EXPLAIN THE DECISION MAKING PROCESS WITH EXAMPLE OF YOUR OWN. Introduction:- Decision making is an integral part of the most of the top manager's duties. Not even a single day passes without taking decisions particularly in modern organisations. Hence, management and decision making are considered as inseparable. In fact, whatever a manager does, he can do it only by taking some decision. All matters related to planning, organization, staffing, directing and controlling are engrossed in decision making process. That is why it is aptly pointed out that management is essentially a decision-making process.
The survival and future success of any enterprise is directly related to the ability to take timely and appropriate decision by the executives. Thus decision-making is said to be the heart of management. Lot of planning exercise is to be initiated by the manager before taking any viable decision. The manager has to carefully plan and decide what to do or what not to do. Wrong decisions quite often are proved to be either costly or futile. To prevent such losses, decision-making process remains to be the core are in all planned activities of the modern corporations. The selection from among alternatives of a course of action", according to this definition, picking one course of action among alternatives available is termed as decision-making as per Koontz and Weinrich. In the words of George Terry,"decision-making is the selection of a particular course of action, based on some criteria, from two or more possible alternatives. " We can define this concept also as the process of choosing between various alternatives for achieving a specified goal. Every decision must take into consideration needs and future uncertainties.
As per Herbert Simon there are three major steps in the decision making process. Decision making is about choosing from several options or ideas and taking action to generate a particular result. It is usually considered to be a rational and logical thinking process. J>Recognition and understanding of the problem. J>Various alternatives may be developed. J>careful assessment of alternatives available for taking a better decisions. Characteristics J>Decision making is a continuous process. J>The question of decision-making process must always be rational when there are alternatives.
J>A decision-making process must always be rational and purposeful. J>Decision making is an intellectual process supported by good reasoning and sound judgment. J>Decision making is all pervasive in the sense that all levels of managers need to take decisions of varied nature. J>Decision-making is always related to future only. Troes of Decisions: Managerial decision may be classified into two categories, the first category includes the typical, routine and unimportant decisions and the second category covers most important, vital and strategic decisions.
Apart from decisions are taken at different levels for meeting different problems. Oraanisational Vs Personnel Decisions:- As explained by Chester. I. Bernard, the decisions taken by the manager in his official capacity are termed as Organisational decisions. These decisions have a direct bearing on the functioning of the firm. Decision relating to reward systems or transfer of workers can be cited as examples under this category. In contrast to this, some times, decisions may be taken by the manager in his individual capacity and such decisions are termed as personal decisions.
They may partly affect the personal life and partly affect the organization. Example,decision to quit the organization comes under this category. Routine Vs Strategic Decision:- Routine decisions involve little risk and uncertainty. Hence, they do not call for extraordinary judgement and thinking. They are mostly related day-to-day conduct of the business and taken repetitively. That's why they are normally taken at lower levels of management. On the other hand strategic decisions are taken by the top level management. Either they are concerned with policy matters or with long-term commitments of the organization.
They require thorough understanding, analysis and best judgement, pertaining to location of the plant, type of technology and channel of distribution are the best examples of this type. Policy Vs Operating Decisions:- Policy acts as guidelines for future action. Hence,decisions pertaining to policies are usually taken by the top management. They are considered to be very important since they affect the total organization. While operating decisions are administrative in character, they help in translating policies into action.
Decisions relating to a new incentive scheme may be termed as a policy decision. Decisions relating to the methodology of implementation of such incentive scheme are termed as operating decisions. Programmed Vs Non-Programmed decisions:- Programmed decisions usually deals with routine and repetitive problems. For dealing such problems, systematic policies, procedures and rules are established. Programmed decisions can be taken with little ease as everything goes according to some set of rules. But Non-Programmed decisions cover mainly unexpected events and challenges.
In other words, each problem is unique in nature. For dealing with such special problems, executives usually refer them to the top management, tackling such situations , the manager needs expertise,intuition and creative thinking. Individual Vs Group decisions:- Decisions taken by the individual in his personal capacity are known as individual decisions. Organisations which are small in size can accommodate this type of decision-making process. When organizations grow in size and stature, complex problems do come into picture.
Group decisions are considered to be the best under such situations. Group decisions represent the thinking of more than one executive. The various steps involved in the decision-making process are as explained below:- Step 1 - Defining the oroblem The first step is to define the real problem, money and efforts are going to be wasted if the problem is not determined correctly. That' s why, accurate diagnosis of the real problem is necessary to find out right solution. We should look at the real causes and for the remedial measures by knowing the inner details of the problem.
Knowing only the outer surface of the problem and arriving at decisions may lead to fallacious conclusions. SteP 2- AnalYSing the Problem Once the problem is clearly defined, then, it must be analysed in the light of data pertaining to various factors that surmount the decision. Every situation may have some advantages and limitations. Necessary steps should be laid on locating the limitations and obstacles in achieving the desired result. Necessary care should be exercised in avoiding personalized bias in judging the certain factors. Analysis of crucial factors provides a sound basis for making effective decisions.
Step 3- Developing alternatives The analysis of the problem becomes complete once it throws light on several alternative solutions. In fact, the success of decision-making process depends upon the ability of an executive in developing alternative solutions to a given problem. This requires lot of imagination, experience and judgement. Exploring the positive or negative impact of such alternatives forms as a solid base for sound decisions. Step 4- Evaluating alternative Once the alternatives are developed , the next step is to evaluate them in terms of their cause, time , impact and objectives etc.
Many a time, either marginal cost or cost-benefit analysis is used to bring out the tangible benefits of each of such alternatives. Each alternative solution may have its own merits and de-merits. They should be compared with other alternatives for the purpose of appraising the real impact. As per Mr. Peter F Drucker, the important criteria for evaluating the consequences of different alternatives are risk,economy, time and limitations. Steo 5- Selecting the best possible solution Selection usually involves choice making. It is the last step in decision-making process.
The manager has to select such an alternative course of action which can make the maximum contribution to the goal. It is not always possible to select the best alternative for a given problem. That is why the manger has to rely upon such course of action which can yield good results under a given set of circumstances and limitations. Step 6- Imolementing the decision Once the best alternative is selected, it must be implemented. This step mainly deals with the execution of the decision taken. It involves development of step by step plans, selling the idea to sub-ordinates and seeking co-operation from the needy people.
At this stage, the decision is converted into action. The decision must be implemented in the right time and that too in a proper way. Step 7- Evaluation of Decisions The last step in decision-making process is evaluation. The actual results of the decision should be compared with the expected results in order to locate the reasons for deviations. This review is a continuous process and it generates information for necessary feedback for further improving the decision-making process in future. Rationality in decision-making Rationality refers to objective and intelligent action.
A decision is said to be rational if appropriate means are chosen to accomplish desired objectives. It implies that decision-maker tries to maximize the values in a given situation by choosing the most suitable course of action. A good decision depends on the makers being consciously aware of the factors that set the stage for the decision. Obtaining complete rationality is not always possible. That is the reason why people prefer to take satisfactory decisions instead of ideal or optimum decisions. Managers are not always confronted by the problem of rationality in decision-making.
In practice, they confine themselves to few important alternatives which have limited risks combined with favourable consequences. Limits of Rational Decision making Managers are not always rational in their decision-making. They cannot always abide by the demands of rationality in decision-making process. There are some limitations to that and of which are as explained below. Since decisions are related to future, Managers cannot foresee all the consequences accurately. Moreover, lack of complete knowledge about the problem also makes it impossible to choose a good decision.
Due to time and cost constraints, all complex variables that have a bearing on decision cannot be examined fully. Hence, the decision maker is forced to strike a balance between complete rationality and hard realities on the ground. The impact of all the variables cannot be ascertained because some of them are intangible. The consequences of various alternatives cannot be anticipated accurately. Hence, decisions taken under uncertainty cannot guarantee the success of decision-making process. The Human factors like value systems, perceptions, social factors, institution etc. are the main limits on rational decision-making. Managers, being human beings, are greatly influenced by their personal beliefs, attitudes and biases. Because of this, the capacity of a decision-making process varies from individual to individual and from situation to situation. Every manger is vitally concerned with the above limitations in his approach to rational decision-making. He has to collect all the relevant information and try to overcome the above limits on rationality and choose the most rational decision for solving any given problem. Ba"iers of Effective Decision Making
Apart from the above limitations, decision-making process remains to be ineffective because of the existence of various barriers in organization structure. These barriers impede the process of identification of problems. It's analysis and the development of the solutions. The following are the important barriers that can block managerial effectiveness in choosing the most suitable decision as per Elbing. The tendency of a human-being to evaluate a given problem with pre-conceived notions, act as a stumbling block in understanding the real situation.
Though it's dangerous, managers feel safer if they do not change what is familiar. Eventually, the ineffective decision of a familiar way becomes accepted rather than considering new and innovative means. Many managers fail to demarcate the symptoms from the main problem. Many mangers have a tendency to respond to the problem instantaneously without proper infonmation and thinking. If they gather more infonnation, they become rather than what is unique in new problem. The above problems are mainly responsible for either indecision or for half decision in the modern organizations.
Knowledge of the above problems will surely help the managers in arriving at pragmatic decisions. The following suggestions can be offered to overcome the above barriers so as to make the managers more effective in decision-making process. Avoid premature evaluation. Initiate impartial probing by avoiding personal biases on the outcome. Develop a sound system that can supply adequate information for making decisions. Encourage group leaders to respond to a given situation and compare the pros and cons of the solutions offered by the two groups for making an effective decision.
Encourage innovative thinking among the sub-ordinates so as to identify the crux of the problem without waste of time and money. When decisions of critical and pivotal in nature are to be taken, encourage group thinking. For this, the problem is to be presented to the sub-ordinates first and they are asked to develop as many solutions as possible in a free environment. Techniques of Decision -making Brainstorming:- Brainstorming is the oldest and widely followed technique for encouraging creative thinking. It was originally developed by A. F. Osbom. It involves the use of a group.
This is an approach to improve problem discovery and solving by encouraging sub-ordinates to give their ideas and solutions in a free environment, they will generate creative ideas. Continuous interaction through free discussions may result in spontaneous and creative thinking. The larger the number of solutions , the fairer are the chances in locating an acceptable solution. The research proves that on hour brainstorming system is likely to generate 50 - 150 ideas. It is interesting to note that while most of them are proved to be impracticable, at least, some of them merit serious consideration.
This group process is not without limitations. It continues lot of time and therefore,is an expensive exercise. Secondly,it emphasises only quantity of solutions which more often than not proved to be superficial. By overcoming the above limitations, a modern manager can use this an an effective tool. Some of the claimed advantages of the brainstorming technique include:- » It reduces dependence on a single authority figure. » It encourages the open sharing of ideas. » It stimulates participation among group members. It provides individual safety in a competitive group. » It maximizes output for a short period of time. » It ensure a non evaluative climate. » It tends to be enjoyable and stimulating. Synetics- When compared to Brainstorming, synectics is a new concept developed by William J. J. Gorden. The terms 'Synectics' is derived from a Greek word which refers to "Fitting together of diverse elements". It starts on the premise that this concept encourages novel thinking for the development of alternatives through putting together different ideas which are distinct from each other.
A given problem is presented to a group of people with different backgrounds and varied experience. It is the responsibility of the group leader to present the problem and lead the discussions in order to stimulate creative solutions. This approach ensures on the spot evaluation of members suggestions. The leader who is a technical expert is always assisting the group in evaluating the feasibility of their ideas. But experience shows that synectics has been less widely used than "Brainstorming". When the problem is real tough and challenging, this approach is used for effective decision-making.
Like Brainstorming it also suffers from the same range of limitations. The synectic techniwue includes the following steps:- Problem statement and background information stage:- The group leader describes the general area of discussion but avoids identifying the specific problem . Creative thinking on the problem is encouraged. The leader presents background information on the problem and the goals associated with the idea solutions. Good wishing stage:- Group members are encouraged to wish for anything that comes to mind that could address the problem.
As in brainstorming, in this "freewheeling stage" people are encouraged to generate wild ideas and to hitchhike. Exploring ideas and not evaluating them are of utmost importance at this stages. Excursion stage:- Paricipants are asked to forget about the specific problem. They are asked to generate ideas about a somewhat unrelated are that eventually might be related to the problem at hand. Forced-fit stage. Participants take ideas from the excursion stage and force them to fit the initial problem. Although this often appears quite unusual and obtuse, it is intended to encourage creativity.
In fact,evidence suggests that many great thinkers develop ideas from such experimental thinking. Intemized response stage:- The group picks one of the ideas generated during the forced fit stage and pursues it further. The idea is dissected on only its positive aspects are identified. After all the positive aspects have been explored,the idea's limitations are addressed. This focus on the positive is intended to encourage productivity and creativity. The outcome of the synectic process is a single unique plan or decision that has undergone considerable evaluation.
The process tends to produce innovative ideas. Synectic approach can be quite useful for creative planning and decision making. Its cost is high. Furthermore, it produces only one potential solution to a problem. If that solution turns out to be unusable,the problem remains, and the process has failed. The Nominal Group: The nominal group consists of people knowledgeable on the issue to be decided who are in the same physical location and who are aware of each other but who do not directly interact while they are working together.
The specific techniques for using the nominal group in decision-making vary with the situation, but usually the following steps are involved. l> The manger brings the group together and outlines the problem. l>Each member of the group generates a number of ideas in writing. l>Each member then presents a single idea at a time to the entire group. The ideas are written on a blackboard or on large pieces of paper, and discussion of them is limited to clarification. When no further ideas merge, or when the manager feels the process has gone far enough, each member votes on the ideas, again in writing.
The final decision is summed outcome of the individual votes, but the manager is free to accept or reject it. Ooerations Research:- The Origin and development of operations research is attributed to military operations and applications in 2"" world war. The war put tremendous pressure on the use of available scarce resources for various strategic and tactical operations. The success of operations research in developing options of effective and efficient nature was instrumental in making this approach rather dependable in decision making process.
Now-a-days, greater emphasis has been laid on the use of mathematical models to reflect different options and constraints in a situation and their effect on a selected goal. This quantitative approach to decision-making is usually referred as "Operations Research". Of late, it has become an invaluable tool in the kit of a decision-maker. Operations Research employs optimizing models like Linear Programming, Project Management,Inventory Control, Decision Theory and Waiting Line Theory.
Operations Research is the systematic method of studying the basic structure, functions and relationships of an organization as an open system. It always adopts a systems approach to management in getting things done. It is constantly interested in developing optimal solution with limited resources in a given situation. It covers six steps in its approach to problem solving. They are: a. Identification of a problem. b. Construction of a mathematical model to investigate the problem. c. Developing a good solution. d. Testing of the model in the light, the data available. e.
Identifying and setting up of control points. f. Implementation of the option as a solution to a critical problem, putting a solution to work. In essence, Operations Research attempts to develop the best solution that will contribute to organizational goals. Limitations of Operation Research:- Operations Research technique is not • panacea to all the problems of modern management. In other words, it is not the end. Since Operations Research does not take intangible aspects into consideration, subjective judgement becomes difficult under this model.
As the Operations Research technique directly depends upon the use of mathematical and statistical tools,it is increasingly becoming complex and costly exercise. Since decision making is a human process,It cannot be predicted properly. At the same time, the impact of such factors cannot be measurable. Delphi Technique:- It is a technique normally used for forecasting future events. It is a group decision making technique. Under this method, independent opinions are sought from the members repeatedly so as to develop a best solution to a given problem.
The success of Delphi technique depends upon a simple technique of understanding the problem from the other man's perspective. This ensures success. Though it is a useful technique, since it involves time and cost,it can not be tried in all situations. At the operations level hundreds of de(isions are made in order to achieve local outcomes that contribute to the achievement of a company's overall strategic goal. However, all these decisions are interrelated and must be coordinated for the purpose of attaining the overall company goals. Many decisions-making situations occur under conditions of uncertainty.
For example, the demand for a product may not be 100 units next week but may vary between 0 and 200 units, depending on the state of the market, which is uncertain. Decision analysis is a set of quantitative decision-making techniques to aid the decision maker in dealing with a decision situation in which there is uncertainty. However, the usefulness of decision analysis for decision making is also a beneficial topic to study because it reflects a structured, systematic approach to decision making that many decision makers follow intuitively without ever consciously thinking about it.
Decision analysis represents not only a collection of decision-making techniques but also an analysis of logic underlying decision making. The general process of the Delphi technique follows: A panel of people who are knowledgeable about a particular problem is selected. The members of the group never actually meet. The panel can have members both inside and outside the organization, and the individual members may or may not know who the other members are. A questionnaire about the problem to be solved is sent to each members of the panel. Each person is asked to make anonymous suggestions.
These suggestions are pooled, and a feedback report is developed. The feedback report and a more advanced, second stage questionnaire are sent back to the panel members. Each panel member independently evaluates the feedback report, votes on the priority of the ideas contained in it, and generates new ideas based on it. The process is repeated until a consensus is reached or until the manager feels that sufficient information has been received to make a decision. A final summary feedback report is developed and set back to the group members. A major advantage of the Delphi approach is its anonymity.
In groups that interact face-to-face, one person may dominate, or everyone may watch the manager for clues to what is wanted. Further is interacting groups and individual may take a stand and not want to back down for fear of losing face. Frequently experts are more concerned with defending their position than with reaching a good decision. Electronic meetings: The most recent approach to group decision making blends the nominal group technique with sophisticated computer technology. It's called the electronic meeting. The major advantages of electronic meetings are anonymity, honestly and speed.
Participants can anonymously type any message they want and it flashes on the screen for all to see at the push of a participant's board key. It also allows people to be brutally honest without penalty. And it's fast because chitchat is eliminated, discussions don't digress and many participants can "talk" at once without stepping on one another's toes. Experts claim that electronic meetings are as much as fifty five percent faster than traditional face to face meetings. Phelps Dodge Mining for instance, used the approach to cut its annual planning meeting from several days down to twelve hours.
Yet there are drawbacks to this technique. Those who can type fast can outshine those who are verbally eloquent but lousy typists, those with the best ideas don't get credit for them, and the process lacks the information richness of face to face-to-face oral communication. But although this technology is currently in its infancy, the future of group decision making is very likely to include extensive use of electronic meetings. Decision making without probabilities:- A decision making situation includes several components, the decision themselves and events that may occur in the future, known as states of nature.
Future states of nature may be high or low demand for a product or good or bad economic conditions. At the time a decision is made, the decision maker is uncertain which state of nature will occur in the future and has no control over these states of nature. When the probabilities can be assigned to the occurrence of states of nature in the future, the situation is referred to as "decision making under risk". When probabilities cannot be assigned to the occurrence of future events, the situation is called "decision making under uncertainty".
Each decision will result in an outcome or payoff, for each state of nature that will occur in the future. Payoffs are typically expressed in terms of profit, revenues, or cost. For example, if decision 1 is to expand a production facility and state of nature a is good economic conditions, payoff la could b e $100,000 in profit. Once the decision situation has been organized into a payoff table, several criteria are available to reflect how the decision maker arrives at a decision, including maximax, maximin, minimax regret, Hurwicz, and equal likelyhood.
These criteria reflect different degrees of decision-maker conservatism or liberalism. On occasion they result in the same decision; however, they often yield different results. Different decision criteria often result in a mix of decisions. The criteria used and the resulting decisions depend on the decision maker. For example, the extremely optimistic decision maker might disregard the preceding results and make the decision to maintain the status quo, because the maximax criterion reflects his or her personal decision-making philosophy.