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Chapter: Six

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Chapter: Six

Decision Making
Concept:
Managing decision is an important managerial activity and central point of the managing
process. 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 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.
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.
Basic and Routine Decisions: Basic decisions are decisions concerning unique problems or
situations. They are one-time decisions demanding large investments. For example, decision 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 Un-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.

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Approaches to decision making

1.
Marginal Approach:
This approach stress on profit maximization. The economists who propounded this approach say
that profits will be maximum only when marginal costs of inputs are equal to marginal revenues.
When marginal costs and revenues differ, profits can not be maximum. 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
consumers 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 Styles
Managers differ among themselves in their way of thinking and degree of tolerance of
ambiguity. From this perspective decision making styles of mangers can be divided into four groups.
(Robbins & Coulter

1.

Directive Style: People having directive style have low tolerance for ambiguity and are
rational in their way of thinking. They are efficient and logical. Directive types make fast
decisions and focus on the short run. Their efficiency and speed in making decisions often result
in their making decisions with minimal information and with assessing few alternatives.
2.
Analytic Style: The analytic style decision maker has much greater tolerance for ambiguity
than do directive types. They want more information before making a decision and consider more
alternatives then a directive style decision maker does. Analytic decision makers are best
characterized as careful decision maker with the ability to adopt or cope with unique situations.
3.
Conceptual Style: Individual with conceptual style tend to be very broad in their outlook and
will look at many alternatives. They focus on the long run and are very good at finding creative
solutions to problems.
4.
Behavioral Style: Behavioral style decision makers work well with others. They are
concerned about the achievement of subordinates and are receptive to suggestions from others.
They often use meetings to communicate, although they try to avoid conflict. Acceptance by
others is important to the behavioral style decision maker.
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

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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 a 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.

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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.
Group Decision Making
The process of making decision by involvement of group rather than a single individual is
known as group decision making. Groups play an important role in decision-making in organizations.
Most of the decisions in organizations are made in a group context because they offer the advantages
of experience, wide knowledge, and mutual support. Groups such as committees, study teams, task
forces, and review panels are especially useful for non-programmed decision because these decisions
are complex and few individuals have all the knowledge and skills necessary to make the best
decisions.
Advantages
1. Group can have more compete information, experience, and perspective that is lacking in a
single individual.
2. A group can identify more alternative than individual.
3. A decision made by group is generally accepted by all.
4. Decision made by a group is considered as more legitimate then the decision made by a
person.
5. Group decision making is suitable for non-programmed decisions.
Disadvantages:
1. Group decision making is a time consuming process.
2. In group decision making, there is chance of dominance over minority by the majority.
3. One person can not be held responsible for the wrong decision.
4. May create conflict between supporters of different views.
5. Requires good group management and communication skills.
Problem Solving:
A problem is explained in two ways. First it is viewed as a question to be answered and
second as a deviation between actual and desired performance. An organization may face problem
when it is not performing as per plan. Thus problem can be defined as an unsatisfactory condition in
an organization that is to be properly addressed.
Problem solving is an important job of manager. In most of the cases, managerial success is
judged in his ability to solve the problems. Thus problem solving involves managerial ability to
integrate organization goal with the available resources so that the goal can be effectively achieved.
Types
The type of problem a manager may face in a decision making situation often determines how
that problem is treated. In this context problem can be divided in to two parts.
1. Well-structured Problem:
These problems are straight-forward. The goal of the decision maker is clear, the problem is
familiar, and information about the problem can easily defined and complete. They are closely related
with the assumption of perfect rationality.
2. Ill-structured problem:
These problems are new or unusual. Information about such problem is ambiguous or
incomplete. These problems require careful attention of a manager for making decision on it. These
problem can not be expected in advance since they are non-routine.
Problem Solving Strategy

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1. Separate the person from the problem: While analyzing a problem personal aspect of the
problem. A problem solver has to find root cause of the problem rather than blaming on
people. People should be allowed to express their frustration on the job.
2. Allow information to flow freely: People are to be given the right to express their views.
Complaints should be taken as an opportunity to improve performance. proper information
cannel should be established to assists proper decision making.
3. Explore alternative solution: A problem may have more that one solution. Alternatives can
be generated through asking people for their views on solution of a problem. These solutions
have high probability of being accepted by all.
4. Decide what to do: As far as possible, decision should be made taking agreement of all
concerned people. It is easy to implement such solution in to action. Peoples understanding is
on of the major component in effective implementation.
5. Create accountability: People should held responsible for their performance. Detailed action
plan should be developed to determine who is responsible for each phase of the process. At the
same time, people should know exactly what is expected from them.
6. Monitor the progress: Progress should be evaluated from time to time. Deviation from plan,
if any, should be checked timely. Necessary adjustment can be made if demanded by the
situation.
Crisis Handling
Meaning:
Crisis is an unwanted situation in an organization. It provides serious threats to the
organization. Crisis can be defined as a non-repeating, unplanned, serious problem that an
organization may face. It has greater impact and implication than a problem.

Causes
Technical / Economic

People/ Social/ Organizational

Methods of Crisis Handling:

Internal
Product /service defects
Plant defects/Industrial accident
Computer breakdown
Defective undisclosed
information.
Bankruptcy.
Failure to adopt change.
Organizational breakdown.
Miscommunication.
Sabotage.
On-site product tampering.
Counterfeiting. (fake)
Rumors, malicious slander.
Sexual harassment.
Illegal activities.
Occupational health disease.

External
Widespread
environmental
destruction/ industrial accidents.
Large-scale system failure
Natural disasters.
Government crises
International crises.
Sabotage
Terrorism
Executive kidnapping.
Off site product tempering.
Counterfeiting.
Rumors, malicious slander.
Labor strike.
Boycotts.

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1. Crisis Decision Making: Crisis is a unplanned problem and manager has to respond quickly
to it. Manager doesnt have long time to collect information about the situation. Thus manager
must be able to make quick decision making at the time of crisis. Besides, manager has to
make proper arrangement to prevent happening of crisis in the organization.
2. Contingency Planning: Contingency Planning is a process of developing alternative course
of action if the primary plan is unexpectedly disrupted by crisis. Thus contingency planning
provides alternative way to respond in crisis. These alternative actions should be supported
with sufficient resources so that they could be enforced when needed.
3. Crisis Team: Generally organizations form crisis team to handle crisis situation. These teams
consist of experts in handling different type of crisis situation. This team provides their help in
handling crisis without any delay and with minimum loss to the organization.
4. Experts Help: At the time of crisis, help of different experts can be taken to handle the crisis
situation. Person having depth knowledge in the situation are invited when crisis arises.
Quantitative Tools for Decision Making.
1. Linear Programming:
2. Simulation
3. Break- Even Analysis.
4. Queuing Theory: This theory is also known as waiting-line theory. This theory is basically
used to manage waiting lines. When people wait in a line to get particular service, they form a
queue. This theory is a process of calculating probability for determining the number of
person who are waiting in a queue to get service. With the help of this technique the
organization will be able to decide about the allocation of resources so that all customer who
are waiting in a line can be satisfied.
5. Game Theory: This theory assumes that business situation has great similarity with game. It
explains how rational people behave in a competing situation. Thus it is used in formulating
strategy against competition. This theory helps manager to be prepared against the move of
competitors.