May 30, 2012

Decision Making


Decision making is the actual selection from among alternatives of a course of action.
Decision making is involved in various functions of management. Hence, it is a step in planning. Planning occurs in managing organizations or in personal life whenever choices are made in order to gain a goal in the face of such limitations as time, money, and the desires of other people. The steps involved in planning are:
1. Being aware of opportunity
2. Establishing objectives
3. Premising
4. Determining alternative courses of action
5. Evaluating alternative courses
6. Selecting a course
7. Formulating derivative plans

Developing Alternatives

Planning comes into picture whenever a goal is to be attained. Choice of goal itself is a planning problem. If we assume that there is a goal to be achieved, the next step in the planning is to develop planning premises. Premises are planning assumptions, the future setting in which planning takes place. We can term them as the environment of plans in operation. Premises include forecast data of a factual nature, applicable basic policies, and existing company plans.
Developing alternative courses of action is taken as the first step in decision making. Managers have to develop alternative courses for any decision to be made. A sound adage for the manager is that, if there seems to be only one way of doing a thing, that way is probably wrong. More rationally, a planning priniciple called principle of alternatives can be specified. In every course of action, alternatives exist, nd effective planning involves a search for the alternative representing the best path to a desired goal.
The ability to develop alternatives is often as important as making a right decision among alternatives. Ingenuity, research, and perspicacity are required to make sure that the best alternatives are considered before a course of action is selected.

Principle of Limiting Factor

Chester Barnard has written, "the analysis required for decision is in effect a search for the "strategic factors."

Stategic factors and limiting factors are synonyms but Barnard suggests that we use the term limiting factor for physical things and when personal or organizational action is the element, we should use the term strategic factor. When we want to achieve some goals of system, we examine its parts or factors. Strategic factors or limiting factors are those parts or factors which if changed would accomplish the desired purpose if other factors or parts remain unchanged. The principle of limiting factor says, if in developing alternatives, the more an individual can recognize and solve for those factors that are limiting or critical to the attainment of a desired goal, the more effectively and efficiently he can select the most favorable alternative.
Discovery of limiting factor lies at the basis of selection from alternatives and hence of planning.
Process of Evaluation
After a reasonable number of alternatives have been developed, the next step in decision making is evaluating these alternatives. In most decisions, there are certain tangible factors to be assessed in terms of dollars, man-hours, machines hours, units of output, rates of return on investment, or some other quantitative unit. There are other factors that can be hardly quantified. However, both the tangible and intangible factors must be weighed in deciding upon a course of action.

Basis for Selection Among Alternatives

Business Research and Analysis
Operations Research

Evaluating the Decision's Importance

Size or length of commitment: If a decision commits the enterprise to heavy expenditure of funds it should be subjected to suitable attention at top management level.
Flexibility:Decisions involving inflexible courses of action need attention.
Certainty of goals and premises: Production decisions based on order backlog are more routine in comparision to made to stock decisions.
Quantifiability of variables: If variable can be quantified decision making is more routine.
Human impact: Where the human impact of a decision if great, its importance is high.
 Rationality in Decision Making

Economics is a subject that is developed under the assumption that people take rational decisions. When is a person thinking or deciding rationally? A rational decision making implies that the decision maker has a clear understanding of all alternative courses of action by which the goal sought can be reached under existing circumstances and limitations. The decision maker also must have the knowledge to analyze the alternatives in light of the goal sought with a desire to find out the best solution that effectively and efficiently satisfies the goal achievement.

Herbert Simon proposed that managers may not achieve complete rationality in many decisions. It is difficult to recognize all alternatives to reach a goal and also it may not be possible to analyze all alternatives. Hence managers resort to satisficing and find solutions that appear satisfactory to them and their associates in the circumstances.

Creativity and Innovation

Developing alternatives and finding novel ways that are profitable alternatives requires creative thinking. Weihrich and Koontz explain creative thinking as four step process.

1. Unconscious scanning
Allowing the mind to think over the problem and do its process without a conscious effort.

2. Intuition
Intuition is an answer to the problem that is thrown up by the mind. This is the output of the unconscious scanning effort.

3. Insight
Insight also an idea that comes up during investigations to solve a problem. They are to be captured immediately on paper to make us of them later.

4. Logical formulation or verification
Intuition as well as insight is to be tested through logic or experiment. The logical verification is done first by the person himself and then by inviting critiques from others.


Video Lecture - Presentation - Making Great Decision


Updated 29.5.2012
Original knol - 2utb2lsm2k7a/ 188