Managerial Decision-Making Process/Steps

● Decision-making is the process of making choices by identifying a decision,

gathering information, and assessing alternative resolutions.
● Using a step-by-step decision-making process can help you make more
deliberate, thoughtful decisions by organizing relevant information and defining
alternatives. This approach increases the chances that you will choose the most
satisfying alternative possible.
● Decision-making is crucial for running a business enterprise that faces a large
number of problems requiring decisions.
● Which product to be produced, what price to be charged, what quantity of the
product to be produced, what and how much advertisement expenditure to be
made to promote the sales, and how much investment expenditure to be incurred
are some of the problems which require decisions to be made by managers.

The five steps involved in the managerial decision-making process are explained
below:

1. Establishing the Objective:

● The first step in the decision-making process is to establish the objective of
the business enterprise. The important objective of a private business
enterprise is to maximize profits.
● However, a business firm may have some other objectives such as
maximization of sales or growth of the firm.
● But the objective of a public enterprise is normally not maximization of
profits but to follow benefit-cost criterion.
● According to this criterion, a public enterprise should evaluate all
social costs and benefits when deciding whether to build an airport, a power
plant, a steel plant, etc.

2. Defining the Problem:

● The second step in the decision-making process is one of defining or
identifying the problem. Defining the nature of the problem is important because decision-
making is after all meant for the solution of the problem.
● For instance, a cotton textile firm may find that its profits are declining.
It needs to be investigated what are the causes of the problem of
decreasing profits. Whether it is the wrong pricing policy, bad
labor-management relations, or the use of outdated technology which is causing the
problem of declining profits. Once the source or reason for falling profits has been found,
the problem has been identified and defined.
 3. Identifying Possible Alternative Solutions (i.e. Alternative Courses of Action):
● Once the problem has been identified, the next step is to find out alternative
solutions to the problem. This will require considering the variables that
have an impact on the problem.
● In this way, relationships among the variables and with the problems have
to be established.
● Regarding this, various hypotheses can be developed which will become
alternative courses for the solution of the problem.
● For example, in the case of the problem mentioned above, if it is identified
that the problem of declining profits is due to be use of technologically
inefficient and outdated machinery in production.
The two possible solutions to the problem are:
 (1) Updating and replacing only the old machinery.
(2) Building an entirely new plant equipped with the latest machinery.
The choice between these alternative courses of action depends on which will bring about
a larger increase in profits.

4. Evaluating Alternative Courses of Action:

● The next step in business decision-making is to evaluate the alternative
courses of action. This requires the collection and analysis of the relevant
data.
● Some data will be available within the various departments of the firm itself,
the other may be obtained from the industry and government.
● The data and information obtained can be used to evaluate the outcome or
results expected from each possible course of action.
● Methods such as regression analysis, differential calculus, linear
programming, and cost-benefit analysis are used to arrive at the optimal
course. The optimum solution will help to achieve the established objective
of the firm.
● The course of action which is optimum will be chosen. It may be further
noted that for the choice of an optimal solution to the problem, a manager
works under certain constraints.
● The constraints may be legal such as laws regarding pollution and disposal
of harmful wastes; they may be financial (i.e. limited financial resources);
they may relate to the availability of physical infrastructure and raw
materials, and they may be technological which set limits to the possible
output to be produced per unit of time.

5. Implementing the Decision:

● After the alternative courses of action have been evaluated and the optimal
course of action selected, the final step is to implement the decision.
● The implementation of the decision requires constant monitoring so
that expected results from the optimal course of action are obtained. Thus,
if it is found that expected results are not forthcoming due to the wrong
implementation of the decision, then corrective measures should be taken.
● However, it should be noted that once a course of action is implemented to
achieve the established objective, changes in it may become necessary
from time to time in response to changes in conditions or the firm's operating
environment based on which decisions were taken.
Phases of Decision Making
Types of Decision-Making in Management

1. Routine and Basic Decision-making

● Routine decision-making, refers to the process of making decisions that are

made regularly and involve choosing between a few options that the
decision-maker is familiar with.
○ Examples of routine decision-making include setting work schedules,
ordering supplies, and approving routine expenses. Managers make routine
decisions in the daily functioning of the organization, and they often
delegate these decisions to their subordinates.
● Basic decision-making refers to the process of making simple decisions that do
not require much evaluation or analysis.
○ Examples of basic decision-making include setting work schedules,
ordering supplies, and approving routine expenses. Managers make basic
decisions in the daily functioning of the organization, and they often
delegate these decisions to their subordinates.

2. Personal and Organizational Decision-making

● An organizational decision is made on behalf of the organization and is related

to the organization's operations, policies, or strategic plans. These decisions can
be delegated to subordinates and usually have a significant impact on the
organization's success.
○ Examples of organizational decisions include setting production
targets, choosing suppliers, or investing in new technology.
● In contrast, a personal decision is a decision made by a manager that is not
related to the organization in any way. These decisions are related to the
manager's personal life within the organization and cannot be delegated to
subordinates.
○ Examples of personal decisions include what to eat for lunch, what mode
of transportation to use for commuting, or what hobby to pursue outside of
work.

3. Individual and Group Decision-making

● Individual decision-making is when one person decides an official capacity,

often in smaller organizations or with an autocratic management style.
○ Examples include a CEO investing in a new product or a manager firing an
employee.
 ● Group decision-making involves a collective of employees and managers
making decisions through a collaborative process. Multiple viewpoints and
perspectives are considered.
○ Examples include a team of managers deciding on a marketing strategy or
a board of directors deciding on a merger or acquisition.

4. Programmed and Non-Programmed Decision-making

● Programmed decision-making refers to decisions that are repetitive and follow a

specific set of procedures. These decisions are typically made by lower-level
managers and are implemented daily.
○ Examples of programmed decisions include setting work schedules,
granting employee leave, and ordering routine supplies. These decisions
are not typically long-term and can be changed at any time.
● Non-programmed decision-making, on the other hand, relates to decisions that are
not routine and arise from unstructured problems. These decisions are usually
made by upper-level management and have a long-term impact on the
organization.
○ Examples of non-programmed decisions include launching a new product
line, entering a new market, or responding to a crisis situation.

5. Policy and Operating Decision-making

● Policy decision-making is the process of making decisions that establish the

overall direction, goals, and objectives of an organization. These decisions are
made by top-level executives and have a long-term impact on the organization as
a whole.
○ Examples of policy decisions include setting strategic goals, defining the
company's mission, and determining the organizational structure.
● Operating decision-making, on the other hand, relates to the day-to-day
operations of an organization. These decisions are made by lower-level managers
and employees and are focused on implementing the policies and plans
established by the top-level executives.
○ Examples of operating decisions include managing inventory,
scheduling production, and addressing customer service issues.

6. Tactical and Strategic Decision-making

 ● Tactical decision-making refers to the process of making decisions that help
implement the plans and policies established by higher-level management.
These decisions are more short-term in nature and are usually made by middle and lower-
level managers.
○ Examples of tactical decisions include scheduling production,
managing inventory, and resolving customer service issues.
● Strategic decision-making, on the other hand, refers to decisions that have a
significant impact on the long-term success of the organization. These decisions
are usually made by upper and middle-level management and require careful
analysis and evaluation.
○ Examples of strategic decisions include entering a new market, developing
new products or services, and investing in new technology.

7. Planned and Unplanned Decision-making

● Planned decision-making refers to decisions that are made in advance and are
part of an established process. These decisions are based on predetermined
criteria and often involve a systematic approach to problem-solving.
○ Examples of planned decision-making include budgeting, project planning,
and performance evaluations.
● Unplanned decision-making, on the other hand, refers to decisions that are made
in response to unexpected events or situations. These decisions may not follow a
predetermined process or have established criteria.
○ Examples of unplanned decision-making include crisis management,
responding to customer complaints, and adapting to changes in the market
or industry.

Management by Management by Exception

Objectives (MBO) (MBE)

Definition A management approach in A management approach in

which managers and which managers monitor
employees work together to performance and take action only
set and achieve specific when deviations from
goals. established standards occur.
Goals Specific and measurable Standards are set in advance
goals are set in advance and and managers monitor
agreed upon by all parties. performance to ensure they are
met.

Emphasis Emphasis is placed on Emphasis is placed on

setting and achieving goals. monitoring and controlling
performance.

Role of Managers actively Managers primarily monitor

Managers participate in setting and performance and take action
achieving goals. when necessary.

Role of Employees are involved in Employees are responsible for

Employees setting goals and take meeting established standards.
responsibility for achieving
them.

Decision-Making Decisions are made based Decisions are made based on

on goal attainment. deviation from established
standards.

Feedback and Regular feedback and Feedback and communication

Communication communication is necessary primarily occur when deviations
to ensure progress towards from standards are identified.
goals.

Implementation Implementation and Implementation and evaluation

and Evaluation evaluation of progress primarily occur when deviations
toward goals is ongoing. from standards are identified.
Key differences between MBO and MBE
● Focus: MBO focuses on setting and achieving specific, measurable goals, while
MBE focuses on identifying and addressing exceptions or deviations from
established standards or goals.
● Proactivity vs reactivity: MBO is a proactive management approach, while MBE
is a reactive management approach.
● Participation: In MBO, managers and employees work together to set and
achieve goals, while in MBE, managers focus on identifying and addressing
exceptions or deviations.
● Emphasis: MBO emphasizes goal setting and achievement, while MBE
emphasizes problem identification and resolution.
● Time frame: MBO focuses on long-term goals and objectives, while MBE focuses
on identifying and addressing short-term exceptions or deviations.
● Feedback: MBO includes regular feedback and evaluation to measure progress
towards goals, while MBE focuses on identifying and addressing exceptions or
deviations as they occur.
● Management level: MBO is typically implemented at the organizational level,
while MBE is typically implemented at the operational level.
● Outcome: The outcome of MBO is achieving specific, measurable goals, while the
outcome of MBE is identifying and addressing problems or inefficiencies in the
organization.
Staffing
Staffing includes recruitment, selection, training, development, promotion, and
compensation of personnel. It is the process of hiring and developing the required
personnel to fill various positions in the organization. It involves estimating the number
and type of personnel required, recruiting and developing them, and maintaining and
improving their competence and performance.
Staffing may also be defined as the process of identifying, assessing, placing,
developing, and evaluating individuals at work.
Definitions of staffing as given by various management thinkers are as follows:
Koontz and O’Donnell define staffing as “The managerial function of staffing involves
manuring the organizational structure through proper and effective selection, appraisal
and development of personnel to fill the roles designed into the structure.”
Theo Haimann defines staffing as “Staffing pertains to recruitment, selection,
development, and compensation of subordinate.
According to Mc Farland, “ Staffing is the function by which managers build an
organization through the recruitment, selection, and development of individuals as
capable employees”.
Human resources are the most important resource of any organization. They supply
talent, skills, knowledge, and experience to achieve the organization’s objectives. Other
resources of production remain useless without manpower. The result provided by other
resources depends on the ability of humans to use them. So, human resources is very
important. If an organization has enough manpower or the right man on the right job
then achieving the targets of the organization becomes easy.

Nature of Staffing
Staffing is an integral part of human resource management. It helps in procuring and
placing of right persons in the right jobs. The nature of staffing has been discussed
below:
1. Staffing relates to people: Staffing is people-centric i.e. it relates to people.
Manpower is required in all types of organizations. It is concerned with all categories of
personnel from top to bottom. Whether it is upper level or lower level human resources
is necessary. Broadly an organization requires blue collared employees i.e. those
working on the machines, white collared workers i.e., clerical employees, Blue collar
workers (i.e ) Managerial and non-managerial personnel, and Professionals such as
Chartered Accountant, Company Secretaries, Lawyers, etc.
2. Staffing is pervasive: Staffing is a basic function of management and is the
responsibility of every manager. Every manager is continuously engaged in performing
the staffing function of recruiting, selecting, training, and appraisal of his subordinates.
These activities are performed by the chief executive, departmental managers, and
foremen with their subordinates. Thus, staffing is a pervasive function of management
and is performed by managers at all levels. Staffing is such an important function that in
many enterprises, a Personnel Department is created to perform these activities. But still,
managers at different levels are not relieved of the responsibility concerned with staffing.
The Personnel Department assists the managers in performing their staffing functions.
Thus, every manager has to share the responsibility of staffing.
3. Human Skills: Staffing relates to human resources. Every manager should use the
humanistic approach in providing guidance and training to the subordinates. Human
relations skills are also required in performance appraisal, transfer, and promotion of
subordinates. If the staffing function is performed properly, the human relations in the
organization will always be cordial.
4. Continuous Function: Staffing is a continuous function. It is equally important in the
established organizations and the new organizations. In a new organization, managers
are engaged in the recruitment, selection, and training, etc. of personnel. In a running
organization, every manager guides and trains the workers, evaluating their
performance, filling vacancies, promotions, etc. continuously.

Importance of Staffing
Human resources are the most important resources of any organization. It is imperative
for organizations that the right kind of people are employed in the right positions. They
should be given adequate training and motivated continuously so that productivity gets
increased and waste is minimal. Effective performance of the staffing function is
necessary to realize the following benefits:
1. Efficient Performance of Managerial Functions:
Staffing is the key to the efficient performance of other functions of management. If
people are not competent, functions such as planning, organization, directing, and
controlling can’t be performed effectively.

2. Effective Use of Technology and Other Resources:

Men and materials remain useless in the absence of human resources. It is the human
factor that makes use of these resources. They are instrumental in the effective
utilization of the latest technology, capital, material, etc.

3 Development of Human Capital:

The management is required to determine the manpower requirements well in advance.
Once employed they also need to be imparted training for their development and career
advancement and also to meet the requirements of the company in future.

4. Motivation of Human Resources:

The behavior of individuals is shaped by many factors such as education level, needs,
socio-cultural factors, etc. That is why, the human aspect of organization has become
very important. The workers can be motivated through financial and non-
financialincentives.

5. Building Higher Morale:

The right type of climate should be created for the workers to contribute to the
achievement of the organizational objectives. By performing the staffing function
effectively, management can show the significance it attaches to the personnel
workingin the enterprise. This will increase the morale of the employees.