Decision Making Process In Management - Problem Solving

1. What is Decision Making?

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 hundreds of decisions consciously and subconsciously. Decision-making is the key part of manager's activities. Decisions are important as they determine both managerial and organi ational actions. A decision may be defined as !a course of action "hich is consciously chosen from among a set of alternatives to achieve a desired result.! It represents a "ell-balanced judgment and a commitment to action. It is rightly said that the first important function of management is to take decisions on problems and situations. Decision-making pervades all managerial actions. It is a continuous process. Decision-making is an indispensable component of the management process itself.

#eans and ends are linked together through decision-making. $o decide means to come to some definite conclusion for follo"-up action. Decision is a choice from among a set of alternatives. $he "ord 'decision' is derived from the %atin "ords de ciso "hich means 'a cutting a"ay or a cutting off or in a practical sense' to come to a conclusion. Decisions are made to achieve goals through suitable follo"-up actions. Decision-making is a process by "hich a decision &course of action' is taken. Decision-making lies embedded in the process of management. According to (eter Drucker) !*hatever a manager does) he does through decision-making!. A manager has to take a decision before acting or before preparing a plan for e+ecution. #oreover) his ability is very often judged by the ,uality of decisions he takes. $hus) management is al"ays a decisionmaking process. It is a part of every managerial function. $his is because action is not possible unless a firm decision is taken about a business problem or situation. $his clearly suggests that decision-making is necessary in planning) organising) directing) controlling and staffing. -or e+ample) in planning alternative plans are prepared to meet different possible situations. .ut of

such alternative plans) the best one &i.e.) plan "hich most appropriate under the available business environment' is to be selected. Here) the planner has to take correct decision. $his suggests that decision-making is the core of planning function. In the same "ay) decisions are re,uired to be taken "hile performing other functions of management such as organising) directing) staffing) etc. $his suggests the importance of decision-making in the "hole process of management. $he effectiveness of management depends on the ,uality of decisionmaking. In this sense) management is rightly described as decision-making process. According to /. 0. Davis) !management is a decision-making process.! Decision-making is an intellectual process "hich involves selection of one course of action out of many alternatives. Decision-making "ill be follo"ed by second function of management called planning. $he other elements "hich follo" planning are many such as organising) directing) coordinating) controlling and motivating. Decision-making has priority over planning function. According to (eter Drucker) it is the top management "hich is responsible for all strategic decisions such as the objectives of the business) capital e+penditure decisions as "ell as such operating decisions as training of manpo"er and so on. *ithout such decisions) no action can take place and naturally the resources "ould remain idle and unproductive. $he managerial decisions should be correct to the ma+imum e+tent possible. -or this) scientific decision-making is essential.

2. Definitions of Decision-making 1. $he .+ford Dictionary defines the term decision-making as !the action of carrying out or carrying into effect!. 2. According to $re"atha 3 4e"port) !Decision-making involves the selection of a course of action from among t"o or more possible alternatives in order to arrive at a solution for a given problem!.

3. Characteristics of Decision Making 1. Decision making implies choice5 Decision making is choosing from among t"o or more alternative courses of action. $hus) it is the

process of selection of one solution out of many available. -or any business problem) alternative solutions are available. #anagers have to consider these alternatives and select the best one for actual e+ecution. Here) planners/ decision-makers have to consider the business environment available and select the promising alternative plan to deal "ith the business problem effectively. It is rightly said that !Decision-making is fundamentally choosing bet"een the alternatives!. In decision-making) various alternatives are to be considered critically and the best one is to be selected. Here) the available business environment also needs careful consideration. $he alternative selected may be correct or may not be correct. $his "ill be decided in the future) as per the results available from the decision already taken. In short) decision-making is fundamentally a process of choosing bet"een the alternatives &t"o or more' available. #oreover) in the decisionmaking process) information is collected6 alternative solutions are decided and considered critically in order to find out the best solution among the available. 7very problem can be solved by different methods. $hese are the alternatives and a decision-maker has to select one alternative "hich he considers as most appropriate. $his clearly suggests that decision-making is basically/fundamentally choosing bet"een the alternatives. $he alternatives may be t"o or more. .ut of such alternatives) the most suitable is to be selected for actual use. $he manager needs capacity to select the best alternative. $he benefits of correct decision-making "ill be available only "hen the best alternative is selected for actual use. 2. 0ontinuous activity/process5 Decision-making is a continuous and dynamic process. It pervades all organi ational activity. #anagers have to take decisions on various policy and administrative matters. It is a never ending activity in business management. 8. #ental/intellectual activity5 Decision-making is a mental as "ell as intellectual activity/process and re,uires kno"ledge) skills) e+perience and maturity on the part of decision-maker. It is essentially a human activity. 9. :ased on reliable information/feedback5 ;ood decisions are al"ays based on reliable information. $he ,uality of decision-making at all levels of the .rganisation can be improved "ith the support of an effective and efficient management information system &#I<'. =. ;oal oriented process5 Decision-making aims at providing a solution to a given problem/ difficulty before a business enterprise. It is a goaloriented process and provides solutions to problems faced by a business unit.

>. #eans and not the end5 Decision-making is a means for solving a problem or for achieving a target/objective and not the end in itself. ?. /elates to specific problem5 Decision-making is not identical "ith problem solving but it has its roots in a problem itself. @. $ime-consuming activity5 Decision-making is a time-consuming activity as various aspects need careful consideration before taking final decision. -or decision makers) various steps are re,uired to be completed. $his makes decision-making a time consuming activity. A. 4eeds effective communication5 Decision-taken needs to be communicated to all concerned parties for suitable follo"-up actions. Decisions taken "ill remain on paper if they are not communicated to concerned persons. -ollo"ing actions "ill not be possible in the absence of effective communication. 1B. (ervasive process5 Decision-making process is all pervasive. $his means managers "orking at all levels have to take decisions on matters "ithin their jurisdiction. 11. /esponsible job5 Decision-making is a responsible job as "rong decisions prove to be too costly to the .rganisation. Decision-makers should be matured) e+perienced) kno"ledgeable and rational in their approach. Decision-making need not be treated as routing and casual activity. It is a delicate and responsible job.

. !"vantages of Decision Making 1. Decision making is the primary function of management5 $he functions of management starts only "hen the top-level management takes strategic decisions. *ithout decisions) actions "ill not be possible and the resources "ill not be put to use. $hus decision-making is the primary function of management. 2. Decision-making facilitates the entire management process5 Decisionmaking creates proper background for the first management activity called planning. (lanning gives concrete shape to broad decisions about business objectives taken by the top-level management. In addition) decision-making is necessary "hile conducting other management functions such as organising) staffing) coordinating and communicating.

8. Decision-making is a continuous managerial function5 #anagers "orking at all levels "ill have to take decisions as regards the functions assigned to them. 0ontinuous decision making is a must in the case of all managers/e+ecutives. -ollo"-up actions are not possible unless decisions are taken. 9. Decision-making is essential to face ne" problems and challenges5 Decisions are re,uired to be taken regularly as ne" problems) difficulties and challenges develop before a business enterprise. $his may be due to changes in the e+ternal environment. 4e" products may come in the market) ne" competitors may enter the market and government policies may change. All this leads to change in the environment around the business unit. <uch change leads to ne" problems and ne" decisions are needed. =. Decision-making is a delicate and responsible job5 #anagers have to take ,uick and correct decisions "hile discharging their duties. In fact) they are paid for their skill) maturity and capacity of decision-making. #anagement activities are possible only "hen suitable decisions are taken. 0orrect decisions provide opportunities of gro"th "hile "rong decisions lead to loss and instability to a business unit.

#. Ste$s Involve" In Decision Making Process

Decision-making involves a number of steps "hich need to be taken in a logical manner. $his is treated as a rational or scientific 'decision-making process' "hich is lengthy and time consuming. <uch lengthy process needs to be follo"ed in order to take rational/scientific/result oriented decisions. Decision-making process prescribes some rules and guidelines as to ho" a decision should be taken / made. $his involves many steps logically arranged. It "as (eter Drucker "ho first strongly advocated the scientific method of decision-making in his "orld famous book '$he (ractice of #anagement' published in 1A==. Drucker recommended the scientific method of decision-making "hich) according to him) involves the follo"ing si+ steps5 1. Defining / Identifying the managerial problem) 2. Analy ing the problem) 8. Developing alternative solutions)

9. <electing the best solution out of the available alternatives) =. 0onverting the decision into action) and >. 7nsuring feedback for follo"-up.

$he figure given belo" suggests the steps in the decision-making process5-

1. Identifying the (roblem5 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 "ell-defined is a problem half-solved. Information relevant to the problem should be gathered so that critical analysis of the problem is possible. $his is ho" the problem can be diagnosed. 0lear distinction should be made bet"een the problem and the symptoms "hich may cloud the real issue. In brief) the manager should search the 'critical factor' at "ork. It is the point at "hich the choice applies. <imilarly) "hile diagnosing the real problem the manager should consider causes and find out "hether they are controllable or uncontrollable. 2. Analy ing the (roblem5 After defining the problem) the ne+t step in the decision-making process is to analy e the problem in depth. $his is necessary to classify the problem in order to kno" "ho must take the

decision and "ho must be informed about the decision taken. Here) the follo"ing four factors should be kept in mind5 1. -uturity of the decision) 2. $he scope of its impact) 8. 4umber of ,ualitative considerations involved) and 9. Cni,ueness of the decision. 8. 0ollecting /elevant Data5 After defining the problem and analy ing its nature) the ne+t step is to obtain the relevant information/ data about it. $here is information flood in the business "orld due to ne" developments in the field of information technology. All available information should be utilised fully for analysis of the problem. $his brings clarity to all aspects of the problem. 9. Developing Alternative <olutions5 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. .nly realistic alternatives should be considered. It is e,ually important to take into account time and cost constraints and psychological barriers that "ill restrict that number of alternatives. If necessary) group participation techni,ues may be used "hile developing alternative solutions as depending on one solution is undesirable. =. <electing the :est <olution5 After preparing alternative solutions) the ne+t step in the decision-making process is to select an alternative that seems to be most rational for solving the problem. $he alternative thus selected must be communicated to those "ho are likely to be affected by it. Acceptance of the decision by group members is al"ays desirable and useful for its effective implementation. >. 0onverting Decision into Action5 After the selection of the best decision) the ne+t step is to convert the selected decision into an effective action. *ithout such action) the decision "ill remain merely a declaration of good intentions. Here) the manager has to convert 'his decision into 'their decision' through his leadership. -or this) the subordinates should be taken in confidence and they should be convinced about the correctness of the decision. $hereafter) the manager has to take follo"-up steps for the e+ecution of decision taken. ?. 7nsuring -eedback5 -eedback 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 e+pectations. It is like checking the effectiveness of follo"-up measures. -eedback is possible in the form of organised information) reports and personal observations. -eed back is necessary to decide "hether the decision already taken should be continued or be modified in the light of changed conditions.

7very step in the decision-making process is important and needs proper consideration by managers. $his facilitates accurate decision-making. 7ven ,uantitative techni,ues such as 0(#) (7/$/./) linear programming) etc. are useful for accurate decision-making. Decision-making is important as it facilitates entire management process. #anagement activities are just not possible "ithout decision-making as it is an integral aspect of management process itself. Ho"ever) the ,uality of decision-making should be al"ays superior as faulty/irrational decisions are al"ays dangerous. Darious advantages of decision-making &already e+plained' are easily 'available "hen the entire decision-making process is follo"ed properly. Decisions are fre,uently needed in the management process. Ho"ever) such decisions should be appropriate) timely and rational. -aulty and hasty decisions are "rong and even dangerous. $his clearly suggests that various advantages of decision-making are available only "hen scientific decisions are taken by follo"ing the procedure of decision-making in an appropriate manner. -or accurate/rational decision-making attention should be given to the follo"ing points5 1. Identification of a "ide range of alternative courses of action i.e.) decisions. $his provides "ide choice for the selection of suitable decision for follo"-up actions. 2. A careful consideration of the costs and risks of both positive and negative conse,uences that could follo" from each alternation. 8. 7fforts should be made to search for ne" information relevant to further evaluation of the alternatives. $his is necessary as the ,uality of decision depends on the ,uality of information used in the decisionmaking process. 9. /e-e+amination of the positive and negative effects of all kno"n alternatives before making a final selection.

=. Arrangements should be made for implementing the chosen course of action including contingency plans in the event that various kno"n risks "ere actually to occur. >. 7fforts should be made to introduce creativity and rationality in the final decision taken.

%. Wh& 'ational an" 'ight Decisions !re (ot Possible?

/ational decisions are the best decisions under the available circumstances. All decisions should be rational as such decisions facilitate e+pansion of business and give more profit) good"ill and prosperity to a business unit. /ationality and decision-making are closely related concepts. /ationality principle is applicable to all types of decisions. All decisions &business) economic) social etc.' should be fair and rational. $hey should serve as e+amples over a long period. -or such decisions) rational/scientific/balanced approach is essential "hile making decisions. In the absence of such approach) decisions are likely to be faulty and dangerous to the .rganisation and also to all concerned parties. /ationality in decision-making is possible through human brain "hich has the ability to learn) think) analy e and relate comple+ facts and variables "hile arriving at a decision. A manager has to introduce rationality in his decision-making by using his skills) e+perience) kno"ledge and mental abilities. .n some occasions) such rational and right decisions are not taken due to variety of possible reasons. It is also possible that the decision taken may be rational "hen taken but is treated as "rong/irrational/faulty because' the results available from the decision taken are not as e+pected/positive/encouraging. /ational decisions may not be possible "hen the approach of the decision-maker is casual and superficial. He may not be alert) careful and cautious "hile taking the decisions or he might not have follo"ed the decision-making process in a scientific manner. In brief) all business decisions should be rational as far as possible as such rational decisions offer many benefits/advantages. Ho"ever) rational decisions may not be taken on certain occasions. According to Herbert A. <imon) human beings are not al"ays rational in the decisional process.

). 'easons Wh& 'ational an" 'ight Decisions Ma& (ot *e Possible? 1. Inade,uate information) data and kno"ledge5 -or rational decisionmaking accurate) reliable and complete information about various aspects of the problem under investigation is necessary. $he possible future trends can be estimated "ith the help of such information. $his facilitates rational decision-making. Ho"ever) ade,uate and reliable information may not be available at the time of decision-making. As a result) the decisions become defective or irrational. <uch decision may prove to be faulty in the course of time. $his is ho" the decisions become irrational to certain e+tent. 2. Cncertain environment5 Decisions are taken on the basis of information available about various environmental variables. Ho"ever) the variables are many and comple+ in nature. $hey may be related to political) economic) social and other aspects. It is not possible to study all such variables in depth due to inade,uate information/data. $his leads to inaccuracy in decision making and the decisions taken are not fully rational. 8. %imited capacity of decision-maker. A decision-maker should be e+pert) kno"ledgeable) intelligent and matured. He needs vision and capacity to imagine possible future situation. In the absence of such ,ualities) the decision-maker may not be able to take rational decisions. <imilarly) the decision taken may not be rational if the decision-maker fails to follo" all necessary steps re,uired for scientific decision-making. A hasty decision or decision taken "ithout full use of all mental faculties may not be fully rational. $hus) decisions are likely to be less rational if the decision maker lacks capacity to take rational decisions. 9. (ersonal element in decision-making5 Decision-making should be al"ays impartial and also favorable to the .rganisation. Decision against .rganisation but favorable to decision maker or other employees "ill be unfair. <uch decision "ill not be rational. <imilarly) every decision-maker has his o"n personal background in the form of personal beliefs) attributes) preferences) likes and dislikes and so on. A decision-maker is e+pected to keep these elements a"ay "hile taking management decisions. $his may not be possible in the case of all decision-makers and on all occasions. Ho"ever) decisions are not fully rational "hen such personal element comes in the picture. =. A decision cannot be fully independent5 #anagerial decisions are interlinked and interdependent. A manager has to make adjustments or compromises "hile making decisions. -or e+ample) for reducing

price) some compromise "ith the ,uality may be necessary. A manager gives more importance to one and less to the other. He takes one decision "hich is rational at the same time makes some compromise in the other decision. As a result) other decision is not likely to be fully rational. In short) business decisions are interlinked. $his brings an element of irrationality in some decisions. $he points noted above suggest "hy it is not possible to take rational and right decisions on all occasions.

+. 'elationshi$ *et,een Planning an" Decision-making

$here is close relationship bet"een planning and decision-making. Decisionmaking has priority over planning function. It is the starting point of the "hole management process. In fact) decision-making is a particular type of planning. A decision is a type of plan involving commitment to resources for achieving specific objective. According to (eter Drucker) it is the top management "hich is responsible for all strategic decisions such as the objectives of the business) capital e+penditure decisions as "ell as operating decisions such as training of manpo"er and so on. *ithout management decisions) no action can take place and naturally the resources "ould remain idle and unproductive. $he managerial decisions should be correct to the ma+imum e+tent possible. -or this) scientific decision-making is essential.