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The Business School

Jammu University

THE NATURE AND


PROCESS OF DECISION
MAKING

MANAGEMENT PERSPECTIVES

SUBMITTED TO: BY-ANKITA MAHAJAN


PROF. KESHAV SHARMA ROLL NO. -9
BIBLIOGRAPHY
eBooks
-L.M. Prasad (2002); Principles and Practices of Management; Sultan Chand &
Sons, Educational Publishers, 2002, New Delhi
- Harold Koontz and Heinz Weihrich (2003); Essentials of Management; Tata
McGraw-Hill Publishing Company Limited, Reprint 2003, New Delhi
Websites
-
http://www.economicsdiscussion.net/business/business-decision-making-problems-wi
th-diagram/6091
-
http://www.tutorialspoint.com/management_information_system/managerial_decisio
n_making.htm
- http://smallbusiness.chron.com/steps-decisionmaking-process-manager-10601.html
- http://www.cpp.edu/~wcweber/301/301slide/ch06301/sld004.htm
- http://business.queensu.ca/executiveeducation/programs/decision_making.php
Pdfs & File documents

-http://www.hec.gov.pk/InsideHEC/Divisions/LearningInnovation/Documents/Le
arning%20Portal/MUG/Managerial%20Decision%20making.pdf
-
http://economia.unipr.it/DOCENTI/CILLONI/docs/files/Lesson%2004%20Reading
%20facoltativa.pdf
-
http://www.olin.wustl.edu/docs/faculty/thakor_full_paper_managerial_decisions.p
df
- http://wac.colostate.edu/books/thinkingwriting/chapter3.pdf
- https://flora.insead.edu/fichiersti_wp/inseadwp1996/96-86.pdf

Journals
- IAENG International Journal of Computer Science, 32:4, IJCS_32_4_12;
Managerial Decision Making Under Risk and Uncertainty; Ari Riabacke
-Review of General Management ; MANAGERIAL DECISIONS IN BUSINESS ;
Objective :
What is a Decision ?
Decision & Decision Making.
Definition of Decision Making.
Managerial Decision Making.
Nature of Decision Making.
Main Features of Decision Making.
The Process of Decision Making.
Types Of Decisions.
Decisions under Certainty, Risk & Uncertainty.
WHAT IS A DECISION ?

Analyzing the problem.


Examining all the possible options.
Comparing the options available.
Selecting a course of action.
Executing the chosen course of action
Decisions and Decision Making

Decision = choice made from available


alternatives

Decision Making = process of identifying


problems and opportunities and resolving
them
Basics of Decision Making
Decision Making is regarded as a cognitive process
resulting in a selection of a belief or a course of action
among several alternatives possibilities.

Every Decision Making process produces a final choice


that may or may not prompt action.

It is a process if identifying and choosing alternatives


based on values and preferences of the decision maker.
Managerial Decision Making
Making Decisions has been
identified as one of the
primary responsibilities of
a manager .
Decision making is at the

core of all planned


activities.
Decision making is used in

all management functions but


usually it is considered a part
of Planning Phase.
Every Action of a Manager is generally an
outcome of a decision.

Owing to this fact, P.P. Drucker in his book Practice Of


Management, observes Whatever a manager does, he
does through making decisions.

Decision Making is the selection based on some criteria


from two or more possible alternatives.- George R. Terry.

A decision can be defined as a course of action


consciously chosen from available alternatives for the
purpose of desired result.- J.L. Massie
Elements of Decision Making Process
1. The decision maker
2. The decision problem
3. The environment in which the decision is to be taken
4. Objectives of the decision maker.
5. The available alternative course of action
6. The outcome expected from various alternatives.
7. The final choice of the alternative taken.
Nature of Decision Making
The nature of decision-making problem faced by business
firms is :

To identify the alternative courses of action of


achieving given objective(s), and then to select the
course of action that achieves the objective in the
economically most efficient way.
Example :
Consider Maruti Udyog Limited, the company which manufactures
cars.
Problem: Strategy to meet the growing market demand for its products.
Available course of Actions: 1. Plan for its internal expansion of
productive capacity.
2. Take over the premier Auto Ltd. & use its capacity to meet the
growing demand of is product.
Objective : To Maximize the profits.
Let S1 = Strategy 1 i.e. the first course of action.
S2 = Strategy 2 i.e. the second course of action.
Objective Function : Maximize Profits (S1, S2 )
To choose from the two alternative strategies, the following decision rule can be made:
Choose strategy S1 if profits from S1 > profits from S2 .
Choose strategy S2 if profits from S2 > profits from S1 .
Main features of Decision Making
1. Selective process.
2. Human & Rational process.
3. Dynamic process.
4. Goal-Oriented process.
5. Continuous process.
6. Freedom of Decision maker.
7. Positive or Negative Impact.
The Process Of
Decision Making
Step 1 : Identification of the purpose of the
decision
In this step, the problem is thoroughly analyzed.
There are a couple of questions one should ask when it
comes to identifying the purpose of the decision.
1. What exactly is the problem?
2. Why the problem should be solved?
3. Who are the affected parties of the problem?
4. Does the problem have a deadline or a specific time-
line?
Step 2: Information Gathering

Most decisions require collecting Pertinent


information.
Real trick for this step is to know :
1. What information is needed?
2. What are the best sources of the information?
3. How to go about getting the information required ?
Some information must be sought from within
yourself through a process of self assessment.
This step therefore involves both Internal &
External process.
Step 3: Principles for Judging the Alternatives

The baseline criteria for judging the alternatives should be


set up.
When it comes to defining the criteria, organizational
goals as well as the corporate culture should be taken into
consideration.
For instance: One of the main concerns of a business firm
is Profit .
Companies usually do not make decisions that reduce
profits, unless it is an exceptional case
Likewise, baseline principles should be identified related to
the problem in hand.
Step 4: Brainstorm and Analyze the Choices

For this step, to list down all the ideas is the best
option.
Before the idea generation step, it is vital to understand
the causes of the problem and prioritization of
causes.
For this, we can make use of
-Cause-and-Effect diagrams &
-Pareto Chart tool.
Then, you can move on generating all possible solutions
(alternatives) for the problem in hand.
Step 5: Evaluation of Alternatives

We use our judgment principles and decision-making


criteria to evaluate each alternative.
In this step, experience and effectiveness of the
judgment principles come into play.
We need to compare each alternative for their positives
and negatives.
While going through this internal process of
comparing each alternative ,we prepare a list and place
the alternatives in priority order.
Step 6: Choosing among the alternatives & Selecting the Best Alternative

Once you go from Step1 to Step 5, this step is very


easy.
Moreover the selection of the best alternative is an
informed decision since we have already followed a
methodology to derive and select the best alternative.
Your choice in step 6 is basically same or similar to
the alternative that you have placed on the top in the
list prepared in step 5.
Step 7: Execute the decision

Convert your decision into a plan or a sequence of


activities.
Execute your plan with the help of subordinates.
Step 8: Evaluate the Results

Evaluate the outcome of your decision.


See whether there is anything you should learn and
then correct in future decision making.
This is one of the best practices that will improve
your decision-making skills.
Types of Decisions

1. Programmed & Non-Programmed Decisions


2. Routine & Strategic Decisions
3. Policy & Operative Decisions
4. Organizational & Personal Decisions
5. Individual & Group Decisions
Programmed & Non-Programmed Decisions

Programmed decisions
Involves routine problems that arise regularly and can be
addressed through standard responses.
Dependence on policies , rules & definite procedures.

Non-Programmed decisions
Involves non-routine problems that require solutions
specifically tailored to the situation at hand.
Necessity for creativity, intuition, creative problem solving.
Routine & Strategic Decisions
Routine Decisions
-These decisions dont require fresh information or
knowledge.
-Taken at middle or lower level of management, who are

actually responsible for supervision of actual operations


-Such decisions are Repetitive & Programmed Decisions.

-Its impact is short term .

Strategic Decisions
These decisions are more important decisions.
Taken at middle & top level of management, as these are

related to policy matters.


Its impact is long term as they are basically one time

decisions involving huge investments &long term


commitments.
Policy & Operative Decisions
Policy Decisions
- Policy decisions determine the basic policy of the organization
- They are taken up at top-level management.
- The policies decided at the top become the basis for operative
decisions.
- They have long term impact and the affect whole organization.
- For instance, the bonus issue is a policy matter which is to be
decided by the top management.
Operative Decisions
- Operative decisions are taken by the lower managements in order
to put into action the policy decisions.
- Calculation of bonus is an operating decision which is taken at the
lower levels to execute the policy decision.
Organizational & Personal Decisions

Organizational Decisions
-When a person takes a decision in the organization as an
executive, it will be an organizational decision.
-The power to take organizational decision can be delegated
from the superior to the subordinate.

Personal Decisions
- Personal decisions are taken by managers in their
individual capacity and not as members of the organization.
- Personal decisions are not delegated.
Individual & Group Decisions

Individual Decisions
-In small concerns only the owner takes all-important
decisions.
-Even in big organizations a person of top management may
be allowed to take a decision about a particular matter.

Group Decisions
- Group decisions are taken by group of persons.
- These decisions are taken after thorough deliberation among
people who are assigned this job.
Decisions under Certainty, Risk and
Uncertainty

In deciding how to solve a problem, managers frequently find


it useful to locate the problem from predictable situations to
situations extremely difficult to predict.

Three words to describe different positions


on this continuum are: certainty, risk, and
uncertainty.
Decisions under Certainty
Under conditions of certainty, we know what will
happen in the future.
If a decision maker has the accurate, measurable, reliable
information and is in a position to predict the
consequences of the action about to be taken, then he/she
is said to operate under a condition of certainty.
The decision maker knows the exact consequences of
the action that would be taken.
The future in this case is highly predictable.
Decisions under Risk
When decision makers can estimate the various
outcomes vis-a-vis the decision taken, and yet are not
sure of the ultimate outcome, predictability is lower,
and then it is a condition of risk.

In this condition, complete information is


unavailable, but we have a good idea of the probability
of particular outcomes.
Decisions under Uncertainty
In case decision makers have inadequate
or insufficient information about the
consequences of their actions then they
operate under uncertainty.

Uncertainty is the situation in which


decision makers have no idea about the
outcome of their chosen alternative.
Summary
Decision-making is undoubtedly the heart and core
executive activity in the every business.
Decision making is the cognitive process of
selecting a course of action from among multiple
alternatives.
There are various types of decisions - programmed
and non programmed decisions, routine and
strategic decisions, policy and operative decisions,
organizational and personal decisions, individual
and group decisions.
Three words to describe different positions of the
problem are: certainty, risk, and uncertainty.
BIBLIOGRAPHY
eBooks
-L.M. Prasad (2002); Principles and Practices of Management; Sultan Chand &
Sons, Educational Publishers, 2002, New Delhi
- Harold Koontz and Heinz Weihrich (2003); Essentials of Management; Tata
McGraw-Hill Publishing Company Limited, Reprint 2003, New Delhi
Websites
-
http://www.economicsdiscussion.net/business/business-decision-making-problems-wi
th-diagram/6091
-
http://www.tutorialspoint.com/management_information_system/managerial_decisio
n_making.htm
- http://smallbusiness.chron.com/steps-decisionmaking-process-manager-10601.html
- http://www.cpp.edu/~wcweber/301/301slide/ch06301/sld004.htm
- http://business.queensu.ca/executiveeducation/programs/decision_making.php
Pdfs & File documents

-http://www.hec.gov.pk/InsideHEC/Divisions/LearningInnovation/Documents/Le
arning%20Portal/MUG/Managerial%20Decision%20making.pdf
-
http://economia.unipr.it/DOCENTI/CILLONI/docs/files/Lesson%2004%20Reading
%20facoltativa.pdf
-
http://www.olin.wustl.edu/docs/faculty/thakor_full_paper_managerial_decisions.p
df
- http://wac.colostate.edu/books/thinkingwriting/chapter3.pdf
- https://flora.insead.edu/fichiersti_wp/inseadwp1996/96-86.pdf

Journals
- IAENG International Journal of Computer Science, 32:4, IJCS_32_4_12;
Managerial Decision Making Under Risk and Uncertainty; Ari Riabacke
-Review of General Management ; MANAGERIAL DECISIONS IN BUSINESS ;
Queries Please !
Thank You !