Concept and meaning
Decision making is the process of identifying and selecting a course of action to solve a specific problem.
Decision making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem.
Decision-making is an essential aspect of modern management. It is a primary function of management. A manager’s major job is sound rational decision making. He takes hundred of decision consciously. Decision-making is the key part of manager’s activities. Decisions are important as they determine both managerial and organizational actions. Decision-making is necessary in planning, organizing, directing, controlling and staffing.
The effectiveness of management depends on the quality of decision-making. In this sense, management rightly described as decision-making process.
Process of Decision-making
Decision-making involves a number of steps which need to be taken in a logical manner. This is treated as a rational or scientific ‘decision-making process’ which is lengthy and time consuming. Such lengthy process needs to be followed in order to take rational/scientific/result oriented decisions. Decision-making process prescribes some rules and guidelines as to how a decision should be taken / made. This involves many steps logically arranged. It was Peter Drucker who first strongly advocated the scientific method of decision-making in his world famous book ‘The Practice of Management’ published in 1955. Drucker recommended the scientific method of decision-making which, according to him, involves the following six steps:
- Defining / Identifying the managerial problem,
- Analyzing the problem,
- Developing alternative solutions,
- Selecting the best solution out of the available alternatives,
- Converting the decision into action, and
- Ensuring feedback for follow-up.
- Identifying the Problem: Identification of the real problem before a business enterprise is the first step in the process of decision-making. It is rightly said that a problem well-defined is a problem half-solved. Information relevant to the problem should be gathered so that critical analysis of the problem is possible. This is how the problem can be diagnosed. Clear distinction should be made between the problem and the symptoms which may cloud the real issue. In brief, the manager should search the ‘critical factor’ at work. It is the point at which the choice applies. Similarly, while diagnosing the real problem the manager should consider causes and find out whether they are controllable or uncontrollable.
- Analyzing the Problem: After defining the problem, the next step in the decision-making process is to analyze the problem in depth. This is necessary to classify the problem in order to know who must take the decision and who must be informed about the decision taken. Here, the following four factors should be kept in mind:
- Futurity of the decision,
- The scope of its impact,
- Number of qualitative considerations involved, and
- Uniqueness of the decision.
- Collecting Relevant Data: After defining the problem and analyzing its nature, the next step is to obtain the relevant information/ data about it. There is information flood in the business world due to new developments in the field of information technology. All available information should be utilised fully for analysis of the problem. This brings clarity to all aspects of the problem.
- Developing Alternative Solutions: After the problem has been defined, diagnosed on the basis of relevant information, the manager has to determine available alternative courses of action that could be used to solve the problem at hand. Only realistic alternatives should be considered. It is equally important to take into account time and cost constraints and psychological barriers that will restrict that number of alternatives. If necessary, group participation techniques may be used while developing alternative solutions as depending on one solution is undesirable.
- Selecting the Best Solution: After preparing alternative solutions, the next step in the decision-making process is to select an alternative that seems to be most rational for solving the problem. The alternative thus selected must be communicated to those who are likely to be affected by it. Acceptance of the decision by group members is always desirable and useful for its effective implementation.
- Converting Decision into Action: After the selection of the best decision, the next step is to convert the selected decision into an effective action. Without such action, the decision will remain merely a declaration of good intentions. Here, the manager has to convert ‘his decision into ‘their decision’ through his leadership. For this, the subordinates should be taken in confidence and they should be convinced about the correctness of the decision. Thereafter, the manager has to take follow-up steps for the execution of decision taken.
- Ensuring Feedback: Feedback is the last step in the decision-making process. Here, the manager has to make built-in arrangements to ensure feedback for continuously testing actual developments against the expectations. It is like checking the effectiveness of follow-up measures. Feedback is possible in the form of organised information, reports and personal observations. Feed back is necessary to decide whether the decision already taken should be continued or be modified in the light of changed conditions.
Decision-Making Techniques: Traditional and Modern Techniques
Decision-making has become a complex problem. A number of techniques are available which help in taking decisions. The nature and significance of decision will determine the type of technique to be used. The selection of appropriate technique depends upon the judgment of decision maker. The decision making techniques can be classified into traditional and modern.
The important techniques of decision-making are as follows:
- 1. Traditional Techniques of Decision-Making:
The decisions can be classified into programmed decisions and non-programmed decisions. Both the classifications have different decision-making techniques.
- Decision-Making for Programmed Decisions:
Following techniques are used for taking programmed decisions:
- Standard Procedures and Rules:
Every organization develops standard procedures and rules for taking routine and repetitive decisions. Whenever needed, a manager refers to the standard procedures and rules before taking simple decisions. An effort is made to have consistency in routine decisions. Routine decisions do not require application of special skill and knowledge so such decisions can be taken without much difficulty.
- Organizational Structure:
A relationship is established between a superior and a subordinate. This relationship comes out of organizational structure. Persons at different organizational structures are assigned work to be done by them. For taking up this work, managers need authority to take decisions. The authority to take decisions needs proper information back up. All managers or decision making centres are linked to information system for supplying information when needed.
- Decision-Making for Non-Programmed Decisions:
Non-programmed decisions are strategic in nature and require separate analysis and interpretation. The quantitative and scientific techniques help in taking such complex and unique problems. A manager does not entirely depend upon his knowledge, ability and judgment but these skills are associated with scientific methods for achieving good results. The use of quantitative techniques ensures high degree of precision and accuracy.
(a) Linear Programming:
This technique is used to determine the best use of limited resources for achieving a given objective. It is based on the assumption that there exists a linear relationship between variables and the limits of variations could be ascertained. It is particularly helpful where input data can be quantified and objectives are subject to definite measurement. Linear programming is applicable in such problem areas as production planning, transportation, warehouse location and utilization of production and warehouse facilities at an overall minimum cost.
- Probability Theory:
This statistical tool is based on the assumption that certain things are likely to happen in future in a manner which can be predicted to some extent by assigning various probabilities. In this technique pay-off matrices and decision trees are constructed to represent variables. The decision tree is an extension of pay-off matrices and helps the managers in assigning financial results to various available recourses of action, modifying these result probabilities and comparing them for selecting an appropriate course of action.
- Game Theory:
Game theory helps in making decisions under competitive situations. It was basically developed for use in wars so that actions of the army can be decided in the light of actions taken by opposite army. The term “game’ represents a conflict between two or more parties. The game is described by set rules. These rules clearly specify what each person, called player, is required to do under all possible set of circumstances. A person has to consider a rational course of action by not only by considering his actions but also by considering the actions of other persons. All players act intelligently and rationally and are well informed about the decision situation except the opponent’s actions in a particular period. For each player the outcome may represent a gain or loss or a draw.
- Queuing Theory:
It is also known as ‘waiting line theory’ to be applied for maintaining a balance between the cost of waiting line and cost of preventing the waiting line in respect of utilization of personnel, equipment and services. In waiting line situations, problems arise because of either too much demand on the facilities, in which case we may say that there is an excess of waiting time or that there are not enough service facilities or too little demand in which case there is either too much idle facility time or too many facilities.
An effort is made to obtain balance between the costs associated with waiting time and idle time and queuing theory helps in achieving this balance. This theory helps in arriving at a decision about the provision of optimum facilities. It should be noted that this theory does not directly solve the problem of minimizing the total waiting and service costs but it provides the management with information necessary to take relevant decisions for the purpose.
- Network Techniques:
Network technique is used for preparing and controlling the project activities. Project Evaluation and Review Technique (PERT) and Critical Path Method (CPM) are used for planning, monitoring and implementing time bound projects. These techniques help managers in deciding the logical sequence in which various activities will be performed. By applying these techniques large and complex projects can be executive within the stipulated time and cost.
- Modern Techniques of Decision-Making:
Modern business is facing drastic changes in working. The decision-making is becoming more and more complex these days. The changing and challenging business environment requires special attention for decision making process.
Some techniques followed at present are discussed as follows:
- Heuristic Techniques:
This technique is based on the assumption that in a complex and changing business situation strategic problems cannot be solved by applying rational and scientific techniques. In an uncertain environment and conflicting interests the problem will have to be fragmented into small components for taking a realistic view.
By splitting the problem into small parts and analyzing each part separately, a decision can be reached. It is a trial and error method based on rules of thumb. Heuristic techniques are developed by managers to deal with various components at different stages. Computers can easily be used for solving complex and strategic problems. This technique is a more refined way of trial and error method because it is developed by applying analytical and creative approach.
- Participative Decision-Making:
It is method of applying democratic means for decision making process. In traditional managerial techniques, decisions are taken at top levels of management and these are intimated to lower levels for implementation. In participative decision-making, employees at various levels are involved in making various decisions. When subordinates are made a part of decision making, it not only helps in getting the advantage of their practical experience but also helps in implementing decisions properly. The subordinate staff feels motivated and encouraged and takes active interest in the working.
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