Decision making


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Decision making

  2. 2. Meaning and Definition In all the org.s whether small/big, decisions are made. - Through decisions gap b/w the existing situation and desired situation is reduced. = process of selecting a course of action to achieve a desired result. - Done after consultations, after seeing the pros and cons. - Purpose is to direct human behaviour towards a future goal, i.e., desired goal/result.
  3. 3. George R Terry: “Decision-Making is the selection based on certain criteria from two/more alternatives.” Marry Nites: “Decision-Making takes place in adopting the objectives and choosing the means and again when a change in the situation creates a necessary for adjustments.” Heinz Weihrich and Harold Koontz: “decision-Making is defined as the selection of a course of action among alternatives; it is the care of planning.”
  4. 4. Nature/Characteristics of Decision-Making 1. 2. 3. 4. 5. 6. 7. 8. It is the choice of the best among alternatives after evaluation through critical appraisal. End process preceded by deliberation and reasoning. A mental process becz the final selection is made after thoughtful consideration. Involves rationality becz through decisions an endeavour is made to better one’s happiness. Aimed at achieving the objectives of the org. It may be also a negative and may just be a decision not to decide. It involves a certain commitment which may be for short run or long run depending upon the type of decision. Decision relates to the means to the end.
  5. 5. Importance of Decision-Making  Decision-making plays an important role in the mgmt of a org.  Managers perform all their functions and activities through decision-making.  Making right decision in right times values much to the org.  Helps the mgmt to procure necessary data and information.  Helps to initiate and complete the action of all the activities of the mgmt in the right time.  It also helps in the formation of strategies and implement them.
  6. 6. Principles of Decision-Making 1. Pl of Problem-Orientation 2. Pl of Exception: any decision which can be made by the subordinate shd be left for him to make (ex: decisions relating to operational details). The manager shd make only policy decisions. 3. Pl of Alternatives: only realistic or feasible alternatives shd be analyzed fully. 4. Pl of Limiting Factors: recognizing and overcoming the factors that stand critical in the way of a goal, the best alternative course of action can be selected.
  7. 7. 5. Pl of Bounded or Limited Rationality: a managers must settle for bounded or limited rationality. They shd pick up a course of action that is satisfactory or good enough under the existing circumstances. 6. Pl of Commitment: from both manager himself and subordinates to implement the decisions. 7. Pl of Participation: manager shd understand that the participation of subordinates in decision-making process not only improves their quality but also inculcates in them a sense of commitment and support for such decisions.
  8. 8. Process of Decision-Making 1. 2. 3. 4. 5. 6. Identifying and describing the problem Collection of Data= available facts and figures. Formulation of a Model: objective and alternatives are developed. Model becomes an analytical aid for making decision under different situations. Evaluation: after formulation of model we must evaluate it to see how far the model represents conditions of the real world/situation. Framing/ Selecting a Decision: after the possible outcomes of the course of action we select a particular course of action to cope with a particular problem. It called taking/making a decision. Follow-up/implementation of the Decision: plan follow-up strategies and actions, anticipate reactions.
  9. 9. Factors Affecting decision-Making 1. Tangible Factors Two types of Factors 2. Intangible Factors
  10. 10. Factors affecting Decision-making Intangible Factors Tangible Factors 1. Sales 2. Cost 3. Purchase 4. Production 5. Inventory 6. Financial 7. Personnel 8. Logistics The effect of any decision on one or more of the tangible factors can be measured and therefore it is easy to consider the pros and cons of every decision. Decisions based on these factors are likely to be more rational and free from bias and feeling of the decision maker. 1. 2. 3. 4. 5. 6. Prestige of the enterprise Consumer behaviour Employee morale Availability of alternatives Experience of decision maker Knowledge base Accurate information and data about these factors is not easy to obtain. Therefore, intuition and value judgment of the decision maker will assume a significant role in the choice of a particular alternative.
  11. 11. Tools and Techniques of Decision-Making 1. 2. 3. 4. Marginal Analysis: used to find out how much extra output will result if one variable(raw mtrl, machine, worker, etc) is added. Useful for evaluating alternatives. Financial analysis: used to estimate the profitability of an investment, to calculate the payback period and to analyze cash outflows and inflows. Break-Even Analysis: (total revenue = total cost, and profit is nil). Enables the decision-maker to evaluate the available alternatives based on price, fixed cost and variable cost per unit. Ratio analysis: an a/c tool for interpreting a/cng info. Useful to find out the relationship b/w two variables., to interpret financial statements to determine the strengths and weaknesses of a firm, historical performance and current financial condition.
  12. 12. 5. Operation Research = research of operations. -involves the practical application of quantitative methods in the process of decision-making. a) b) Game theory: Game refers to a situation in which two or more players are competing. It involves players (decision makers) who have different goals or objectives and whose fates are intertwined. Game theory refers to a body of kn which is concerned with the study of decision-making in situations where two or more rational opponents are involved under conditions of competition and conflicting interests. Simulation: a numerical solution method that seeks optimal alternatives (strategies) through a trial and error process. Used when uncertainty is involved in decision-making. It involves building a model that represents a real or an existing system
  13. 13. c). Queuing Model: a mathematical technique for balancing services provided and waiting lines. Waiting lines occur whenever the demand for the service exceeds the service facilities. - it helps to optimize customer service on the basis of quantitative criteria. d). Transportation Models: it involves the problem of determining the minimum cost for allocating a product several supply sources to several destinations. from e). Decision tree Analysis: a graphical representation of the decision process indicating decision alternatives, states of nature, probabilities attached to the states to the states of nature and conditional benefits and losses.
  14. 14. Types of Decisions 1. Programmed and Non-Programmed Decisions: a). Programmed Decisions: normally repetitive, taken within the broad policy structure. Have short-run impact and are taken by lower level managers, ex, granting leave to an employee, purchase of mtl in normal routine. b). Non-programmed Decisions: non-repetitive in nature. Their need arises becz of some specific circumstances. Ex. opening of new branch, introducing a new product, etc. - they involve judgment, intuition, creativity, etc. - these decisions are taken by top mgmt. 2. Major and Minor decisions 3. Routine and Strategic Decisions 4. Policy and operative decisions
  15. 15. 5) 6) 7) 8) 9) 10) Organizational and Personal decisions. Individual and Group Decisions Long-term and short-term decisions Departmental decisions Non-economic decisions: relate to values, moral behaviour, etc. Crisis and research Decisions: Crisis decisions are those which are made to meet unanticipated situations. Mostly made immediately under pressure of the circumstances. Research Decisions are made after thorough analysis without any pressure. 11) Initiative and forced Decisions 12) Problem and opportunity Decisions: pblm decisions= resolving pblm situations which have arisen as anticipated or not…, opportunity decisions= pertain to taking advantage of an opportunity…sometimes involves risk.
  16. 16. Essentials for effective Decision-Making 1. 2. 3. 4. 5. 6. Accuracy Environment for decision Timely decision Communication of decision Participative decision-making Implementation of decision
  17. 17. Difficulties in Decision-making 1. 2. 3. 4. 5. Incomplete Information Un-supporting environment Non-acceptance by subordinates Ineffective Communication Incorrect timing