UNIT- 3
Decision Making
Meaning
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 in management refers to the process of identifying, evaluating, and
selecting among alternative courses of action to address a specific problem or achieve a
desired goal within an organization. It is a core component of managerial functions, as it
directly impacts the direction and effectiveness of the organization.
Definition
Manely H. Jones, "It is a solution selected after examining several alternatives chosen
because the decider foresees that the course of action, he elects will be more than the
others to further his goals and will be accompanied by the fewest possible objectionable
consequences."
Andrew Smilagyi, "Decision-making is a process involving information, choice of alternative
actions, implementations, and evaluation that is directed to the achievement of certain
stated goals."
George R. Terry, "Decision-making is the selection based on some criteria from two or more
possible alternatives."
John MacDonald, "The business executive is by profession a decision-maker. Uncertainty is
his opponent, overcoming it is his mission. Whether the outcome is a consequence of luck
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or wisdom, the moment of decision-making is without doubt the most creative event in the
life of the executive."
D.E. Mc Farland, "A decision is an act of choice wherein an executive forms a conclusion
about what must be done in a given situation. A decision represents a behaviour chosen
from a number of possible alternatives."
Henry Sisk and Clifston Williams, "A decision is the selection of a course of action from two
or more alternatives; the decision-making process is a sequence of steps leading to that
selection."
Shull-et-al, "Decision-making is a conscious and human process, involving both individual
and social phenomenon based upon factual and value premises, which concludes with a
choice of one behavioural activity from among one or more alternatives with the intention
of moving towards some desired state of affairs."
Mary Cushing Nites, "Decision-making takes place in adopting the objectives and choosing
the means and again when a change in the situation creates a necessity for adjustments ."
Features Of Decision Making
1.Rational-thinking - Rational thinking is a process in managerial decision making that helps
us to make sound decisions. It involves systematically analyzing options and choosing the
best course of action based on logic and evidence. To think rationally, we must first identify
our goals and objectives.
2. Process- Many people view decision making as a cold, rational process. However, there is
much more to it than simply choosing the most logical option. In reality, management
decision making is influenced by a variety of factors, both conscious and unconscious. For
example, our emotions play a role in the decisions we make, as do our personal values and
beliefs.
3. Selective- A key characteristic of managerial decision making is that it is selective. That is,
deciding involves picking the best options. There are many factors that influence what gets
selected, including the clarity of the options, the relevance of the criteria, and weighing the
various factors.
4. Purposive - A purposive approach to decision making is one that is based on the specific
goals and objectives of the individual or organization. This type of decision making takes into
account the desired outcome of the decision, and considers all of the available options in
order to select the best possible course of action.
5. Positive- Decision making process in management is an essential skill in any area of life,
whether you're choosing what to eat for lunch or deciding which company to work for.
While there are many different approaches to management decision making, there are
some common characteristics that tend to lead to positive outcomes.
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6. Commitment- If you want to make successful decisions, it is crucial that you have
commitment. This means having the drive to see the decision through, even when it gets
tough. It also means being able to defend your decision to others, even if they do not agree
with you.
7. Evaluation- Evaluation is a key characteristic of good decision making. This involves
considering all of the options and weighing their pros and cons before making a choice. It is
important to be as objective as possible when evaluating the different options, and to look
at the situation from all angles.
Importance/ Role of decision making
1. Guides Organizational Direction- Effective decision-making provides clear guidance on
the path the organization should take. Whether it's a strategic decision (like expanding into
new markets) or an operational decision (like adjusting staffing levels), decisions help shape
the company's long-term and short-term goals. Poor decisions, on the other hand, can lead
to confusion, misalignment, or strategic drift.
2. Enhances Organizational Performance- The ability to make sound decisions directly
impacts organizational efficiency and effectiveness. Proper resource allocation, optimizing
processes, and choosing the right strategies improve performance and productivity. When
managers make decisions based on careful analysis and foresight, the organization can
achieve better outcomes and higher profitability.
3. Risk Management- Every decision involves some level of risk. The decision-making
process helps managers assess potential risks and rewards, minimizing negative outcomes
by considering various alternatives and possible contingencies. Well-informed decision-
making reduces uncertainty and enables managers to navigate through risks more
effectively.
4. Increases Responsiveness and Adaptability- In today’s fast-paced and competitive
business environment, organizations must be able to respond to changes in market
conditions, customer preferences, or technological advancements. Effective decision-
making helps businesses stay flexible and adapt to challenges or opportunities quickly,
whether that involves pivoting business strategies or adjusting operations.
5. Improves Problem Solving- Managers are often tasked with resolving problems. Good
decision-making skills help identify the root causes of issues and evaluate the best solutions.
By systematically approaching problems, managers can find more effective and sustainable
solutions, leading to improved outcomes.
6. Enhances Team Collaboration and Communication- When decision-making is shared or
involves a team, it fosters collaboration and communication among employees. Group
decision-making helps to ensure diverse perspectives are considered, leading to better,
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more informed decisions. Additionally, involving team members in decision-making can
boost morale and create a sense of ownership and accountability.
7. Boosts Competitive Advantage- In competitive markets, the speed and quality of
decision-making can determine whether an organization leads or lags. Fast and effective
decisions can give a company a competitive edge—whether in responding to customer
demands, capitalizing on market trends, or introducing new products or services before
competitors.
Types Of Managerial Decision.
Programmed
Department Non-
Decision Programmed
Types
Organizational Major
Decisions Decisions
Minor
Decisions-
1.Programmed Decisions- Programmed Decision are routine, repetitive decisions made
according to established policies or procedures. These decisions address familiar and
recurring problems with known solutions, allowing managers to follow predefined
guidelines. They are typically low-risk and impact day-to-day operations, such as approving
leave requests or reordering inventory.
2.Non-Programmed Decisions- Non- Programmed Decision are unique, complex, and
unstructured decisions that arise in response to new, unforeseen situations. These decisions
require judgment, creativity, and analysis, as they don’t have predetermined solutions. Non-
programmed decisions usually carry higher risks and long-term impacts, such as entering a
new market or handling a crisis like a product recall.
3.Major Decisions- Major Decision are high-level decisions that have significant and long-
term effects on an organization. These decisions shape the company’s overall strategy,
resources, and direction, and often involve complex analysis and a long-term focus.
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Examples include mergers, acquisitions, or large capital investments, which require careful
planning and carry high risks.
4.Minor Decisions- Minor decision are less significant and generally affect only a specific
department or aspect of the organization. These decisions are typically routine and low-
stakes, such as scheduling tasks, approving small purchases, or addressing operational
issues that do not have broad, long-term consequences. Operative Decisions are made at
the operational level and concern the day-to-day running of the organization. These
decisions are short-term in nature, focused on achieving immediate goals or solving
everyday problems. They are often made by middle managers and involve tasks like
assigning work or managing daily production schedules.
5.Organizational Decisions – Organizational Decision are broad, strategic decisions that
affect the entire organization and its long-term goals. These decisions are typically made by
top executives and focus on shaping the company’s mission, vision, and resource allocation.
Organizational decisions have significant impact, involving high levels of complexity and risk,
such as deciding on major structural changes or global expansions.
6.Department Decision- Here, the decision maker is department head or department
manager. He takes a decision to run the department. Department decision has no impact on
other departments. This decision is implemented within the concerned department itself.
Process of Decision Making
Identifying the
Gathering Identifying
Problem or
Information Alternatives
Opportunity
Evaluating Making the Implementing
Alternatives Decision the Decision
Monitoring and
Evaluating the
Results
1. Identifying the Problem or Opportunity- The first step is recognizing and defining the
problem or opportunity that requires a decision. This stage involves understanding the issue
at hand, gathering relevant information, and clarifying the need for action. Clearly defining
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the problem is crucial because a poorly defined problem can lead to ineffective or
misinformed decisions.
Example: A company notices declining sales figures and needs to identify the underlying
reasons (e.g., customer dissatisfaction, market competition, or internal inefficiencies).
2. Gathering Information- Once the problem is identified, the next step is to collect relevant
information and data that will help inform the decision. This may involve both internal and
external sources of data, such as market research, financial reports, customer feedback, or
expert opinions. The goal is to gain a comprehensive understanding of the situation and the
potential options available.
Example: The company might gather customer feedback, analyse competitor strategies, or
review financial performance to better understand the reasons behind the sales decline.
3. Identifying Alternatives- After gathering sufficient information, the decision-maker needs
to generate possible alternatives or courses of action. This step involves brainstorming or
considering different ways to address the problem or seize the opportunity. It's important to
generate a variety of options to ensure a well-rounded decision.
Example: Alternatives might include launching a new marketing campaign, redesigning the
product, adjusting pricing strategies, or improving customer service.
4. Evaluating Alternatives- Next, each alternative is assessed based on various criteria, such
as cost, feasibility, impact, risk, and alignment with organizational goals. The evaluation
involves weighing the pros and cons of each option and considering short-term versus long-
term effects. Decision-makers may use tools like cost-benefit analysis, SWOT analysis, or
decision matrices during this stage.
Example: The company evaluates the alternatives by comparing the potential ROI of a
marketing campaign versus the cost of redesigning the product, considering factors like
time, cost, and potential impact on sales.
5. Making the Decision- After evaluating the alternatives, the final decision is made. The
decision-maker selects the option that best addresses the problem or capitalizes on the
opportunity, based on the criteria established in the previous step. This step requires
confidence in the decision and may involve consulting with stakeholders or team members
for input.
Example: The company decides to launch a targeted digital marketing campaign to reach a
wider audience and increase sales.
6. Implementing the Decision- Once a decision is made, it must be put into action. This
involves planning and executing the necessary steps to carry out the chosen alternative.
Implementation requires coordination, allocation of resources, and effective
communication to ensure that the decision is executed successfully.
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Example: The company begins planning the marketing campaign, developing the content,
identifying target markets, and allocating the necessary budget for digital advertising.
7. Monitoring and Evaluating the Results- After the decision is implemented, it’s essential
to track and measure its outcomes. Monitoring the results helps assess whether the
decision is achieving the desired objectives and allows for adjustments if needed. This step
ensures that any deviations from the expected results are addressed in a timely manner.
Example: The company monitors the performance of the marketing campaign by tracking
metrics like sales growth, customer engagement, and return on investment (ROI). If the
campaign isn’t performing as expected, adjustments may be made, such as changing the
targeting strategy or tweaking the messaging.
Techniques of Decision Making
Quantitative Decision-Making Techniques
Qualitative Decision-Making Techniques
Quantitative Decision-Making Techniques
Quantitative techniques are those that use numerical data, models, and statistical methods
to analyze and make decisions. These techniques are highly objective and rely on
measurable data.
1. Linear Programming (LP)
• Description: Linear programming is a mathematical optimization technique used to
find the best outcome (such as maximum profit or minimum cost) in a mathematical
model with linear relationships. This model consists of an objective function that
needs to be optimized (maximized or minimized) subject to a set of constraints,
which are also linear equations or inequalities.
• Applications: Resource allocation problems, production planning, transportation
optimization, supply chain management, and scheduling.
• Example: A manufacturing company might use LP to determine how many units of
different products to produce, given constraints on material and labor resources, to
maximize profit.
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2. Decision Trees
• Description: A decision tree is a graphical representation of decisions and their
possible consequences, including uncertainties, costs, risks, and benefits. It helps to
visualize the sequence of decisions and the resulting outcomes, often involving
probabilities for uncertain events.
• Applications: Risk analysis, investment decisions, strategic planning, and forecasting.
• Example: A business might use a decision tree to decide whether to launch a new
product, considering potential outcomes such as high demand, low demand, or
failure, with probabilities assigned to each scenario.
3. Cost-Benefit Analysis (CBA)
• Description: Cost-benefit analysis is a technique used to compare the total costs of a
decision with its total benefits, often expressed in monetary terms. If the benefits
outweigh the costs, the decision is considered favorable. This method is commonly
used to justify investment decisions, government policies, or project plans.
• Applications: Project evaluation, policy-making, investment analysis.
• Example: A government might perform a CBA to assess whether building a new
highway will bring sufficient economic benefits, such as reduced travel time and
increased trade, to justify the construction costs.
4. Forecasting (Time Series Analysis, Regression Analysis)
• Description: Forecasting involves predicting future values based on historical data.
Time series analysis looks at patterns over time (e.g., trends, seasonality) to forecast
future values. Regression analysis assesses the relationship between dependent and
independent variables to make predictions.
• Applications: Sales forecasting, financial forecasting, demand planning, economic
modeling.
• Example: A retailer may use time series analysis to predict future sales based on
historical sales data, adjusting for seasonal fluctuations.
5. Simulation (Monte Carlo Simulation)
• Description: Monte Carlo simulation is a computational technique that uses random
sampling to model the probability of different outcomes in a process that cannot be
easily predicted due to randomness. It is particularly useful when the model involves
multiple uncertain variables.
• Applications: Risk analysis, investment modeling, project management, and
engineering simulations.
• Example: A financial institution might use Monte Carlo simulations to model the
potential outcomes of an investment portfolio under different market conditions.
6. Game Theory
• Description: Game theory is a mathematical framework used for analyzing strategic
interactions between rational decision-makers, known as players. It examines how
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players make decisions based on the anticipated actions of others, and is useful in
competitive situations where one player's decision directly affects the outcomes of
others.
• Applications: Competitive strategy, pricing strategies, negotiations, auctions, and
market analysis.
• Example: Two companies in the same industry might use game theory to decide
whether to cut prices, based on the expected reaction of their competitors.
Qualitative Decision-Making Techniques
Qualitative techniques are more subjective and rely on non-numeric data, human intuition,
judgment, and expert knowledge. These techniques are often used when data is scarce,
ambiguous, or when human factors need to be incorporated into the decision-making
process.
1. Brainstorming
• Description: Brainstorming is a group creativity technique used to generate a wide
range of ideas, solutions, or approaches to a problem. Participants are encouraged
to suggest ideas freely, without criticism or evaluation, to foster creativity.
• Applications: Problem-solving, product development, process improvement, and
innovation.
• Example: A team may use brainstorming to come up with potential marketing
strategies for a new product, generating a diverse set of ideas before narrowing
them down.
2. Delphi Method
• Description: The Delphi method is a structured communication process that relies on
a panel of experts who anonymously respond to multiple rounds of questionnaires.
After each round, a summary of the responses is provided, and the experts are asked
to reconsider their views. This process continues until a consensus is reached.
• Applications: Forecasting, policy-making, technology planning, and risk assessment.
• Example: A healthcare organization might use the Delphi method to gather expert
opinions on the future of healthcare technology and policy.
3. SWOT Analysis
• Description: SWOT analysis is a tool used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats associated with a particular decision or strategic
direction. It helps decision-makers understand both internal and external factors
that may impact the decision.
• Applications: Strategic planning, business analysis, market research, competitive
analysis.
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• Example: A company considering entering a new market might use SWOT analysis to
assess its internal capabilities (strengths and weaknesses) and external market
factors (opportunities and threats).
4. Nominal Group Technique (NGT)
• Description: NGT is a structured method for group decision-making that combines
individual idea generation with group discussion and prioritization. Each participant
silently writes down their ideas, which are then shared and discussed by the group.
After discussion, participants rank the ideas based on importance or relevance.
• Applications: Idea generation, decision prioritization, problem-solving, and conflict
resolution.
• Example: A team may use NGT to decide on the most critical features for a product
redesign, ensuring that all members have equal input in the decision process.
5. Focus Groups
• Description: Focus groups involve a small group of individuals who discuss a specific
topic or decision under the guidance of a moderator. This method is used to gather
qualitative insights into participants’ attitudes, perceptions, and opinions.
• Applications: Market research, product development, customer feedback, and social
research.
• Example: A company might conduct a focus group to gather customer feedback on a
new product prototype, allowing them to understand user preferences and
concerns.
6. Expert Judgment
• Description: Expert judgment relies on the knowledge, experience, and insights of
individuals with deep expertise in a particular field. This technique is often used
when quantitative data is unavailable, or when the decision is highly complex and
requires specialized knowledge.
• Applications: Complex problem-solving, risk management, forecasting, and strategic
decisions.
• Example: A construction company might rely on expert judgment to assess the
feasibility of building in a challenging geographical area, where technical expertise is
critical.
Principles of Decision Making
1. Clarity of Objectives- The principle of clarity of objectives emphasizes the importance of
having a clear understanding of the desired outcomes before making a decision. Without
clearly defined objectives, it is difficult to assess whether a decision will lead to the right
results. Objectives should be specific, measurable, and aligned with the broader goals of the
individual or organization. This ensures that the decision-making process is focused on
achieving the intended purpose, whether it’s increasing revenue, solving a problem, or
improving efficiency. A clear objective also serves as a guidepost throughout the decision-
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making process, helping to narrow down options and avoid unnecessary distractions or
irrelevant alternatives.
2. Consideration of Alternatives- Effective decision-making requires considering a range of
alternatives before settling on a course of action. This principle highlights the importance of
not jumping to conclusions too quickly, as it encourages decision-makers to evaluate all
possible options. By considering multiple alternatives, individuals and organizations can
weigh the benefits and drawbacks of each choice, ensuring that they don’t miss a potentially
better solution. The consideration of alternatives also helps to prevent the decision-maker
from being constrained by limited thinking or bias. When the full range of possibilities is
explored, it is easier to identify the option that best addresses the problem at hand and
aligns with the objectives.
3. Gathering and Analyzing Information- Decisions should be based on accurate, relevant,
and timely information. The principle of gathering and analyzing information emphasizes
the need for decision-makers to collect data, facts, and evidence before making a choice.
Whether the decision is about entering a new market, launching a product, or solving a
business problem, having the right information can significantly improve the quality of the
decision. This process involves not only collecting data but also critically analyzing it to
ensure it is reliable and applicable to the decision at hand. Inadequate or incorrect
information can lead to poor decisions and unintended consequences, making this principle
crucial for sound decision-making.
4. Risk Assessment and Management- Every decision carries inherent risks, and it is vital to
evaluate these risks before moving forward. The principle of risk assessment and
management involves identifying, analyzing, and mitigating potential risks associated with
each alternative. Risk assessment helps to understand the possible negative outcomes, their
likelihood, and their impact, enabling decision-makers to make informed choices. This
principle also involves developing strategies to manage or minimize risks, such as creating
contingency plans or diversifying investments. By addressing risks proactively, decision-
makers can reduce uncertainty and avoid costly mistakes, ensuring that decisions lead to
more favorable and predictable outcomes.
5. Rationality- Rational decision-making emphasizes the need to make choices based on
logical reasoning, objective analysis, and clear evidence rather than emotional reactions,
biases, or assumptions. This principle underscores the importance of removing personal
feelings or preconceived notions from the decision-making process. Rational decision-
makers systematically evaluate alternatives, consider the facts, and follow a structured
approach to problem-solving. Emotional decision-making, on the other hand, may cloud
judgment and lead to choices that are not in the best interest of the individual or
organization. Rationality ensures that decisions are based on facts and sound reasoning,
which leads to more predictable and effective outcomes.
6. Consideration of Consequences- Every decision has both immediate and long-term
consequences, and the principle of considering consequences involves evaluating how each
alternative will impact various stakeholders and objectives. This principle requires decision-
makers to look beyond short-term results and think through the potential ripple effects of
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their choices. It involves weighing the benefits and drawbacks, considering both the positive
and negative outcomes, and understanding how they align with the overall goals. For
example, a decision made today might have positive short-term results but could lead to
negative long-term consequences, such as environmental damage or financial instability.
Considering consequences helps decision-makers make more responsible, sustainable
choices that minimize harm and maximize long-term benefits.
7. Timeliness- The timeliness principle stresses the importance of making decisions at the
right moment. Waiting too long to make a decision can result in missed opportunities, while
making hasty decisions without sufficient information can lead to poor outcomes. In fast-
paced environments, such as business or emergency situations, timely decision-making is
critical to capitalize on opportunities and address issues promptly. However, timeliness also
involves knowing when to delay a decision to gather more information or allow for
additional analysis. Effective decision-making strikes a balance between acting swiftly and
ensuring that enough time is taken to make the best possible choice under the
circumstances.
8. Accountability and Responsibility- The principle of accountability and responsibility
ensures that decision-makers take ownership of their decisions and the outcomes that
result. When individuals or groups are held accountable for their choices, they are more
likely to make thoughtful, deliberate decisions that align with organizational or personal
goals. This principle promotes transparency, as decision-makers must justify their decisions
based on rational analysis and evidence. It also encourages decision-makers to consider the
broader implications of their actions, knowing that they will be responsible for any
unintended consequences. Accountability fosters trust and integrity, both of which are
essential for effective decision-making in any context.
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