ApplyingScientific

thinkingto
managementproblems
FUNDAMENTALSOFRESEARCH
METHODS
IMPORTANCEOFRESEARCHINMANAGEMENT
DECISIONS
Structure
Fundamentals of Management Decisions
Types of Management Decisions
Importance of Research in Management Decisions
Scope of Research in Management Decisions
Limitations of Research in Management Decisions
Issues in Decision Making, Through Research
Steps in Decision Making Through Research
Operation Research Techniques and Methods Applied to Management
Decisions
Newer Trends in Decision Making Through Research
Summary
FUNDAMENTALS OF MANAGEMENT DECISIONS
Decision making is a well tried process of arriving at the best possible choice
for a solution within a reasonable period of time.
To come to a management decisions means to weigh options and to come to
a conclusion.
Decision making involves two or more alternatives, because if there is only
one alternative, there is no decision to make.
Decision making is a conclusion, the decision makers has reached as to what
he or others whom he leads should do at some points in time to the
betterment of business orations they serve.
CHARACTERISTICS OF MANAGEMENT DECISIONS
The following are the important characteristics of management decision
making.
a. An intellectual exercise: The process of decision making is basically a
human intellectual activity.
It is a mental exercise which considers and evaluates the alternatives for
realizing certain business objectives.
b. A process of selection: Decision making is basically a process of
selection.
It chooses the best alternative course from various alternative courses of
action, to optimize business performance
c. Resolution of Commitment: Decision making is a resolution of
commitment of mind to act in a certain manner in the given
circumstances.
It may mean to do or not to do a thing.
d. Evaluation of Alternatives: Before taking any final decision about
anything, the decision maker evaluates various pros and cons of the
different alternatives.
e. Decision is always Result Oriented: Decisions are means for
implementing managerial work load. No decision can be without a
purpose.
A managerial decision is taken to realize certain business objectives.
ELEMENTS OF DECISION MAKING
The following are the important elements of management decisions
a. Concepts of Good Decision: The first and important element of the
process of decision making is the perception of decision.
The decision should be sound, and result oriented.
The decision should be based on facts and careful analysis of facts and
figures.
b. Environment of Decisions: The management should create a favorable
environment in the organization structure for good decisions.
The decision environment can be divided into two parts;
internal and external.
In internal environment the labor management relations, organizational
pattern, the delegation of authority, decentralization policy etc. are some
of the important factors.
In external environment, socio-politico-techno factors are to be considered
c. Psychological Elements: The decision making is a human process so it is
but natural that the decision taken will be affected by the psychology of
the decision maker.
Some personal attributes affecting decision are intelligence, educational
level, temperament, position and attitude etc.
d. Timings of Decisions: All management decisions should be taken as far
as possible immediately and according to circumstances
e. Communication of Decision: The decision should be communicated to
the concerned parties as soon as they are finally taken.
Communication must be clear, simple, easy and comprehensive.
f. Participation of Employees: As far as possible the employees should be
given due participation in the process of decision making.
They should be motivated and trained for it.
Importance of Decision Making
In the present context of increasing complexity and size of business and
industry, on the one hand and fast changing Socio-Techno-Politico-Economic
environment, on the other, the importance of decision making cannot be
overemphasized
Complexity of today's managerial activities which involve constant analysis of
existing situation, setting objectives, seeking alternatives, implementing,
coordinating, controlling and evaluating decision made, clearly demonstrate
the significance of decision making.
In fact, management and administration is a decision making process.
Whatever a manager does, he does through decision making
The manager has to take decision before acting, whether consciously or
unconsciously.
Every manager is engaged in the decision making process.
Decision involved: What is to be done, how it is to be done, who is to do it,
and when it is to be done.
Some of the decisions are of routine nature, and others are of strategic
nature which may require a lot of systematic and scientific analysis.
Whatever may be the case, it cannot be denied that management consists
largely of decision making process.
Decision making spreads over all the managerial functions and covers all the
areas of business.
The management has to take a large number of decisions while performing
its functions of planning, organizing, staffing, directing and controlling. In
fact, the very determination of objectives, policies, programs, organizational
structure, motivational aspects, personnel functions etc., is a decision making
process
Activity
They say time and tide waits for nobody. Comment why timing of decision is
of paramount importance.

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TYPES OF MANAGEMENT DECISIONS

Basically decisions are classified as planning decisions and control decisions.
Sub classification of decisions under these two categories are shown in Figure
Classification of Decisions
However, some other authors classify decisions under the following
categories.
a) Programmed and Non-programmed Decisions
b) Routine and strategic Decisions
c) Policy and Operating Decisions
d) Department and Non-economic Decisions
e) Organizational and Personnel Decisions
f) Major and Minor Decisions
PLANNING DECISIONS ON TIME HORIZONS
The planning is necessary for all levels of an organization.
The types of decisions the planner make can be characterized by the freedom
of choice among alternatives as displayed in Figure
The highest level has the maximum freedom of choice, however risk involved
is also a
higher degree.
Freedom of Choice
At the top level, the aims and overall objectives of the organization are
determined.
The constraints, limiting the number of possible alternatives result from the
composition of the organization, and its environment, state of the economy,
role of the competitors, laws, resources of firm etc.
Each line lower in the hierarchical structure is further limited by constraints
listed above.
Thus a goal selected at the highest level gives direction to policy makers at
the next lower level.
These policies are then the guidelines which the level below uses to develop
procedure and directions.
At a still lower level the directions are converted to work orders and rules
The relationship between level of authority, number of employees and time
element is depicted in the following Figure
When period covered is more than 5 years and risk involved is large they are
called long term decisions, while short term decisions are those where time
span covered is a few months or a few weeks, depending upon the
requirements.
Medium range decisions are those where time coverage lies in between 1 to 2
years or so.
Time Horizons
STATIC PLANNING DECISIONS
There are routine decisions and related to short term policy and operational
problems, organizational and personnel difficulties, departmental and non-
economic matters.
DYNAMIC PLANNING DECISIONS
Dynamic planning decisions take into account the changes taking place
during the course of action when the planning is carried out.
Necessary modifications and effect of changed environments are incorporated
even at final stage of decision making process
a. Planning decisions under risk: These relate to the decisions which
surface at the time of launching a new enterprise, introduction of a new
product, merger, acquisition, international collaboration, expansion and
modernization etc.
b. Long-term Planning Decisions: These pertain to major objectives,
policies and strategies that will govern the acquisition and allocation of
corporate resources.
These decisions provide the broad guidelines to accomplish the strategic
goals of the organization
c. Medium-term Planning Decisions: These are more elaborate and
comprehensive in nature.
The process of co-ordination is emphasized and problems concerning
sales, production, revenue costs etc. are prepared.
While strategic planning is mad at top level of the company, medium
range planning is undertaken at the middle level, i.e., at the division level
or at the departmental level.
d. Short-term Planning Decisions: These are concerned with budgets and
functional plans (advertising, sales promotion, employment training,
inventory control etc.).
Short term plans are generally prepared quarterly monthly or even weekly.
PLANNING UNDER DYNAMIC CONDITIONS
Analysis of economic forces under static conditions is useful only to isolate
the effects of uncertainty and thereby development of further tools for
analysis.
Static decisions do not exist in practice, and planning is, therefore,
undertaken under conditions of change and uncertainty.
It is the dynamic character of the environment that makes the planning
difficult.
The central problem under dynamic conditions is the accuracy of a planner's
assessment of the future, since the future is uncertain
Although the degree of uncertainty may vary widely as between products,
markets, geographical and political area and times when a manager
estimates a future situation, he necessarily makes certain assumptions as to
what will happen.
As he weighs his contingencies in one way or the other, he obtains different
results.
Suppose, for example, that a manager was planning to build a new plant and
felt that he needed ten years to recover his costs.
He might assess the future with respect to markets, prices, labors costs,
material costs, utilization of plant, labor efficiency, taxes and other factors.
Suppose further that the estimated six possible situations as being most
likely to occur created out of different assumptions as to the future.
These might bring completely different estimates of the net profits as shown
in Figure
Dynamic Planning Scenario
PLANNING INTANGIBLE DECISIONS
Intangible considerations are factors affecting a decision which are
particularly difficult to quantify.
Such considerations are typically more prevalent when the scope of the
problem is large and the time span longer.
For instance, the site selection in plant location problem is influenced by
quality of labor force, climate, transportation facilities, reputation of the local
bodies, banking and other supporting facilities etc.
These factors must be considered in the plant location decision although they
are difficult to measure.
The level so authority exposed to the most intangibles are the levels best
qualified to evaluate them.
At the lower the problems are easier to quantity as shown in Figure
The level so authority
exposed to the most
intangibles are the
levels best qualified
to evaluate them.
At the lower the
problems are easier
to quantity as shown
in Figure
number of intangible
considerations,
number of conflicting
objectives and the
amount of planning
details required are
less at lower levels.
I ntangible Decision Making
CONTROL DECISIONS
Control is an essential part of the decision making process.
It is concerned with the evaluation and measurement of results.
Effective performance of the management function requires adequate
measure of control.
Control Decisions
The process of control begins with an objective analysis of goals of the
decision maker.
The determination of goals is generally treated as a process of planning,
control implies that the decision maker wants to devise ways and means of
building a framework accomplishing the objectives.
Standards are established and deviations are measured against these
standards and corrective actions are taken based on the decisions taken in
the light of intensity of deviations
PROGRAMMED AND NON-PROGRAMMED DECISIONS
The programmed decisions deal with the routine and or repetitive types of
problems, while non-programmed decisions deal with instantaneous and non-
repetitive types of problems.
ROUTINE AND STRATEGIC DECISIONS
Basic or strategic decisions relate to policy matters and usually involve large
investments or expenditure of funds.
Routine decisions, on the other, are those which require little deliberation or
those which are made repetitively.
For example, sending samples of a product to the government investigation
center is a routine decision, but lowering the price of a product or installation
of an automatic numerically controlled machine center is a major and
strategic decision.
POLICY AND STRATEGIC DECISIONS
Whether to give ex-gratia bonus to employees or not is a matter of policy to
be decided by the top management, but calculating the bonus in respect of
each employee is an operating decision which can be taken at much lower
level.
DEPARTMENTAL AND NON-ECONOMIC DECISIONS
Departmental decisions are taken by the departmental heads and relate to
the department only.
Decisions relating to the non-economic factors such as work ethos, values,
moral behavior etc. may be termed as non-economic decisions.
ORGANIZATIONAL AND PERSONAL DECISIONS
When the executive take decisions in their official capacity it is said that they
have taken an organizational decision.
On the other hand, personal decisions relate to the executive as an individual
and not as member of an organization.
Major and Minor Decisions
Decisions related to purchase of a big machine worth say a few lakh of rupee
be called a major decision.
On the other hand, purchase of a fountain pen, or ink or a few reams of
paper are minor decisions and may be decided, by the lower level of
employees
IMPORTANCEOFRESEARCHINMANAGEMENTDECISIONS
RESEARCH AND CORPORATE STRATEGY
Now a days great stress is laid down on integrating research with corporate
strategy.
Integrating research means first and foremost integrating research findings
into technology and business strategy then managing the research process
including its linkages broadly throughout the company, with the same
importance with which other critical corporate issues are managed.
In the proper strategic context, research should promote the products that
marketing offer, the process that manufacturing operates, and many of the
investment decisions that management makes
Research has three major strategic purposes:
a. To expand existing business: Existing business support includes
modifying products improve customer acceptance or adapting them to
different market standards or regulations, using different or new raw
materials or improvements in the manufacturing processes and dealing
with regulatory activities such as safety, considerations and environmental
compliance.
Business support also includes developing new products and
manufacturing processes to improve competitive position within the
existing business structure.
b. Exploring New Business: It involves providing opportunities for new
business using existing or new technologies.
The new business may be new to the company or new to the world.
Similarly the new technologies may be new to the world or new only to
the company
c. Broadening and Deepening Technological Capabilities: It may
concern existing or new technologies, depending on the perceived
opportunities and the company's competitive position.
Business Research vis- a- vi I ndustry Maturity
RESEARCH BASED MANAGEMENT DECISIONS FOR POSITIONING IN
INDUSTRY
The strategic mission of a company typically change as a function of maturity
of the industry in which the company operates, hence industry research helps
a. Embryonic Stage and Decision Making: The business mission of
research at the embryonic stage of the industry life-cycle is to help launch
the new business and establish its position by demonstrating the validity
of product concept in one or more applications and by establishing the
viability of the manufacturing process.
The mission may also include doing what is needed to establish and
defend the company's intellectual property
b. Growth Stage and Decision Making: During the growth stage the
purpose of research is to help grow the business and improve or sustain
its competitive position and applications or by enlarging the application
potential of existing products through improved features and reduced
costs
c. Maturity Stage and Decision Making: When the industry becomes mature, the
strategic role of research usually shifts to one of defending competitive
position by extending the differentiation potential of products or focusing on
cost reduction. Management may decide to rejuvenate the business, and this
may also become the responsibility of research.
d. Aging Stage and Decision Making: In an aging industry the classical
role of research has been cost reduction and providing the customer support
necessary to safeguard profitability.
Strategically, perhaps a research thrust in the aging phase is to renew the
products or technology, of manufacturing and drive competitors out of
business rather than be driven out
MANAGEMENT AREAS OF DECISION MAKING
a. Marketing
Analysis of marketing research information
Statistical records for building and maintaining an existing market
Sales forecasting
b. Production
1. Production planning control and analysis
2. Evaluation of machine performance
3. Quality control requirements
4. Inventory control measures
c. Finance, Accounting and Investments
Financial forecast, budget preparation
Financial investment decisions
Selection of securities
Auditing functions
Credit policy, credit risk, and delinquent accounts
d. Personnel
Labor turnover rate
Employment trends
Performance appraisal
Wage rate and incentive plans
e. Economics
Measurement of gross national product and input-output analysis.
Determination of business cycle, long term growth and seasonal
fluctuations.
Comparison of market prices, cost and profits of individual firms
Analysis of population, land economics and economics of geography
Operational studies of public utilities
Formulation of appropriate economic policies and evaluation of their effect
f. Product Development
Development of new product lines
Optimal use of resources
Evaluation of existing products
SCOPEOFRESEARCHINMANAGEMENTDECISIONS
TYPES OF RESEARCH AND MANAGEMENT DECISIONS
The scope of research in decision making varies to a considerable extent on
types of organizations, field of operation, and environment of operations.
The following are the areas of research where it contributes its influence in
arriving at decisions:
a. Incremental Research: The role of incremental research is small
advances in technology, typically based on an established foundation of
scientific and engineering knowledge.
A typical example of incremental research is that of reducing
manufacturing costs by a continuing series of small but important
advances:
Energy conservation, computer guided process control, better metallurgy, for
lower maintenance cost etc.
Although each incremental improvement is small; in the aggregate they
typically produce meaningful savings.
The small incremental technical steps yield large strategic results
b. Radical Research: Radical research is the discovery of new knowledge
with the explicit goal of applying that knowledge to commercial use.
Discovery involves substantial technical risk, cost and time.
In radical research, usually exploratory projects or feasibility studies,
intended to test the basic concepts on which the scientific foundation of the
project rests are taken.
The decision to enter the development phase takes place only after
successful research has already considerably reduced uncertainty to levels
acceptable to the business.
Consciously managing radical research is a means of reducing risk.
c. Fundamental Research: Fundamental research is an area where some of
the most painful strategic decisions a company's management must make.
It wont pay off many years and there will be a host of uncertainties
scientific, competitive, social and governmental.
However, market leaders do go for it for retaining technology leadership
and market share.
Fundamental research is generally carried out by the government,
academic institutions and by large industrial establishments.
d. Targeted Basic Research: Research projects that are basic in nature but
technologically oriented are called targeted basic research.
In this type of projects governments and industry closely collaborate with
each other for opening up of applications of a new technological area.
e. Applied Research: The result of applied research are intended primarily
to be valid for a single or limited number of products, operations, methods
and systems.
Applied research develops ideas into operational forms, and lay emphasis
on new processes, improving existing product lines, or creating new ones,
or some specific aspects of a new technology relevant to the firm.
f. Innovation: Technological innovation refers to the process of creation,
evolution, and development of technological artefacts.
It refers to the range of activities from product design to its development
to its production and adoption or use.
Technological innovation decisions include all the decisions pertaining to
research, design, development, market research and testing.
LIMITATIONS OF RESEARCH IN MANAGEMENT
DECISIONS
The following are the main limitations/barriers for research in management
decisions
a. External barriers: These are external to the domain of firm's control but
are part of research.
Conservatism among customer dampen innovative spirits.
Competitors, action/reactions, legislation, consumerism, environmentalism
are other relevant barriers.
b. Management Barriers: Such barriers essentially relate to attitudes,
policy and sometimes operational issue or communication system. New
information may be blocked due to its potential to disrupt the existing
form of organizational stability.
There may be a lack of perceived need to acquire new information and or
lack of resource potential to utilize the new information.
i. Inappropriate Justification: Managers very often attempt to justify or
reject cultivation of scientific knowledge in terms of profitability.
A better way of looking at it is that it is knowledge that makes the person
who possesses it capable of practical action
ii. No fear of failure: Creative freedom is prerequisite for the accumulation
of subsequent innovative potential.
An idea which comes to nothing should not be equated with a failure
c. Organizational Barriers: These pertain to both structure and behavior.
Many organizations have negative potential for distorting or filtering the
flow of new information.
Also sharply defined and limited roles may bar flexibility to process new
information.
Further new information may not be utilized due to the selective
perception and related biases that are operative in the organization.
d. Historical Barriers: These represent the tradition and conservatism
within the organization.
e. Resource Barriers: This is a well known barrier. Creation is more
expensive than imitation. But to become leader resource barriers have to
be overcome.
f. People Barrier: Research/innovations are of immense commercial value.
Therefore it is the people who possess intellectual capital who matter the
most.
g. Miscellaneous factors: The other factors which affect management
decision making through research are:
i. Effect of education and training
ii. Financing of research
iii. Effect of norms and standards upon the new product development
iv. Policy of employment and wages