Decision Making

Dr. Shekhar drksldas@gmail.com krishna.shekhar@iilmgsm.ac.in 9868729476

Introduction
Decision making is defined as the selection of a course of action from amongst the alternative; - it is at the core of planning. A plan cannot be said to exist unless a decision has been made. Until that point, there are only planning studies and analysis. Managers sometimes see decision making as their central job Decision making is, however, only a step in planning,

The Importance and Limitations of Rational Decision Making

In the Planning steps decision making is a major part of planning. the decision process is really a core of planning. Thus, in this context, the process leading to making a decision might be thought of : as premising, identifying alternatives, -evaluating alternatives in terms of the goal sought, - and choosing an alternative, - that is decision.

The Importance and Limitations of Rational Decision Making Rationality in Decision Making
effective decision making must be rational. But what is rationality? When is a person thinking or deciding rationally? People acting or deciding rationally means what? They must have a clear understanding of alternatives courses . They also must have the information and ability to analyze and evaluate alternatives. Finally, they must have a desire to come to the best solution by selecting the alternative.

The Importance and Limitations of Rational Decision Making Rationality in Decision Makingcont.
People seldom achieve complete rationality, particularly in management. First, since no one can make decisions affecting the past, decision must operate for the future and the future almost invariably involves uncertainties. Second, it is difficult to recognize all the alternatives - it is true when decision making involved opportunities to do something that has not been done before. Moreover, not all alternatives can be analyzed.

Evaluation of Alternatives
Once appropriate alternatives have been found, the next step in planning is to evaluate them and select the one that will best contribute to the goal. This is the point of ultimate decision making, although decisions must also be made in the other steps of planning in selecting goals, in choosing critical premises, and even in selecting alternatives.

Evaluation of Alternatives Quantitative

and Qualitative Factors While comparing alternative plans for achieving an objective, people are likely to think exclusively of quantitative factors. Quantitative factors can be measured in numerical terms. importance of this type of analysis is undoubted, but the success of the venture would in risk if intangible or qualitative factors were ignored. Qualitative or intangible factor are factor that are difficult to measure numerically. Ex. Quality of labour relations, the risk of technological change, or the international political climate. While comparing alternative, it is appropriate to give importance to both factors such as quantitative and qualitative.

Evaluation of Alternatives Marginal Analysis

Marginal analysis is to compare additional revenues arising from additional costs. If the additional revenue of larger quantity are greater than its, additional cost, more profit can be made by producing more. Marginal analysis can be used in comparing factors other than cost and revenue. Ex. To find the best output of a machine, inputs could be varied against output until the additional input equals the additional output.

Evaluation of Alternatives Cost

Effectiveness Analysis

An improvement on, or variation of, traditional marginal analysis is cost effectiveness or cost benefit analysis. Cost effectiveness analysis seeks the best ratio of benefits and costs; ex. finding the least costly way of reaching an objective or getting the greatest value for given expenditures.

Selecting an Alternative: Three Approaches

When selecting from alternatives, managers can use three basic approaches: 1. Experience, 2. Experimentation, and 3. Research and analysis

Selecting an Alternative: Three Approaches

1. Experience

To some extent, experience is the best teacher. degree of good / not good judgment lead to success or failure. relying on past experience as a guide for future action can be dangerous. As scientists move further on others research, same way manager can learn form others.

Selecting an Alternative: Three Approaches

2. Experimentation

An obvious way to decide among alternatives The experimental technique is likely to be most expensive of all techniques, However, many decisions cannot be made without experiments. Eg. Airplanes, product lunches or introduction of organizational techniques.

Selecting an Alternative: Three Approaches

3. Research and Analysis

Most effective techniques for selecting alternatives. Solving a problem by first comprehending it. Comparison between experiment and research and analysis. A major step in it is to develop a model simulating the problem.

Programmed and nonprogrammed decisions

Programmed decision applies to structured or routine problems. It relies primarily on previously established criteria. It is decision making by precedent. Non-programmed decisions are used for unstructured, novel, and ill-defined situations of a nonrecurring nature. Most decisions are combination of both.

Decision making under certainty, uncertainty, and risk

At least some uncertainty is prevalent in all decisions. There are certain risk involve in decision making. In certain situation decision makers are reasonably sure. In uncertain situation people is not sure. To improve decision making in uncertain situation one may estimate the objective probabilities of outcome. One may also use subjective probability based on judgment and experience.

Summary
Decision making is the selection of a course of action from among the alternatives; It is a core of planning Managers must make choices on the basis of limited or bounded rationality. Managers need to narrow down alternative from many to few. Alternatives are evaluated in terms of quantitative and qualitative factors. Other techniques for evaluating alternative includes marginal as well as cost effectiveness analysis. Experience, experimentation, and research and analysis come into play in selecting an alternative. Programmed and non-programmed decisions are different.

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