Word decision is derived from

In this article we will discuss about decision making. Decision making is one of the most important functions of management.

The word “decision” is derived from a Latin word “Decis” which means “Cutting away or cutting off to come to a conclusion” this is itself means that a single thing is to be brought in action by cutting off many other things that look alike.

Thus decision making means choosing one alternative from available so many.

Decision making is a human process and depends upon the immediate assessment of pros and cons of the available alternatives.

Learn about: 1. Definitions of Decision Making 2. Types of Decision Making 3. Characteristics 4. Process 5. Styles 6. Techniques

7. Benefits 8. Principles 9. Stages 10. Rationality in Decision-Making 11. Significance and Other Details.

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Decision Making: Definitions, Types, Characteristics, Techniques, Stages, Principles, Need (Importance) and a Few Others

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Contents:

1. Definitions of Decision Making
2. Types of Decision Making
3. Characteristics or Nature of Decision-Making
4. Decision Making Styles
5. Techniques of Decision-Making
6. Benefits to Planning
7. Rationality and Decision Making Models
8. Guidelines to Promote Effective Decision Making
9. Principles of Decision-Making
10. Need (Importance) for Decision-Making
11. Programmed vs. Non-Programmed Decisions
12. Stages in Decision-Making
13. Rationality in Decision-Making
14. Significance (Importance) of Decision-Making

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Decision Making – Definitions of Decision Making according to R.A. Killian, MacFarland and George Terry

Decision making is to decide and means “to cut off or to come to a conclusion. A decision has been defined as an act of choice wherein an executive forms a conclusion about what must be done in a given situation. A decision represent course of behaviour chosen from a number of possible alternatives. “Decision making is the actual selection from among alternatives of a course of action.”

According to R.A. Killian, “A decision, in its simplest form, is a selection of alternatives”.

Decision making is, therefore, the selection of one best alternative for doing a work. It is a choice made by the decision maker about what should and should not be done in a given situation.

A decision can be defined as a particular course of action chosen by a manager as the most potent apparatus at his disposal for achieving goal(s) he is pursuing or for solving the problem that is bothering him. In other words, decision in its simplest form is a selection of alternatives. It is implied that decision making envisages two or more alternatives from which a final decision can be made. However, if there is only one alternatives, there is no decision to be made.

It is the selection of one course of action from two or more alternative courses of action.

According to MacFarland, “A decision is an act of choice wherein an executive forms a conclusion about what must be done in a given situation. A decision represents a course of behaviour chosen from a number of possible alternatives”.

Thus, the way an executive acts or decides the course of action from among various alternatives is an act of decision making.

According to George Terry, “Decision making is the selection based on some criteria from two or more possible alternatives”.

Though there are many alternatives available to a manager, he has to choose the best out of them on the basis of the above definitions.

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Decision Making – Top 7 Types: Tactical, Strategic, Programmed, Non-Programmed, Basic, Routine, Organizational, Personal, Off-the-Cuff, Planned, Policy and a Few Others

There are many ways of classifying decision in an organisation but the following types of decisions are important ones:

Type # 1. Tactical and Strategic Decisions:

Tactical decisions are those which a manager makes over and over again adhering to certain established rules, policies and procedures. They are of repetitive nature and related to general functioning. Authority for taking tactical decisions is usually delegated to lower levels in the organisation.

Strategic decisions on the other hand are relatively more difficult. They influence the future of the business and involve the entire organization. Decisions pertaining to objective of the business, capital expenditure, plant layout, production etc., are examples of strategic decisions.

Type # 2. Programmed and Non-Programmed Decisions:

Prof. Herbert Simon (June 15, 1916 – February 9, 2001), an American economist and psychologist, has used computer terminology in classifying business decisions. These decisions are of a routine and repetitive nature. The programmed decisions are basically of a routine type for which systematic procedures have been devised so that the problem may not be treated as a unique case each time it crops up.

The non-programmed decisions are complex and deserve a specific treatment. In the above example, if all the professors in a department stop their teaching work the problem cannot be solved by set procedural rules. It becomes a problem which requires a thorough study of the causes of such a situation and after analysing all factors a solution can be found through problem solving process.

Type # 3. Basic and Routine Decisions:

Prof. Katona has classified decisions as basic and routine. Basic decision are those which require a good deal of deliberation and are of crucial importance. These decisions require the formulation of new norms through deliberate thought provoking process. Examples of basic decisions are plant location, product diversification, selecting channels of distribution etc.

Routine decisions are of repetitive nature and hence, require relatively little consideration. It may be seen that basic decisions generally relate to strategic aspects, while routine decisions are related to tactical aspects of an organization.

Type # 4. Organizational and Personal Decisions:

Organizational decisions are those which an executive takes in his official capacity and which can be delegated to others. On the other hand, personal decisions are those which an executive takes in his individual capacity but not as a member of organization.

Type # 5. Off-the-Cuff and Planned Decisions:

Off-the-cuff decisions involve “shooting from the hip”. These decisions can be taken easily and may be directed towards the purposes of the enterprise. On the other hand, planned decisions are linked to the objectives of organization. They are based on facts and involve the scientific process in problem solving.

Type # 6. Policy and Operating Decisions:

Policy decisions are those which are taken by top management and which are of a fundamental character affecting the entire business. Operating decisions are those which are taken by lower management for the purpose of executing policy decisions. Operating decisions relate mostly to the decision marker’s own work and behaviour while policy decisions influence work or behaviour pattern of subordinates.

Type # 7. Policy, Administrative and Executive Decisions:

Ernest Dale (born in Hamburg, Germany and died at the age of 79) has classified decisions in business organization as under:

(a) Policy Decisions:

Policy decisions are taken by top management or administration of an organisation. They relate to major issues and policies such as the nature of the financial structure, marketing policies, outline of organization structure.

(b) Administrative Decisions:

Administrative decisions are made by middle management and are less important than policy decisions. According to Ernest Dale the size of the advertising budget is a policy decision but selection of media would be an example of administrative decision.

(c) Executive Decisions:

Executive decisions are those which are made at the point where the work is carried out. Distinguishing between these three types of decisions Dale writes, “policy decisions set forth goals and general courses of action, administrative decisions determine the means to be used and executive decisions are those made on a day-to-day basis as particular cases come up”.

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Decision Making – 13 Main Characteristics or Nature of Decision-Making

The characteristics or nature of decision-making become clear by the following facts:

(1) It is a Process of Selecting the Best from the Alternatives:

The first characteristic of decision-making is that under it the best alternative is selected out of the many available ones. There are many ways to solve a problem. The manager selects the best one out of them all. For example- if an organisation has the problem of increasing sales, there can be many ways of solving this problem – like reducing prices, more and good advertisement, making available the facility of selling goods on credit, etc. The manager has to select the best appropriate alternative out of them.

(2) Decision-Making is Based on Rational Thinking:

Rational thinking is considered to be the essence of decision-making because the conclusions arrived at with the help of decision-making and their success depends on rational thinking or intensive study.

(3) Decision-Making is Always Related to Some Problem or Conflict:

Since the purpose of decision-making is to find out solution to problems or conflicts, it is naturally related to them. In other words, if there are no problems or conflicts, decision-making and manager will both come to lose their importance. In this context it is said that Problems are the diet or food upon which a manager lives and prospers.

(4) It Involves the Evaluation of Various Available Alternatives:

It is evident that in case there is only one solution to a problem, decision-making is not needed. There should be many alternatives for taking a decision. When there will be many alternatives, they will be evaluated through the medium of decision-making. In other words, the best alternative will be chosen after taking into consideration its merits and demerits.

(5) Decision-Making is Aimed at Achieving Organisational Goals:

Decision-making is not a futile exercise because through its medium efforts are made to achieve the goals of an organisation successfully.

(6) Decision-Making Involves Commitment:

Every decision taken by a manager is a promise. In other words, a manager through the medium of decision, tells us that the consequences of the decisions taken by him will be good.

(7) It is Basically a Human Activity:

One of the special characteristics of decision-making is that it is a human activity. Decisions are taken by men and are meant for them.

(8) Decision-Making is both a Managerial Function and an Organisational Process:

It is a managerial function because decision-making is the chief responsibility of all the managers. It is called organisational process because there are many decisions which a manager cannot take single-handed and they need a group of managers or a committee of managers.

(9) Decision-Making is the Core of Planning:

Although decision-making is needed for all the managerial functions, yet planning is completely dependent on decision-making because all the chief or major decisions are taken here. When under planning the functions of determining objectives, policies, procedures, rules, etc., are performed, decision- making has a special importance.

(10) Decision Starts Action:

When a problem arises, work is immediately suspended and till a decision is taken the work cannot recommence. Therefore, the future activity starts only after a decision is taken.

(11) Uncertainty of Results:

It is true that the best alternative is chosen only after an analysis of the various alternatives but the consequences of the best alternative are uncertain as it is an imaginative action with reference to future.

(12) It is a Universal Mark of a Manager:

Decision- making is a universal mark of a manager. It means whatever a manager does is based on decision-making and this speciality is found everywhere and in every manager.

(13) It may be Negative:

Decisions can both be positive and negative. Positive decision means deciding to do something while negative decision means doing nothing.

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Decision Making – Decision Making Styles of the Managers: Intuitive Style, Sensation Style, Thinking Style and Feeling Style

Different managers exhibit different styles as decision makers. The importance of style arises in diagnosing the problem and evaluation of the alternatives.

A few styles of the managers are as follows:

1. Intuitive Style:

Decision making by intuition is characterised by inner feeling of the person. He takes a decision as per the dictates of his conscious. He thinks about the problem and an answer is found in his mind. The decision maker has his own preferences, influences, psychological makeup and these things play a vital role in taking a decision. The past knowledge, training and experience of the decision maker plays an important role in intuitive decisions.

With this technique of decision making, decisions are taken quickly and the decision making capability of the person is also used. In case the intuition of the decision making person is wrong then decision will also be incorrect. In such a style the other technique of decision making are also neglected.

2. Sensation Style:

People who are sensation types like to solve problems in standard ways. The past experience of a person becomes a good basis for taking decisions. When a similar situation arises then the manager can rely on his past decisions and takes similar decisions. The person sees and understands things in terms of concepts with which he is familiar. These individuals do well in routine work and at lower levels of hierarchy they are quite effective.

Though past experience is a good basis, present situations should be properly analysed and assessed before taking a decision.

3. Thinking Style:

Thinking type of managers tends to be unemotional and uninterested in the feelings of others. Their decisions are controlled by intellectual processes based on external information and generally- accepted ideas and values. These people usually organise information well and seldom reach a conclusion before considering all options well.

The increasing use of computers has helped in systematic analysis of data. The information has become a major tool in managerial decision making.

But facts alone may not be sufficient for decision making. The imagination, experience and beliefs of the decision maker are also required to comprehend the facts in the proper perspective.

4. Feeling Style:

Feeling types of managers like harmony among people. They tend to be sympathetic and relate well to others. They also enjoy pleasing people and believe that much of the inefficiency and effectiveness in the organisation is a result of interpersonal difficulties.

On the basis of the above style, we can have four basic style combinations which are:

(i) Sensation-Thinking

(ii) Sensation-Feeling

(iii) Intuition-Thinking

(iv) Intuition-Feeling.

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Decision Making – Top 5 Techniques: Marginal Cost Analysis, Cost-Benefit Analysis, Operation Research, Linear Programming and Network Analysis

The process of managerial decision-making has become very cumbersome. In order to evaluate the alternatives, certain quantitative techniques have been developed which facilitate making objective decisions.

Some of these techniques are discussed below:

Technique # 1. Marginal Cost Analysis:

The technique is also known as marginal costing as under it the additional revenues from additional costs are compared. The profits are maximum at the level where marginal revenues and marginal costs are equal. Marginal analysis can also be used in comparing factors other than costs and revenues.

For instance, in order to find the optimum output of a machine, one can vary inputs against output until the additional inputs equal the additional output. This would be the point of the maximum efficiency of the machine. Break-even analysis is the modification of this technique which tells the management the point of production where there is not profit and no loss.

Technique # 2. Cost-Benefit Analysis:

It is a technique of weighing alternatives where the optimum solution cannot be conveniently reduced to monetary terms as in the case of marginal cost analysis. It is used for choosing among alternatives to identify a preferred choice when objectives are far less specific than those expressed by such clear quantities as sales, costs or profits. For instance, social objectives may be to reduce pollution of air and water which lacks precision.

Cost models may be developed to show cost estimates for each alternative and benefit models to show the relationship between each alternative and its effectiveness. Then, synthesizing models, combining these results, may be made to show the relationships of costs and effectiveness for each alternative.

Technique # 3. Operations Research:

Operations Research has been defined as the scientific method of analysis of organisational problems to provide the executive the needed quantitative information in making suitable decisions. The object of operations research is to provide the managers with a scientific basis for solving organisational problems involving the interaction of components of the organisation.

In days gone by, executive decisions used to be taken on the basis intuition, subjectively or past experience even in big organisations. Operations research seeks to replace this process by an analytic, objective and quantitative basis based on information supplied by the system in operation and possibly without disturbing the operation.

Operations research is widely used in modern business organisations. For instance, inventory models are used to control the level of inventory. Linear programming is useful for allocation of work among individuals in the organisation. Sequencing theory helps the management to determine the sequence of particular operations.

In addition to these, there are other techniques like queuing theory, games theory, reliability theory and marketing theory which are important tools of operations research which can be used by the management to analyse the problems and take decisions.

Technique # 4. Linear Programming:

Linear programming is a technique devised for determining the optimum combination of limiting resources to achieve a given objective. It is based on the assumption that there exists a linear relationship between variables and that the limits of variations could be ascertained. It is particularly helpful where input data can be quantified and objectives are subject to definite measurement.

It is applicable in such problem areas as production planning, transportation, warehouse location and utilisation of production and warehousing facilities at an overall minimum cost. Linear programming involves maximisation of minimisation of a linear function subject to a set of some real or assumed restrictions known as constraints.

Technique # 5. Network Analysis:

Network analysis is used for planning and controlling the project activities. Under this, a project is broken down to small operations which are engaged in a logical cycle. The next step is to decide the sequence of operations to be performed. A network diagram may be drawn to present the relationship between all the operations involved.

The diagram will reveal gaps in the flow plans. It will also show the interdependence of various activities of project and point out the activities which should be completed before the others are initiated. A number of network techniques have been developed of which PERT (Programme Evaluation and Review Technique) and CPM (Critical Path Method) have become very popular.

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Decision Making – 5 Major Benefits to Planning

While decision making without planning is fairly common, it is often not appealing. Planning allows decisions to be made in a much more comfortable and intelligent way. Planning even makes decisions easier by providing guidelines and goals for the decision. We might even say that planning is a type of decision simplification technique.

Decision makers will find five major benefits to planning:

1. Planning allows the establishment of independent goals:

When decisions are made to achieve some planned vision, manager find himself steering the organi­zation. When decisions are taken in response to some external crises, like lowering sales in the market, the external forces steer the management decision. By planning for decision, “management by firefighting” is replaced by a conscious and directed series of choices.

2. Planning provides a standard of measurement:

A plan provides something to measure against, so that you can discover whether or not you are achieving or heading toward your goals. As the proverb says, if you don’t know where you’re going, it doesn’t matter which way you go.

3. Planning converts values to action:

When you are faced with a decision, you can consult your plan and determine which decision will help advance your plan best. Decisions made under the guidance of planning can work together in a coherent way to advance company or individual goals.

4. Planning is useful in emergency situations, too:

When a crisis arises, a little thought about the overall plan will help determine which decision to make that will not only help resolve the crisis but will also help advance the overall plan. Without a plan, crises are dealt with haphazardly and decisions are made which may ultimately be in conflict with each other.

5. Planning allows limited resources to be committed in an orderly way:

Budgets, time, effort, manpower—all are limited. Their best use can be made when a plan governs their use.

A simple example would be planning to buy a house or a car. Rather than having to decide between buying the item right now with all cash or never having it, you can plan to buy it over several years by making payments. Or, you might combine this plan with the plan to buy a smaller house and add rooms later as they could be afforded. By planning you can thus accomplish things that might otherwise look impossible.

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Decision Making – Top 2 Models: Rational Economic Model and Administrative Model

We all like to think that we are “rational” people who make the best possible decisions. What does it mean to make a rational decision? Organizational scientists view rational decisions as ones that maximize the attainment of goals, whether they are the goals of a person, a group, or an entire organization.

We will present two models of decision making that derive from different assumptions about the rationality of individual decision makers:

1. The rational-economic model- Manager is an economic man who makes rational decisions.

2. The administrative model- Manager is an administrative man who makes decision with a combination of intuition and rational thinking.

1. Rational Economic Model:

The classical management thinkers stressed that the decision maker is an economic man and is guided by economic considerations in choosing solution to a problem. He would define the problem clearly, and will systematically search for the optimum solution to a problem.

For this, he must have complete and perfect information, and be able to process all this information in an accurate and unbiased manner. He would finally select the alternative that maximizes his goal.

The main assumptions of rationality are:

i. Goal Orientation:

It is assumed that there is no conflict over the goal. Whether the decision involves purchasing a new computer, or choosing the proper price for a new product, the decision maker has a single, well-defined goal that he is trying to reach.

ii. Problem Clarity:

It is assumed that the problem is clear and unambiguous. The decision maker has complete information regarding the decision situation.

iii. Known Options:

It is assumed that the decision maker is creative, can identify all the relevant criteria, and can list all the viable alternatives. Further, the decision maker is aware of all the possible consequences of each alternative.

iv. Clear Preferences:

Rationality assumes that the criteria and alternatives can be ranked according to their importance.

v. No Time or Cost Constraints:

The rational decision maker can obtain full informa­tion about criteria and alternatives because it is assumed that there are no time or cost constraints.

vi. Maximum Returns:

The rational decision maker always chooses the alternative that will yield the maximum economic returns.

vii. Decisions are Made in the Interests of the Organization:

Rational managerial decision making assumes that decisions are made in the best economic interests of the organization. That is, the decision maker is assumed to be maximizing the organization’s interests, not his own interests.

Most decisions that managers face don’t meet all these tests. Decision, making usually isn’t the logical, consistent, and systematic process that rationality implies.

Let’s examine some of the limitations to the concept of rationality:

1. The decision making situation may involve multiple goals all of which can’t be maximized simultaneously. Further, these goals may be of conflicting nature. Decisions are therefore rarely directed toward achieving an overall organizational goal.

2. It is not practical to have all the information on all the possible alternatives available. Moreover, there are limits to an individual’s information-processing capacity.

3. Certain environmental factors are beyond the control of decision makers. Thus the consequences of various alternatives cannot be anticipated perfectly.

4. Perceptual biases can distort problem identification. The decision maker’s back­ground, position in the organization, interest, and past experiences focus his attention on certain problems and not others. The organization’s culture can also distort a manager’s perceptions.

5. Many decision makers select information more for its accessibility than for its quality. Important information, therefore, may carry less weight in a decision than information that is easy to get.

6. Decision makers tend to commit themselves prematurely to a specific alternative early in the decision process, thus biasing the process toward choosing that alternative.

7. Many decision makers spend more effort trying to avoid mistakes than in developing innovative ideas.

8. Organizations place time and cost constraints on decision makers, which in turn limit the amount of search managers can undertake. Thus, new alternatives similar to old ones tend to be sought.

The rational-economic approach to decision making does not fully appreciate the fallibility of the human decision maker. Based on the assumption that people have access to complete and perfect information and use it to make perfect decisions, the model can be considered a normative (also called prescriptive) approach—one that describes how decision makers ideally ought to behave so as to make the best possible decisions.

It does not describe how decision makers actually behave in most circum­stances. This task is undertaken by the next major approach to individual decision making, the administrative model.

2. Administrative Model-Bounded Rationality:

A more realistic description of decision-making behaviour is based on the administrative man model of Herbert Simon. Simon’s administrative man uses only limited rationality in his decisions.

This conceptualization recognizes that decision makers may have a limited view of the problems confronting them. The number of solutions that can be recognized or implemented is limited by the capabilities of the decision maker and the available resources of the organization. Also, decision makers do not have perfect information about the consequences of their decisions, so they cannot tell which one is best.

In choosing between the alternatives, the administrative man, not having the ability to ‘maximise’ (i.e. to find the best alternative), attempts to ‘satisfice’ (i.e. to look for the one which is good enough).

How decisions are made according to the administrative model – Instead of consider­ing all possible solutions, as suggested by the rational-economic model, the administra­tive model recognizes that decision makers consider solutions as they become available. Then they decide on the first alternative that meets their criteria for acceptability.

Thus, the decision maker selects a solution that may be just good enough, although not optimal. Such decisions are referred to as satisficing decisions. Of course, a satisficing decision is much easier to make than an optimal decision. In most decision-making situations, March and Simon note, satisficing decisions are acceptable and are more likely to be made than optimal ones.

To illustrate this point, consider how a personnel department might select a new receptionist. After several applicants interviewed, the personnel manager might choose the best candidate seen so and stop interviewing. Had the person been following a rational-economic model he would have had to interview all possible candidates before deciding the best one.

However, by ending the search after finding a candidate who is just good enough, the manager is using a much simpler approach. The process used in this example characterizes an approach to decision making known as the administrative model.

Note that it is often impractical for people to make completely optimal, rational decisions. The administrative model recognizes the bounded rationality under which most organizational decision makers operate. It should not be surprising that the administrative model does a better job than the rational-economic model of describing how decision makers actually behave.

Our point is not that decision makers do not want to behave rationally, but that restrictions posed by the innate capabilities of the decision makers themselves and the social environments in which decisions are often made some times preclude “perfect” decisions.

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Decision Making – Factors that Promote Effective Decision Making

Effective decision-making is the basic requirement for an organization to perform effectively. It is not simply choosing the best alternative; it is much more than that. Decision making, to be effective needs the kind of environment which facilitates it.

What are the factors, which can contribute to the effectiveness of decisions, are discussed below:

1. Organization Structure:

Organization structure should be well defined and conducive to decision making at various levels. If it is rigid and highly centralized, it will have the effect of suppressing the decision-making activity. But if it is flexible and have scope for proper delegation of authority, it will facilitate prompt decision-making expected to have wider acceptance.

2. Proper Communication System:

Effective decision-making requires machinery for proper communication/information through all the channels in the organiza­tion.

3. Prioritization of Problems:

The managers have limited capabilities and resources for solving large number of problems. It is therefore, they should fix priority of the problems more urgent and crucial must be attended immediately and other may be deferred for the time being.

4. Standardization of Policies, Procedures and Rules:

To simplify decision-making process, standardization of policies and procedures and rules to the extent possible is required.

5. Participative Decision-Making:

Participative decision-making should be encour­aged as to get maximum contribution, cooperation and commitment of subordi­nates for implementing decisions.

6. Training of Managers:

Systematic training and various developing programs should be provided to the managers to develop their decision making skill and capabilities.

7. Management Information System:

Since decision making is based on the available information, reliability and timing of getting information influences the effectiveness of the decision. A good management information system can help the process.

8. Application of Proper Techniques of Decision Making:

The managers should be well versed with the various techniques of decision making so that they can apply the appropriate techniques to the appropriate places.

9. Encouragement to Creativity:

The management should inculcate the culture of respecting and motivating the creativity of individuals so that individual potential can be fully utilized in reaching to final decisions.

At the organizational level, it is required to create a conducive environment and infrastructure to promote effective decision making, and at the individual level, sincerity, analytical skills, and rationality is required.

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Decision Making – 10 Important Principles: Adequate Information, Limiting Factor, Considering Other’s View, Maximisation of Profit, Human Reaction and a Few Others

Any decision can be made effective by properly following the decision-making process.

Even then the managers should follow certain principles which are as under:

(1) Principle of Adequate Information:

Information is the principal base for an organisation for taking decision. The adequacy and trust worthiness of the information will give rise to a good decision. Therefore, a manager, before taking a decision, should ensure as to which information is essential.

There can be some information acquiring of which may be costlier than the benefit it may bring. Such information should be ignored but the decision should not be finalised so long as all the necessary information has been received. It is better to post-pone taking decision rather than doing so on the basis of inadequate information.

(2) Principle of Limiting Factor:

A manager makes use of the principle of limiting factor for the development of different alternatives. This principle means that a decision-maker should find out as to what an organisation can accomplish and what it cannot do. This information can be gathered by him by analysing the external and internal factors.

In the examples, taken under the ‘Decision-making process’, there is an alternative of purchasing new machinery but because of the non-availability of adequate finance new machinery cannot be purchased. Here, in this case, finance is the limiting factor. There is ci need of analysing all the limiting factors.

These limiting factors are liable to change in accordance with the changing circumstances. For example- today finance is the limiting factor and tomorrow it can be the supply of machinery. It means finance is available but the machinery is not available in the market.

(3) Principle of Considering Others’ Views:

To take a successful decision it is important to study deeply the various alternatives on the one hand, along with the views of other people on the other hand. The quality of the decision can be improved by heeding the views of others. It does not. However, mean that the views of other people should be accepted, it simply means that they should be carefully listened to. If there is something worthwhile, it can be accepted otherwise it can be forgotten. In this context it is said, ‘Listen to everybody, but do according to your Judgement’.

(4) Principle of Maximisation of Profits:

According to this principle, before taking the final decision every alternative should be studied with reference to its cost and profit. Only that alternative should be accepted which can yield the maximum profit. It is, however, important to note that along with the profit care should be taken of social responsibility and the legalities involved.

(5) Principle of Human Reaction:

At the time of taking decision it should be kept in mind as to what impact it shall have on the persons concerned and what will be their reaction. For example- if an individual employee is ousted from the company, will other employees desert the company with him? If all the employees leave collectively, it shall result in the closure of the company. Therefore, it is the assumption of this principle that the favourable and unfavourable reactions in respect of a particular decision should be anticipated before taking a decision.

(6) Principle of Self-Interests:

According to this principle, a decision should not adversely affect the personal interests of any person working in the organisation. This alone can ensure their cooperation. For example- while deciding incentives the employees who prefer monetary or non-monetary incentives should be kept in mind. Only on this basis incentives should be decided for them.

(7) Principle of Proper Timing:

According to this principle, a decision should be taken at the right time. Untimely decision has no significance. For example- if it is felt that there will be a paucity of raw material for some time to come, and it has been stocked beforehand to meet this situation, the decision will be considered timely.

(8) Principle of Employees’ Participation:

According to this principle, at the time of taking decision all those employees who are to implement the decision should be consulted. This will encourage a sense of cooperation among them and they will not oppose the decision. This principle is different from the principle of taking other people’s view. The principle of employees’ participation takes into consideration only those employees who are directly affected by the decision, while according to the other principle the point of view of any person can be considered.

(9) Principle of Proportionality of Resources:

According to this principle, decision to utilise the available limited resources of an organisation should be made on the basis of proportionality. In other words, the resources should be so distributed as to ensure maximum profit to the organisation. Resources should not be used for unnecessary activities, while the essential activities suffer.

(10) Principle of Changing Environment:

Business decisions are affected by internal and external environment. It is important to anticipate future changes likely to take place in both these cases. If it is not done there is a possibility of bringing changes in the decisions according to the changes in these factors which is not a good sign.

It is, therefore, clear that if all the above-mentioned principles are kept in mind and strictly observed, there is nothing that can render a decision unsuccessful.

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Decision Making – Need for Decision-Making

Occasions for decision-making mean those circumstances in which decisions are to be taken.

There is a need for taking decision in the following three situations:

(1) At the Time of Getting Routine Information:

The first opportunity to take decision is provided to the manager at the time of getting daily routine information. For example- on the basis of sales information, a decision has to be taken regarding the declining sales and; taking decision to take action against the regular absentees on the basis of the attendance register for the employees.

(2) At the Time of Getting Special Information:

Apart from routine information, the managers sometimes get special information from the subordinates. An occasion for decision-making arises when the subordinates are helpless in solving a problem or the subordinates have not been given any specific instructions regarding that problem.

For example- when a supervisor requests the manager to purchase some new machinery particularly when it has not been working satisfactorily even after having been repeatedly repaired, it will be treated as a special information and on the basis of this information a decision will be taken by the manager.

(3) At the Time of Initiative of the Executive Concerned:

It is not only the routine information or the special information which alone provides occasions for decision-making, but sometimes managers, keeping in view the business situations, take decision on their own initiative.

For example- a manager can take decision to provide some special facilities to the employees of the organisation if he finds that some rival organisation is going to do so. Similarly, if a manager gets information about some modern machinery being available, he can take a decision to replace the old machinery.

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Decision Making – Programmed vs. Non-Programmed Decisions

Programmed Decisions:

1. These are made for solving routine and repetitive problems.

2. Decisions are made by using pre-determined procedures and rules.

3. These involve less use of judgement.

4. There is often consistency for longer period of time over many situations.

5. Such decisions are made for solving both simple and complex problems.

6. Techniques used for programmed decisions include standard procedures and rules, organisational structure, etc.

Non-Programmed Decisions:

1. These are made for solving unique and non- repetitive problems.

2. Decisions are made by using experience, creativity and innovativeness.

3. These involve more use of experience and judgement.

4. There is consistency in the long-run.

5. Such decisions are made generally for solving complex problems.

6. Techniques used for non-programmed decisions include linear programming, queuing, theory, break even analysis, simulation, replacement theory, etc.

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Decision Making – Stages: Defining the Problem, Analysing, Collection of Data, Developing Alternative, Review of Key Factors, Selecting the Best Alternative and Implementing

The synonyms of the word ‘rational’ according to most dictionaries are – judicious, logical, sensible, scientific and the like. A rational decision must be distinguished from an intuitive decision which is based on hunch and past experience of the manager and so often lacks objectivity.

A rational decision is backed by a scientific process involving analysis of the problem, collection of relevant data, review of key factors, evaluation of alternatives and choice of best alternative. Such a decision could be justified on a logical basis and does not suffer from the personal bias of the decision-maker.

Scientific decision-making involves the following stages:

(i) Defining the problem.

(ii) Analysing the problem.

(iii) Collection of data.

(iv) Developing alternatives.

(v) Review of key factors.

(vi) Selecting the best alternative.

(vii) Implementing the decision.

(i) Defining the Problem:

Sufficient time should be spent on defining, the problem as it is not always easy to define the problem and to see the fundamental thing that is causing the trouble and that needs correction. Practically, no problem ever presents itself in a manner that an immediate decision may be taken.

It is, therefore, essential to define the problem before any action is taken, otherwise the manager will answer the wrong question rather than the core problem. Clear definition of the problem is very important as the right answer can be found only to a right question.

(ii) Analysing the Problem:

After clearly recognising the problem, the next phase of decision-making is the analysis of problem which involves classifying the problem and gathering information. Classification is necessary in order to know who should take the decision and who should be consulted in taking it. Without proper classification, the effectiveness of the decision may be jeopardised.

The problem should be classified keeping in view the following factors:

(a) The nature of the decision, i.e., whether it is strategic or it is routine,

(b) The impact of the decision on other functions,

(c) The futurity of the decision,

(d) The periodicity of the decision, and

(e) The limiting or strategic factor relevant to the decision.

(iii) Collection of Data:

A lot of information is required to classify any problem. So long as the required information is not available, any classification would be misleading. This will also have an adverse impact on the quality of the decision. Trying to analyse without facts is like guessing directions at a crossing without reading the highway signboards. Thus, collection of right type of information is very important in decision-making. It would not be an exaggeration to say that a decision is as good as the information on which it is based.

Collection of facts and figures also requires certain decisions on the part of the manager. He must decide what type of information he requires and how he can obtain this. Before gathering the information, one must be clear to how much time and money he can spend in gathering the information he needs.

It is also important to note that when one gathers the facts to analyse a problem, he wants facts that relate to alternative courses of action. So, one must know what the several alternatives are and then should collect information that will help in comparing the alternatives. Needless to say, collection of information is not sufficient, the manager must also know how to use it.

(iv) Developing Alternatives:

After defining and analysing the problem, the next step in the decision-making process is the development of alternative courses of action. Without resorting to the process of developing alternatives, a manager is likely to be guided by his limited imagination. It is rare for alternatives to be lacking for any course of action. But sometimes, a manager assumes that there is only one way of doing a thing.

In such a case, what the manager has probably not done is to force himself consider other alternatives. Unless he does so, he cannot reach the decision which is the best possible. From this can be derived a key planning principle which may be termed as the principle of alternatives. Alternatives exist for every decision problem. Effective planning involves a search for the alternatives towards the desired goal.

(v) Review of Key Factors:

While developing alternatives, the principle of limiting factor has to be taken care of. A limiting factor is one which stands in the way of accomplishing the desired goal. It is a key factor in decision-making. If such factors are properly identified, manager can confine his search for alternatives to those which will overcome the limiting factors. Depending upon the situation faced, the limiting factor may be inadequate funds, shortage of human resources, old machines, or lack of marketing skills.

(vi) Selecting the Best Alternative:

In order to make the final choice of the best alternative, one will have to evaluate all the possible alternatives. Peter Drucker has laid down four criteria in order to weigh the consequences of various alternatives.

They are:

(a) Risk – A manager should weigh the risks of each course of action against the expected gains. As a matter of fact, risks are involved in all the solutions. What matters is the intensity of different types of risks in various solutions.

(b) Economy of Effort – The best manager is one who can mobilise the resources for the achievement of results with the minimum of efforts. The decision to be chosen should ensure the maximum possible economy of efforts, money and time.

(c) Situation or Timing – The choice of a course of action will depend upon the situation prevailing at a particular point of time. If the situation has great urgency, the preferable course of action is one that alarms the organisation that something important is happening. If a long and consistent effort is needed, a ‘slow start gathers momentum’ approach may be preferable.

(d) Limitation of Resources – In choosing among the alternatives, primary attention must be given to those factors that are limiting or strategic to the decision involved. The search for limiting factors in decision-making should be a never ending process. Discovery of the limiting factor lies at the basis of selection from the alternatives and hence of planning and decision-making.

(vii) Implementing the Decision:

The choice of an alternative will not serve any purpose if it is not put into practice. The manager is not only concerned with taking a decision, but also with its implementation. He should try to ensure that systematic steps are taken to implement the decision. The main problem which the manager may face at the implementation stage is the resistance by the subordinates who are affected by the decision.

If the manager is unable to overcome this resistance, the energy and efforts consumed in decision-making will go waste. In order to make the decision acceptable, it is necessary for the manager to make the people understand what the decision involves, what is expected of them and what they should expect from the management. The principle of slow and steady progress should be followed to bring about a change in the behaviour of the subordinates.

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Decision Making – Rationality in Decision-Making

A business manager can make decisions by intuition, i.e., without considering carefully all the alternatives. Practically, everyone takes decisions in this way because of the feeling that the particular course of action is the best one. This kind of feeling may have no logic behind it. Moreover, it is difficult to explain why one is feeling a particular way. Psychologists emphasise that there are forces other than reason within a person which influence and shape a decision.

Decisions based on intuition are subjective and are taken without any conscious effort to weigh the advantages and disadvantages of various alternatives. On the other hand, if a decision is taken after thorough analysis and reasoning and weighing the consequences of various alternatives, such a decision will be called an objective or rational decision. These are the two extremes in decision-making.

What is a Rational Decision?

Effective decision-making requires a rational choice of a course of action. There is a need to define the term ‘rational’ here. Rationality is the ability to follow a systematical, logical, thorough approach in decision-making. Thus, if a decision is taken after thorough analysis and reasoning and weighing the consequences of various alternatives, such a decision will be called an objective or rational decision. Gross suggested three dimensions to determine rationality – (i) the extent to which a given action satisfies human interests; (ii) feasibility of means to the given end; and (iii) consistency.

A business decision relates means to end (or objectives). In other words, the means chosen to achieve an end must be justifiable. It must lead to the realisation of the objectives. According to Fred Luthans, “Mean-end is the most often used definition of rationality in decision-making. If appropriate means are chosen to reach desired ends, the decision is said to be rational. Of course, this is the result of the application of reasoning, intelligence, good sense and judgement. In other words, reasoning is the proper choice of the means to the proper goals.”

The end-mens approach to rationality is faced with certain problems. Firstly, the ends to be attained are often incompletely or incorrectly stated. Secondly, in actual practice, means cannot be separated completely from ends. Thirdly, the means ends terminology obscures the role of the time- element in decision-making.

Types of Rationality:

Simon has identified six models of rationality to describe choice behaviour of decision-makers.

A decision is:

(i) Objectively rational if it maximises given values in a given situation.

(ii) Subjectively rational if it maximises attainment relative to knowledge of the given subject.

(iii) Consciously rational if the adjustment of means to ends in a conscious process.

(iv) Deliberately rational to the degree that the adjustment of means to ends has been deliberately sought by the individual or organisation.

(v) Organisationally rational to the extent it is directed towards the realisation of the organisational goals.

(vi) Personality rational, if directed to the realisation of individual goals.

Rational Economic Model of Decision-Making:

The classical management thinkers stressed that managerial decision must be rational. They argued that the decision-maker is an ‘economic man’ and is guided by economic considerations in choosing solution to a problem. Obviously, he will find the optimum solution to maximise the advantages.

The classical approach is based on the following assumptions:

(i) The decision-maker intends to maximise economic gains.

(ii) He is fully objective and rational uninfluenced by emotions.

(iii) He can identify the problem clearly and precisely.

(iv) He has full information about various alternatives and is able to evaluate them intelligently to find out which alternative is the best.

(v) He has complete freedom to choose the best alternative.

The rational economic model is prescriptive and explains how decision-makers should behave. But perfect rationally is a norm which can be aimed at but not attained. In real life, the decision-maker cannot be completely rational due to several constraints. The decision-making behaviour is contingent upon personal and environmental factors. Thus, managers may not be rational decision-makers in real life situations.

Administrative Model of Decision-Making (Principle of Bounded Rationality):

In actual practice, managers take decisions which involve different combination of intuition and rational thinking. A manager who depends much upon intuition is more subjective and a person who depends much upon logical thinking is more objective. This is what Herbert has called the ‘principle of bounded rationality’. Simon emphasized that a person makes decision not only on absolutely logical analysis of facts but also on his intuition, value system and way of thinking, which are subjective in nature.

Causes of Bounded Rationality:

Herbert Simon of administrative man describes the decision-making behaviour of individuals in actual practice. It recognises that managers are unable to make perfectly rational decisions due to the following constraints or limitations –

(i) The individual does not study and analyse the problem fully because of personal bias, indifferent attitude, etc.

(ii) The individual does not have the full knowledge of the alternatives and/or their consequences.

(iii) The individual interprets the organisational goals in his own way. He may adopt a course of action which according to him will meet the goals effectively.

(iv) The individual does not search for the best solution, but for ‘good enough solutions’. In other words, he aims at ‘satisfactory’ rather than ‘optimum decision’.

(v) The decision-making situation may involve multiple goals all of which can’t be maximized simultaneously. Further, these goals may be of conflicting nature.

(vi) The effectiveness of a decision is dependent upon environmental factors which are beyond the control of decision-makers. Thus, the consequences of various alternatives cannot be anticipated perfectly because of uncertain environment.

The rationality of the individuals is generally affected by the above limitations. The concept of bounded rationality explains the behaviour of people in practice. The administrative man seeks satisficing (not optimal) decisions which are satisfactory for his practical purposes.

He makes decisions which are good enough and do not make undue demands on his time, efforts and money. It recognises that a man cannot be expected to have full knowledge and information and his capacity to perceive, retain and retrieve information is not unlimited. The traditional theory of complete rational and economic man cannot work in practice.

Rationality requires complete knowledge of the consequences that will follow each choice. But it is not always possible. Rationality further requires a choice among all possible alternatives. But every individual has his limitations. He may not be able to identify all possible alternatives.

Moreover, decision-making relates to future which requires some degree of imagination. One may not be able to imagine objectively because of his frame of mind. From this, we can say that a man cannot be completely rational. As said by Simon, a man has only bounded rationally because they are certain limitations to complete rationality.

Thus, Simon’s point of view is highly realistic as it helps in understanding the actual behaviour of the decision-maker. It also modifies substantially the traditional theory of decision-making based on complete rational man. Subjective factors are bound to affect a person’s decisions even though he is otherwise rational.

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Decision Making – Significance

No business can survive without effective decision-making. Decision-making is an essential part of every function of management. In the words of Peter F. Drucker, “Whatever a manager does, he does through decision-making.” Decision-making lies deeply embedded in the process of management. Decision-making spreads overall the managerial functions and covers all the areas of the enterprise. Management and decision-making are bound up and go side-by-side. Whether knowingly or unknowingly, every manager makes decisions constantly.

Herbert A. Simon described decision-making as synonymous with managing. Joseph A. Literer felt that decision-making is the core of managerial activity. Decision-making involves thinking and deciding before doing and so is inherent in every managerial function. Each manager has to take a number of decisions while performing his functions of planning, organising, staffing, directing and controlling. This is why, decision-making is often called the essence of managing.

Decision-making and planning are deeply interlinked. The determination of objectives, policies, programmes, strategies, etc., involves decision-making. The managers also take decisions on the organisational design, staffing, directing and leading the employees in work situations and on regulating performance in tune with predetermined standards. In other words, all managerial functions are preceded by certain managerial decisions.

The most outstanding quality of a successful manager is his ability to make sound decisions. A manager has to make up his mind quickly on certain matters. It is not correct to say that he has to make spur of the moment decisions all the time. While taking many decisions, he gets enough time for careful fact finding, analysis of alternatives and choice of the best alternative. Decision-making is a human process. When a manager decides, he chooses a course which he thinks is the best.

Right from the day when the size of the business used to be very small to the present-day, the importance of decision-making has been there. The only difference is that in today’s business environment, the decision-making is getting more and more complex. Whatever a manager does, he does through making decisions.

Some of the decisions are of routine nature and it might be that the manager does not realise that he is taking decisions. Other decisions which are of strategic nature may require a lot of systematic and scientific analysis. The fact remains that managers continuously take decisions and initiate steps to implement them. Thus, management is a blend of thinking, deciding and action.

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Everything you need to know about decision making. Decision making is very important managerial activity. Decisions are taken by each and every person in the organisation according to the situation, problem and hierarchy.

Decision making is a regular exercise of the organisation. The manager takes decisions for solving problems, handling the situation and resolving crises.

The manager translates various plans like objective, policy, strategy etc., into action by making decisions. By implementing decisions these actions are converted into outcomes or results.

Decision making is one of the most important functions of management. The word “decision” is derived from a Latin word “Decis” which means “Cutting away or cutting off to come to a conclusion” this is itself means that a single thing is a to be brought in action by cutting off many other things that look alike.

Thus decision making means choosing one alternative from available so many.

Learn about:-

1. Introduction to Decision Making 2. Meaning and Definitions of Decision Making 3. Pre-Requisites 4. Characteristics 5. Importance 6. Elements 7. Principles 8. Conditions

9. Process 10. Approaches 11. Models 12. Styles 13. Tools and Techniques 14. Personal Phase 15. Common Problems 16. Administrative Problems.

Decision Making: Meaning, Definitions, Pre-Requisites, Characteristics, Importance, Elements, Principles and Other Details

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Contents:

1. Introduction to Decision Making
2. Meaning and Definitions of Decision Making
3. Pre-Requisites for Decision Making
4. Characteristics of Decision Making
5. Importance of Decision Making
6. Elements of Decision Making
7. Principles of Decision Making
8. Decision Making Conditions
9. Decision Making Process
10. Approaches of Decision Making
11. Models of Decision Making Behaviour
12. Styles of Decision Making
13. Tools and Techniques of Decision Making
14. Personal Phase of Decision Making
15. Common Problems in Decision Making
16. Administrative Problems in Decision Making

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Decision Making – Introduction

Decision making is very important managerial activity. Decisions are taken by each and every person in the organisation according to the situation, problem and hierarchy. Decision making is a regular exercise of the organisation. The manager takes decisions for solving problems, handling the situation and resolving crises. The manager translates various plans like objective, policy, strategy etc., into action by making decisions. By implementing decisions these actions are converted into outcomes or results.

Decisions are made on managerial functions such as – planning, organising, staffing, directing, and controlling and other issues related to different functional areas like marketing, production, personnel and finance etc. There are so many stages in decision making.

The quality of decisions is the key of success or failure of an organisation. The timely and correct decisions on important issues taken by managers ensure the wealth and survival of the organisation. Thus, decision-making should be done very carefully and accurately.

A manager’s duties mostly involve making decisions of one kind or the other. Everyday hundreds of decisions are made in a company consciously and unconsciously. According to Peter F. Drucker, “Whatever a manager does, he does through making decisions.” Decision-making is connected with formulating plans, establishing objectives, laying down policies and so on. According to Rustom S. Davar, “Decision-making can be defined as the selection based on some criteria of one’s behaviour alternative from two or more possible alternatives. To decide means to cut-off or in practical context to come to a conclusion.”

According to Manley H. Jones, “the decision is a solution selected after examining several alternatives chosen because the decider foresees that the course of action he selects will do more than the other to further his goals and will be accompanied by the fewest possible objections and consequences”. Thus, a decision essentially involves choosing a particular course of action, after considering the possible alternatives. It may be expressed in words or it may be implied from behaviour.

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Decision Making – Meaning and Definitions Provided by Mc Farland, G.R. Terry, F.G. Moore, Haiman, Peter Drucker, Shull, Delberg and Cummin and Kreitner

Decision making is one of the most important functions of management. The word “decision” is derived from a Latin word “Decis” which means “Cutting away or cutting off to come to a conclusion” this is itself means that a single thing is a to be brought in action by cutting off many other things that look alike. Thus decision making means choosing one alternative from available so many.

Naturally it is a bought work. This is based on the mental ability of the manager who has to take decisions. A manager who is able to take proper and timely decision is supposed to be a good manager. Decision making is a human process and depends upon the immediate assessment of pros and cons of the available alternatives.

Every human being has to take decisions in his life. Peter Drucker – the father of scientific management said, “Whatever a manager does, he does through decision making”. Haimann considers decision as, “a course of action chosen by the manager as the most effective means at his disposal for achieving goals and solving problems”.

Definitions:

According to Mc Farland, “A decision is an act of choice wherein an executive forms a conclusion about what must be done in a given situation. A decision represents a course of behaviour chosen from a number of possible alternatives.”

According to G. R. Terry, “Decision making is the selection based on some criteria from two or more possible alternatives”.

According to F. G Moore, “Decision making is a blend of thinking, deciding and acting”.

Haimann considers decision as, “a course of action chosen by the manager as the most effective means at his disposal for achieving goals and solving problems”.

“Whatever manager does, he does through decision making” – Peter Drucker.

“Decision-making is a conscious and human process involving both individual and social phenomenon based upon factual and values premises which concludes with a choice of one behavioural activity among one or more alternatives with the intention of moving towards some desired state of affairs.” – Shull, Delberg and Cumming.

“Decision making is a process of identifying and choosing alternative course of action in a manner appropriate to the demand of the situation the act of choosing implies that alternative course of action must be weighted and weeded out.” – Kreitner.

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Decision Making – Pre-Requisites for Decision Making 

Decision making is a complex task. It is an art by itself. However, it has some pre-requisites.

A manager can take proper and appropriate decisions if empowered with the following:

a. Appropriate authority.

b. Suitable decision support systems including information and control systems (management information system such as – marketing information system, Human resource information system or Production information system etc come very hand for decision making).

c. Organisational policies and procedures.

d. Trained employees (trained in terms of problem solving and judgement skills) both for line and staff positions.

e. Conducive organisational climate for decision making.

f. Appropriate decision making workloads.

g. Standard operating procedures.

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Decision Making – Characteristics

(i) Decision-making is based on rational thinking. The manager tries to foresee various possible effects of a decision before deciding a particular one.

(ii) It involves the evaluation of various alternatives available. The selection of the best (optimal) alternative will be made only when pros and cons of all of them discussed and evaluated.

(iii) Decision-making is the end of the process of making a decision, because it is preceded by discussions and deliberations.

(iv) Decision-making is used to reach organizational goals.

(v) Decision-making is a process of selection and the aim is to select the optimal alternative.

(vi) Decision-making involves commitment. The management is committed to every decision it takes. The commitment may for a short run or long run objectives.

(vii) Decisions are made in organizational context as it is aimed at achieving the objectives of the organization.

(viii) Decision-making is a mental process, because the final selection is made after thinking, judging and consideration.

(ix) Decision involves rationality because through decisions, one tries to achieve goals of the organization and be happy.

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Decision Making – Importance

Decision-making makes it possible to adapt the best course of action in carrying out a given task. When there is different way of performing a task, it becomes necessary to find out the best way and this is done by decision-making. The course of action finally selected should produce the optimal results for the organization. By selecting the best course of action, ensures the use of organizational scarce resources to run the business profitably.

Decision-making helps any manager to take timely right act to solve the problem on hand and come out with an optimal solution. It helps to identify the best course of action in each given situation and thereby promotes efficiency. No doubt a manager makes a decision depending on the alternatives available and the situation on hand.

The decision thus made must be acceptable by both management and workforce. This is because the satisfied workforce puts its efforts positively to achieve the desired results without mush supervision and control. A decision made by a manager in right time will save business from the acts of competitors.

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Decision Making – 10 Major Elements

1. A problem is fully analysed and the available alternatives are considered before taking a decision.

2. The best decision-making requires intelligence, experience and insight into a problem.

3. A decision is taken according to the environment of business.

4. Centralisation and decentralisation of authority affect the decision indirectly. If authority is centralised, all important decisions are taken by the chief executive. If it is decentralised, key decisions are taken by the top executive and routine decisions are taken by the lower level management people.

5. The psychology of an individual is involved in decision-making.

6. A decision discloses the preferences, intellectual maturity, experience, educational standard, social and religious attitudes, optimism or pessimism, designation and status of a decision maker.

7. Decisions are taken when they are needed.

8. As soon as the decisions are taken, they must be communicated to the concerned persons. Decisions are communicated without ambiguity.

9. Employees are also involved in a decision-making process.

10. Political and social environment of business affect the decision-making.

If the management takes a decision after consulting the employees, the following advantages may accrue:

i. Better relations with employees.

ii. Loyalty to the management.

iii. There is no hindrance in the implementation of a decision.

iv. Efficiency of the employees is increased.

v. Issuing directions to employee is very easy.

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Decision Making – Principles: Purpose-Driven, Inclusive, Educational, Voluntary, Self-Designed, Flexible, Egalitarian, Respectful, Accountable, Time Limited and Achievability

Eleven principles of collaborative problem solving have been identified. Such collaboration needs inclusionary process that promotes lateral communication and shared decision-making. It makes shareholder groups do develop policy recommendations on a variety of public issues.

The principles are:

(a) Purpose-driven – People need a reason to participate in the process.

(b) Inclusive, Not Exclusive – All parties with significant interest in the issues should be involved in the collaborative process.

(c) Educational – The process relies on mutual education of all parties.

(d) Voluntary – The parties who are affected or interested participate voluntarily.

(e) Self-Designed – All parties have an equal opportunity to participate in designing collaborative process. The process must be explainable and designed to meet the circumstances and needs of the situation.

(f) Flexible – Flexibility must be designed into the process to accommodate changing issues and data needs, political environment and programmatic constraints such as time and meeting arrangements.

(g) Egalitarian – All parties have equal access to relevant information and the opportunity to participate in the collaborative process, which is essential.

(h) Respectful – Acceptance of the diverse values, interests and knowledge of the parties involved in the collaborative process is essential.

(i) Accountable – The participants are accountable both to their constituencies and to the process that they agreed to establish.

(j) Time Limited – Realistic deadlines (time limits) are necessary throughout the process.

(k) Achievability – Commitments made to achieve the agreement(s) and effective monitoring are essential.

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Decision Making – Decision Making Conditions: Certainty, Risk and Uncertainty

Not all organization operate under exactly same conditions and not all conditions are same, which makes a decision makers job challenging one where he / she is required to make right decisions almost every time.

While making decisions, the managers normally face three types of conditions:

(i) Certainty:

Under conditions of certainty, we know what will happen in the future. Certainty is when a decision maker is able to predict the outcome accurately. The conditions of certainty exist when the managers can obtain complete and reliable information about future, i.e. future is highly predictable.

When a decision is made under certainty, a manager knows exactly what the outcome will be because he knows his resources, time available, and other things. While evaluating different alternatives, the results of each alternative can be predicted with a fair degree of correctness and therefore, it is possible to choose the best course of action.

(ii) Risk:

In business environment, no two situations are exactly similar to each other and future conditions cannot be known in advance with 100% accuracy. This uncertainty in prediction and handling of unknown and inexperienced forms the element of risk to the decision-making.

In this condition, complete information is unavailable, but we have a good idea of the probability of particular outcomes. Past experience and current economic scenario help in predicting the future.

The potential of new entrants in the market, the adoption of a cost-effective technology by a competitor are the probable risks that a manager can predict in the future and should, therefore, incorporate them in his current decision-making process while evaluating different alternatives.

(iii) Uncertainty:

Uncertainty is the situation where almost no information is available about future, for example change in the economic / legal or political scenario in future i.e. future is totally unpredictable. This may be due to fast changing external environment, which is beyond the control of managers. Under uncertain conditions, it is difficult or impossible for the decision- maker to estimate probabilities for various alternatives and their respec­tive outcomes.

For example, in marketing a new product, the decision may depend on whether management anticipates a period of prosperity, recession, or stagnant.

So it can be summed up as, under conditions of certainty, we know what will happen in the future. Under risk, we know what the probability of each possible outcome is. Under uncertainty we do not know the probabilities and may be not even the possible outcomes.

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Decision Making – Process: Identify the Problem, Analysis of Identified Problem, Discovery of Alternatives, Implementation and Follow Up and a Few Others

All the decisions by the managers have direct effect on the organisation as a whole. If decisions are not taken carefully they may prove to be wrong with adverse effect on the organisations. Any decision taken on spur of moment and with only mental instinct may not be a proper and correct decision.

Thus the management has to go along a number of steps to ensure correct and proper decision, that too in a chronological order, Adherence to the following steps results in proper decisions –

Process # 1. Identify the Problem:

Decisions are required to be taken on varied issues and problems. It is, therefore, necessary first to know the issue or the problem. Many decisions are to be taken in anticipation of problems and situations. Unless such issues, problems, and situations are not identified, taking decisions is not possible.

Naturally the decision maker has first to identify the problems or issues or situations along with their importance, nature and so on. Thus identification of problems is the first step in decision making, to identify, is the responsibility of decision maker which he has to fulfill with proper knowledge, experience and capability.

Process # 2. Analysis of Identified Problem:

Identification of problem does not provide sufficient information that may help in decision making. The known problem or the anticipated problem must be studied in depth. Such a study includes analysis of the problem. All relevant information is required to be collected, studied and arranged in a sequential order. This enables the decision maker to understand the pros and cons of the problem and of probable decisions. Thus analysing and understanding the problem is next step in the decision making process.

Process # 3. Discovery of Alternatives:

As we know decision making is choosing a fitting alternative from amongst available many. Once the problem is thoroughly understood, various solutions can be evolved. Each such solution may be the final decision. Thus all such solutions are generally identical with some differences. All the solutions are thus discovered first. Every such possible solution is an alternative. These alternatives can be evolved either by giving a detailed thought or by consulting experts.

Process # 4. Selecting the Best Alternative i.e. Decision Making:

As seen above almost all alternatives look alike. But there are some differences regarding nature, time of implementation, good-better-best effect, financial involvement, social impact etc. These differences matter more as they have organisation wide impact. Secondly it is to be seen whether the probable alternative provides long term solution or implementation.

The problems may be temporary (timely) or permanent (constant) in nature. Naturally solutions should also have the same nature. Thirdly the decision maker has to assess as well as anticipate bad or good results (effects) of each of the alternatives. It, therefore, becomes a tough job for the decision maker. He has to use his wisdom, foresight ability and experience and hypothetically test every probable solution. It is, only after the whole exercise, possible to confirm an alternative which in turn becomes the decision.

Process # 5. Implementation and Follow Up:

Decisions are taken to resolve the problems. These problems are not with the decision makers. Thus the decisions have to reach the concerned people who face the problems. It is, therefore, essential to communicate these decisions to all concerned. Many times methodology of implementing the decision is also required to be communicated. Decisions can be implemented only after this. The top management has to observe the effects of decisions after implementation a feedback is sought.

This enables the management to compare their assessment with actual effects. Correctness of the decisions can be finally confirmed only after their implementation. Such implementation must be supervised properly to ensure right compliance. If the decisions stand to be supervised properly to ensure right compliance.

If the decisions stand to the expectations, improvement, solution of problem, their correctness and effectiveness is confirmed. If there are any lacunae, these can be removed by making required amendments to the decisions. All this is implementation and follow up state.

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Decision Making – Approaches: The Intuitive – Emotional Approach, The Rational Model Approach, Satisficing Approach and Political-Behavioural Approach

Different theories have suggested different approaches of decision making.

These approaches are discussed hereunder:

Approach # 1. The Intuitive-Emotional Approach:

Decision-maker takes decisions based on intuition which is characterised by the use of hunches, inner feelings or the ‘gut-feeling’ of the decision maker. Decision maker who makes decisions based on intuition, practices management exclusively as an art.

This decision maker prefers habit or experience, relative thinking, and instinct using the unconscious cognitive process. The decision maker takes into account a number of alternatives into consideration, but simultaneously jumps one step in analysis and search to another and back again.

Most of the managers suddenly become emotional and nothing can change their minds.

George Odiorne has stated the following emotional factors which can adversely affect decision makers:

i. They fasten on the big lie stick with it.

ii. They are attracted to scandalous issues and heighten their significance,

iii. They press every fact into a normal pattern.

iv. They overlook everything except the immediately useful.

v. They have an affinity for romantic stories and find such information more significant than any other kind including hard evidence.

This type of emotional attachments is possible and can lead to poor decisions.

The intuitive decision maker is normally an activist, fast mover, incisely questions situations and finds unique solutions to difficult problems. Some theorists prescribe intuitive approach of decision making.

The supporters of intuition or judgement point out that in many cases, judgement may lead to better decisions than optimising techniques. They also argue that analytical models are only tools to help the decision maker to refine judgement.

The opponents of this approach argue that:

(i) It does not effectively use all the tools available to modern decision-makers and

(ii) The rational approach ensures that adequate attention is given to consequences of decisions before big mistakes are committed.

Considering the views of both supporters and opponents of this approach, it is suggested that the managers who wish to improve their intuition might try to:

(i) Becoming more involved by filling their minds with facts and experiences in the areas where their future decisions will be made;

(ii) Practicing intuitive decision making and keeping a score on how well such decisions turned out;

(iii) Developing awareness that hunches can help in decision making.

(iv) Becoming aware of biases and allow for them. Undiscovered biases do the most damage, and

(v) Seek out independent opinions. It is always good to seek the opinion of some person who has no vested interest in the decision.

Approach # 2. The Rational Model Approach:

In the rational-analytical approach, the decision maker is intelligent and rational. The decision maker makes the choice, in full awareness of all available feasible alternatives, to maximise advantages. The decision maker considers all alternatives as well as consequences of all possible choices, orders these consequences in the light of a fixed scale of preferences, and chooses the alternative that procures the maximum gain.

The rational approval to decision making includes the following steps:

(i) Recognise the need for a decision;

(ii) Establish, rank and weigh criteria;

(iii) Gather available information and data;

(iv) Identify possible alternatives;

(v) Evaluate each alternative with respect to all criteria; and

(vi) Select the best alternative.

Assumption of Rational Approach:

The rational approach is based on the concept of ‘economic man’.

This concept views that people behave rationally and that their behaviour is based on the following assumptions:

(i) People have clearly defined criteria, and the relative weights which they assign to these criteria are stable;

(ii) People have knowledge of all relevant alternatives;

(iii) People have the ability to evaluate each alternative with respect to all the criteria and arrive at an overall rating for each alternative;

(iv) People have the self-discipline to choose the alternative which rates the highest (they will not manipulate the system).

Challenges of the Rational Model:

Rational-analytical approach is the oldest decision theory. It prescribes a rational, conscious, systematic and analytical approach.

This has been challenged because:

(i) The decision-maker is often not a unique actor but part of a multiparty decision situation;

(ii) Decision-makers are not rational enough or informed enough to consider all alternatives or know all the consequences. And information is costly;

(iii) Decision-makers take decisions with more than a maximisation of objectives in mind. They tend to, “satisfice” i.e., make a decision expected to yield a satisfactory, as opposed to an “optimal” outcome. Besides, the objective may change.

(iv) Decision-maker makes decisions based on limited knowledge or less perfect information;

(v) The most difficult stage in the decision process may be the evaluation or the prediction of outcomes for the various alternatives;

(vi) The problem is the temptation to manipulate the information and choose a favoured; but not necessarily the best; alternative. This temptation may come from within the decision-maker or it may be created by external forces.”

Approach # 3. Satisficing Approach:

Herbert Simon developed the principle of bounded rationality. This principle states that- “the capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problems whose solution is required for objectively rational behaviour — or even for a reasonable approximation to such objective rationality.”

The principle of bounded rationality states that there are definite limits to human rationality. Based on the principle of bounded rationality, Herbert Simon proposed a decision theory of the “administrative man.”

The assumptions of the theory are:

i. A person’s knowledge of alternatives and criteria is limited.

ii. People act on the basis of a simplified, ill-structured, mental abstraction of the real world; this abstraction is influenced by personal perceptions, biases, and so on and so forth.

iii. People do not attempt to optimise but will take the first alternative which satisfies their current level of aspiration. This is called satisficing.

iv. An individual’s level of aspiration concerning a decision fluctuates upward and downward depending on the values of most recently found alternatives.

These assumptions explain that limits exist to human rationality. Therefore, an individual must take decisions based on limited and incomplete knowledge. In view of this, the individual decision maker cannot optimise but only satisfice.

Optimising means choosing the best possible alternative. Satisficing means choosing the first alternative that meets the decision maker’s minimum standard of satisfaction. Minimum standard of satisfaction i.e., criteria for aspiration depends on the current level of aspiration. Level of aspiration refers to the level of performance that a person expects to attain and it is determined by the person’s prior success and failures.

Satisfying approach to decision making is presented in Figure 6.2. If the decision maker is satisfied that an acceptable alternative has been found, it is selected otherwise, and the decision maker searches for an additional alternative.

The value of best previous alternative and current level of aspiration influence the value of alternative found. This, in turn, indicates whether or not the decision maker is satisfied with best alternative found so far?

If the decision maker is satisfied with the best alternative found, he selects that alternative as decision. Otherwise, he searches for additional alternatives and continues the process. The value of best previous alternative and current level of aspiration are influenced by the value of new alternative found. In fact, it is mutual impact.

Approach # 4. Political-Behavioural Approach:

Normally decisions made by organisations affect a variety of people and organisations. Hence, another view suggests that the corporations must consider all the people and organisations in making decisions. Corporations interact with a variety of stakeholders as the corporation and its stakeholders are mutually dependent on each other.

The employees exchange their human resources for fair salaries, benefits and harmonious industrial and human relations. Customers exchange their money for qualitative products and courteous services. Shareholders exchange their money for high rate of dividend and safety of their capital. Government provides security and protection and in turn expects payment of taxes regularly.

Financial institutions exchange their finance for high rate of interest, security of principal amount and regular payment of interest. Suppliers of inputs expect fair terms of trade and continuous business.

Competitors exchange information through chamber of commerce, trade and industry for mutual existence and development. The dealers expect continuous business. Thus, a stakeholder is an individual or organisation who can affect or is affected by the decision making and achievement of organisational purpose and objective.

Every stakeholder gives something to the corporation and expects something in return. Similarly, the corporation also gives something to its stakeholders and expects in return. The corporation can have more power, if it maintains favourable relations with the stakeholders compared to other corporations.

More powerful stakeholders have better terms of exchange and, therefore, have more influence on decisions. In fact, the corporations depend on such powerful stakeholders.

The stakeholders influence the decisions of the corporation depending upon their strength. If the labour unions are strong and have strong political affiliation, they can influence the managerial decisions. In fact such union gets even their unreasonable demands met by the management.

Similarly, if the number of shareholders is relatively less, they can influence the decision regarding payment of high rate of dividend versus high reserves. Powerful dealers influence the corporation regarding the terms and conditions of trade.

In view of these factors, corporations do a juggling act to meet the demands of various stakeholders. The corporation should balance through political compromise the competiting demands of different stakeholders in making decisions. This process helps for a coalition of interests that will support the decision.

This is a descriptive theory suggesting a decision making within the alternatives available. Decisions are made through a mutual negotiations and consultation among all the stakeholders who affect and/or are affected by the decision. The negotiations/consultations are based on the rule of the power sharing game between the organisation and the stakeholders.

A Synthesis:

The decision-maker being a human being is a mix of the rational and the emotional. Environment is a mixture of analysable and chaotic change and pressures. Therefore, decisions are made in a typically human way, using the rational, conscious analysis and intuitive, unconscious ‘gut feeling’ in light of political realities. Blending of these prescriptive and descriptive approaches helps to understand how decision-makers operate.

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Decision Making – Models of Decision Making Process: Econologic Model, Social Model and Bounded Rationality Model

The models of decision making behaviour deal with rationality-of-choice ranging from complete rationality to complete irrationality. These models have quite different assumptions about decision maker.

The following models of decision-making process and behaviour are important:

1. Econologic Model

2. Social Model

3. Bounded Rationality Model

1. Econologic Model:

This is an earliest approach to model decision pro­cesses, which comes from the classical economic model. The model rests on two assumptions- (a) It assumes decision maker is perfectly and economically rational; and (b) It assumes that decision makers attempt to maximize outcomes in an orderly and sequential process.

The model assumes the following conditions regard­ing the decision-making activities:

i. The decision will be completely rational in the means ends sense.

ii. There is a complete and consistent system of prefer­ences which allow a choice among the alternatives.

iii. There is complete awareness of all the possible alter­natives.

iv. There are no limits to the complexity of computations that can be performed to determine the best alterna­tives.

v. Probability calculations are neither frightening nor mysterious.

In addition, the econologic model assumes that:

i. Goals to be achieved in any decision situation are obvious or predetermined;

ii. Perfect information is freely avail­able;

iii. People can mentally store the information in some stable form;

iv. People can rank all the consequenc­es in a consistent fashion for purpose of identifying the preferred alternative.

Econologic model suggests the following steps in the decision process:

1. Symptoms of the problem or difficulty are discovered.

2. The problem is identified and defined and the goal to be reached is determined.

3. Criteria (objectives) are developed, against which al­ternative solutions may be evaluated.

4. All possible courses of action are recognized.

5. The consequences of each course of action as well as the likelihood of occurrence of each are considered.

6. Each course of action is then evaluated by comparing with decision criteria, and best alternative is selected.

7. Decision is acted upon or implemented. This process is shown in Figure 7.3.

Evaluation:

This is an idealistic or a normative model which describes how decision makers “ought to” behave. The main virtue of the model is in predicting economic market conditions and prices rather than actual human behaviour. It has intuitive appeal. It guides decision makers regarding how to improve the quality of decision making.

However, the assumptions of this model are not valid. It does not describe how decisions are actually made. In fact, decision makers rarely have access to perfect informations. Thus, knowing all possible alterna­tives and their consequences is not possible. Furthermore, it is equally impossible to have a tremendous mental capacity for remembering and storing huge infor­mation as the model assumes.

2. Social Model:

The social model is at the opposite extreme from the econologic model. This is based on the psychological concepts of human behaviour. Sigmund Freud says that “humans are bundles of feelings, emotions, and instincts and their behaviour is guided largely by their uncon­scious desires.” According to this model, social influences have a significant impact on decision-making behaviour.

Sometimes, social pressures and influences may cause managers to make irrational decisions. Being human beings, decision makers are influenced in their choice even by small things such as format of information. Thus, the concept of rationality is not necessarily applied with management decision making. Sometimes, management behaviour seems to be irrational but still may be very realistic.

3. Bounded Rationality Model:

In contrast to econologic model. Herbert Simon pro­posed the bounded rationality model, also known as the administrative man model. As the name implies, this model does not assume perfect rationality in the decision behaviour. Instead, it is assumed that people seek a kind of bounded (or limited) rationality in decisions.

According to this model, the decision behaviour can best be de­scribed in terms of following mechanisms:

i. Bounded Rationality:

According to the notion of bounded rationality, “The capacity of the human mind for formulating and solving complex problems is very small compared with the size of the problem whose solution is required for objectively rational behaviour in the real world – or even for a reasonable approxima­tion to such objective rationality.”

Thus, bounded rationality implies that- (a) Decisions will always be based upon an incomplete understanding of the prob­lem situation; (b) All possible alternative solution cannot be generated; (c) It is impossible to foresee and predict accurately all of the outcomes associated with each alternative; (d) The ultimate decision will be based upon some criterion other than maximization or optimization. Thus, this model acknowledges the real-world limitations on managers’ decision making. It holds that decision makers must work within con­ditions that provide a bounded rationality.

ii. Satisficing:

Whereas the econologic model focuses on the decision maker as an optimiser, this model sees him as a “satisficer”. It says that people, while they may seek this best solution, usually settle for much less due to their limited information processing capa­bilities. They end up satisficing because they do not have the ability to maximize. In other words, a deci­sion maker continues to generate and evaluate alter­natives until one alternative that is satisfactory or “good enough” to be acceptable is identified.

Managers attempt to satisfice, rather than maximize due to- (a) dynamic objectives, (b) imperfect information, (c) time and cost constraints, (d) less quantified preference ordering and (e) effects of environmental forces. Ex­amples of satisficing criteria may be ‘adequate profit’, ‘share of the market’ or ‘fair price’.

iii. Sequential Attention to Alternative Solutions:

People examine possible solution sequentially. They identify various (instead of all) alternatives and evaluate one at a time. When an acceptable solution is found, the search is discontinued.

iv. Use of Heuristics:

Simon contends that managers often follow rules of thumb, or heuristics, when mak­ing decision. A heuristic is a rule that guides the search for alternatives. Managers use heuristics to reduce large problems to manageable size so that satisficing solutions can be acquired rapidly. It is helpful in looking for obvious solutions or previous solutions that worked in similar situation.

v. Incrementalism:

This principle says that “if what has worked in the past proves unsatisfactory, the satisficer will resort to a new solution.” This implies that the search for alternatives is confined to the area closest to the problem.

vi. Procedural Rationality:

This concept implies that managers need to design rational procedures for coping with problems and deciding upon solutions. These procedures must be designed to focus manag­er’s attention upon key aspects of the problem and permit managers to bring to bear their insight, creativ­ity, and experience in generating a manageable num­ber of solutions.

Based on above propositions, the process of decision making according to bounded rationality model can be outlined as follows:

1. Set the goal to be pursued or define the problem to be solved.

2. Establish an appropriate level of aspiration or criteri­on level (to know that a solution is sufficiently accept­able even if it is not perfect)

3. Employ heuristics to narrow problem space to a single promising alternative.

4. If no feasible alternative is identified- (a), lower the aspiration level, and (b) begin the search for a new alternative solution (repeat steps 2 and 3).

5. After identifying a feasible alternative- (a), evaluate it to determine its acceptability (b).

6. If the individual alternative is unacceptable, initiate search for a new alternative solution (repeat step 3-5).

7. If the identified alternative is acceptable- (a), imple­ment the solution (b).

8. Following implementation, evaluate the ease with which the goal was (or was not) attained (a), and raise or lower the level of aspiration accordingly on future decisions of this type (b). The model is shown in Figure 7.4.

Evaluation:

This is realistic model of decision mak­ing. The econologic model provides a useful framework of how decisions should be made, while the bounded ratio­nality model gives a good description of how decisions actually are made. There are many economic, social, and structural constraints which prevent maximization in practice.

This model accepts the bounds of rationality, having the real-world approach. Simon claims that his model is based on common sense, introspective knowl­edge, and research of judgmental processes from the behavioural sciences. However, the model still lacks empirical verification.

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Decision Making – Styles of Decision-Making

Managers approach decision-making in varied ways. Often, the decision-making style adopted by managers will reflect their personality. For example, some managers are cautious and favour solutions that carry little risk, while others are adventurous and favour decisions which carry a high risk. Similarly, some managers are decisive and reach conclu­sions swiftly while others take a long time and will not come to a conclusion until all the information is available.

Perfectionists tend to make decisions slowly. Rigid people often fail to consider all alternative solutions – especially those solutions which include novel elements. Intelligence has a major impact on decision-making. Generally, intelligent people make better decisions more quickly because they process a wide range of information speedily. However, a combination of intelligence and perfectionism can slow down the decision-making process. Such people like to gather vast quantities of information and analyse it exhaustively. Sometimes this can lead to “paralysis by analysis”.

Rowe, Boulgarides and McGrath (1994) considered all these aspects and came to the conclusion that there are two main dimensions which govern decision style. The first dimen­sion deals with tolerance for ambiguity. Some managers like to deal with situations where the objectives are clear, the alternatives are easily understood and the information is objec­tive. These managers dislike ambiguity. They value order and consistency. Other managers are happy to deal with situations that are ill-defined and which can be tackled in a large number of ways.

They have a tendency to see problems in a wider perspective and they revel in the freedom which ambiguity may give. The second dimension concerns rationality. Some managers are very rational and stick to reasoning with objective information. They make their decisions in a logical and sequential way. Others are more intuitive and go by their “gut feelings”. They tackle a problem from many angles and may use unorthodox, even zany, methods. Rowe, Bulgarides and McGrath used a combination of these two dimen­sions to identify four decision-making styles.

A manager with an analytical style will collect as much data as possible – preferably objective data from a management information system. She or he will consider the alterna­tives in a clinical, objective way and try to choose the optimum solution. Their decisions will usually be technically very competent.

A manager with a conceptual style will try to see a problem in perspective and will try to understand the general principles that will give a broad approach. They will collect a large amount of data but they will use infor­mation obtained from people as well as that obtained from a management information system.

Their decisions will often be unusual and creative. A manager with a directive style will often appear efficient and practical. They usually make decisions very quickly because they simplify the situation, deal with a restricted range of information and consider only a narrow range of conventional alternatives. A manager with a behavioural style is usually concerned with other people’s feelings and the impact a decision has upon colleagues and employees. They obtain the majority of their information by talking to others on a one-to-one basis.

It must be emphasised that few people are pure examples of these four styles. Managers may tend towards one of the styles but they will generally adopt other styles when the situ­ation demands. In fact, the situation in which a decision is taken has a considerable influence upon the style that is appropriate. Vroom and Jago (1988) tried to be more specific. Their work involves three main components- an analysis of decision styles, an analysis of decision situations and a procedure for linking styles and situations.

Vroom and Jago did not use the classification of management styles developed by Rowe, Boulgarides and McGrath.

Instead they developed their own classification based upon how autocratic or democratic a manager was:

(a) A very autocratic manager (A1) makes decisions entirely on their own using the infor­mation available.

(b) A fairly autocratic manager (A2) makes decisions on their own but will obtain infor­mation from subordinates.

(c) A fairly consultative manager (C1) discusses decisions with individual subordinates and will obtain their ideas. However, this manager will make the decision on their own and the decision may or may not incorporate the views of subordinates.

(d) A very consultative manager (C2) discusses decisions with subordinates as a group. However, the decision will be made by the manager on their own and it may or may not incorporate the views of subordinates.

(e) A very democratic manager (G2) is very group oriented. The group will play a major part in identifying the problem, diagnosing the situation, suggesting alternatives and choosing the final course of action. This manager accepts and implements the alterna­tive chosen by the group.

When Vroom and Jago examined decision situations they identified eight important situational variables which are:

(a) The requirement for decision to be technically correct (DQ)

(b) The importance of employee commitment (DC)

(c) The adequacy of the leader’s information (LI)

(d) The structure of the problem (DS)

(e) Probability of employees’ commitment to autocratic decision (EC)

(f) Degree to which employees’ goals are congruent with those of the organisation (EG)

(g) The probability that employees will disagree among themselves over the preferred alternative (ED)

(h) The degree to which employees have enough information to make a good decision (El)

Note- the abbreviations have been changed from Vroom and Jago’s diagram in order to make it clear which factors relate to the Decision (D), the Leader (L) or the employee (E).

Vroom and Jago simplified these characteristics into two levels- high or low. They were then able to draw up the algorithm shown in Figure 6.5 to identify the appropriate decision style.

Vroom and Jago’s diagram is very elegant but it is probably too complex to be of much use to practising managers. Two very general conclusions may be that structured decisions and employee commitment may slightly favour autocratic styles.

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Decision Making – Tools and Techniques: Operation Research, Linear Programming, Game Theory and Queuing Theory

Tools and techniques of decision making include:

i. Operations Research

ii. Linear Programming

iii. Game Theory

iv. Queuing Theory

i. Operations Research:

Operations research is the application of specific methods, tools and techniques to operations of systems with optimum solution to the problems. Operations research presents in the logical approach to a real problem, by quantifying the variables to the problem. It concentrates on goals in a problem area, hurdles to the solution, overcoming the hurdles in reaching the goal. It quantifies all these variables in the process.

ii. Linear Programming:

Linear programming helps in making decisions with regard to optimum allocation of resources viz., financial, human, material, machines, space, time etc., among various purposes. It is a mathematical technique with objective function establishing proportional relationships between/among variables. It establishes the linear relationship that additional input produces the output in the same proportion.

iii. Game Theory:

Game theory is the logic of rational decisions. It provides solutions for competitive problems taking into considerations the situations, the probable actions by the competitors, expected outcome and choosing a right action.

iv. Queuing Theory:

Queuing theory deals with ques or waiting lines of a group of items ready to receive the service or operation in the process. Queuing theory presents a mathematical solution to the problem of long queue versus a short/nil queue. This theory considers cost associated, outcome expected, time and alternate use of resources.

The characters involved in the decision making are:

(i) Number of servers waiting at the service stations,

(ii) Capacity and efficiency of the servers,

(iii) Number of service facilities,

(iv) Average arrival rate,

(v) Average service rate,

(vi) Average length of queue,

(vii) Average waiting time and

(viii) Average time spent in the system.

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Decision Making – Personal Phase of Decision-Making: Intelligence, Education, Experience, Courage, Motivation, Forecasting Ability and Self Confidence

Decision-maker may not take the best decision in all cases. Next, there is no method available to him to test his decision to find out whether it is the best or right one. There is a need of definite policies and criteria in an organisation to test a decision as to its goodness or to its rightness. A structured organisation has definite policies and criteria.

Generally, the manager is a decision-maker in an organisation. Two managers do not take same decision even though the same data are supplied to them. So, there are some differences in decision-making. These are due to personal characteristics and qualities of managers.

The existence of different characteristics and qualities in managers is due to the following:

1. Intelligence:

Here, intelligence is the ability of using common sense in decision­-making. So, the intelligence is not concerned with formal education. Highly educated persons do not take best decisions in all cases. There is a need of perception of quality managers to take the best decisions.

2. Education:

Education develops the broad outlook of the decision-maker. Higher education is different from good education. A good education helps the decision-maker to take best decision even in complex situations rather than higher education. Higher education is nothing but getting master degree from a recognised educational institution.

In other words, good education is acquiring thorough knowledge in a particular area of subject-matter. At the same time, the level of knowledge may not increase correspondingly to the long years of education. If a person has inner urge to learn more and more, he will become an expert in taking decisions.

3. Experience:

The experience of an individual can improve the decision-making ability. Decision-maker can survive only when he has skill for original thinking. Decision­ maker should use his personal experience in taking a decision.

4. Courage:

The decision-maker should have courage to take and implement a decision. The very success of decision depends upon the courage of the decision-maker.

5. Motivation:

Everybody wants recognition for their action. Likewise, a person who takes a decision wants to have it by his colleagues. If it is not so, he will not take even a simple decision in future. Recognition of a decision is a motivation tonic to the decision ­maker. Next, the decision-maker does not expect both criticism and suggestions.

6. Forecasting Ability:

The quality of a decision depends upon the forecasting ability of the decision-maker. If the decision-maker has the forecasting ability, even decisions made in a hurried manner may produce good results at times. Besides, he may use the available opportunities and avoid problematic situations. In this way, the need for taking additional decisions is also avoided.

7. Self-Confidence:

First, the decision-maker has correctness of his decision. Then, he will place the decision before others to be accepted. The self-confident decision-maker can take decision as and when required. On the other hand, if the decision-maker has no self-confidence, he will make delay in the decision-making process and it will make the situation go from bad to worse. So, there is a need of self-confidence on the part of a decision-maker.

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Decision Making – Common Problems: Bounded Rationality, Procrastination, Anchoring, Escalation of Commitment, Groupthink and Communication Failure

It is rare for the decision-making paradigm to be followed in its pure form. Sometimes certain phases will be omitted. Often it is necessary to cycle through the paradigm several times before the best decision is made. Frequently other factors intervene to create decision-making faults.

The most frequent faults are probably-

1. Bounded rationality,

2. Procrastination,

3. Anchoring,

4. Escalation of commitment

5. Groupthink.

6. Communication Failure

1. Bounded Rationality:

The decision-making paradigm is based on the assumption that people are rational and logical. However, experts such as Simon (1955), Bromiley (1999) and Agnew and Brown (1986) have argued that human beings find it difficult to be totally objective and when man­agers make decisions they do so in a “bounded rationality” – in other words a rationality that is limited by human frailty.

The rationality of managers can be bounded by a number of factors. It can be bounded by cognitive overload. A decision may involve a great deal of information which is too much for a human being to remember and understand. Under these circumstances the decision-maker may try to simplify the situation and use “rules of thumb” called heuristics.

Heuristics are simplifications and shortcuts that appear to help complex decisions. Typical everyday examples of heuristics are “never schedule activities for more than two-thirds of the time available” or “always allow a 20 per cent overrun on building projects”.

Many other factors may prevent people from behaving totally rationally. Logical rea­soning may be distorted by attitudes, emotions and intuitions. The ability to reason logically may also be bounded by pressure and stress.

2. Procrastination:

Procrastination is the tendency to delay decisions without a valid reason. It is sometimes called dithering and is personified as the “thief of time”. Procrastination usually results in indecisiveness and may make a problem more difficult because it has extra time to grow. Procrastination often arises from a fear of failure.

It is most prevalent in organisations with a “blame culture” where avoiding mistakes is more important than achieving success. Probably the most effective way of overcoming procrastination is to divide a decision into smaller stages and to set a deadline for the completion of each smaller stage.

Avoiding procrastination does not mean that decisions must be rushed. It means that unnecessary delays should be avoided. Impulsive decisions are as bad as delayed ones. In most circumstances it is appropriate to allow time to “sleep” on a decision so that it can be subjected to a reasonable period of reflective thought. Procrastination only arises when a decision is delayed for several days without the prospect of new information.

3. Anchoring:

Anchoring refers to a tendency by decision-makers to give undue importance to information that is received early. It is sometimes called the “primacy effect”. Early information tends to act as the standard by which other information is assessed. If later information is contradic­tory it will tend to be ignored or dismissed. Unfortunately, early information is often inaccurate because it was assembled in a hurry, without the time to perform cross-checks to ensure that it is comprehensive.

4. Escalation of Commitment:

A decision may be made on the basis of early information; but as more facts emerge the original decision becomes untenable. By this time a decision-maker may have invested a considerable time, effort and prestige in the original decision. To abandon it may appear to be a waste of past commitment and be disloyal to their advisers. They may feel that aban­doning the original decision would cause them loss of face.

Consequently, they may become more and more determined to commit resources to ensuring the success of their initial decision. Up to a point, this may be justified. If a little extra effort is able to produce success then it is reasonable to give a little extra effort. The problem is that a little extra effort may not achieve success – it may require just a little more effort and so on – ad infinitum!

There comes a point where it is necessary to cut one’s losses and follow another course of action. Some of the worst decisions in history have been the result of the escalation of com­mitment. In the 1970s America escalated its commitment to the Vietnam war long after it was apparent that the initial decision was flawed.

Many government projects have been continued to the point of absurdity because politicians are reluctant to admit mistakes and cut taxpayer’s losses. Generally, it is better to avoid these situations by taking a leaf from the book of stock market investors and setting a “stoploss” – a clear point at which they will sell their investment and accept whatever losses they may have incurred.

5. Groupthink:

Participative decision-making has many advantages. A wider range of knowledge or experi­ence and the synergy between members may produce ideas of better quality. However, participative decision-making has a number of disadvantages- it takes extra time, dominant members may distort discussions and the goals of individuals may detract from the goals of the organisation. A further problem with participative decision making is the phenomena of groupthink.

Groupthink is a mentality among members of a decision team to suppress their own dis­belief in order to show solidarity and maintain agreement at any cost. Members suspend their critical judgements which could lead to a better decision. Groupthink is particularly prevalent in closely knit groups, whose members come from similar backgrounds and who share similar goals. It is also prevalent in groups that have a high regard for each other.

Groupthink is partly produced by the desire to conform. Dissenting members may suspend their personal judgement in favour of what they see as the consensus of the group. Unfortunately, other members may be doing the same. An illusion of agreement is created. Those who question this apparent agreement may be ridiculed or have their loyalty ques­tioned.

Groupthink often impairs a group’s ability to generate a wide range of alternatives and to evaluate them effectively. Many disastrous political decisions such as the Watergate cover-up, the Bay of Pigs Invasion and the 1986 Challenger Launch Disaster have been attributed to the negative influence of groupthink.

The effects of groupthink can be so catastrophic that a number of counter-measures have been devised Some organisations only take major decisions after appointing a devil’s advocate who challenges assumptions and assertions. This forces decision-makers to con­sider a wider range of solutions.

A similar technique is the use of multiple advocates where individuals are charged with arguing minority and dissenting viewpoints. Multiple advocacy is used by several governments to ensure that decisions are well argued and take a number of different perspectives into account.

6. Communication Failure:

The final fault in decision-making is failure of communication. It is obvious that a decision needs to be communicated to those involved in its implementation. It is slightly less obvious that it should also be communicated to those, such as suppliers, customers and stake­holders, who will also be affected by the decision. Communication should not be confined to the actual decision. The need, the diagnosis and the range of alternatives underlying the decision must be explained. Particular effort is needed to explain the advantages and the disadvantages of the chosen alternative.

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Decision Making – Administrative Problems: Accuracy, Environmental for Decision, Timely Decision, Communication of Decision, Implementation and a Few Others

1. Accuracy:

The decision-maker should analyse the situation. The reason is that if the decision is taken by analysing the situation, the problem can be easily solved. The correctness of information for analysis will help taking accurate decision.

2. Environment for Decision:

Organisational and physical environments are responsible for effective decision. Mutual co-operation and proper understanding among employees are necessary for creating a satisfactory environment. Such a congenial good environment will lead to taking effective decisions.

3. Timely Decision:

Time plays an important role in decision-making. If any decision is taken without considering time, that will not be considered a business decision. Besides, the decision will be a waste if the decision-maker fails to take timely decision.

4. Communication of Decision:

The decision-maker should communicate the decisions to needy persons. The language selected by the decision-maker should be known to the persons to whom the decisions are communicated. Simple and unambiguous words are used while communicating the decisions.

5. Participative Decision-Making:

The extent of participation of workers in decision­-making depends upon the willingness of the top management.

The top management people think that they have monopoly in decision-making and the dignity of top management is affected if the workers participate in decision-making. Even suggestions are not invited from the workers while taking a decision. But it is necessary to allow workers to play their role while taking a decision.

6. Implementation:

The decision-maker has responsibility to implement a decision. If not, there is no use of taking a decision. The decision-maker should get the co-operation of his subordinates to implement a decision. The decision-maker explains the importance of implementation of a decision. He should convince the subordinates. He may lose many of his so-called friends while implementing a decision. But, he should be firm in the implementation. He should consider only the welfare of his organization.

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