Meaning and Definition
In all the org.s whether small/big, decisions are
- 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
- Purpose is to direct human behaviour towards a
future goal, i.e., desired goal/result.
George R Terry:
“Decision-Making is the selection based on
certain criteria from two/more alternatives.”
“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
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
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.
Importance of Decision-Making
Decision-making plays an important role in the mgmt
of a org.
Managers perform all their functions and activities
Making right decision in right times values much to the
Helps the mgmt to procure necessary data and
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
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.
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.
Process of Decision-Making
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
Evaluation: after formulation of model we must evaluate it to see
how far the model represents conditions of the real
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.
Factors Affecting decision-Making
1. Tangible Factors
Two types of Factors
2. Intangible Factors
Factors affecting Decision-making
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
Decisions based on these factors are likely
to be more rational and free from bias
and feeling of the decision maker.
Prestige of the enterprise
Availability of alternatives
Experience of decision maker
Accurate information and data about
these factors is not easy to
Therefore, intuition and value
judgment of the decision maker
will assume a significant role in
the choice of a particular
Tools and Techniques of
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.
5. Operation Research = research of operations.
-involves the practical application of quantitative methods in
the process of decision-making.
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
c). Queuing Model: a mathematical technique for
services provided and waiting
lines. Waiting lines
demand for the service exceeds the service
- it helps to optimize customer service
basis of quantitative criteria.
d). Transportation Models: it involves the
determining the minimum cost for allocating a product
several supply sources to several destinations.
e). Decision tree Analysis: a graphical representation of the
decision process indicating decision alternatives,
nature, probabilities attached to the states to
the states of
nature and conditional benefits and losses.
Types of Decisions
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
Organizational and Personal decisions.
Individual and Group Decisions
Long-term and short-term 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.
Essentials for effective
Environment for decision
Communication of decision
Implementation of decision
Difficulties in Decision-making
Non-acceptance by subordinates