Accounting , Finance, Management, Cost, Auditing Assignment

Decision imaking:

Decision imaking, iprocess iand ilogic ithrough iwhich iindividuals iarrive iat ia idecision. iDifferent imodels iof idecision imaking ilead ito idramatically idifferent ianalyses iand ipredictions. iDecision-making itheories irange ifrom iobjective irational idecision imaking, iwhich iassumes ithat iindividuals iwill imake ithe isame idecisions igiven ithe isame iinformation iand ipreferences, ito ithe imore isubjective ilogic iof iappropriateness, iwhich iassumes ithat ispecific iinstitutional iand iorganizational icontexts imatter iin ithe idecisions ithat iindividuals imake “Decision-making involves the selection of a course of action from among two or more possible alternatives in order to arrive at a solution for a given problem”.

As ievidenced iby ithe iforegone idefinitions, idecision imaking iprocess iis ia iconsultative iaffair idone iby ia icomity iof iprofessionals ito idrive ibetter ifunctioning iof iany iorganization. iThereby, iit iis ia icontinuous iand idynamic iactivity ithat ipervades iall iother iactivities ipertaining ito ithe iorganization. iSince iit iis ian iongoing iactivity, idecision imaking iprocess iplays ivital iimportance iin ithe ifunctioning iof ian iorganization. iSince iintellectual iminds iare iinvolved iin ithe iprocess iof idecision imaking, iit irequires isolid iscientific iknowledge icoupled iwith iskills iand iexperience iin iaddition ito imental imaturity.

Further, idecision imaking iprocess ican ibe iregarded ias icheck iand ibalance isystem ithat ikeeps ithe iorganisation igrowing iboth iin ivertical iand ilinear idirections. iIt imeans ithat idecision imaking iprocess iseeks ia igoal. iThe igoals iare ipre-set ibusiness iobjectives, icompany imissions iand iits ivision. iTo iachieve ithese igoals, icompany imay iface ilot iof iobstacles iin iadministrative, ioperational, imarketing iwings iand ioperational idomains. iSuch iproblems iare isorted iout ithrough icomprehensive idecision imaking iprocess. iNo idecision icomes ias iend iin iitself, isince iin imay ievolve inew iproblems ito isolve. iWhen ione iproblem iis isolved ianother iarises iand iso ion, isuch ithat idecision imaking iprocess, ias isaid iearlier, iis ia icontinuous iand idynamic.

Managers iat iall ilevels iand iin iall iorganization imake idecision. iThey imake ichoices. iIn ifact, idecision imaking iis ithe iessence iof imanagerial iwok,. iIn iaccordance iwith ithe irequirement iof ilevel ithe imanagers iat:

1. Top ilevel imake idecisions iabout iorganizations igoal ietc.

2. 2 iMiddle iand ilower ilevel imake idecisions iabout iproduction ischedules iproduct iquality iproblems ietc.

A idecision iis ia ichoice ifrom itwo ior imore ialternatives. iIn ithis ichapter iwe ifocus ion i‘how imanagers imake idecision’. iIn ivery isimple isense idecision imaking iis i‘chossing iamong ialternatives’. iHowever, idecision imaking iis ia iprocess iand iis inot ia isimple iact iof ichoosing iamong ialternatives.

Decision imaking iis Ian ieight isteps iprocess. iThe iProcess iis irelevant ito ipersonal idecisions iand ibusiness idecision. iThe isteps iin iprocess iare:

1. Identify ia iproblem

2. Identify idecision ito ithe icriteria

3. Allocate ithe iweights ito ithe icriteria

4. Developing ialternatives

5. Analyzing ialternatives

6. Select ian ialternatives

7. Implementing ithe ialternative

8. Evaluating idecision ieffectiveness

Program iDecision iand iNon iProgram idecision:

Program iDecision:

Programmed idecisions iare ithose ithat iare itraditionally imade iusing istandard ioperating iprocedures ior iother iwell-defined imethods. iThese iare iroutines ithat ideal iwith ifrequently ioccurring isituations, isuch ias irequests ifor ileaves iof iabsence iby iemployees. iProgrammed idecisions ido inot inecessarily iremain iconfined ito isimple iissues, isuch ias ivacation ipolicies ior isimilar isuch ithings; ithey iare ialso iused ito ideal iwith ivery icomplex iissues, isuch ias ithe itypes iof itests ithat ia idoctor ineeds ito iconduct ibefore iperforming ia imajor isurgery ion ia ipatient iwith idiabetes.

Programmed idecisions iare iroutine iand irepetitive, iand ithe iorganization itypically idevelops ispecific iways ito ihandle ithem. iA iprogrammed idecision imight iinvolve idetermining ihow iproducts iwill ibe iarranged ion ithe ishelves iof ia isupermarket. iFor ithis ikind iof iroutine, irepetitive iproblem, istandard iarrangement idecisions iare itypically imade iaccording ito iestablished imanagement iguidelines.

Structured

Lower ilevels i

Repetitive/ iRoutine

Available i

Specific

Short

Procedures, irules

Policies

Non iprogram iDecision:

Non iprogrammed idecisions iare itypically ione ishot idecisions ithat iare iusually iless istructured ithan iprogrammed idecision.

A iunique iand inonrecurring idecision ithat irequire ia icustom imade isolution.

Unstructured

Upper ilevel

Unusual

Ambiguous

Not iwell idefined i

Long

Judgement iand icreativity

Effective iDecision:

Today, ibusiness iworld irevolves iaround imaking idecisions. iThe idecision iare ioften irisky iand iwith iincomplete iinformation iunder itime ipressure. iMost imanagers imake ione idecision iafter ianother iwithout ibreak. i

The ichain iof idecision iis iendless. iBad idecision ican icost imillions. iManagers ineed ito imake ieffective idecision itoday. iHere iare isome iguidelines ito imake ieffective idecisions:

1. Understand icultural idifferences.

Mangers ialways iand ieverywhere iwant ito imake igood idecisions. iHowever, ithere iis ino isingle i‘best’ iway ieverywhere iin ithe iworld. iThe ibest iway iat ia iplace idepends ion ithe ivalues, ibeliefs, iattitudes iand ibehavioural ipatterns iof ithe ipeople iinvolved ithere. iTo ibe ian ieffective idecision imaker, iA imanager imust ikeep iin imind ithe icultural isystem iof ia iplace.

2. Know ithe itime ito iquits

When iit ibecomes ievident ithat ia idecision iis inot iworking, ido inot ibe iafraid iquit. iMany idecision imakers iblock inegative iinformation. iThey ido inot iwant ito ibelieve ithat itheir idecision iwas ibad. iIn ia idynamic ienvironment ithe ithinking iwill inot iwork.

3. iAn ieffective idecision imaking iprocess.

a. It ifocuses ion iimportant i

b. It iis ilogical iand iconsistent i

c. It itakes iinto iaccount iboth isubjective iand iobjective ithinking.

d. It irequires ionly inecessary iinformation ito iresolve ia iproblem

4. Maintain iability ito ispot ithe iunexpected iand iquickly iadapt ito ichanged ienvironment.

a) They idefer ito ithe iexperts ion ithe ifrontline

b) iThey ilet iunexpected isituations iprovide ithe isolution.

c) They iembrace icomplexity

Rationality:

1. In imodern iWestern isocieties ithe imost icommon iunderstanding iof idecision imaking iis ithat iit iis irational—self-interested, ipurposeful, iand iefficient. iDuring irational idecision imaking, iindividuals iwill isurvey ialternatives, ievaluate iconsequences ifrom ieach ialternative, iand ifinally ido iwhat ithey ibelieve ihas ithe ibest iconsequences ifor ithemselves. iThe ikeys ito ia idecision iare ithe iquality iof iinformation iabout ialternatives iand iindividual ipreferences. iModern ieconomics iis ibuilt ion ithis iunderstanding iof ihow iindividuals imake idecisions.

2. Rational idecision imaking ibecomes iefficient iwhen iinformation iis imaximized iand ipreferences iare isatisfied iusing ithe iminimum iof iresources. iIn imodern isocieties, irational idecision imaking ican ioccur iin imarkets ior ifirms. iBoth iassume ithat iindividuals iwill iact irationally, imaximizing iself-interest, ibut ieach iworks imost iefficiently iunder idifferent iconditions. iMarkets iare imost iefficient iwhen iboth ibuyers iand isellers iexist, iwhen iproducts ior iservices iare idiscrete iso ithat ithe iexchange ican ibe ione-time, iwhen iinformation iabout ia iproduct ior iservice i(such ias iits itechnology ior imeans iof ievaluation) iis ibroadly iunderstood, iand iwhen ithere iare ienforced ipenalties ifor icheating.

3. Lacking ithese iconditions, iconsensual iexchange icannot ioccur, iand irational iindividuals iwill itry ito icheat iothers ito imaximize itheir igain. iIn ithese icases ia ihierarchical iorganization iis imore iefficient. iThe iGerman isociologist iMax iWeber idescribed ihow ifactories iand ibureaucracies ibecame idramatically imore iefficient ithrough igrowing itechnical iexpertise iand, imore iimportantly, ia inew idivision iof ilabour, iwhich idivided iwork, ispecialized iexpertise, iand icoordinated iindividuals iin ia irule-based ihierarchy. iBureaucracies idecomposed icomplex itechnologies iinto imanageable ipieces, ithen iallowed iindividuals ito ispecialize iand imaster ia idefined iskill iset. iUsing ia iclear ihierarchy iin iwhich ieach iposition iis icontrolled iand isupervised iaccording ito ia istable iand inonarbitrary isystem iof irules, ieach iindividual’s iwork iand iexpertise icould ibe icoordinated ito iachieve iorganizational igoals, iranging ifrom iwinning iwars ito imaking idresses.

Satisficing iAnd iBounded iRationality:

In ithe i1940s, iorganization itheorists ibegan ito ichallenge itwo iassumptions inecessary ifor irational idecision imaking ito ioccur, iboth iof iwhich iwere imade iobvious iin icases iwhere imarkets ifailed iand ihierarchies iwere inecessary. iFirst, iinformation iis inever iperfect, iand iindividuals ialways imake idecisions ibased ion iimperfect iinformation. iSecond, iindividuals ido inot ievaluate iall ipossible ialternatives ibefore imaking ia ichoice. iThis ibehaviour iis idirectly irelated ito ithe icosts iof igathering iinformation, ibecause iinformation ibecomes iprogressively imore idifficult iand icostly ito igather. iInstead iof ichoosing ithe ibest ialternative ipossible, iindividuals iactually ichoose ithe ifirst isatisfactory ialternative ithey ifind. iThe iAmerican isocial iscientist iHerbert iSimon ilabeled ithis iprocess i“satisficing” iand iconcluded ithat ihuman idecision imaking icould iat ibest iexhibit ibounded irationality. iAlthough iobjective irationality ileads ito ionly ione ipossible irational iconclusion, isatisficing ican ilead ito imany irational iconclusions, idepending iupon ithe iinformation iavailable iand ithe iimagination iof ithe idecision imaker.

Simon iargued ithat iotherwise iirrational iindividuals ican ibehave irationally iin ithe iright icontext, iparticularly iwithin ia iformal iorganization. iOrganizations ican istructure, ior ibound, iindividuals’ idecisions iby imanipulating ithe ipremises ion iwhich idecisions iare imade. iOrganizations ican ifilter ior iemphasize iinformation, ibringing ifacts ito ian iindividual’s iattention iand iidentifying icertain ifacts ias iimportant iand ilegitimate. iIndividuals iin ihierarchies ican itake imost iof iwhat ihappens iaround ithem ifor igranted, iconcentrating ionly ion ia ifew ikey idecisions. iHierarchies iare iefficient ibecause ithey iensure ithat ithe icorrect iinformation igets ito ithe icorrect idecision imakers iand ithat ithe icorrect iperson iis imaking ithe idecisions. iAt ithe isame itime, ihierarchical iorganizations ican isocialize iindividuals ito irefrain ifrom icheating iby icreating ivalue idecision ipremises ithat iunderlie idecision imakers’ ijudgments ion iwhat iis iright ior igood ito ido. iThese ivalues, ibeliefs, ior inorms ican icome ifrom ifamily, ifrom ischool, ior ifrom iwithin ithe iorganization, ibut ithe iorganization ican istructure ienvironments iso ithat ithe imost idesirable ivalue iwill ibe imost isalient iat ithe itime iof idecision.

Hierarchical iorganizations ican istructure ifactual iand ivalue idecision ipremises iso ithat ithe irange iof iaction ibecomes iso inarrow ithat ionly ione ialternative iremains: ithe irational ichoice. iStructuring idecision ipremises ican ibe idone iby idirectly imanaging iinformation, iselectively irecruiting imembers, itraining imembers, iand icreating iclosed ipromotion ipatterns.

Organizations ibecome irational iin ipursuing itheir imissions ithrough iwhat iSimon icalled iends-means ichains. iLeaders iset ithe iorganizational imission, ifind ia iset iof imeans ifor iachieving ithe imission, itake ieach iof ithose imeans ias ia isubgoal, iand ithen ifind imeans ifor ithe isubgoals iand iso ion, iuntil igoals iexist ifor ievery imember iof ithe iorganization. iLeaders ithus icreate ia ihierarchy iof igoals, iin iwhich ieach iorganizational ilevel’s igoals iare ian iend irelative ito ithe ilevels ibelow iit iand ia imeans irelative ito ithe ilevels iabove iit. iEach iindividual’s iwork ithus ibecomes ia ismall ipart iof iaccomplishing ithe iorganization’s imission.

Escalation iof iCommitment:

Self-Justification iTheory. iSelf-justification itheory iprovides ione iexplanation ifor iwhy ipeople iescalate icommitment ito itheir ipast iinvestments. iFeeling ipersonally iresponsible ifor ian iinvestment ithat iturns isour iintensifies ithe ithreat iassociated iwith ifailure iand iincreases ia idecision imaker’s imotivation ito ijustify ithe ioriginal ichoice ito iherself. iNegative ifeedback ion ia ipast iinvestment idecision icalls ithe ivalidity iof ithe ioriginal idecision iinto iquestion iand iis idissonant iwith ia idecision imaker’s inatural idesire ito isee iherself ias icompetent. iMany idecision imakers iattempt ito ieliminate ithis iconflict iby iconvincing ithemselves ithat itheir ifailing iventures iwill iturn iaround iif ithey isimply iinvest imore iresources. iTo ido iso iand isucceed iwould iprove ithat ithe ioriginal ichoice iwas ivalid iand ieliminate ithe i“cognitive idissonance” icreated iby ithe iinitial inegative ifeedback.

When ia idecision imaker idiscovers ithat ia ipreviously iselected icourse iof iaction iis ifailing, ishe iis ifaced iwith ia idilemma: iShould ishe ipull iout iher iremaining iresources iand iinvest iin ia imore ipromising ialternative, ior ishould ishe istick iwith iher iinitial idecision iand ihope ithat ipersistence iwill ieventually ipay ioff? iManagement ischolars ihave idocumented ia itendency iof idecision imakers ito iescalate icommitment ito ipreviously iselected icourses iof iaction iwhen iobjective ievidence isuggests ithat istaying ithe icourse iis iunwise. iIn ithese isituations, idecision imakers ioften ifeel ithey ihave iinvested itoo imuch ito iquit iand imake ithe ierrant idecision ito i“stick ito itheir iguns”. iThis iencyclopedia ientry idescribes ithe inature iof i“escalation iof icommitment”, iits imost ilikely icauses, idecision icharacteristics ithat iexacerbate iits iseverity, ihow iit ican ibe iprevented, iand iwhy iit iis iimportant. i

CONCLUSION:

iDecision imaking ias ione iof ithe imost icharacteristic ihuman imental iactivity iis ishown ito ius i– ior ibetter istudies iand ithinking iabout iit iare ishowing ithis i– ias ia ivery icomplex iphenomenon. iThe iimage iof ithe ihuman idecision imaker iis icircling ibetween iirrationality iand ibounded irationality. iIf iclassical imodels iof irational i(economic) ihuman itook ihim ifrom itime iand ispace, iand iput ihim iwith ihis idecision imaking, ithat ishould ibe irational, ibut iwas inot, iinto icertain iabstract ifrozen ispace, iwith ithe idevelopment iof iknowledge ihe iis igradually icoming iback, ito ifind ihimself iin ithe itheories iof inaturalistic idecision imaking. Rational decision making is a multi-step process for making choices between alternatives. The process of rational decision making favours logic, objectivity, and analysis over subjectivity and insight. The word “rational” in this context does not mean sane or clear-headed as it does in the colloquial sense .The iimage iof ithe ialive iconcrete ihuman, iadapted ito ihis ienvironment, iis iexchanging iits iartificial iabstract iimage.

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