1. DECISION MAKING
Introduction:
 Decision making is also one of the functions of the management
 The management Executive take a number of decisions every day
 They are not able to discharge their duties without taking any decision
 A decision may be a direction to others to do or not to do thus a decision may be
rational or irrational
 The success of management depends upon the quality of decision
 Emotional decision leads to a lot of confusion so, the decision making is an important
work of the superiors.
Definition:
George R. Terry “Decision making is the selection based on some criteria from two or more possible
alternative.”
Process of decision making
Introduction:
 Decision making is not an easy job
 A decision making is affected by a number of factors. So, the manager can take
good decisions by adopting a procedure
 A manager may not be able to take good decision if he fails to follow a
sequential set of steps
 The decision making process depends upon the nature of problem and the
nature of organization.
The following is the simple process followed in taking a decision in normal situation
1. Identification of a problem:-
 Identification of a problem means recognition of a problem. Problem
arises due to difference between what is and what should be
 The changes of business environment from the main reason for creating
of a problem
 Then, the manager should find the causes of a problem. This is not an
easy job. Finding of causes of a problem is used to take quality decision.
 The manager should continuously watch the decision making
environment and understand the real problem and its causes
2. Diagnosing the problem:-

2.  There is a slight difference between problem identification and
diagnosing the problem
 A doctor can diagnose the disease of a patient, a patient cannot find
out what is the real disease. But a doctor can do so with the
information given by a patient. Information is very useful to the
doctor
 In management, the manager is acting as a doctor while diagnosing
the problem.
3. Collect and analyses the relevant information:-
 The next step is that required at various levels information
should be collected by a manager. Then the manager has to
study the information with great care .it is very useful to analyze
the problem from different angles.
 The manager should see that only relevant in information alone
is collected and analyzed.
4. Discovery of alternative course of action:-
 Creative thinking is necessary to develop or discover many
alternative course of action if there is no need of taking a
decision.
 If there are more and more of alternatives, the manager will
have more freedom to take a decision.
 A problem can be solved in many ways at the same time; a
solved problem should not arise again in the future.
5. Analyzing the alternative:-
 Next the procedure and continues of available alternatives are
analyzed.
 Some alternative offer maximum benefit than others.
 An alternative is employed with other alternatives the
decision maker can prepare a list of limits for each alternative.
6. Screening of alternative:-
The available alternatives are screened in the order of maximum
benefit derived from them.
Each alternative is evaluated in terms of risk involved in
implementing them. Both tangible and intangible factors are
considered while evaluating or screening each alternative.

3.  Tangible factors include profits earned, time taken, money
invested, rate of returns on investment, rate of depreciation
etc..,
 Intangible factors include public relations, goodwill of
company, loyalty of employees etc..,
7. Selection of best alternative:-
 Now, the decision maker can select the best alternative after
careful evaluation.
 An alternative which gives maximum benefits to the
organization is selected.
 At the same time, the selected alternative should fit with the
organizational objectives.
The following approaches may be adopted while selecting an
alternative
A. Experience.
B. Experimentation.
C. Research and analysis.
8. Conversion of decision into action:-
 The future course of action is scheduled on the basis
of selected alternative or decision. Here the manager
has to consider the policy of the management.
 The selected alternative decision is communicated to
concerned persons. This communication facilities easy
implementation of decision. The language of decision
should be simple and easily understandable.
9. Implementation:-
 Next, the manager has to implement decision to
achieve desired goals.
 Decision making process comes to an end with the
actual implementation is equally important to the
selection of alternatives.
 Implementation plan should provide for time and
procedure sequence. Necessary resources should

4. also be allocated and responsibility for specific
tasks should be assigned to individual.
10. Verifying the decision:-
 It is duty of every manager to see whether the
decision is properly implemented or not.
 Verification of implementation of decision
ensures the achievement of objectives.
 The selected alternative may be an ill-chosen one
and might cause loss to the organization.
 This can be measured with the help of verifying
the decision if the manager feels that the
selected alternative is not the best one; an
amendment may be made to achieve desired
goals.
Models and techniques:-
A quality decision may be taken by the manager if he adopts certain principles.
These principles are discussed below.
1. Marginal theory of decision making:-
Many economist have suggested marginal theory of
decision making
They believe that a business is started to earn profits
A manager must take a decision which results in
maximizing the profits. Therefore, economists argue
that the very purpose of an organization is aimed at
maximizing profits.
Decision making should be based on marginal analysis.
Here the manager adopts the principle of law of
diminishing returns. If the management appoints
additional labor and uses additional capital, the
production may be increased proportionately at
reduced rates.
This marginal principle is applied while taking decisions
taking to sales, advertisement, promotion, training and
the like.
2. Mathematical theory:-

5. Venture analysis, game theory, probability theory and
waiting theory are some of the mathematical theories. A
manager takes a decision on the basis of mathematical
theory. Mathematical theory gives scientific approach to
the manager while taking a decision.
3. Psychological theory:-
A manager takes a decision on the basis of this aspiration,
technological skills, personality, and social status.
Though the manager is expected to take a decision confined
to the scope of his responsibility and authority, there is an
impact of psychology over the decision. The reason is that
decision making is a mental process.
4. Principal of alternative:-
If there is only on alternative to solve a problem, there is no
need of taking a decision.
Decision is a selection process. The entire alternative are
evaluated and screened in the order of their usefulness.
Finally, the best alternative is selected according to the
circumstances and purpose.
5. Principle of limiting factors:-
The fundamentals of a problem are studied. An inference or
a conclusion is drawn on the study; the manager takes a
decision with the help of decision with the help of
conclusion or inference.
The decision may be based on a limiting factor. The limiting
factor may be time, cost or resources. Decisions are
supposed to be good and the limiting factor is considered
while taking a decision. The reason is that this decision can
be implemented in a particular situation.
6. Principle of participation:-
This principle is based on human behavior and
human relationship. Each and every person wants to be
treated as an important person. So the management may
allow the employees to have a say in the process of
decision making.

6. MANAGEMENT BY OBJECTIVES
Meaning of objectives:-
Every institution or organization is established for the purpose of
achieving some objectives
An individual, who starts a business, has the objective of earning
profits.
A charitable institution, which starts school and colleges, has the
objective of rendering service to the public in the field of education.
So, the objective may differ from one organization to another
organization. But anyhow, each organization has its own objectives
Management by objectives (MBO)
 MBO is a management system in which each member of the
organization effectively participates and involves himself.
 This system gives full scope to the individual strength and responsibility.
 It creates self control and motivates the manager into action before
somebody tells him to do something.
 MBO is a system where in the superior and the sub ordinate manager’s
of on organization jointly identifies its common goals.
Process of MBO
The MBO process is characterized by the balance of objectives of the organisatioin
and individual. The process of MBO is explained below.
1. Defining organizational objectives:-
o Initially organizational objectives are framed by the top level employees
of on organization then, it moves downwards.
o The definition of organizational objectives states why the business is
started and exists.
o First long term objectives are framed short term objectives are framed
taking into account the feasibility of achieving the long term objectives.
2. Goals of each section:-
o Objectives for each section, department or division are framed on the
basis of overall objectives of the organization.
o Period with in which these objectives should be achieved is also fixed.
o Goals or objectives are expressed in a meaning full manner

7. 3. Fixing key result area:-
o Key result areas are fixed on the basis on the basis of
organizational objectives premises.
o Key result areas (KRA) are arranged on a priority basis.
o KRA indicate the strength of an organization.
o The examples of KRA are profitability, market standing innovation
etc…,
4. Setting subordinate objectives or target:-
o The objective of each subordinate or individual are fixed.
o It is preferable to fix the objectives at lower level in quantitative
units.
o There should be a free and frank discussion between the superior
and his subordinate.
5. Matching resources with objectives:-
o The objectives are framed on the basis of availability of resources.
o If certain resources (technical personnel or scarce raw material)
are not adequately available, the objectives of an organization are
changed accordingly.
Benefits of MBO:-
The benefit of MBO are explained below
1) Managers are involved in objectives setting at various level of management
under MBO and this commitment ensures hard work to achieve them.
2) MBO process helps the managers to understand their role in the total
organization.
3) Manager recognizes the need for planning and appreciates the planning.
4) MBO provides a foundation for participative management sub ordinates are
also involved in goal setting.
5) Systematic evaluation of performance is made with the help of MBO.
6) MBO motivates the workers by job enrichment and makes the jobs
meaningful.

8. Problems and limitations of MBO:-
The problems and limitations MBO arises due to the application of
the MBO these are discussed below.
1 .MBO fails to explain the philosophy:-
 Most of the executives do not know how MBO workers,
 What is MBO and why is MBO necessary and how
participants can benefit by MBO.
2. MBO is a time consuming process:-
 Much time is needed by senior people for framing the
MBO.
 Next, it leads to heavy expenditure some times, manager
and frost rated over MBO, MBO requires heavy paper
work.
3. MBO only on short-term objectives:-
MBO emphasizes only on short term objectives and does not
consider the long term objectives
4. Goal setting problem:-
The status of subordinates is necessary for proper objectives
setting, but this is not possible in the process of MBO.

9. POLICY FORMULATION
Meaning of policy:-
Policy is a norm or guideline which is used to take a decision for achieving
objectives in consideration of the organizational climate.
Definition:-
L.M Prasad define policy “A policy is the statement or general understanding which
provides guidelines in decision making to member of on organization in respect to any course of
action.”
Formulation of policy:-
The process of policy formulation involves the following steps.
i. Identification of area :-
 Management has to identify the area of the policy. In other
words, areas have to be finding out for which the policy is to be
for which the policy is to be formulated.
 Even the existing policy may be changed in this manner. A
management could have clear cut idea only after selecting the
area for policy formulation.
ii. Objectives:-
 Organizational objectives play a vital role in the formulation of a
policy.
 Objectives are foundation for policy formulation.
 The reason is that the policy is formulated in order to achieve
the objectives.
iii. Analysis of environment :-
 A policy reflects the circumstances under which such a policy is
formulated.
 A policy is formulated according to situation. Management tries
to achieve objectives under any situation analyze the
environment before policy formulation.
iv. Corporate analysis:-
 Analysis of environment refers to the analysis of external factors
 Corporate analysis refers to the analysis of internal factor.
 The strength, weaknesses, opportunities and threats of on
organization are taken into account while formulating a policy.

10. This type of analysis gives a clear picture of the functioning of
the organization.
v. Collection of information:-
 The next step in the formulation of a policy is the collection
of information.
 An intelligent person may be appointed to collect the
information in the case of small organization.
 In the cases of big organization or multinational
organization, a committee may be formed and assigned the
duty of collecting the information.
 Information can be collected not only from within the
organization but also from outside the organization.
vi. Analyzing the information:-
 Collected information may be analyzed to assess the value
of information.
 Widespread consultation and discussions are held with for
analyzing the information.
vii. Selection of a policy:-
 Management can select anyone of the policies among the
appraised policies which is most suitable to a particular
situation.
 The appraisal process of policies facilitates the management
to select or formulate the best policy.
viii. Approval of policy:-
 The policy draft should be sent to the top management at
the right time for its approval.
 The top management has to approve the policy only after
considering whether a policy represents the objectives of
the organization or not.
ix. Communicating the policy:-
 The approved policy should be communicated to the
concerned person.
 Besides, an educational programmer may be conducted to
educate the employees as how to apply the new policy.