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Decision Making Process InManagement - Problem Solving

Post : Gaurav Akrani Date : 6/01/2010 10:24:00 PM ISTComment (1) Labels : Education, Management, Study Notes

1. What is Decision Making?

Decision-making is an essential aspect of modern management. It is a primaryfunction of management. A manager's major job is sound/rational decision-making. He takes hundreds of decisions consciously and subconsciously.Decision-making is the key part of manager's activities. Decisions are importantas they determine both managerial and organizational actions. A decision maybe defined as "a course of action which is consciously chosen from among a setof alternatives to achieve a desired result." It represents a well-balancedjudgment and a commitment to action.

It is rightly said that the first important function of management is to takedecisions on problems and situations. Decision-making pervades all managerialactions. It is a continuous process. Decision-making is an indispensablecomponent of the management process itself.

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Means and ends are linked together through decision-making. To decide meansto come to some definite conclusion for follow-up action. Decision is a choicefrom among a set of alternatives. The word 'decision' is derived from the Latinwords de ciso which means 'a cutting away or a cutting off or in a practicalsense' to come to a conclusion. Decisions are made to achieve goals throughsuitable follow-up actions. Decision-making is a process by which a decision(course of action) is taken. Decision-making lies embedded in the process ofmanagement.

According to Peter Drucker, "Whatever a manager does, he does throughdecision-making". A manager has to take a decision before acting or beforepreparing a plan for execution. Moreover, his ability is very often judged by thequality of decisions he takes. Thus, management is always a decision-makingprocess. It is a part of every managerial function. This is because action is notpossible unless a firm decision is taken about a business problem or situation.

This clearly suggests that decision-making is necessary in planning, organising,directing, controlling and staffing. For example, in planning alternative plans areprepared to meet different possible situations. Out of such alternative plans, thebest one (i.e., plan which most appropriate under the available businessenvironment) is to be selected. Here, the planner has to take correct decision.This suggests that decision-making is the core of planning function. In the sameway, decisions are required to be taken while performing other functions ofmanagement such as organising, directing, staffing, etc. This suggests theimportance of decision-making in the whole process of management.

The effectiveness of management depends on the quality of decision-making. Inthis sense, management is rightly described as decision-making process.According to R. C. Davis, "management is a decision-making process."Decision-making is an intellectual process which involves selection of onecourse of action out of many alternatives. Decision-making will be followed bysecond function of management called planning. The other elements whichfollow planning are many such as organising, directing, coordinating, controllingand motivating.

Decision-making has priority over planning function. According to PeterDrucker, it is the top management which is responsible for all strategicdecisions such as the objectives of the business, capital expenditure decisionsas well as such operating decisions as training of manpower and so on. Withoutsuch decisions, no action can take place and naturally the resources wouldremain idle and unproductive. The managerial decisions should be correct tothe maximum extent possible. For this, scientific decision-making is essential.

2. Definitions of Decision-making

1. The Oxford Dictionary defines the term decision-making as "the action ofcarrying out or carrying into effect".

2. According to Trewatha & Newport, "Decision-making involves the

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selection of a course of action from among two or more possible alternativesin order to arrive at a solution for a given problem".

3. Characteristics of Decision Making

1. Decision making implies choice: Decision making is choosing from amongtwo or more alternative courses of action. Thus, it is the process of selectionof one solution out of many available. For any business problem, alternativesolutions are available. Managers have to consider these alternatives andselect the best one for actual execution. Here, planners/ decision-makershave to consider the business environment available and select thepromising alternative plan to deal with the business problem effectively. It isrightly said that "Decision-making is fundamentally choosing between thealternatives". In decision-making, various alternatives are to be consideredcritically and the best one is to be selected. Here, the available businessenvironment also needs careful consideration. The alternative selected maybe correct or may not be correct. This will be decided in the future, as per theresults available from the decision already taken. In short, decision-making isfundamentally a process of choosing between the alternatives (two or more)available. Moreover, in the decision-making process, information is collected;alternative solutions are decided and considered critically in order to find outthe best solution among the available. Every problem can be solved bydifferent methods. These are the alternatives and a decision-maker has toselect one alternative which he considers as most appropriate. This clearlysuggests that decision-making is basically/fundamentally choosing betweenthe alternatives. The alternatives may be two or more. Out of suchalternatives, the most suitable is to be selected for actual use. The managerneeds capacity to select the best alternative. The benefits of correctdecision-making will be available only when the best alternative is selectedfor actual use.

2. Continuous activity/process: Decision-making is a continuous anddynamic process. It pervades all organizational activity. Managers have totake decisions on various policy and administrative matters. It is a neverending activity in business management.

3. Mental/intellectual activity: Decision-making is a mental as well asintellectual activity/process and requires knowledge, skills, experience andmaturity on the part of decision-maker. It is essentially a human activity.

4. Based on reliable information/feedback: Good decisions are alwaysbased on reliable information. The quality of decision-making at all levels ofthe Organisation can be improved with the support of an effective andefficient management information system (MIS).

5. Goal oriented process: Decision-making aims at providing a solution to agiven problem/ difficulty before a business enterprise. It is a goal-orientedprocess and provides solutions to problems faced by a business unit.

6. Means and not the end: Decision-making is a means for solving aproblem or for achieving a target/objective and not the end in itself.

7. Relates to specific problem: Decision-making is not identical with problemsolving but it has its roots in a problem itself.

8. Time-consuming activity: Decision-making is a time-consuming activity asvarious aspects need careful consideration before taking final decision. Fordecision makers, various steps are required to be completed. This makesdecision-making a time consuming activity.

9. Needs effective communication: Decision-taken needs to becommunicated to all concerned parties for suitable follow-up actions.Decisions taken will remain on paper if they are not communicated toconcerned persons. Following actions will not be possible in the absence ofeffective communication.

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10. Pervasive process: Decision-making process is all pervasive. Thismeans managers working at all levels have to take decisions on matterswithin their jurisdiction.

11. Responsible job: Decision-making is a responsible job as wrongdecisions prove to be too costly to the Organisation. Decision-makers shouldbe matured, experienced, knowledgeable and rational in their approach.Decision-making need not be treated as routing and casual activity. It is adelicate and responsible job.

4. Advantages of Decision Making

1. Decision making is the primary function of management: The functions ofmanagement starts only when the top-level management takes strategicdecisions. Without decisions, actions will not be possible and the resourceswill not be put to use. Thus decision-making is the primary function ofmanagement.

2. Decision-making facilitates the entire management process: Decision-making creates proper background for the first management activity calledplanning. Planning gives concrete shape to broad decisions about businessobjectives taken by the top-level management. In addition, decision-makingis necessary while conducting other management functions such asorganising, staffing, coordinating and communicating.

3. Decision-making is a continuous managerial function: Managers workingat all levels will have to take decisions as regards the functions assigned tothem. Continuous decision making is a must in the case of allmanagers/executives. Follow-up actions are not possible unless decisionsare taken.

4. Decision-making is essential to face new problems and challenges:Decisions are required to be taken regularly as new problems, difficulties andchallenges develop before a business enterprise. This may be due tochanges in the external environment. New products may come in the market,new competitors may enter the market and government policies may change.All this leads to change in the environment around the business unit. Suchchange leads to new problems and new decisions are needed.

5. Decision-making is a delicate and responsible job: Managers have totake quick and correct decisions while discharging their duties. In fact, theyare paid for their skill, maturity and capacity of decision-making.Management activities are possible only when suitable decisions are taken.Correct decisions provide opportunities of growth while wrong decisions leadto loss and instability to a business unit.

5. Steps Involved In Decision Making Process

Decision-making involves a number of steps which need to be taken in a logicalmanner. This is treated as a rational or scientific 'decision-making process'which is lengthy and time consuming. Such lengthy process needs to befollowed in order to take rational/scientific/result oriented decisions. Decision-making process prescribes some rules and guidelines as to how a decisionshould be taken / made. This involves many steps logically arranged. It wasPeter Drucker who first strongly advocated the scientific method of decision-making in his world famous book 'The Practice of Management' published in1955. Drucker recommended the scientific method of decision-making which,according to him, involves the following six steps:

1. Defining / Identifying the managerial problem,

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2. Analyzing the problem,

3. Developing alternative solutions,

4. Selecting the best solution out of the available alternatives,

5. Converting the decision into action, and

6. Ensuring feedback for follow-up.

The figure given below suggests the steps in the decision-making process:-

1. Identifying the Problem: Identification of the real problem before abusiness enterprise is the first step in the process of decision-making. It isrightly said that a problem well-defined is a problem half-solved. Informationrelevant to the problem should be gathered so that critical analysis of theproblem is possible. This is how the problem can be diagnosed. Cleardistinction should be made between the problem and the symptoms whichmay cloud the real issue. In brief, the manager should search the 'criticalfactor' at work. It is the point at which the choice applies. Similarly, whilediagnosing the real problem the manager should consider causes and findout whether they are controllable or uncontrollable.

2. Analyzing the Problem: After defining the problem, the next step in thedecision-making process is to analyze the problem in depth. This isnecessary to classify the problem in order to know who must take thedecision and who must be informed about the decision taken. Here, thefollowing four factors should be kept in mind:

01. Futurity of the decision,

02. The scope of its impact,

03. Number of qualitative considerations involved, and

04. Uniqueness of the decision.

3. Collecting Relevant Data: After defining the problem and analyzing itsnature, the next step is to obtain the relevant information/ data about it.There is information flood in the business world due to new developments inthe field of information technology. All available information should be utilisedfully for analysis of the problem. This brings clarity to all aspects of theproblem.

4. Developing Alternative Solutions: After the problem has been defined,diagnosed on the basis of relevant information, the manager has todetermine available alternative courses of action that could be used to solvethe problem at hand. Only realistic alternatives should be considered. It isequally important to take into account time and cost constraints andpsychological barriers that will restrict that number of alternatives. If Scroll Top


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necessary, group participation techniques may be used while developingalternative solutions as depending on one solution is undesirable.

5. Selecting the Best Solution: After preparing alternative solutions, the nextstep in the decision-making process is to select an alternative that seems tobe most rational for solving the problem. The alternative thus selected mustbe communicated to those who are likely to be affected by it. Acceptance ofthe decision by group members is always desirable and useful for itseffective implementation.

6. Converting Decision into Action: After the selection of the best decision,the next step is to convert the selected decision into an effective action.Without such action, the decision will remain merely a declaration of goodintentions. Here, the manager has to convert 'his decision into 'their decision'through his leadership. For this, the subordinates should be taken inconfidence and they should be convinced about the correctness of thedecision. Thereafter, the manager has to take follow-up steps for theexecution of decision taken.

7. Ensuring Feedback: Feedback is the last step in the decision-makingprocess. Here, the manager has to make built-in arrangements to ensurefeedback for continuously testing actual developments against theexpectations. It is like checking the effectiveness of follow-up measures.Feedback is possible in the form of organised information, reports andpersonal observations. Feed back is necessary to decide whether thedecision already taken should be continued or be modified in the light ofchanged conditions.

Every step in the decision-making process is important and needs properconsideration by managers. This facilitates accurate decision-making. Evenquantitative techniques such as CPM, PERT/OR, linear programming, etc. areuseful for accurate decision-making. Decision-making is important as itfacilitates entire management process. Management activities are just notpossible without decision-making as it is an integral aspect of managementprocess itself. However, the quality of decision-making should be alwayssuperior as faulty/irrational decisions are always dangerous.

Various advantages of decision-making (already explained) are easily 'availablewhen the entire decision-making process is followed properly. Decisions arefrequently needed in the management process. However, such decisionsshould be appropriate, timely and rational. Faulty and hasty decisions arewrong and even dangerous. This clearly suggests that various advantages ofdecision-making are available only when scientific decisions are taken byfollowing the procedure of decision-making in an appropriate manner.

For accurate/rational decision-making attention should be given to the followingpoints:

1. Identification of a wide range of alternative courses of action i.e.,decisions. This provides wide choice for the selection of suitable decision forfollow-up actions.

2. A careful consideration of the costs and risks of both positive andnegative consequences that could follow from each alternation.

3. Efforts should be made to search for new information relevant to furtherevaluation of the alternatives. This is necessary as the quality of decisiondepends on the quality of information used in the decision-making process.

4. Re-examination of the positive and negative effects of all knownalternatives before making a final selection.

5. Arrangements should be made for implementing the chosen course ofaction including contingency plans in the event that various known risks wereactually to occur.

6. Efforts should be made to introduce creativity and rationality in the final Scroll Top


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decision taken.

6. Why Rational and Right Decisions Are NotPossible?

Rational decisions are the best decisions under the available circumstances. Alldecisions should be rational as such decisions facilitate expansion of businessand give more profit, goodwill and prosperity to a business unit. Rationality anddecision-making are closely related concepts. Rationality principle is applicableto all types of decisions. All decisions (business, economic, social etc.) shouldbe fair and rational. They should serve as examples over a long period. Forsuch decisions, rational/scientific/balanced approach is essential while makingdecisions. In the absence of such approach, decisions are likely to be faulty anddangerous to the Organisation and also to all concerned parties.

Rationality in decision-making is possible through human brain which has theability to learn, think, analyze and relate complex facts and variables whilearriving at a decision. A manager has to introduce rationality in his decision-making by using his skills, experience, knowledge and mental abilities.

On some occasions, such rational and right decisions are not taken due tovariety of possible reasons. It is also possible that the decision taken may berational when taken but is treated as wrong/irrational/faulty because' the resultsavailable from the decision taken are not as expected/positive/encouraging.Rational decisions may not be possible when the approach of thedecision-maker is casual and superficial. He may not be alert, careful andcautious while taking the decisions or he might not have followed the decision-making process in a scientific manner. In brief, all business decisions should berational as far as possible as such rational decisions offer manybenefits/advantages. However, rational decisions may not be taken on certainoccasions. According to Herbert A. Simon, human beings are not alwaysrational in the decisional process.

7. Reasons Why Rational and Right Decisions MayNot Be Possible?

1. Inadequate information, data and knowledge: For rational decision-making accurate, reliable and complete information about various aspects ofthe problem under investigation is necessary. The possible future trends canbe estimated with the help of such information. This facilitates rationaldecision-making. However, adequate and reliable information may not beavailable at the time of decision-making. As a result, the decisions becomedefective or irrational. Such decision may prove to be faulty in the course oftime. This is how the decisions become irrational to certain extent.

2. Uncertain environment: Decisions are taken on the basis of informationavailable about various environmental variables. However, the variables aremany and complex in nature. They may be related to political, economic,social and other aspects. It is not possible to study all such variables in depthdue to inadequate information/data. This leads to inaccuracy in decisionmaking and the decisions taken are not fully rational.

3. Limited capacity of decision-maker. A decision-maker should be expert,knowledgeable, intelligent and matured. He needs vision and capacity toimagine possible future situation. In the absence of such qualities, thedecision-maker may not be able to take rational decisions. Similarly, thedecision taken may not be rational if the decision-maker fails to follow allnecessary steps required for scientific decision-making. A hasty decision ordecision taken without full use of all mental faculties may not be fully rational.Thus, decisions are likely to be less rational if the decision maker lackscapacity to take rational decisions.

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4. Personal element in decision-making: Decision-making should be alwaysimpartial and also favorable to the Organisation. Decision againstOrganisation but favorable to decision maker or other employees will beunfair. Such decision will not be rational. Similarly, every decision-maker hashis own personal background in the form of personal beliefs, attributes,preferences, likes and dislikes and so on. A decision-maker is expected tokeep these elements away while taking management decisions. This may notbe possible in the case of all decision-makers and on all occasions.However, decisions are not fully rational when such personal element comesin the picture.

5. A decision cannot be fully independent: Managerial decisions areinterlinked and interdependent. A manager has to make adjustments orcompromises while making decisions. For example, for reducing price, somecompromise with the quality may be necessary. A manager gives moreimportance to one and less to the other. He takes one decision which isrational at the same time makes some compromise in the other decision. As aresult, other decision is not likely to be fully rational. In short, businessdecisions are interlinked. This brings an element of irrationality in somedecisions.

The points noted above suggest why it is not possible to take rational and rightdecisions on all occasions.

8. Relationship Between Planning and Decision-making

There is close relationship between planning and decision-making. Decision-making has priority over planning function. It is the starting point of the wholemanagement process. In fact, decision-making is a particular type of planning. Adecision is a type of plan involving commitment to resources for achievingspecific objective. According to Peter Drucker, it is the top management which isresponsible for all strategic decisions such as the objectives of the business,capital expenditure decisions as well as operating decisions such as training ofmanpower and so on. Without management decisions, no action can take placeand naturally the resources would remain idle and unproductive. Themanagerial decisions should be correct to the maximum extent possible. Forthis, scientific decision-making is essential.

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1 Comment :

Anonymous said...March 3, 2013 at 6:57 PM

quite an interesting piece. a very good resource for both industry andacademia.

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