What is Decision Making?

Decision-making can be regarded as the mental process (cognitive process) resulting in the selection of a course of action among several available alternatives. It is found that all decision making process will generate a final choice where the output can be seen as an opinion.

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Decision Making – Pepsi – Cola’s Dilemma

Many years ago, several reports surfaced stating that syringes and hypodermic needles had been found in Pepsi cans. It was a difficult problem for Pepsi-Cola?s executives. Could needles have been put in Pepsi at the canning plants or were the reports a hoax?

The information was unclear and fast changing, time was running out and the executives had to find a solution quickly. Recalling the product meant danger for the company. However, there was no evidence produced against the company as yet. A recall would have been very costly and the company would have lost the trust of customers.

The executives, after carefully analyzing the facts, believed syringes could not go into UN-opened cans of Pepsi. Instead of going for a recall, the executives went on a massive public relations and education campaign.

Nationwide ad campaigns explained, “How implausible it was that syringes could have been put into Pepsi cans at the plants.” They also assured consumers that there had been no injuries and not a single confirmed case of a needle found in an unopened can of Pepsi had been reported.

By responding quickly and openly to public fears, Pepsi weathered the syringe-scare crisis with little damage. Pepsi managers made the right decision, believing, based on careful internal analysis, that needle could not possibly have been put into can of Pepsi at the plants.

However, it was a decision that could have backfired, if the company would have been unable to convince consumers that Pepsi products were truly safe.

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Meaning of Decision Making

Decision-making can be regarded as the mental process (cognitive process) resulting in the selection of a course of action among several available alternatives. It is found that all decision making process will generate a final choice where the output can be seen as an opinion.

Precisely, decision making relates to the study of finding and selecting various alternatives which depends on values and choice of a decision maker. Further, decision making shows an option that is taken care where the manager should not simply locate many such options whereas can also select:

• Highest possibility of success.
  
• Excellent match of goals, desires, lifestyle with values.

In the decision making process, an uncertainty will be lower and doubt related to alternatives will make a good choice.

The above explanation focuses on the information gathering functions which results in making decision. In such cases, the uncertainty will be lowered instead of eliminated. Under such circumstances, less decision are made with complete confirmation as entire knowledge of all alternatives is rarely feasible. So all decision uses certain level of risk.

If there is no uncertainty, you do not have a decision; you have an algorithm- a set of steps or a recipe that is followed to bring about a fixed result.

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Characteristics of Decision-Making

The important characteristics of decision-making may be listed thus:

Goal-oriented

Decision-making is a goal-oriented process. Decisions are usually made to achieve some purpose or goal. The intention is to move towards some desired state.

Alternative

A decision should be viewed as „a point reached in a stream of action.? It is characterized by two activities- search and choice. The manager searches for opportunities, to arrive at decisions and for alternative solutions, so that action may take place.

Selecting an alternative and abiding by it leads to decision making. Thus, an alternative is found fit to solve a particular problem. When no alternatives exist, the manager does not need to arrive at a decision. When uncertainty concerning a particular outcome is confronted, the manager has no choice but to put on his decision making hat.

Analytical-Intellectual

Decision-making is not only an intellectual process but also an intuitive one. It involves conscious and unconscious aspects. Part of it can be learned, but part of it depends upon the personal characteristics of the decision maker.

Dynamic Process

Decision-making is characterized as a process, rather than as one static entity. It is a process of using inputs effectively in the solution of selected problems and the creation of outputs that have utility. Moreover, it is a process concerned with „identifying worthwhile things to do? in a dynamic setting.

Pervasive Function

Decision-making permeates all management and covers every part of an enterprise. Decision-making is the crux of a manager?s job. Everything that the manager does is backed by the power of decision – making.

Continuous Activity

The life of a manager is a perpetual choice-making activity. He decides things on a continual and regular basis. It is not a one shot deal.

Commitment of Time, Effort and Money

Decision-making implies commitment of time, effort and money. The commitment may be short term or long-term, depending on the type of decision (e.g. strategic, tactical or operating). Once a decision is made, the organization moves in a specific direction in order to achieve the goals.

Human and Social Process

Decision-making is a human and social process involving intellectual abilities, intuition and judgment. The human as well as social impacts of a decision are usually taken into account while making the choice from several alternatives. For example, in a labor-surplus, capital-hungry country like India, managers cannot suddenly shut down plants.

lop off divisions and decide to lay off thousands of workers in the face of intense competition.well as social impacts of a decision are usually taken into account while making the choice from several alternatives. For example, in a labor-surplus, capital-hungry country like India, managers cannot suddenly shut down plants, lop off divisions and decide to lay off thousands of workers in the face of intense competition.

Integral Part of Planning

As Koontz indicated, „decision making is the core of planning.? Both are intellectual processes, demanding discretion and judgment. Both aim at achieving goals. Both are situational in nature. Both involve choice among-alternative courses of action. Both are based on forecasts and assumptions and about future risk and uncertainty.

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Decision Making Process

Making a good decision is a difficult exercise. It is the product of deliberation, evaluation and thought. To make good decisions, managers should invariably follow a sequential set of steps as shown in this figure.

Awareness of the problem

The first step in the decision-making process is recognizing the problem. The manager must become aware that a problem exists and that it is important enough for managerial action. Problems generally arise because of disparity between what is and what should be.

To identify the gaps between the current and desired state of affairs, managers should look for problems that need solving. They must look for opportunities to make decisions. The existence of a problem thus steps up the need for decision making.

In order to recognize problems, a manager is expected to monitor the decision-making environment, understand the possible causes and try to define the real problem carefully.

Diagnose and state the problem

A successful manager must have the ability to weed out the wheat from the chaff before deciding on a specific course of action. Once aware of a problem, he must state the real problem. He must try to solve the problem, not just note down the symptoms.

Quite often, managers waste time developing solutions to the wrong problem. This is because opportunities and problems in the environment do not surface so easily.

Some questions that you need to ask include:

• What is the problem? What is the difference between what is and what should be?
  
• Which problems should be solved?
  
• What is the real cause of the problem?

To avoid the danger of prescribing a wrong medicine for the organization, the manager should consider the decision environment properly. For example, a high employee turnover in an organization may be due to low salaries, poor working conditions, tight supervision, poor scheduling, dissatisfaction with the jobs etc. The manager should analyses all these causes thoroughly before defining the real problem, an attitude survey may be undertaken to find out why employees are leaving the organization.

Quite often, executives try to take up the first feasible option. The statement of the problem in clear, measurable terms enables executives to develop alternatives. The ability to develop alternatives is as important as making a right decision among alternatives. Ingenuity, research and creative imagination are required to make sure that the best alternatives are considered before a course of action is selected.

Develop the alternative

Quite often, executives try to take up the first feasible option. The statement of the problem in clear, measurable terms enables executives to develop alternatives. The ability to develop alternatives is as important as making a right decision among alternatives.

Ingenuity, research and creative imagination are required to make sure that the best alternatives are considered before a course of action is selected.

Evaluate the alternatives

In this step, the decision maker tries to outline the advantages and disadvantages of each alternative. The consequences of each alternative would also be considered. Sometimes, the alternatives developed may meet internal demands but may fail to meet environmental conditions. In such cases, a manager may be forced to make a „less than optimal-decision?.

The primary objective of evaluation is not to find out one magic solution but to find out a workable solution that would help to eliminate the problem for good. The attempt is made chiefly to limit the alternatives to a manageable and economically feasible number.

Select the best alternative

In this step, the decision maker selects the alternative that will maximize the results in terms of existing objectives.

Fortunately, Peter Drunker has offered the following criteria for making theright choice among available alternatives:

The risk

The manager has to weigh the risks of each course of action against the expected gains.

Economy of effort

The alternative that will give the greatest output for the least inputs in terms of material and human resources is obviously the best one.

Timing

If the situation has great urgency, the best alternative is the one that the decision maker finds fit.

Limitation of resources

Physical, financial and human resources impose a limit on the choice of selection. If adequate resources are not currently available, the decision should be deferred.

Implement and verify the decision

After making a decision, the manager must implement it. He must see whether it has worked out or not in practicality. In other words, he must seek feedback regarding the effectiveness of the implemented solutions.

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Guidelines for Making Effective Decision

This can be done if following factors are taken into consideration:

Categorical Interpretation

At the very outset, it may be emphasized that logical decisions can be made if the real problem is interpreted and identified with in depth study and observation.

Application of Limiting Factor

In choosing from among alternatives, the more a manager recognizes and solves for those factors, which are limiting and critical to the attainment of desired objectives, the more clearly and accurately he can select the most desirable alternative.

Adequate Information

Information is the lifeblood of an organization because all decisions are based on this. The more the quantity of reliable information, higher is the validity of decision.

Considering Others’ Views

While making a decision, it is desirable that all alternatives are considered before arriving at a decision.

Timeliness

A decision, to be effective, must be made at proper time. A delay in decision-making may result into loss of opportunities in this fast-changing environment.

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Types of Decision

There are different type of decisions – strategic, tactical and operational; major and minor decisions, programmed and non-programmed decisions, simple and complex decisions, long run and short run decisions and individual and group decisions.

1. Strategic, Tactical and Operational decisions

Strategic decisions

are important which affect objectives, organizational goals and other important policy matters. These decisions affect the whole organization or major part of it. Any strategic decisions are non-repetitive in nature and needs careful analysis and evaluation of many alternatives. They are often complex and multidimensional. Strategic decisions involve large sums of money, has long term impact and usually taken by senior management.

Tactical decisions

are about how to manage performance to achieve strategy. They are in clear boundaries. They may involve significant resources, have medium-term implications and taken by middle level managers.

Operational decisions

are decisions related to routine activities follow rules
of the organization. These decisions are supportive in nature and needs less
analysis and concentration. They do not change or guide the direction of the
organization. Operational decisions needs less resources, short term applications and taken by first line managers.

2. Major and Minor decisions

Other name of major decisions is important decisions. They affect the whole organization and all various departments of the organization and are not repetitive in nature. Minor decisions are unimportant decisions. Normally affect concerned departments only and taken by lower level of management.

Programmed and Non-programmed decisions

Decisions based on company’s budget or policy etc. are programmed decisions. They are made in response to repetitive or routine problems and situations. E.g. – Pay money back for wrong delivery – procedure and policy will decide – it is a programmed decision.

Non- repetitive, peculiar, complex, most important and unstructured problem decisions are non-programmed decisions. Downsizing the organization or shut down one office or branch are non-programmed decisions. They do not occur again and again in organization.

Simple and Complex decisions

When very less number of factors are going to affect the decision, it is called simple decision. E.g.- sanctioning a leave to an employee for long time with family, may consider how much work is there in that time and who will manage it, – will be a simple decision.

When many variables affect the decisions, like growth of population, cost of living, market growth – is known as complex decision. Like company is planning to increase wages of workers, it will be affected by employee productivity, trade union influence, government policy etc…. than it’s a complex decision.

Long run decisions and short run decisions

Decisions affect long term plans and activities are called long term decisions. E.g. – New product launch, New retail outlet, joint venture Decisions affect short term plans and activities are called short term decisions. E.g. – Discount Sale, sources of finance for working capital.

Individual Vs. Group decisions

When an individual manager or employee take decision is called individual decisions. These decisions are routine, simple, repetitive and programmed decisions. When a group take a decision, it is called group decision. E. g. team or committee decisions, non-programmed decisions, complex and strategic decisions.

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