good

relations in the group.

xxviii. Interview program: This was the 3rd phase of the experiment. Inthis phase they interviewed 20,000 workers. Workers were asked

direct and indirect questions on working conditions. The

conclusions of the experiment were:

1. Social relations with a work place has a big influence on theattitude and behaviour of workers

2. Informal groups were very important and set productionnorms for the group members. These norms group members

had to abide by if they had to stay in the group

xxix. Bank wiring observation: This was the last phase of the experimentwhere 14 men were observed while making terminal banks of

telephone wiring assembly.

1. They observed that:II. Informal groups set their own production targets

which were less than the company targets despite

an incentive system

III. It was to protect their piece rate as well as theslower or weaker workers

IV. Those who broke the norms were isolated,harassed or punished

V. Those who produced more than the group targetwere called rate-busters, those who complainedto the supervisorwere called squealers and those

who were very slow were termed as chisellers

The human relations approach brought out the fact that informal relations have an

important role of play in production and job performance. It is after this approach that

more concentration on human aspects came about.

Limitation of Human relations approach

- It only considers the human side and ignores other aspects- There is too much emphasis of the assumption that an organization can be turned

into a big happy family

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- It provides unrealistic picture of informal groups- Leisurely process of decision-making cannot work in emergencies- Wrong assumption that satisfied workers are more productive.

2.

Behavioural approach: This was brought by behavioural scientists like DouglasMacgregor, Abraham Maslow, Kurt Lewin and others. This approach gave the

following contributions to management thought:

i. A organization should be flexible where jobs should be made onthe basis of capabilities of an average employee

ii. A system in an organization should be participative and based ongroup decision-making

iii. Instead of external control, self-direction and self-control should beencouraged among workers

iv. They did a detailed study on leadership styles and recommendedthat democratic leadership style should be used. However, they also

suggested that as the need arises autocratic and job-oriented styles

should also be practised.

v. They also suggested that no two individuals are the same, somanager should cater to individual needs of each worker.

3. Modern approacha. Quantitative approach:

i. This approach focuses on decision-making on quantitative toolsand techniques for making objective rational decisions

ii. This approach talks about Operations Research (OR). A OR teamconsists of specialists from different fields like mathematics,

economics, statistics, engineering, etc

iii. The team looks for the least cost or most effective technique orcourse of action for management

iv. This is mostly useful for technical aspects and has limited use forstaffing and leading or other human aspects.

b. Systems approachi. This was provided by Chester Bernard, George Homan, etc

ii.

This approach spoke about an organization as a system whichconsists of various interdependent parts. The four main parts of a

system are task (consisting of objectives), structure (authority,

responsibility, communication, work flow), people (employees,

motives, attitudes, values, informal relations), and technology

(tools, equipments, techniques, etc.). These four parts are

interrelated or interdependent.

iii. Central to the systems approach is the concept of holism: That is asystem has to be considered as a whole rather than in parts. Giving

in example of 12 restaurants in Chicago William Whyte and 3 of

his associates found that in these restaurants only one part of the

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organization, i.e. people, were considered as a problem, whereas

the problem was in the method or technique used. Thus, all parts

have to considered or seen simultaneously

iv. A system can either be a closed or open system: a closed system isthe one that is independent of its outside environment; where as anopen system interacts with its environment. All systems, whether

biological or man-made are dependent on the outside environment.

Thus all systems are open systems. A business system is an open

system where inputs like raw material, human efforts, power, etc

come from the outside environment. They are transformed in an

industry and sent as output.

v. Each system has a boundary: Generally activities required in thetransformation process (conversion of input in output) defines their

boundaries like manufacturing, transportation, warehousing, health

care, communication etc. It helps determine where the system ends

and where it begins.

Limitations of systems appoach

- Does not present anything new- It only combines what classical and neo-classical scholars have said- It is old wine in new bottle

c. Contingency approachi. There is no one best way of doing things under all conditions

ii. This approach suggest that a manager has to identify the besttechnique suitable to achieve goals

iii. E.g. A manager has to change leadership styles as per the situation

Chapter - PLANNING

Meaning and nature of planning

This is the first step or function of management. As per M.E. Hurley Planning is

deciding in advance what is to be done. It involves the selection of objectives, policies,

procedures and programmes from among alternatives. Thus planning is:

What has

to be

done

specific

objectives

, tasks

How to

execute

methods,

policies,

procedure

How to

bring

innovation

How to

evaluate

the

results

Who is to

do it

departme

nts, sub-

units,

personnel

Where -

Departm

ents

When to

execute

time of

each

procedure

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Nature of planning:

Planning is:

1. A continuous process: It is not stagnant but goes on. A manager has to keepchecking how the plan is going and keep adding more steps or deleting a few tomake it successful

2. It focuses on objectives: the main aim of planning is to achieve the objectives ofan organization. Thus, planning is the blueprint to achieve that objective.

3. It is all pervasive: It is present at all levels of al organization and is done by allmanager at all levels

4. Planning is the primary function: it is the first step in management. All futurecourses of action from what to do, when, where, how, and whom is decided

through planning

5. Planning facilitates cooperation: it helps to set coordination between various unitsor departments of an organization which is essential for the smooth working and

achievement of goals

6. Planning facilities efficiency: It helps bring efficiency in working of anorganization. A manager decides/plans how to achieve the objectives with the

best and most economical alternatives

7. Planning is an intellectual process: It involves a lot of thinking and intelligentthinking. Thus, it is an intellectual process

8. Planning has limitations: There are various limitations that a planning processhas. These are:

a. It is an expensive and time consumingb. Planning sometimes restricts quick decision-makingc. Scope of planning is limited in those organizations where things are

changing quickly like fashion industry

d. Planning has limitation in forming accurate premise and assumptionse. Planning also has limitations due to peoples resistance

Importance/advantage of planning

1. Minimizes risk and uncertainty: It helps cope with changing environment. Italso helps decide for future needs. Thus, when plans for future are made and

accordingly provisions are made; company is ready to face those future problems.

2. Leads to success: This is because planning means a well through-out action. It isnot random or adhoc. As a result it leads to success. Most of the battles have been

won because of a good battle plan.

3. Focuses attention on organizational goals: It decides the orderly sequence ofsteps in achieving the organizational goals

4. Facilitates control: Control can only be exercised if there is a plan. When it isdecided before hand what the standards will be and how targets will be evaluated.

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5. Trains executives: Managers who are involved in the planning process gettrained in the process to not only handle the planning process or how to do

planning but also able to see the bigger picture.

Steps in Planning

1. Setting of goals and objectives: This is the first step where is explains what theorganization wants to achieve. A company can have objectives like a high growth

rate in profit or launching a new product or taking more social responsibility.

2. Setting planning premises: Premises are certain assumption made about thefuture based on certain factors. Thus, to draw premise a lot of facts and

information is required which helps in the planning process. The different types of

premises are:

a. Internal and external premises: Information and facts about sales, skills ofemployees, resources with the company, etc are internal premise. Externalpremise are based on factors that are external like technological changes,

govt. policies, population, demand, etc.

b. Tangible and intangible premises: Some of the premises cannot bemeasured like political instability, attitudes etc. These are intangible.

Tangible is that can be measured like population growth, demand, capital

invested. Etc.

c. Controllable and uncontrollable premises: Those factors that cannot becontrolled like war, strike, etc are uncontrollable factors and plans made

on assumption based on these factors are un-controllable premise. Such

plans need revision constantly. However, there are controllable premises

like skill of the labour force, organization policy, availability of labour and

capital, etc.

3. Deciding planning period: Next step is to decide on how long will be theplanning period. Some plan for a year, while some for 5 to 10 years. However,

the time of plan will depend on three factors:

a. Lead time in development: Heavy industries have longer planning periodas they have longer gestation period while a smaller manufacturer can

have annual plans

b. Time required to recover capital investment: E.g. 10 lakh worth machinewith turnover of 2 lakh per year then this machine will take 5 years to

cover capital investment. Thus plan period will be 5 years

c. Length of commitment made: if commitment to mine an area is for 10years then a plan can be made for 10 years. If the commitment period

changes due to sub-leasing of the mine then the plan period can also be

less.

4. Finding alternative courses of action: This is the next step that is there arevarious alternatives to do one work. Thus, in order to finish one work, there can

be two alternatives i.e. either to employ foreign technician or send currentemployees for training outside

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5. Evaluating and selecting a course of action: Having sought alternatives, thesehave to be evaluated in light of the objectives, resources, and premises available

with the company. Then a decision or choice is made about the best course of

action.

6.

Developing derivative plans: After a master plan is made then sub-plans arederived from the master plan and is unit or department specific. These are

keeping the main plan in mind but is also specific to a department.

7. Measuring and controlling the process: There is a need to check the progress ofthe plan also. So the progress is measured and seen if working as per the planned

parameters. If not then control measures are taken or changes are made in the

original plan.

Types of plan

Hierarchy of organizational plans ObjectivesStrategies(1) -Single use plans (2)

Standing plans

Objectives are achieved through strategies and strategies are achieved through two main

plans. These are single-use and standing plans.

Objectives

Objectives are different from visions (dream), Purpose (role in the society or broad aim),

mission (unique or specific aim).

Objectives are specific targets to be reached by an organization

It is the translation of mission of an organization in concrete tasks and targets

Characteristics of objectives

1. Objectives are multiple in number2. Objectives are tangible or intangible3. Objectives have a priority4. Objectives are normally arranged in a hierarchy5. Objectives sometimes clash with each other

Criteria of good objectives

1. Should be clear and acceptable2. Must support one another3. Should be precise and measurable4. Should always remain valid

Strategies: They are the basis of a good plan. They are drawn by doing a SWOT

analysis before drawing a plan. Thus, strategies include two things:

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1. Environmental appraisal2. Corporate appraisal

Environmental appraisal looks at the threats and opportunities for the company from

external factors. These are:

1. Political and legal factors2. Economic factors3. Competitive factors4. Social and cultural factors

Corporate appraisal: these look at the strengths and weaknesses of the company from

within. Thus, it looks at internal factors. Strength will include skills, good customer

service, good transportation facility, ability to influence law, etc. Weaknesses can be

scarcity of raw material, lack of updated machinery, etc.

Standing plans: these are plans which need to be used again and again. Thus, a bank

will not make a single-use plan for loan approval. Instead it will make a standing plan

defining various parameters on which to judge a plan. Standing plans are policies,

procedures, methods, rules

1. Policies:a. They are general guidelinesb. They give a direction to managementc. They set boundariesd. They provide a framework, while specific decisions on these guidelines are

taken by the respective managers

e. They bring uniformity, quicker delegation of work, and speed up decisionsat lower level

2. Proceduresa. While policies are general guidelines, procedures are more detailedb. They include step-wise details about how a task would be conductedc. The same steps are repeated every time the activity or task is performedd. E.g. procedure followed in the selection of personnel.e. Procedures are useful as they are time saving, bring uniformity and bring

in a fair system of decision-making

3. Methodsa. While policies are general guidelines, procedures are steps to do a

particular task, methods are techniques followed in each step of a

procedure.

b. Thus one of the steps in selection procedure of personnel is carrying outtests. Methods would include how these written tests are to be conducted.

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c. Methods bring uniformity, make procedures productive and efficient, andimproved methods reduce fatigue

4. Rules:a. Rules lay down the dos and dontsb.

They are recorded instructions

c. They are helpful in bringing unit of direction, uniformity and require lesssupervision.

2.SingleUse Plan

These are plans for one tine use. These plans are developed for a specific use or to

achieve a specific objective. Once that objective is achieved, the plan is discarded. The

example of single use plans are Programs and budgets.

1. Programs:a. Programs are specific plans undertaken to achieve a specific taskb. For example, program to set-up 5 branches, program to train employees in

a particular skill are programs which when done are discarded.

c. A program involves a specific time-line and a specific budget2. Budget

a. A budget is a statement prepared before hand for a specific period of timeand for a specific task. A budget can be a production budget, a financial

budget, a sales budget which all mentions a specific estimate or plan.

b. A Budget helps set a standard or limit against which the actualperformance is measured

c. The comparison between the actual results and what was budgeted helpsjudge the performance.

ChapterDecision-making

Meaning and nature of decision-making

- It is the decision to choose between various alternatives- It is a very important part of a managers function- Decision-making is part of every function of management that is planning,

organizing, directing and controlling.

- In planningthe decisions to be taken are what should be the objectives, policies,procedures, methods, what to produce, how to produce, how to sell, how to

evaluate, etc.

- In organizingthe decisions are about the structure of organization, how todelegate authority, how much delegate, whom to delegate, and how is

responsibility to be shared

- In directingDecision about how to correctly direct, what style of leadership toadopt, which method of communication to adopt etc.

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- Controllingwhat should be the standard performance, what controls arerequired and what controlling procedures to follow.

Types of decisions

There are various types of decisions. These are:

1. Programmed and non-programmed decisions:a. Programmed decisions:

i. Decisions that are made on the basis of some policy or rulesii. Decisions about repetitive and routine activities are programmed

decisions

iii. E.g. salary deduction in case of an ill candidate is a programmeddecision.

iv. It is an easy decisionv. Normally the same type of decisions are taken by two managers

when they are programmed decisions as they are based on the same

set of rules and procedures

b. Non-programmed decisions:i. These are decisions taken as per the situation and are not based on

any set of rules or procedures

ii. These are customised decisions and non-repetitiveiii. Normally the difference between a effective and ineffective

manager are seen on the basis of their ability to take non-repetitive

decisionsiv. What are the social responsibilities that the company should take,

or how should the strike be solved are non-programmed decisions

2. Major and minor decisionsa. Major decisions as the name suggests are big decisions that are more

important than other decisions

b. The importance of a decisions depends on four factorsi. Degree of futurity of a decision

1. Long-range plans are major decisions2. Short-range plans, e.g. storage of raw-material etc are minordecisions

ii. Impact of decision on other functional areas1. E.g. decision to shift from a manual system of accounting to

a digitized system is a minor decision as it affects only the

accounts department.

2. Decisions to change allocation of resources affect alldepartments and is thus a major decision.

iii. Qualitative factors that enter decision:1. Ethical decisions, values, transparency to be practised as a

policy decision are major decisions

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iv. Recurrence of decisions:1. Decisions not taken before or have no guides are major

decisions as risk level is high. Such decisions taken at higher

level

2.

Repetitive decisions can be taken at lower level are minordecisions

3. Individual and group decisionsa. Decisions taken by a person are individual decisionsb. Normally these decisions are taken when the risk of outcome of decisions

is low that is when a minor decision is taken or a decision is routine and

where there is a well-defined and definite procedure.

Group decisions

a. Where important and strategic decisions are to be taken or major and long-term changes are proposed then a group of people sit together and take a

decision.

b. When more than one department is affected by a decision then also thedepartment heads come together and take a decision

Advantages of a group decisions

1. Increased acceptance of decisions by those affected2. Easier coordination and less conflict3. Easier communication4. More information processed or exchangedDisadvantages of group decisions

1. Takes longer time2. Can be indecisive3. Groups can compromise4. Groups can be dominated

4. Simple and complex decisions

- When the variables to be considered are few while taking a decision then it is asimple decisions.

- When there are many variables to be considered then it is a complex decision- There are 4 types under this head. These are:

o Routine decisionsit is a simple decision as there is high degree ofcertainty

o Judgemental decisionSimple decisions but low degree of certaintyo Analytical decisioncomplex decision but high degree of certainty e.g.

linear programming where many variables are used.

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o Adaptive decisionscomplex decisions with high degree of uncertainty Ioutcomee.g. change in policies as per change in environment.

Steps in rational decision making

There are six steps involved in rational decision making. These are:

1. Recognizing the problem: There is a problema. When there is a deviation from past decisionb. When there is a deviation from the planc. When other people bring problems to the managerd. When competitors outperform

2. Deciding priorities among problemsa. There are some problems that need not be handled by the manager and

can be delegated either upwards or downwards. If it is a complex problem

then it can be delegated to a superior and if a simple decisions then can be

delegated to a subordinate

b. Similarly a manager can decide at this stage whether a problem can bedeferred to a later time or needs urgent attention.

3. Diagnosing the problema. This is to find out and evaluate what do the symptoms say about the

problem, what are the causes of the problem, as well as locating the

problem areas of the problem areas correctly is also important

4. Developing alternative solutions or courses of actiona. This includes

i. What are the various alternatives to solve the problemii. Are these feasible or not

iii. This step involves choosing the alternatives, which can be done bythe managers alone or with the help of a group by applying the

method of brain storming. They also use the method of brain-

stilling where a course of action is chosen simply by following ones

intuition.

5. Measuring and comparing the consequences of alternative solutionsa. This involves comparing the quality and acceptability of various solutions.

Quality is the likely consequence of an action e.g. if demand has increased

but it is temporary. In that case there is no need to buy new machinery or

increase the plant capacity. By increasing the overtime or additional shift

would be the solution. Acceptability of the solution is also important.

Even if good in quality a solution may not be acceptable or poor in

acceptability. This is normally in case of decision making related to

working conditions, office layout etc, which may bring opposition from

employees.

6. Converting the decision into effective action and follow-up action

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a. This involves converting decisions into action and take further action toensure the effective implementation of the decisions. For that the manager

can involve his subordinates and workers in decisions making not only for

wider acceptability of decisions but also for important inputs from them

Common difficulties in decision-making

1. Incomplete information: This can make the decisions and its implementationrisky

2. Unsupportive environment: If the physical and organizational environment likeproper availability of resources, good will and support of workers and bosses is

good then a manager has the confidence to take a decision. However if there is

not support then he/she is likely to avoid taking a decisions

3. Non-acceptance of subordinates: Normally when subordinates are not involvedin decision-making, they might not care about those decisions. So for increased

acceptability of a solution their involvement in decision-making should be there

4. Ineffective decision-making: Decisions if not communicated clearly, precisely andin simple language then it is likely to become ineffective

5. Incorrect timing: A decision taken and implemented at a wrong time will beineffective e.g. introduction of a product when there is a demand, will be the

correct time. Decision to retrench people before a major festival is a wrong

decision as it will lead to major conflict and protests.

PHASES IN DECISION-MAKING PROCESS

1. INTELLIGENCE PHASESearching environment for clues that will explainthe problems and opportunities. This includes collection of data, entered andprocessed and is ready for decision

2. DESIGN PHASE: This involves:understanding the problem

develop solutions

check feasibility of solutions

3. CHOICE PHASEselecting the best solution

implementing the solution

INTELLIGENCE AND DESIGN PHASE

a. PROBLEM FINDING:Finding the difference between some existing situation and what is expected. Theproblem finding process involves the following steps:

1. A model or ideal is selected.

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2. Reality is compared with model.3. If a difference exists, the difference is evaluated4. Then the problem is defined.

b. PROBLEM FORMULATIONObjective of problem formulation is to clarify the problem. Clarification ofproblem is very important because only after a problem is clarified that the designand choice of alternatives will move in the right direction.

Problem is formulated by:

1. Clearly stating the problem2. Reducing complexities of problem and make it manageable

a. Identify what is included in problemb. Examine changes that led to the problemc. breaking problem in smaller sub-problemsd. Focus on controllable elements

c. DEVELOPMENT OF ALTERNATIVESIn this stage developing alternative solutions is considered. Alternative solutions can bedeveloped through:

1. Creativity2. Adequate knowledge of the problem3. Motivation to solve the problem4. Brain storming5. Checklists6. Analogies (making comparison with similar problems solved in the past)

Choice Phase:

Choice of solution or methods of choosing among alternatives will depend on the natureof decision-making. Nature of decisions-making is based on:

1. Level of knowledge of outcome2. Level of programmability

1. Level of knowledge of outcomes- Knowledge of outcome of decision is important as it helps to understand what

will happen if a course of action is chosen or taken.

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- There are three kinds of outcome types that can affect decision-making. Theseare:

a. CertaintyOnly one outcome to each alternative- - Decision-makers task- compute optimal alternative.- e.g. a shopper has two brands to choose fromone 20% less than the

otherchoice of shopper will be the less expensive one

- E.g. Linear programming is an example which uses optimizationtechnique.

- operations managementb. RiskMultiple possible outcomes to each alternativesprobability of

occurrence also known

- E.g. one option1% probability of gain of Rs. 10,000- Second option50% probability of gain of Rs. 400- Rational decision-makersecond choice as there is higher probability of

outcome

- Use of Pay off matrixc. UncertaintyMultiple outcomes knownbut no knowledge of probabilities.

This involves usage of the solution of maximax, minmax, minimization ofregret

2. Level of programmability- Programmed decisionsbased on rules, methods or guidelinesnormally

carried by lower level management

- E.g. stock level of a product200 unitsrule is to purchase 400 at this level- Non-programmed decisions- Not based on any rule- Infrequent in naturestakes are large

Methods for deciding among alternatives

1. Optimization techniques: These are used in situation of certainty. That is whenthe outcome of each alternative is known. Choosing the optimum alternative isimportant. Linear programming, Integer programming are some examples. Theseare known as OR methods.

2. The payoff analysis: This is used in situations of risk of outcome. That is whenthe probability of an outcome is known but a choice has to be made about theoutcome which will give the highest pay off. Here the row shows the alternativesand the columns show the likely occurrence or effect of the decision with the

probability. The intersection of the two shows the value of outcome. Thus, the

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alternative is no change in price and the chance of occurrence of no change by thecompetitor will bring a gain of 4.

Payoff ANALYIS-Pay off matrix for risk

Conditions or events (states of nature) with probability ofoccurrence

Decisionalternative

Probability

Same/Nochange

New competitor Highwayrerouting

Expected Value

0.50 0.20 0.30

No

nothing

2 0 -1 0.70*

Refurbish 4 3 -3 1.70*

Rebuild 7 2 -10 0.90*

*probability X payoff = expected value - .50x2+.20x0+.30x-1 = 0.70

1 payoff = 1000 Rs. = expected value of 1 st strategy = Rs. 700

Pay off matrix in uncertainty

Conditions or events (states of nature)

Decision alternative Same/No change New competitor Highway rerouting

No nothing 2 0 -1

Refurbish 4 3 -3

Rebuild 7 2 -10

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In situation when the probability of outcome not knownthree methods used:

1. Minimax rule: When a decision-maker is pessimistwill choose a strategy withhighest payoff in the worst conditionworst case scenariohighway reroutingbest payoff in that -1so strategy is no nothing

Conditions or events (states of nature)

Decisionalternative

Same/No change New competitor Highway rerouting

No nothing 2 0 -1

Refurbish 4 3 -3

Rebuild 7 2 -10

2. Maximax rule: When decision-maker is optimist best payoff in most favourable

conditionSame/no change most favourable condition best payoff7, i.e. rebuild

Conditions or events (states of nature)

Decisionalternative

Same/No change Newcompetitor

Highwayrerouting

No nothing 5 3 0 8

Refurbish 3 0 2 5

Rebuild 0 1 9 10

3. Minimize regret: As per this ruledecision-maker chooses a strategy that minimizesthe regret of choosing a strategy.

- Regret = Best payoff in a columneach outcome.- E.g. Rebuild (7)-rebuild (7) = 0, Rebuild (7)-Refurbish (4) = 3..

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Possible actions Possible events Net cash flow Total expected pay off

- Sum total of all rows = total regret of each strategy/alternative- Will choose to refurbish as regret is minimum in this strategy.

3. Decision-tree analysis

4. Ranking, weighing or elimination by aspects: Ranking, weighing:1. Decision involving number of factors2. Each factor assigned a weight as per importance3. E.g. Selection of a computer4. Various factors software (40/100), hardware (35/100), cost (15/100),

looks (10/100) etc.

5. Each factor ranked and assigned weights.6. Within each factor, sub-factors provided weights7. E.g. vendor meeting 90% of software requirement (.90X40) = 36/408. Vendor meeting 70% of software requirement (.70x40 =28/40)9. 90% gets higher weight10.Weights are summed to chose a alternative11.In the process of elimination, the factors required in a solution or

alternative are found and ranked as per importance. Then all the

alternative solutions are tested where they consist of those factors. If notsuch alternatives are eliminated. E.g. if the requirement of a company

Decision

point

Run 1 bus

Run 2 buses

1 bus needed (0.7)

2 buses

needed (0.3)

1 bus

needed (.7)

2 buses

needed (.3)

Rs. 500

Rs. 500

Rs. 0

Rs. 1000

(Rs. 500 x0.7) + (Rs. 500

x 0.3) = Rs. 500

(Rs. 0 x0.7) + (Rs. 1000 x

0.3) = Rs. 300

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before it buys a computer is that it should have Linux as an OS then aalternative that does not have it is eliminated to not considered.

5. Classical statistical inferencesSamplingA sample of population tested on parametersmean, variance,standard deviation

Probability distributionhow well theoretical distribution fits the real data.

Regression and correlation analysischange in independent variables leading tochange in dependent variable.