Decision Making

Decision making is an important managerial activity and central point of the management. Decisions are made by every manager though its significance and coverage depends on the situation, problem, and hierarchy. Indeed, the managers manage by making decisions and getting them implemented. He makes decisions for solving problems, handling the situations, and resolving crises.

“Decision making is the act of choosing one alternative from among a set of alternatives.” -Ricky Griffin

“Decision making is the process of identifying and selecting a course of action to solve a specific problem.” -James Stoner

            Decision making is a managerial process involving selection of a particular course of action out of many alternatives for achieving given objectives or solving a problem. It takes place only when more than on option is available to the manager. By taking decision, a manager attempts to reduce the gap between the present and the desired situation.

Characteristics of Decision Making

• Goal- oriented
• Mental process
• Pervasive
• Problem solving
• Choice
• Continuous
• Positive and Negative

Types of Decision

            Managers are evaluated by the decisions they make and, more often, by the results obtained from their decisions. So it would be useful to distinguish between decisions made by managers at different levels.

1.      Non-routine and Routine Decisions: Non routine decisions are decisions concerning unique problems or situations. They are one-time decisions demanding large investments. For example, decisions about launching a new production plant or buying a more advance computer system are non-routine decision.

Routine decisions are repetitive in nature. They require little deliberation and are generally concerned with short term commitments. Generally lower level managers look after such mechanical or operating decision.

2.      Personal and Organizational Decisions: Decisions to watch television, to study, or retire early are examples of personal decisions. Such decisions pertain to managers as individuals. Such decisions affect the organization in an indirect way.

           The organizational decisions are aimed at furthering the interests of the organization. These decisions can be delegated. In order to protect long term interests of the organization, sometimes, a manager may be forced to adopt certain decisions which may be against his personal choice.

3.      Programmed and Non-programmed Decisions: A programmed decisions are one that is routine and repetitive. On the basis of pre-established set of alternatives, programmed decisions can be made in a routine way. Since programmed decisions are relatively easy and simple for manages to make, they free managers for more challenging and difficult problem solving.

       Non-programmed decisions deal with unique and unusual problems. In such cases, the decision maker has to make a decision in a poorly structured situation. Because non-programmed decisions often involve broad, long range consequences for the organization, they are made by higher-level personnel only.

Approaches to decision making

1.      Marginal Approach:

This approach stresses on profit maximization. The economists who propounded this approach say that profits will be maximized only when marginal costs of inputs are equal to marginal revenues. When marginal costs and revenues differ, profits can not be maximized. In practice, it is very difficult to locate the marginal point each factor of production because these are carried on with the cooperation of every on in the organization.

2.      Psychological Approach:

            The thrust of this approach is on the maximization of customer satisfaction. The manager acts as an ‘administrative man’ rather than ‘economic man’. A good manager will try to protect economic interest of the enterprise besides maximizing consumer satisfaction. According to this approach the consumer’s interests should be a top priority in the mind of the decision maker.

3.   Mathematical Approach

            This approach is based in the use of models. This is also known as operations research approach. The techniques generally used includes linear programming, theory of probability, simulation models, games theory network theory etc. the analyst defines the problem area, uses symbols for unknown data and then tries to solve it.

Decision Making Condition/ Environment

             A decision making tries to visualize the conditions in future and take decisions accordingly. So decisions are made in an environment of at least some uncertainty. There are certain risks involved in decision making and the conditions vary from certainty to complete uncertainty. The conditions under which decisions are taken are as follows.

1.      Certainty: Under the conditions of certainty, people are reasonably sure about what will happen when they take a decision. The required information is available and it is reliable and the cause and effect relationships are known. The manager makes decisions under such situations at different times with the same results. Under such situations a deterministic model is used, in which all factors are assumed to be exact with the chance of playing no role.

2.      Risk: Under risk situation, factual information may exist but it may be insufficient. Most of the business decisions are taken under risk conditions the available information does not answer over all questions about the outcome of the decision. A manager has to develop estimates of the likelihood of the various states of event occurring. The estimates may be based on past experience, other available information or intelligence. In order to improve decision making under these conditions, one may estimate the objective probabilities of an outcome by using, for example, mathematical model. On the other hand, subjective probability based on judgment and experiences may be used. There are number of tools available which help a manager in taking decisions under such conditions.

3.      Uncertainty: Under conditions of uncertainty, a manager has only little information and he is not sure about its reliability also. Since the manager does not have proper information on which he con develop, the best he can do is to be aware that he has no chance of predicting the events. The interactions of various variables cannot be evaluated for taking decisions. The decisions making under uncertainty is a difficult proposition. But, now days, the use of a number of modern techniques may improve the quality of decisions under uncertain conditions. The use of risk analysis, decision trees, and reference theory can help in making proper decisions under those situations.

Decision making Process

            In practice, different decision making procedures are required in different situations depending on the nature of the problem, environment, time, and cost. Theoretically each decision making process involves the following steps, known as element of decision making.

1.       Recognize and define the problem: The first step in decision making process is recognizing a problem. The manager must be aware that problem exists and that it is important enough for managerial action. Problems generally arise because of disparity between what is and what should be. To identify the gap between the current and desired state of affairs, managers should look for problems that need solving.

2.       Developing Alternatives: Once the decision problem has been recognized and defined, the second step is to identify alternative courses of effective action. In general, the more important the decision, the more attention is directed to developing alternatives. Quite often executives try to take up the first feasible. The ability to develop alternatives is as important as making a right decision among alternatives.

3.       Evaluation of Alternatives: In this step the decision maker tries to outline the advantages and disadvantages of each alternative. The consequences of each alternative would also be considered. So the managers have to weigh each alternative carefully with respect to how it will ultimately meet the internal as well as external conditions.

4.       Selection of the Best Alternative: In this step the decision maker merely selects the alternative that will maximize the results in terms of existing objectives. However in a dynamic environment selection process is not as simple as it appears to be. Sometimes, the best alternative may meet internal demands but fail to meet the environmental condition. In such case manager may be forced to select less than optimal alternative.

5.       Implementing the Chosen Alternative: After alternative have been selected, the manager must put it into effect. In some decision situations, implementation is quite easy; in others it is more difficult. Implementation of decision implies series of actions and utilization of resources. To implement decisions, necessary structural, administrative, and logistical arrangements are to be made.

6.       Follow-up and evaluating the results: At last, managers must se whether the implemented decision has actually worked or not. In other words, he must seek feedback regarding the effectiveness of the implemented solution.