Decision-Making – Full Overview

INTRODUCTION

One of the duties of management is decision-making. Every day, the management executive makes a lot of decisions. They are unable to carry out their responsibilities without making decisions. A choice can be a command to others to do or not do something. As a result, a choice might be reasonable or irrational. The management has a lot of options accessible to them. Out of all the various options, the best one is chosen.

For management to work effectively, the best decision-making is required. The quality of management decisions determines its success. If the manager fails to make the right judgment, he may be unable to extract work from his subordinates and may also be unable to complete his own task.

Some decisions are made based on emotions. This should be avoided at all costs. Many people are confused by emotional decisions. As a result, the superiors’ decision-making is crucial.

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 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.”

“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.”

R.S. Davar, “Decision-making may be defined as the selection based on some criteria of one behaviour alternative from two or more possible alternatives.”

CHARACTERISTICS OF DECISION-MAKING

1. Making a decision is a selection procedure. Out all the various options, the best option is chosen. There is no decision-making when there is only one option.

2.The final step is decision-making. A lengthy discussion and selection of options precedes decision-making.

3. To a large part, decision-making involves the use of intellectual ability. A wise guy can make a decent judgement on his own.

4. A happy endeavour is one that takes numerous efforts to acquire all of the information that is likely to influence a choice.

5. Making decisions is a dynamic process. Every day, a person makes a lot of decisions.

6. Situational decision-making An individual makes decisions based on the current situation. To tackle the same problem, several options may be made. The reason for this is that the circumstance changes often.

7. A decision is made to accomplish an organization’s goals.

 8. The decision-maker has the authority to make a choice that entails the allocation of resources in specific ways.

 9. Critical appraisal procedures are used to evaluate available options during decision-making. 

10. A choice might be either good or negative. A decision can influence what others do or don’t do.

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ELEMENTS OF DECISION-MAKING

1.Before making a choice, the problem is thoroughly examined and all accessible options are explored.

2. The most effective decision-making involves intellect, experience, and problem-solving expertise.

3. A choice is made based on the business climate.

4. Centralization and decentralisation of power have an indirect impact on decision-making. When power is concentrated, the top executive makes all major decisions. When it is decentralised, the top executive makes crucial choices, while lower-level management makes routine decisions.

5. Individual psychology has a role in decision-making.

6. A choice reveals a decision maker’s preferences, intellectual maturity, experience, educational level, social and religious beliefs, optimism or pessimism, designation, and status.

7. Decisions are made only when necessary.

8. Decisions must be conveyed to those who are affected as quickly as possible. Decisions are expressed clearly and concisely.

9. Employees are involved in the decision-making process as well.

10. Business decision-making is influenced by the political and social context. The following benefits may occur if management makes a choice after discussing with employees:

1. Better relations with employees.

2. Loyalty to the management.

3. There is no hindrance in the implementation of a decision. 

4. Efficiency of the employees is increased.

5. Issuing directions to employes is very easy.

DECISION-MAKING PROCESS

Making decisions is a difficult task. It takes a great deal of talent. A variety of elements influence decision-making. As a result, by following a method, the management may make smart judgments. If a manager fails to follow a series of actions in the correct order, he may be unable to make appropriate judgments.

The nature of the problem and the type of the organisation influence the decision-making process. The straightforward procedure for making a choice in everyday settings is as follows:

1. Identification of a problem: Recognition of an issue is the same as identification of a problem. The issue develops as a result of the disparity between what is and what should be. The fundamental reason for the emergence of an issue is changes in the business environment. As a result, the management must define the issue.

A problem that is clearly defined is half solved. The management must then determine what is causing the issue. This is not a simple task. The process of determining the sources of an issue is used to make excellent decisions. The manager should keep a close eye on the decision-making environment and be aware of the true issue and its causes.

The manager may examine management reports, search for any budget deviations, compare the company’s outcomes to those of competitors, and assess personnel efficiency, among other things. These are used to appropriately identify the issue. In order to determine the true nature of the problem, the manager must apply his experience, imagination, and judgement.

2. Diagnosing the problem: There is a distinction to be made between identifying a problem and diagnosing it. A doctor can diagnose a patient’s illness. A patient is unable to determine the true nature of their illness. However, a doctor can do so using information provided by a patient. The doctor can benefit much from information. When a manager diagnoses an issue, he or she is operating like a doctor.

3. Collect and analyse the relevant information: The manager should then collect the information that is necessary at various levels. The management must then carefully examine the material.

Analyzing the situation from several perspectives is quite beneficial. If the situation is examined from several perspectives, the manager may be able to make a sound and timely choice. Only relevant data should be gathered and analysed, according to the management.

4. Discovery of alternative course of action: Many different ways of action require creative thought to conceive or uncover. There is no need to make a decision if there are no other options. If there are more options, the management will have more flexibility in making decisions. There are several approaches to solving an issue. A fixed problem, on the other hand, should not resurface in the future.

It is recommended that the management investigate many options. The management also considers the issue of limiting variables. Due to constraints, certain choices cannot be chosen. The most likely organisational limiting constraints are time and expense.

5. Analysing the alternatives: The advantages and disadvantages of the various options were then examined. Some options are more advantageous than others. Alternatives are weighed against one another. The decision maker can construct a list of restrictions for each option.

6. Screening of alternatives: The various options are ranked according to the maximum advantages they provide. Each option is assessed in terms of the risks associated with executing it. When examining or screening each option, both tangible and intangible variables are taken into account.

Profits earned, time spent, money invested, rate of return on investment, and rate of depreciation are all tangible considerations. Public relations, corporate goodwill, staff loyalty, and other intangible elements are examples. By nature, two or more options are sometimes equally suitable. The decision-maker must determine the true difference between options, which will be the determining factor in choosing one.

Peter F. Drucker has suggested the following criteria to evaluate the available alternative course of action:

(a) Risk – Degree of risks involved in each alternative.

(b) Economy of efforts –  Cost, time and efforts involved in each alternative.

 (c)Timing or situation – Whether the problem is urgent.

(d) Limitations of resources – Physical, financial and human resources available with the organization.

7. Selection of best alternative: After thorough consideration, the decision maker may now choose the best option. The option that provides the most benefits to the organisation is chosen. At the same time, the chosen option must be compatible with the organization’s goals. When choosing an option, consider the following techniques.

A. Experience: A manager might choose an option based on his previous experience. The scenario that prevailed in the past cannot be the same as the current condition. The situation evolves with time. Previous decisions can be reasonably changed to fit the current situation. As a result, previous experience aids the management in making decisions.

B. Experimentation: Under this method, each alternative is tested and the outcomes are recorded. The option that produces the best results will be chosen. For example, before deciding on a manufacturing process, a company may conduct a trial run.

Finally, the organisation chooses manufacturing procedures that result in a high-quality product with little waste and expenditures. Because this method is costly and time demanding, it should only be utilised on a small basis.

C. Research and analysis:This method is also seldom used. This strategy is used to make decisions in crucial situations. If a large number of computations are necessary, computers are used to accomplish them.

8. Conversion of decision into action: The future course of action is determined by the option or decision chosen. In this case, the manager must evaluate the company’s policy. The alternative decision is notified to those who are affected. This communication makes it easier to put decisions into action. The decision language should be basic and straightforward.

9. Implementation: The management must next put the choice into action in order to obtain the intended results. The actual execution of a decision concludes the decision-making process.

Implementation is just as crucial as an alternative selection. Time and process sequence should be included in the implementation plan. Individuals should be assigned responsibility for certain tasks and necessary resources should be allocated.

10. Verifying the decision: Every manager is responsible for ensuring that the decision is appropriately executed. The verification of a decision’s execution guarantees that the goals are met. The chosen option might be a poor one, resulting in financial loss for the company.

This may be tested by checking the choice; if the manager believes the chosen alternative is not the best, a change can be made to meet the intended objectives. This is a straightforward decision-making procedure.

PRINCIPLES OF DECISION-MAKING

1. Marginal theory of decision-making: The marginal theory of decision-making has been proposed by several economists. They think that a company is founded to make money. A business manager must make a judgement that maximises earnings. As a result, economists say that an organization’s sole mission is to maximise profits.

Marginal analysis should be used to make decisions. In this case, the management applies the Law of Diminishing Returns. If the management hires more people and invests more money, output may be expanded proportionately at lower rates. There will come a moment when adding more labour and spending more money will not result in an increase in production.

The hiring of more labour and the use of further capital will thereafter be halted. As a result, the last unit’s production is little. As a result, while making judgments about sales, advertising, marketing, and training, this marginal concept is used.

2. Mathematical theory: Mathematical theories include venture analysis, game theory, probability theory, and waiting theory. A decision is made by a management based on mathematical theory. Mathematical theory provides the management with a scientific approach while making decisions.

3. Psychological theory: A manager makes a choice based on his goals, technological skills, personality, social standing, and company status. Though the manager is supposed to make decisions within the extent of his power and responsibilities, psychology has an influence on the choice. The reason for this is that making decisions is a mental activity.

4. Principle of alternatives: There is no need to make a decision if there is just one solution to an issue. A selecting procedure is called a decision (Please refer to Decision-making Process). All of the options are weighed and assessed in order of their utility. Finally, the best alternative is chosen based on the situation and goal.

5. Principle of limiting factors: The foundations of an issue are investigated. On the basis of research, a conclusion or inference is reached. The management makes a judgement based on inference or conclusion.

A limiting circumstance may have influenced the choice. Time, money, or resources may be the limiting factors. Decisions are expected to be excellent, and the limiting element is taken into account when making them. The reason for this is that this choice may be put into action in a specific context.

6. Principle of participation: This idea is based on human interaction and behaviour. Everyone want to be considered as a significant individual. As a result, management may enable employees to participate in the decision-making process.

Even if they aren’t involved in the situation, subordinates should be consulted and their opinions given sufficient weight. This will show respect for the presence of subordinates and gain their trust. The management can determine how the employees will respond to the suggested choice.

CHARACTERISTICS OF GOOD DECISION OR EFFECTIVE DECISION MAKING

Following the completion of numerous steps, a choice is made. The main goal of completing all of the phases is to solve the challenge. The problem’s solution is determined by how well the choice was made or implemented. As a result, a good decision contains the following features:

1. Action orientation: The decision must be implemented in several phases. Decisions should be useful for implementation. It is pointless to make a decision if the management does not believe it is vital to carry it through. As a result, a good decision has different stages.

2. Goal direction: An organisation exists to pursue specific objectives. Every day, the management has to make several judgments. These judgments are made, and action is performed to meet the objectives. The importance of a choice is determined by the number of goals attained. A good decision is one that helps you achieve your goal.

 3.Efficiency in implementation: Only an effective choice has the potential to be implemented. The reason for this is that a proper decision can only be made when all internal and external considerations have been considered. It is vital to investigate these elements in order to effectively implement the choice. Employees cooperate fully in the implementation of a decision, resulting in positive outcomes.

ADMINISTRATIVE PROBLEMS IN DECISION-MAKING

1. Accuracy: The situation should be examined by the decision-maker. The rationale for this is that the problem may be readily solved if a choice is made based on an analysis of the scenario. The accuracy of data for analysis will aid in making accurate decisions.

2. Environment for decision: Effective decision-making is dependent on the organisational and physical settings. Employees must work together and communicate well in order to create a pleasant working environment. Taking productive judgments would be easier in such a pleasant setting.

3.Timely decision: In making decisions, time is really crucial. If a choice is made without regard for time, it is not regarded a business decision. If the decision-maker fails to make a timely conclusion, the decision is a waste.

4. Communication of decision: The decision-maker should inform those who are in need of assistance. The decision-chosen maker’s language should be understood by those to whom the choices are communicated. When communicating choices, simple and straightforward phrases are employed.

5. Participative decision-making: The level of worker engagement in decision-making is determined by upper management’s willingness.

Top management believes they have a monopoly on decision-making, and employees’ participation in decision-making lowers top management’s dignity. Workers are not even invited to make ideas while making decisions. However, employees must be allowed to play their part in making decisions.

6.Implementation: The decision-maker is responsible for putting the choice into action. If not, making a decision is pointless. While putting a choice into action, the decision-maker should enlist the help of his “friends.”

The decision-maker emphasises the significance of following through on a choice. He must persuade his subordinates. To carry out a decision, he may lose many of his subordinates. However, he must be forceful in his implementation. He should solely think about the good of his company.

TYPES OF DECISIONS 

1. Programmed decisions: They are sometimes referred to as regular or organised decisions. The reason for this is because these judgments are made regularly and are routine in nature. This decision is made in accordance with the organization’s policy. Only lower-level management makes pre-programmed decisions with immediate consequences.

Some instances of programmed judgments include granting over time labour, issuing purchase orders (for materials), and so on. There are options. The decision-maker does not need to consult the Personnel Manager or the Board of Directors for a clear cut method to take scheduled choices.

2. Non-programmed decision: Strategic decisions, bas decisions, policy decisions, and unstructured decisions are all terms used to describe them. When the situation calls for it, senior management makes the decision. Before making a policy choice, management conducts a thorough investigation.

Management may choose to publish its policies in a compact book known as a policy manual. Management spends a lot of money on policy decisions. Non-programmed decisions include things like starting a new business, deciding whether to export or not, and buying a company. This choice will have a long-term influence on the company. A single blunder in policy will undoubtedly harm the entire organisation.

3. Major decision: The purchase of higher-value fixed assets is a major choice. A crucial choice is the purchase of land and construction. The highest management makes this choice.

4. Minor decision: The purchase of current assets with lower worth is a minor decision. Purchases of pencils, pens, and ink are instances of tiny decisions. This is a decision made by lower-level management.

5. Operative decision: An operational choice is one that has to do with the day-to-day operations of a company. This sort of decision is usually made by those in middle management. The reason for this is that they are supervisors with extensive understanding of the operations. The time when overtime earnings are paid is determined by middle management. It’s an example of a tactical choice.

6. Organisational decision: The decision-maker makes an organisational choice, which is then implemented for the organization’s optimal functioning. On the basis of his power and ability, he makes this choice.

7. Personal decision: The decision-maker makes a personal decision, which is known as a personal decision. He puts this choice into action at home and in his personal life. This choice does not represent how an organisation operates. When making a personal decision, the decision-maker is not a member of an organisation.

8. Individual decision: The distinction between individual and personal decision is often misunderstood. They are not the same thing. While making an individual decision, the decision-maker is a member of an organisation.

He may put it into practise in the company. He has been given the ability to make independent decisions. When making individual decisions, he examines the policies and circumstances in the organisation.

9. Group decision: The senior management forms a committee for certain goals. Top management believes that no single person can make an effective choice to fix an issue. The deadline for the committee to present its report with definite choices is set by upper management.

10. Departmental decision: The department head or department manager is the decision-maker in this case. He makes the choice to lead the department. Other departments are unaffected by a department’s decision. This decision is carried out within the relevant department.

11. Non-economic decision: A non-economic decision is one that is made without incurring any costs. Decisions of this nature are made at all levels of management. Noneconomic decisions are those that have to do with restoring worker morale.

12. Crisis decision: A choice is made to deal with unforeseen circumstances. The decision-maker has no opportunity or time to conduct an inquiry when making a crisis choice. It’s also known as a spot decision. The reason for this is that if a requirement occurs, the decision maker must make a quick judgement.

13. Research decision: After weighing the advantages and disadvantages of a situation, a choice is made. The decision-maker is under no obligation to make such a choice. A lot of information is required for a research choice. The availability of credible information determines the quality of research decisions.

14. Problem decision: To address an issue, a decision is made. The issue might be either predicted or unforeseen. Furthermore, the reached choice poses no further challenges to the organisation.

15. Opportunity decision: This refers to a choice made to take use of the company’s or organization’s advantages. Increased turnover, the introduction of a new product, the construction of another identical unit to prevent competition, and so on are some of the benefits.

16. Certainty decision: The phrase “certainty” refers to having complete awareness of the result of each option. For instance, determining how much profit may be increased by launching a new product or raising the selling price, and so forth. For each option, there is only one result. The decision-maker is aware of the outcome and ramifications of his or her decision.

17. Uncertainity decision: When a decision is made, the outcome is not correct or numerous possibilities are conceivable. The reason for this is because the decision-maker has insufficient information and is unaware of the repercussions. For example, while promoting a new product, the choice (profit amount) is based on the product’s profitability period. The amount of profit is big if the prosperous era is lengthy, and vice versa.

Every day, management personnel make several decisions. These choices are intended to address current issues. No choice causes the management any additional issues. In making a judgement, there should be fairness.

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PERSONAL PHASE OF DECISION-MAKING

In some instances, the decision-maker may not make the optimal decision. Next, he lacks the ability to test his decision to see whether it is the best or correct one. In order to assess a decision’s quality and correctness, an organisation must have clear policies and standards. Policies and standards are clearly defined in a structured organisation.

In most organisations, the manager is a decision-maker. Even when given the identical data, two managers do not make the same judgement. As a result, there are some distinctions in decision-making. These are attributed to Managers’ personal attributes and qualities. The following factors contribute to the existence of certain features and attributes in managers:

1. Intelligence: Intelligence is defined as the capacity to make decisions based on common sense. As a result, formal schooling has little bearing on intellect. In certain circumstances, highly educated people do not make the best judgments. Quality managers must be perceived as making the best judgments.

2. Education: Education broadens the decision-perspective. maker’s Good education is not the same as higher education. Rather than greater education, a good education allows the decision-maker to make the best judgement possible even in difficult scenarios. Obtaining a master’s degree from a recognised educational institution constitutes higher education.

In other words, good education entails gaining comprehensive knowledge in a certain subject area. At the same time, the degree of knowledge may not rise in lockstep with the number of years spent in school. If a person has a strong desire to learn more, he will become a decision-making expert.

3. Experience: An individual’s decision-making capacity can be improved with experience. Only when a decision-maker has the ability to think creatively can he survive. When making a choice, the decisionmaker should draw on his personal experience.

4. Courage: The decision-maker must have the guts to make and carry out his or her decision. The bravery of the decision-maker is crucial to the success of the choice.

5. Motivation: Everyone wants to be recognised for their efforts. A person who makes a choice also wants his colleagues to approve it. If this is not the case, he will be unable to make even the most basic decisions in the future. Recognition of a choice boosts the decisionmaker’s drive. Next, neither criticism nor ideas are expected by the decision-maker.

6. Forecasting ability: The capacity of the decision-maker to predict affects the quality of the choice. If the decision-maker has the ability to predict, even hasty actions can sometimes provide positive effects. He can also take use of available possibilities to avoid potentially dangerous circumstances. This also eliminates the necessity for making further judgments.

7. Self-confidence: First and foremost, the decision-decision maker’s is proper. Then he will present his decision to others for approval. The self-assured decision-maker can make decisions whenever they are needed. On the other hand, if the decision-maker lacks self-confidence, he will postpone the decision-making process, causing the situation to worsen. As a result, self-assurance is required on the side of the decision-maker.

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