Chapter 6. Decision Making

Chapter 6 Decision Making 1 Objectives • At the end of the chapter you will be able to – Have knowledge about the decision-making, its characteris...
Author: Eric Warren
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Chapter 6

Decision Making

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Objectives • At the end of the chapter you will be able to – Have knowledge about the decision-making, its characteristics, elements and principles – Understand the characteristics of good decision – Learn the types of decision and personal phase of decision-making – Know about the administrative problems in decisionmaking 2

Introduction • One of the function of management is Decisionmaking • Decision may be rational or irrational • Best decision making is necessary for effective functioning of management 3

Definition According to: • Manely H. Jones: it is the solution selected after examining several alternatives chosen • George R Terry: Decision making is the selection based on some criteria from two or more possible alternatives 4

Definition According to: • D.E. McFarland: A decision is an act of choice wherein an executive forms a conclusion about what must be done in a give situation • Shull-et-al: Decision making is a conscious ad human process involving both individual and social phenomenon

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Characteristics of Decision‐Making • Decision making is a selection process • This is the End process • The application of intellectual abilities to a great extent • Decision gives happiness to the endeavour • A dynamic process 6

Characteristics of Decision‐Making • Decision making is situational • Decision is taken to achieve the objectives of an organization • Decision maker has the freedom to take a decision • Decision making involves the evaluation of available alternatives through critical appraisal methods • A decision may be both negative or positive 7

Elements of Decision‐Making • A problem is fully analyzed and the alternatives are considered before taking a decision • The best decision making requires intelligence, experience and insight into a problem • The philosophy of an individual is involved in decision making

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Elements of Decision‐Making • A decision discloses the preferences, educational standards etc. • Decisions are taken when they are needed • Political and social environment of the business affect the decision making 9

Decision‐Making Process • decision making is not an easy job, it requires a lot of skill • A manager is not able to take a good decision if he fails to follow a sequential set of steps which include: • Identification of a problem – Means recognition of a problem – The changes of business environment form the main reason for creating a problem 10

Decision‐Making Process • Diagnosing the problem – The manager is acting as a doctor while doing the diagnosis of the problem

• Collect and analyze the relevant information – The collection of the relevant information at various levels – The manager should see that only relevant information alone is collected and analyzed 11

Decision‐Making Process • Discovery of the alternative course of action – For this, creative thinking is necessary – It is advisable to the manager that he should discover a number of alternatives – Time and cost are the probable limiting factors of an organization

• Analyzing the alternatives – Here, the pros and cons pf the available alternatives are analyzed 12

Decision‐Making Process • Screening of alternatives – The available alternatives are screened in the order of maximum benefits derived from them – Tangible factors include profit earned, time taken, money invested etc. – Criteria to evaluate the available alternatives course of action suggested by Peter F. Drucker • • • •

Risk Economy Timing/ situation Limitations of resources

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Decision‐Making Process Interpersonal Relationship Role

Description

Identifiable Activities

Figurehead Symbolic head; obliged to perform a number Greeting visitors; signing of routine duties of a legal or social nature

Leader

Liaison

documents

Responsible for the motivation and activation of Performing virtually all employees; responsible for activities that involve staffing, training, and associated duties subordinates Maintains self-developed network of outside contacts and informers who provide favors and information

Acknowledging mail; performing other activities that involve outsiders 14

Decision‐Making Process The transfer of information  Role

Description

Identifiable Activities

Monitor

Emerges as nerve center of internal Reading periodicals and and external information about reports; maintaining Information. personal contact.

Disseminator

Transmits information received from Holding informational other employees to members of meeting; making phone the organization. calls to relay information.

Spokesperson

Transmit information to outsiders on Holding board meeting; organization’s plan, policies, actions, giving information to the results, etc. media. 15

Decision‐Making Process Decision Making Role

Description

Entrepreneur Searches for development opportunities

Identifiable DesigningActivities and initiating

in the dynamic environment and initiates changes within the “improvement projects” to bring about organization. change.

Disturbance handler

Responsible for corrective action when Taking corrective action in no

Resource allocator

Responsible for the allocation organizational resources of all kinds.

Negotiator

Responsible for representing organization at major negotiations.

organization faces important disturbances. routine situations. of Performing any activity that involves budgeting and the programming of employees’ work. the Participating in negotiations with other parties. 16

Decision‐Making Process • Selection of best alternative – Best alternative can be selected after the careful evaluation – Approaches while selecting an alternatives are: • Experience: The manager can select an alternative on the basis of his past experience • Experimentation: Here, each alternative is put into practice and the results are observed • Research and analysis: This approach is rarely adopted, in case of critical situation. Computers are used if there is a lot of calculations are required 17

Decision‐Making Process • Conversion of decision into action

– The future course of action is scheduled on the basis of selected alternative or decision. Here, manager has to consider the policy of the management

• Implementation – here, manager has to implement the decision to achieve desired goals

• Verifying the decision – It is the duty of the manager to see whether the decision is properly implemented or not 18

Principles of Decision‐Making • A quality decision may be taken by the manager of he adopts certain principles: • Managerial theory of decision-making

– Many economists have suggested the managerial theory of decision making. – According to them, every business is started to earn profit – Decision making should based on managerial analysis 19

Principles of Decision‐Making • Mathematical theory – Includes venture analysis, game theory, probability theory and waiting theory

• Psychological theory

– There is an impact of psychology over the decision sisnce the decision making is a mental process

• Principles of alternatives

– All the alternatives are evaluated and screened in order of their usefulness and finally the best alternative is selected 20

Principles of Decision‐Making • Principle of limiting factor

– An interface or conclusion is derived from the fundamental study of the problem – The manager takes the decision with the help of conclusion or interface

• Principles of participation – This principle is based on human behavior and relationships – The management can ascertain the reaction of the employees to the proposed decision

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Characteristics of Good Decision • A decision is taken after passing various stages • A good decision has following characteristics – Action orientation: For implementation, decision should have utility – Goal direction: the decisions are taken and action is directed to achieve the goals – Efficiency in implementation: An effective decision alone will have scope for implementation 22

Administrative problems in Decision‐making • Accuracy: The corrections of information for analysis will help taking accurate decision • Environment for decision: Organizational and physical environments are responsible for effective decision • Timely decision: if any decision is taken without considering the time, that will not be considered a business decision 23

Administrative problems in Decision‐making • Communication of decision: Simple and unambiguous words are used while communicating the decision • Participative decision-making: The extent of participation of workers in decision making depends upon the willingness of the top management • Implementation: the decision maker has responsibility to implement a decision 24

Types of Decision • Programmed decision

– Also called routine or structured decisions – Taken within the purview of the policy of the organization – There is a clear cut procedure to take programmed decisions

• Non-programmed decisions

– Called as strategic or basic decisions – Taken by top management people whenever the need arises

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Types of Decision • Major decision

– Relates to the purchase of fixed assets with more value

• Minor decisions

– Relates to the purchase of current assets withless value

• Operative decision

– Relates to day-to-day operation of an organization is known as operative decision 26

Types of Decision • Organizational decision

– The decision takes a decision and implements it for effective functioning of organization

• Personal decision

– This is the decision which is taken by the decision maker for his personal life

• Individual decision

– The decision maker is a part of the organization while taking an individual decision, which he can implement the decision

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Types of Decision • Group decision

– The top management fixed the time within which the committee is expected to submit its report with concrete decision

• Departmental decision

– Here, the decision maker is department head or department manager

• Non-economic decision

– This is a kind of decision which does not incur any kind of expense 28

Types of Decision • Crisis decision

– This decision is taken to meet unexpected situations

• Research decision

– This decision is taken after analyzing the pros and cons of a particular matter

• Problem decision

– Taken to solve a problem 29

Types of Decision • Opportunity decision

– Taken to make use of the advantages available to the company

• Certainty decision

– The decision maker himself knows the outcome and consequences of the choice

• Uncertainty decision

– These decisions are aimed at solving the existing problem

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Personal phase of decision‐making • Decision maker may not take the best decision all the times • Generally a manager is a decision maker in a organization • Existence to different characteristics and qualities in managers due to the following reasons • Intelligence:

– The ability of using common sense in decision making – There is a need of perception of quality managers to take the best decisions 31

Personal phase of decision‐making • Education

– A good education helps the decision maker to take best decision even in complex situations rather than high education

• Experience

– The experience of an individual can improve the ability for decision making

• Courage

– The decision maker should have courage to take and implement the decision

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Personal phase of decision‐making • Motivation

– Recognition of the decision is a motivation for the decision maker

• Forecasting ability

– The quality of a decision depends upon the forecasting ability of the decision maker

• Self confidence

– The self confident decision maker can take decisions as and when required

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Summary • Decision making is necessary for effective functioning of management • Decision is taken to achieve the goals of an organization • Decisions are taken when they are needed

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Summary • The decision making principles include marginal theory, mathematical theory of decision making etc • Individual decisions, programmed decisions, major decisions, research decisions are some of the types of decisions • Mostly the manager is the decision maker in the organization, he must possess intelligence, education, experience, motivation etc.

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End of Chapter 6

Decision Making

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