DECISION MAKING – DEFINITION, CHARACTERISTICS, ELEMENTS, PROCESS, TYPES AND PRINCIPLES

1. Chapter 6
Decision Making
1

2. Objectives
• At the end of the chapter you will be
able to
– Have knowledge about the decision-
making, its characteristics, elements
and principles
– Understand the characteristics of good
decision
– Learn the types of decision and
personal phase of decision-making
– Know about the administrative problems in
2

3. Introduction
• One of the function of management is
Decision- making
• Decision may be rational or irrational
• Best decision making is necessary
for effective functioning of
management
3

4. Definition
According to:
• Manely H. Jones: it is the solution
selected after examining several
alternatives chosen
• George R Terry: Decision making is the
selection based on some criteria from
two or more possible alternatives 4

5. Definition
According to:
• D.E. McFarland: A decision is an act of
choice wherein an executive forms a
conclusion about what must be done in a
give situation
• Shull-et-al: Decision making is a
conscious ad human process involving
both individual and social phenomenon
5

6. Characteristics of Decision‐Making
• Decision making is a selection process
• This is the End process
• The application of intellectual abilities
to a great extent
• Decision gives happiness to the
endeavour
• A dynamic process
6

7. Characteristics of Decision‐Making
• Decision making is situational
• Decision is taken to achieve the
objectives of an organization
• Decision maker has the freedom to take a
decision
• Decision making involves the evaluation
of available alternatives through critical
appraisal methods

8. Elements of Decision‐Making
• A problem is fully analyzed and the
alternatives are considered before taking
a decision
• The best decision making requires
intelligence, experience and insight
into a problem• The philosophy of an individual is
involved in decision making 8

9. Elements of Decision‐Making
• A decision discloses the preferences,
educational standards etc.
• Decisions are taken when they are
needed
• Political and social environment of the
business affect the decision making 9

10. Decision‐Making Process
• decision making is not an easy job, it
requires a lot of skill
• A manager is not able to take a good
decision if he fails to follow a sequential
set of steps which
include:
• Identification of a problem
– Means recognition of a problem
– The changes of business environment
form the main reason for creating a
10

11. Decision‐Making Process
• Diagnosing the problem
– The manager is acting as a doctor while
doing the diagnosis of the problem
• Collect and analyze the relevant
information
– The collection of the relevant information
at various levels
– The manager should see that only relevant
information alone is collected and analyzed 11

12. Decision‐Making Process
• Discovery of the alternative course of
action
– For this, creative thinking is necessary
– It is advisable to the manager that he
should discover a number of alternatives
– Time and cost are the probable limiting
factors of an organization
• Analyzing the alternatives
– Here, the pros and cons pf the available
alternatives are analyzed 12

13. Decision‐Making Process
• Screening of alternatives
– The available alternatives are screened in
the order of maximum benefits derived
from them
– Tangible factors include profit earned,
time taken, money invested etc.
– Criteria to evaluate the available
alternatives course of action suggested by
Peter F. Drucker
• Risk
• Economy
13

14. Decision‐Making Process
14
Role Description Identifiabl
e
Activities
Figurehead Symbolic head; obliged to
perform a number of
routine duties of a legal or social nature
Greeting visitors;
signing documents
Leader
Responsible for the motivation and
activation
o
f employees; responsible for
staffing, training, and associated duties
Performing
virtually
all activities
that
involve
subordinates
Liaison
Maintains self-developed
network of outside
contacts and informers who provide
Acknowledging mail;
performing
othe
Interpersonal Relationship

15. Decision‐Making Process
15
Role Description Identifiabl
e
Activities
Monitor Emerges as nerve center of
internal and external
information about
Information.
Reading periodicals
and reports;
maintaining
personal contact.
Disseminator Transmits information received
from other employees to
members of the
organization.
Holding
informational
meeting; making phone
calls to relay information.
Spokesperson Transmit information to
outsiders on organization’s plan,
policies, actions, results, etc.
Holding board meeting;
giving information to the
media.
The transfer of information

16. Decision‐Making Process
Decision Making
16
Activitie
s
Role Description Identifiable
Entrepreneu
r
Searches for development
opportunities in the dynamic
environment and initiates
“improvement projects” to bring
about change.
Designing and
initiating changes
within the
organization.
Disturbanc
e handler
Responsible for corrective action
when
organization faces important
disturbances.
Taking corrective action in
no
routine situations.
Resour
ce
allocato
r
Responsible for the
allocation of
organizational resources of all
kinds.
Performing any activity
that involves
budgeting and
the programming
of employees’
work.
Negotiator Responsible for representing Participating in

17. Decision‐Making Process
• Selection of best alternative
– Best alternative can be selected after
the careful evaluation
– Approaches while selecting an alternatives
are:
• Experience: The manager can select an
alternative on the basis of his past experience
• Experimentation: Here, each alternative is put
into practice and the results are observed
• Research and analysis: This approach is rarely
adopted, in case of critical situation. Computers
are used if there is a lot of
calculations are
required
17

18. Decision‐Making Process
• Conversion of decision into action
– The future course of action is scheduled on
the basis of selected alternative or decision.
Here, manager has to consider the policy of
the management
• Implementation
– here, manager has to implement the decision
to achieve desired goals
• Verifying the decision
– It is the duty of the manager to see whether
the decision
is properly implemented
or not
18

19. Principles of Decision‐Making
• A quality decision may be taken by the
manager of he adopts certain principles:
• Managerial theory of decision-making
– Many economists have suggested the
managerial theory of decision making.
– According to them, every business is
started to earn profit
– Decision making should based on
managerial analysis 19

20. Principles of Decision‐Making
• Mathematical theory
– Includes venture analysis, game theory,
probability theory and waiting theory
• Psychological theory
– There is an impact of psychology over the
decision sisnce the decision making is a
mental process
• Principles of alternatives
– All the alternatives are evaluated and
screened in order of their usefulness andselect 20

21. Principles of Decision‐Making
• Principle of limiting factor
– An interface or conclusion is derived
from the fundamental study of the
problem
– The manager takes the decision with
the help of conclusion or interface
• Principles of participation
– This principle is based on human
behavior and relationships
– The management can ascertain the
reaction of the
21

22. Characteristics of Good Decision
• A decision is taken after passing various
stages
• A good decision has following
characteristics
– Action orientation: For implementation,
decision should have utility
– Goal direction: the decisions are taken
and action is directed to achieve the goals
– Efficiency in implementation: An effective

23. Administrative problems in
Decision‐making
• Accuracy: The corrections of
information for analysis will help
taking accurate decision
• Environment for decision:
Organizational and physical
environments are responsible for
effective decision
• Timely decision: if any decision is taken
without considering the time, that will not23

24. Administrative problems in
Decision‐making
• Communication of decision: Simple
and unambiguous words are used while
communicating the decision
• Participative decision-making: The
extent of participation of workers in
decision making depends upon the
willingness of the top management
• Implementation: the decision
maker has responsibility to

25. Types of Decision
• Programmed decision
– Also called routine or structured decisions
– Taken within the purview of the
policy of the organization
– There is a clear cut procedure to take
programmed
decisions
• Non-programmed decisions
– Called as strategic or basic decisions
– Taken by top management people
whenever the need arises
25

26. Types of Decision
• Major decision
– Relates to the purchase of fixed assets with
more value
• Minor decisions
– Relates to the purchase of current assets
withless value
• Operative decision
– Relates to day-to-day operation of an
organization is known as operative
26

27. Types of Decision
• Organizational decision
– The decision takes a decision and
implements it for effective functioning of
organization
• Personal decision
– This is the decision which is taken by the
decision maker for his personal life
• Individual decision
– The decision maker is a part of the
organization while taking an individual
decision, which he can implement
the 27

28. Types of Decision
• Group decision
– The top management fixed the time within
which the committee is expected to submit
its report with concrete decision
• Departmental decision
– Here, the decision maker is
department head or department
manager
• Non-economic decision
– This is a kind of decision which does not
incur any kind of expense
28

29. Types of Decision
• Crisis decision
– This decision is taken to meet unexpected
situations
• Research decision
– This decision is taken after analyzing the pros
and cons of a particular matter
• Problem decision
– Taken to solve a problem
29

30. Types of Decision
• Opportunity decision
– Taken to make use of the advantages
available to the company
• Certainty decision
– The decision maker himself knows the
outcome and consequences of the
choice
• Uncertainty decision
– These decisions are aimed at solving
the existing problem 30

31. Personal phase of decision‐making
• Decision maker may not take the best
decision all the times
• Generally a manager is a decision
maker in a organization
• Existence to different characteristics and
qualities in managers due to the following
reasons
• Intelligence:
– The ability of using common sense in decision
makingthe best 31

32. Personal phase of decision‐making
• Education
– A good education helps the decision maker
to take best decision even in complex
situations rather than high education
• Experience
– The experience of an individual can improve
the ability for decision making
• Courage
– The decision maker should have courage
to take and implement the decision
32

33. Personal phase of decision‐making
• Motivation
– Recognition of the decision is a
motivation for the decision maker
• Forecasting ability
– The quality of a decision depends upon the
forecasting ability of the decision maker
• Self confidence
– The self confident decision maker can take
decisions as and when required 33

34. Summary
• Decision making is necessary for
effective functioning of
management
• Decision is taken to achieve the
goals of an organization
• Decisions are taken when they are
needed
34

35. Summary
• The decision making principles include
marginal theory, mathematical theory of
decision making etc
• Individual decisions, programmed
decisions, major decisions, research
decisions are some of the types of
decisions
• Mostly the manager is the decision 35

36. End of Chapter 6
Decision Making
36