BBA Semester-I- Foundation of Business Management
DECISION MAKING
Decision Making
Types of Decisions
Steps involved in decision making
DECISION MAKING:
Decision-making signifies actual selection of a course of action from
among a number of alternatives. It is so important to the job of
managing that management is sometimes described as consisting
essentially of the decision-making process.
Decision-making pervades in planning, organising, controlling and all
other functions of management.
Because of limitations in time, money, etc., management is forced to
discover a number of alternatives and choose the one that is expected
to contribute more with fewer costs and other uncalled-for
consequences to the accomplishment of some goal.
Since decision-making involves selection from among the alternatives,
the course of action to be followed, it is better regarded as part of the
planning process.
Management has to take decisions on all types of problems and
matters. Generally, decisions relating to routine matters are
decentralized so that top management can concentrate on vital and
strategic decisions and laying down of broad policies.
It also adds to the efficiency of management if decisions related to
distant future are made in advance.
Decision-making, as a rational process should be based on systematic
analysis of all pertinent facts and not guided by intuition or hunch.
Prof. Siddharth S Jain PiMR
BBA Semester-I- Foundation of Business Management
TYPES OF DECISIONS/DECISION MAKING:
Decisions are broadly taken at three levels:
Strategic decisions are big choices of identity and direction. Who are
we? Where are we heading? These decisions are often complex and
multi-dimensional. They may involve large sums of money, have a
long-term impact and are usually taken by senior management.
Tactical decisions are about how to manage performance to achieve
the strategy. What resources are needed? What is the timescale? These
decisions are distinctive but within clearer boundaries. They may
involve significant resources, have medium-term implications and may
be taken by senior or middle managers.
Operational decisions are more routine and follow known rules. How
many? To what specification? These decisions involve more limited
resources, have a shorter-term application and can be taken by middle
or first line managers.
Imagine Next is planning to expand its product range. Its decisions would
involve all three levels. All decisions depend on information. The key is to
get the right information to the right people at the right time. For example,
management accountants at Shell, the global oil and gas company, have
been improving the way the company deals with the strategic and
operational data about its global energy projects to improve strategic
planning.
Prof. Siddharth S Jain PiMR
BBA Semester-I- Foundation of Business Management
PROGRAMMED DECISIONS AND NON-PROGRAMMED DECISIONS
Programmed decision and Non-Programmed decision are the two basic types of
decisions that managers make. This depends on their authority, responsibility
and position in organizational decision making structure.
Programmed Decision
Programmed decisions are those that are traditionally made using
standard operating procedures or other well-defined methods. These are
routines that deal with frequently occurring situations, such as requests
for leaves of absence by employees.
Features of programmed decisions are:
Programmed decisions are made using standard operating procedures.
Deals with frequently occurring situations. (Such as requests for leaves
of absence by employees)
Much more appropriate for managers to use programmed decision for
similar and frequent situations.
In programmed decisions managers make a real decision only once
and program itself specifies procedures to follow when similar
circumstances arise.
Leads to the formulation of rules, procedures, and policies.
Non- Programmed Decision
Non-programmed decisions are unique. They are often ill-structured, one-
shot decisions. Traditionally they have been handled by techniques such as
judgment, intuition, and creativity.
Features of Non-programmed decision are:
Situations for Non-programmed decisions are unique, ill-structured.
Non-programmed decisions are one-shot decisions.
Handled by techniques such as judgment, intuition, and creativity.
A logical approach to deal with extraordinary, unexpected, and unique
problems.
Managers take experimental problem-solving approaches in which
logic; common sense and trial and error are used.
Prof. Siddharth S Jain PiMR
BBA Semester-I- Foundation of Business Management
STEPS INVOLVED IN DECISION MAKING
A manager is responsible for making decisions on matters falling within
the scope of his authority. Moreover decisions that can be taken at a given
level should not be generally referred to higher levels. A manager should
use his skill and intelligence while deciding something because the quality
of decisions made by him indicates the extent of responsibility discharged
by him. Steps taken in decision-making are as follows:
Identifying & diagnosing the real problem
Discovery of alternatives
Analysis and evaluation of available alternatives
Selection of alternatives to be followed
Communication of decision and its acceptance by the organisation
Step 1: Identifying & diagnosing the real problem
Understanding the problem intelligently is an important element in
decision-making. Predetermined objectives, past acts and decisions and
environmental considerations provide the structure for current decisions.
Once this structure is laid, the manager can proceed to identify and
determine the real problem.
Diagnosing the real problem implies knowing the gap between what exists
and what is expected to happen, identifying the reasons for the gap, and
understanding the problem in relation to higher objectives of the
organisation. However, sometimes symptoms are mistaken for real
problem. Defining a problem is thus not an easy task. Very often it
consumes a lot of time that is worth spending.
Step 2: Discovery of alternatives:
The next step is to search for available alternatives and assess their
probable consequences. But the number of forces reacting upon a given
situation is so large and varied that management would be wise to follow
the principle of the limiting factor. That is, management should limit itself
to the discovery of those key factors, which are critical or strategic to the
decision involved. Thus, while planning for expansion of the enterprise,
availability of finance or of trained staff during a short span of time might
be the limiting factors.
Step 3: Analysis and Evaluation of Available Alternatives:
Once the alternatives are discovered, the next stage is to analyse and
compare their relative importance. This calls for listing of the pros and
cons of different alternatives in relation to one another. Management
should consider the element of risk involved in each of them and also the
resources available for their implementation. Executives should weigh
Prof. Siddharth S Jain PiMR
BBA Semester-I- Foundation of Business Management
each of them from the viewpoint of accomplishment of some common
goals and in relation to the effort involved and results expected.
Both tangible and intangible factors should be considered while evaluating
different alternatives. Tangible factors, like profits, time, money and rate of
return on capital investment can be expressed numerically. Such factors
are usually evaluated and compared by projecting their effects on income,
expense and cost structure of the enterprise. Since such factors are
analyzed for the future, their evaluation is based on forecasts and
estimates. It is; therefore, better if the analyst discovers the extent to
which different estimates can be relied upon.
Management can afford to overlook intangible factors in situations where
their effect on the course of action is negligible. However, facts like public
relations, reputation, employee morale and personnel relations prove
significant and cannot be ignored inspite of the difficulties to express them
numerically. The analysis should, therefore, identify the relevant
intangible factors and ascertain their relative importance to arrive at a
judicious decision.
Sometimes, the manager is faced with a situation where two or more
alternatives appear equally good or bad. In that case actual difference will
be the deciding factor. Similarly, where none of the alternatives under
consideration is expected to produce desired results the manager will do
well to decide in favour of no action or else trace other undiscovered
alternatives.
The evaluation of alternatives may utilize the techniques of marginal
analysis, wherein the additional revenues from additional costs are
compared. The real usefulness of marginal approach to evaluation is that it
accentuates the variables in a situation and de-emphasizes averages and
constants.
Alternatives can also be evaluated on the basis of cost effectiveness. It is a
technique which implies choosing from among the alternatives and thus
identifying a preferred choice when objectives are far less specific than
those expressed by clear quantities. Cost effectiveness criteria can be
made more systematic through the use of models and other techniques.
Step 4: Selection of Alternatives to be Followed:
Defining the problem, identifying the alternatives and their analysis and
evaluation set the stage for the manager to determine the best solution. In
such matters a manager is frequently guided by his past experiences. If the
present problem is similar to the one faced in the past, the manager may
have a tendency to decide on that very basis. Past experience is an useful
guide for taking decisions in the present. But it should not be followed
Prof. Siddharth S Jain PiMR
BBA Semester-I- Foundation of Business Management
blindly. Changes in the circumstances and underlying assumptions of
decisions in the past should be carefully examined before deciding on a
problem on the basis of experience.
Step 5: Communication of Decision and its Acceptance by the Organisation:
Once decision is made it needs to be implemented. This calls for laying
down derivative plans and their communication to all those responsible
for initiating actions on them. It will be better if the manager takes into
account beliefs, attitudes and prejudices of people in the organisation and
is also aware of his own contribution to the implementation of the
decision. It is further required that subordinates are encouraged to
participate in decision-making process so that they feel committed and
morally bound to support the decision. At the same time management
should establish effective control so that major deviation can be observed,
analysed and incorporated in future decisions.
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Prof. Siddharth S Jain PiMR
