4 Papers, 2 similar subject: MGT; Decision Making/Group and Politics and Power

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CHAPTER 7

DECISION MAKING IN AN ORGANISATION

LEARNING OBJECTIVES

To develop understanding about decision making as an important managerial action.

To remember various types of decisions and distinguish between programmed and non-programmed, strategic and operational, individual and group decisions.

To bring out elements of the decision making process and relate them with the process of making decisions.

To understand the role of information in decision making.

To develop conceptual clarity with regard to various techniques of decision making.

To analyse the role of creativity in decision making.

To distinguish between the normative and behavioural models of decision making.

To get a clear idea of bounded rationality.

To suggest improvements for effectiveness of decision making.

INTRODUCTION AND MEANING Decision making is the essence of the managing process. In the managerial hierarchy, all managers

take decisions, although the nature and significance of decisions made by them may vary from manager to manager and situation to situation. But without taking decisions they cannot manage. Decisions are made by them to solve problems, tackling the situation, handling crises and resolving conflicts that are inevitable in the functioning of an organisation.

Decision making is at the core of planning. This is because in the process of planning, managers have to take decisions to select a suitable course of action to be adopted to achieve objectives. It is a managerial process or activity of choosing an appropriate course of action from several alternative courses. The decision making process takes place only when managers have two or more options or alternatives.

The term ‘decision making’ has been defined by various management authors. Decision making is a process of judging various available options and narrowing down choices to a suitable one. According to Allen, management decision making is “the work a manager performs to arrive at conclusion and judgement.” This definition reveals that all is inclusive in decision making, which the manager does to arrive at a conclusion and to make a judgement. Shull, Delberg and Cummings have defined decision making as “a conscious and human process involving both individual and social phenomena based on factual and value premises which concludes with a choice of one behavioural activity from among one or more alternatives with the intention of moving towards a desired state of affairs.”

This definition seems to be broad and comprehensive, because it covers many basic issues involved in decision making. It also reveals the importance of human and social values in decision making and that it has been considered as behavioural activity based on certain facts and value premises. Further, accordingC op yr ig ht ©

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to Kreitner, decision making is a process of identifying and choosing an alternative course of action in a manner appropriate to the demand of the situation. The act of choosing implies that an alternative course of action must be weighed and weeded out. He has emphasised that judgement and discretion are fundamental to decision making.

Broadly, decision making involves much of managerial activity. It directs the organisation along a specific course of action and entails commitment of resources in a particular manner. It is only by making decisions and getting them implemented that the resources of an organisation are mobilised and utilised to achieve its objectives. To identify the basic nature of decision making, George Terry regards managerial life as a perpetual decision making challenge.

Similarly, Peter Drucker said that whatever a manager does he does through decision making. In other words, at every stage of managing, the manager faces the challenge of making correct, qualitative and effective decisions to get the best out of a situation. In the context of organisation functioning, managers take decisions regarding organisational goals, policies, strategies and other plans, selecting lines of business, range of products and product line, profitability, market share, and growth and diversification of organisational activities. In addition, decisions are also made on various aspects related to functional areas like production, distribution, finance, purchase, personnel, research and development.

Managerial decisions are formally directed towards making the organisation a functional entity preserving its identity and maintaining continuity in its working life.

On the basis of various definitions and discussions made above regarding several aspects of decision making, the following characteristics may be derived:

Decision making as in integral part of planning. Every planner has to choose an appropriate solution or alternative among the available options.

It aims at choosing a suitable course of action by weighing and weeding out several available alternatives.

It involves the judgement and discretion of the decision maker. It is not an entirely rational process because decisions are bound to be affected and coloured by the personal likes, dislikes and whims of the manager who makes them.

Decisions made by managers involve the commitment of the organisation to adopt a specific course of action and utilise resources in a particular manner.

Decision making like managing is a human and social process implying the interference of an individual as well as social factors. An intelligent manager will always take into account the social and human implications of a decision before making a final choice.

Decision making is a purpose activity because it is directed towards the achievement of a goal and objectives.

Decisions are made by managers to solve problems, resolve crises and conflicts and tackle the situation.

Decisions made by managers may sometimes have a negative effect for a short period of time. For example, decisions on retrenchment, demotion, dismissal of employees, reduction in the scale of operation, introduction of change, closing down of some units, withdrawing a product from the market, etc.

Decision making requires enough liberty to be given to managers so that they can also make use of their experience, skill and judgement. This is the reason that policies that guide decision making are made flexible enough.

Pervasiveness of decision making: Decision making is not only at the core of planning, but is also an important managerial activity. The manager manages by making decisions and getting them implemented. The effectiveness of decision making and the quality of the decisions made by a manager, to a large extent, depends upon his skill, judgement,C

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competence and abilities. Every manager has to make a decision to solve problems, tackle and handle situations while dealing with his subordinates. The efficiency of managers, among other factors, is also measured in terms of the quality of decisions made by him.

In the managerial hierarchy of an organisation, the required structural and administrative arrangements are made to delegate authority to lower level managers so as to authorise them to make decisions. The top executives take decisions only on basic and major issues and matters that are directly concerned with the survival, profitability and growth of the organisation. For handling the matters arising out of day-to-day operations, lower level managers are granted authority to decide upon them. Besides delegation of authority, other administrative arrangements are also made including installation of an information system, formulation of basic policies, training of subordinate managers to develop the required abilities and create a proper conducive internal environment in the organisation which facilitates decentralised decision making.

As stated earlier, decisions are made not only regarding the various elements of management and matters involved therein such as determination of organisational goals and other plans, designing the structure of an organisation, devising controlling techniques, providing effective leadership, scheduling a network of communication and designing motivations systems. But managers have also to decide upon various issues related to functional areas like, production, distribution, finance, personnel, purchase, etc. Thus, it runs through the entire process of management and all subsystems of the organisation.

In an organisation, resources can be mobilised and utilised in the direction of achieving the desired goals only by taking decisions and getting them implemented. In the light of the primacy and pervasiveness of decision making activity in organisational functioning and its management, it seems to be desirable for the manager to take quality decisions timely as the situation demands. Apart from maintaining a proper balance between timeliness and quality of decision, the human needs and social implications of the decisions should also be taken into account at the time of taking decisions.

TYPES OF DECISIONS Although every manager takes decision, the significance and nature of them differ. Some decisions are

made by them to solve repetitive problems. Others they make only once in a while to solve non-repetitive problems. Similarly, sometimes the managers make decisions at the individual level exercising their authority and in some situations they take decisions in a group. These decisions may be classified as under:

1. PROGRAMMED AND NON-PROGRAMMED DECISIONS

Programmed decisions are routine and repetitive in nature. They are made by managers on a regular basis. They refer to decisions made by managers to solve those problems or tackle those situations that require the application of a predetermined set of procedures, techniques and rules. As the problem arises, the prescribed procedure is applied and a decision is made, for example, hiring of employees, purchase of raw material, payment of bills, etc. Programmed decisions are made with regard to routine and recurring problems. These require structured solutions that can be arrived at with the help of operating procedures and processes determined in advance. In connection with programmed decisions, the ‘decision rules’ are very important. It is a statement that identifies the situation in which a decision is required. It also specifies how the decision will be made. The ‘decision rules’ permit busy managers to make routine decisions quickly without going through a comprehensive problem-solving procedure.

Carefully and intelligently formulated and conceived decision rules may also encourage lower level managers to share responsibility for programmed decisions. It allows higher level managers to concentrate more on important non-programmed decisions. The process of decision making in respect of programmed decisions is simplified by decision rules. No judgement or discretion is needed to find solutions to such problems. It is simply a matter of identifying the problem and applying decision rules to get it solved. The programmed decisions remain consistent for a relatively longer period of time and over many situations. It is, however, to be noted thatC

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programmed decisions are not always made to solve simple problems, because decision making may be programmed for even more complex problems.

Non-programmed decisions are made with respect to problems that are unique, non-repetitive and about which the required information is not available. Such decisions are made under new and unfamiliar circumstances, much less frequently as compared to programmed decisions, since non-programmed decisions are made with regard to a new situation arising for the first time. It renders standard and predetermined procedure and decision rules ineffective and irrelevant. And it demands experience, creativity, innovativeness, farsightedness and use of judgement by managers to make such decisions.

Non-programmed decisions are usually made to solve unstructured problems that keep changing in character from time to time. These problems are marked by a high degree of uncertainty. To make such decisions, managers have to redefine and reformulate the problem by applying managerial skill, judgement and creativity. Examples of non-programmed decisions include deciding whether to merge with other organisations, to diversify, open a new branch in a foreign country, appoint of a chief executive, introduction of a new product or service, etc. One of the decision theorists has put non-programmed decisions as follows: “There is no short cut and direct method for handling the problem, because it has not arisen before, or because its precise nature and structure are elusive and complex or because it is so important that it deserves a custom-tailored treatment.” This interpretation reveals that non-programmed decisions are made on complex, novel and non-routine problems. It requires creative decision-making.

2. STRATEGIC AND OPERATIONAL DECISIONS

Strategic decisions are usually made by top-level managers on problems and matters that are important and critical for the survival, success and profitability of the organisation. These decisions have a great influence on the functioning and direction of the organisation. The strategic decisions normally do have long-range implications because they are tenable for a longer period of time. They define and establish a relationship of the organisation with its external environment. Such decisions require more resources, judgement and skill and therefore responsibility for such decisions is assumed by top management. The main characteristics of strategic decision is that once they are taken, it is neither desirable nor feasible to withdraw them, for example, the selection of a product, locational decisions, switching to new technology, taking over other organisations, etc. Strategic decisions, to some extent, resemble non-programmed decisions. They possess some of the characteristics of non-programmed decisions. These decisions are made under the conditions of ‘risk’, that is, managers may have partial knowledge and may not be sure about the outcome of decisions.

To implement strategic decisions, some other decisions known as tactical or operations decisions, are made by managers. A single strategic decision may involve a number of tactical decisions or the full package of them. These decisions are concerned with routine and repetitive matters arising again and again in the functioning of the organisation. They do not require much managerial judgement and skill on the part of managers because they are related to the implementation of strategic decisions. This is the reason why the authority for making tactical decisions is vested in lower level managers. The tactical decisions are more specific, functional and have short-term implications. Since they are of a routine nature, certain established guidelines, procedures and rules may be followed to make such decisions. The difference between strategic and operational decisions can be understood with the help of the following example.

In a manufacturing organisation, strategic decisions of selecting products and processes, making capacity planning and selecting the location of a plant are made by higher level managers. Now these strategic decisions have to be implemented by making many other operational or tactical decisions such as production planning, quality control, cost control, inventory control, etc. These operational decisions are made by departmental managers by using set procedures, rules and techniques.C

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3. INDIVIDUAL AND GROUP DECISIONS

Decision making is an integral part of the manager’s job. Every manager has to make a variety of decisions to deal with a situation effectively, to resolve conflicts amicably and solve problems efficiently. To take a decision, the manager is delegated with enough authority and within the extent and scope of it he makes decisions, both on more important as well as less important matters. Such decisions that are made by individual managers by using managerial skill and judgement on the one hand and set procedures, techniques and rules on the other, are known as individual decisions. To make such decisions, they are supplied with the required and relevant information and other inputs and they also get help from their subordinate managers. But the ultimate responsibility and authority for making decisions lies on them. Individual decisions are made by all managers right from top executives to first-line supervisors.

Group decisions are those that are made by two or more managers jointly. In order to make such decisions, managers working at the same or different levels come together, and deliberate over the problem. They express their viewpoints on different aspects of the problem and finally, by using their collective wisdom, they solve it. Such types of decision-making seems to be very common with regard to problems that involve an interest in many functional divisions or departments. For example, the decision of product selection may be arrived at by joint efforts of the production manager, marketing manager and manager of the research and development department.

In a joint stock company, the board of directors, known as the chief organ of the company’s management makes group decisions. Whatever power and authority they have, they can exercise it only through meetings. They make decisions unanimously or by majority votes. The board of directors is also known as a plural executive body. Apart from the board of directors various committees may also be formed for the purpose of deciding the various matters at the lower level of the organisation. These committees may be known as task forces or teams or managing committees constituted for a specific purpose. On the same lines, sometimes the superior may involve his subordinates to get their cooperation and their involvement in decision regarding matters that may be of more concern to them. For example, while taking decisions regarding sales promotion or price or quality of a product, the marketing manager may in an informal manner invite some sales managers having the required knowledge on a particular matter to help him take a right decision.

The nature of the involvement of the members of the committee formed to decide some specific matter may differ. Their involvement may be restricted only to the level of doing the necessary spade work such as collecting data, expressing their viewpoint, making suggestions and recommendations and helping the chief executive officer in all respects. But the final choice is to be made by the chief executive officer himself. This kind of involvement on the part of members or subordinates is known as ‘group participation in the decision making.’ However, in some other situations, the members or subordinates may share the authority of decision making with the chief executive. This type of involvement is known precisely as ‘group decision making’. In a group decision, the final authority to take decisions is vested in the group itself rather than in an individual. On the whole, the group decision-making in any form whether simple participation or full-fledged decision making certainly helps in implementation and seeking more cooperation and acceptance from subordinates.

ADVANTAGES AND DISADVANTAGES OF GROUP DECISIONS As compared to individual decisions, group decisions offer certain advantages:

Group decisions are based on collective knowledge and judgement pooled together.

Group decisions are considered to be more balanced in every respect. This is because they are made after considering the different viewpoints expressed by the group members.

The group decision making process provides a positive contribution to the training of the

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executives and their development. This is because subordinates get an opportunity to get an insight into the problem by discussing it with superiors.

The participation of subordinates or other members in decision making serves as a motivation for them because they get involved in the problem. If it is solved, the need for their self-fulfilment is satisfied.

Group decision making seems to be more desirable to solve complex interdepartmental problems. This is because the group of managers representing their respective departments may handle such a situation more efficiently.

Group decision making represents the cooperative nature of management. It is considered more important to create team spirit among the group members and define their role and get maximum contribution from them.

At the same time, group decision making is also beset with certain problems and limitations. First, it encourages indecisiveness and compromise on the problem. It happens because sometimes the least competent member may impede the efforts of the most competent ones. Second, divided responsibility in group decisions also affects the quality of decisions adversely. Because of this, members do not take an active and serious interest to solve problems and do not exhibit a sense of responsibility. Third, inordinate delay in decision making is also marked in a group decision because of long discussions, procedural technicalities and the diverse opinions of members. It ultimately reduces the effectiveness of the decision making process ( ).Figure 7.1

ELEMENTS OF DECISION-MAKING PROCESS

1. Identification of problem

2. Definition of problem

3. Specification of objectives

4. Collection of data

5. Developing alternative courses of action

6. Evaluation of alternative courses of action

7. Selection of appropriate alternative

8. Implementation of decisions

Figure 7.1. The decision making process

ELEMENTS OF THE DECISION MAKING PROCESS In practice, different decision making procedures are used in different situations depending on the

nature of the problem in hand, environment—both internal and external, time and cost factors. Although decision making is a systematic and rational process that describes how decisions are made by managers, it does not point out how they actually make decisions in practice. It is found that managers do not follow a

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rational process step by step. Nevertheless, theoretically, each decision making process involves the following steps that are known as the elements of decision making:

1. IDENTIFICATION OF A PROBLEM SITUATION

The process of decision making begins with the unfolding of or discovering the problem. To discover it in full, all the relevant internal as well as external situations are to be scanned. Identification of the problem situation represents the need to take a decision and locate the problem on which a decision is to be taken. The problem may relate to any area of the operation of the organisation, the management process or it may concern the external environment and the changes taking place in it. Along with the location of the problem, its basic nature has also to be ascertained so as to know whether it is strategic or operational, major or minor and a long-term or short-term problem. According to Chester Barnard, the occasions for decisions originate in three distinct fields:

from authoritative communication

from a superior from cases referred for decisions by subordinates

from cases originating in the initiative of the manager concerned.

2. DEFINITION OF THE PROBLEM SITUATION

Once the problem is clearly perceived by the manager and the need to solve it well felt by him, he proceeds to analyse it thoroughly as the next stage. In this regard, the manager attempts to define the problem as clearly as possible. It is generally believed that a well defined problem is halfway solved. The efficiency of the decision making process and quality of the decision to a large extent depends on a clear definition of the problem. To define a problem in most cases is a difficult task. It is because the real problem may be quite different from the problem appearing before the managers. Thus, the problem situation has to be defined and described in terms of its origin, scope, symptoms, causes, importance, gravity, intensity and ramifications. In case of a major and complex problem it seems desirable to break it into simple components and to study them thoroughly. As defining a problem is a time-consuming job, managers prefer to define only the strategic and critical aspects of it to save time.

3. SPECIFICATION OF OBJECTIVES

The decision making process does not work in a vacuum. Rather it has certain objectives. And it is directed towards the achievement of those objectives that are likely to be achieved by solving that problem, for example, if the company is facing a problem of cut-throat competition in the market regarding some of its products which seems to be strategic in nature. By tackling and solving the problem carefully and wisely, the objective of maintaining survival or increasing demand and enhancing market share may be achieved. These objectives may be both quantitative as well as qualitative in nature. They serve as a yardstick for measuring and evaluating the efficiency and effectiveness of various alternative courses of action, particularly of that one which is chosen to solve the problem.

4. COLLECTION OF DATA

Relevant and reliable information has a very important role in decision making. Information is required not for uncovering and defining the problem but it is equally useful for the other stages involved in the process. Thus, the needed information is gathered in both forms from internal as well as external sources to provide a factual framework to managers to solve the problem. The use of information in the decision making process facilitates the definition of the problem and the making of factual decisions. It is the availability, reliability and surety with which the needed information can be obtained that determines decision making for managers.

5. DEVELOPING ALTERNATIVE COURSES OF ACTIONC op yr ig ht ©

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The next step for managers, after having defined the problem and collecting the required information, is to develop alternative solutions. The quality of the decisions made by managers is going to be affected by it. Therefore, he should leave no stone unturned to develop all the possible solutions. In fact, the process of decision making becomes relevant, meaningful and a challenging exercise for managers if there are many alternatives to be examined to make a final decision. Alternative solutions may not be obvious and apparent. It is the duty of managers to search for them. Some alternatives may be developed by managers quickly with reference to their past experience and expertise. And others may be generated through research and analysis, creative thinking and innovativeness on the part of managers.

6. EVALUATION OF ALTERNATIVE COURSE OF ACTION

The objective of decision making is to choose from alternatives the one that will provide the greatest amount of wanted consequences and the smallest amount of unwanted consequences. For this purpose, each alternative is to be valued to the extent that its consequences of alternatives can be estimated through forecasting and other devices. Each alternative should be thoroughly evaluated in detail in terms of the risk involved, time consumed, efficiency of alternative and resource position of the organisation to implement a course or action or decision. However, it should be noted that to evaluate alternative courses of action, qualitative factors should also be taken into account such as ethical and moral values, social implication, image of the organisation, etc.

7. SELECTION OF APPROPRIATE ALTERNATIVE

This stage calls for making the final choice by selecting a suitable alternative solution. This is done by screening and conducting a critical evaluation so as to eliminate a large number of alternatives and narrowing down the choice to a few. In making a final choice, managers have to rely on past experience, managerial skill and judgement. Side by side, feasibility, acceptability, practicability and simplicity of alternative solutions should also be considered. Not only this, various organisational plans, policies, rules, basic philosophy of management, other human factors, etc., should also be given due weightage while making the final choice. It would help in ensuring that decisions are consistent with these plans.

8. IMPLEMENTATION OF DECISION

Decisions are always made for the purpose of getting them implemented. Implementation of a decision implies a series of actions and involves the utilisation of resources. To implement decisions, necessary structural, administrative and logical arrangements are made such as delegation of authority, allocation of resources, assignment of activities, installation of controlling mechanism, etc. As discussed earlier, to secure maximum cooperation, commitment and acceptance to implement decisions the lower level managers are taken into confidence by getting them involved in the process of decision making.

DECISION MAKING ENVIRONMENT Managers make decisions in different situations which are known as the environment of decision

making. The effectiveness of the decision-making process and quality of decisions to a large extent depends on the type of decision making situation and its components. These decision making situations may range from certainty to highly impracticable uncertain situations.

Certainty

The situation of certainty encourages factual decision making. In other words, in such a situation the required relevant and reliable information may be available to managers on several aspects of the problems regarding its tentative solutions. In such situations, since managers have full knowledge of the problem, they can predict future outcomes of alternative solutions with moreC

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confidence and accuracy. It may help in choosing the most appropriate alternative. The concept of certainty is relative rather than absolute. This is because even in a situation marked by a high degree of certainty there will be some element of uncertainty. Therefore, managers sometimes confine themselves to those factors or variables that are well known to them and avoid other factors by making simple assumptions that are least related to them.

Risk

The situation of risk is said to exist when managers take decisions on the basis of incomplete and less reliable information. Although on the basis of partial and less reliable information he may be able to develop some alternative course of action, he may not be that much sure and deterministic about the outcomes of alternatives. At the most, he can probably estimate the outcomes of alternatives by using such information. Similarly, by assigning probabilities to the likelihood of occurrence of an event having a bearing on the decision, he may predict its future behaviour. Decision making based on probabilities has become very common and popular in all areas of management. For instance, a company may introduce a new product by determining the probability of its acceptance by prospective buyers through test marketing, consumer panels, etc.

Uncertainty

The state of uncertainty is marked by non-availability and unreliability of relevant information on the problem. The situational variables may be so random and unstructured that their future behaviour cannot be predicted. In a situation of uncertainty, managers may not have an idea about the outcome of an alternative course of action or their probabilities. Due to lack of the required and relevant information, managers are forced to rely on subjective probabilities that can be estimated and assigned on the basis of past experience and judgement. In brief, the uncertainty may arise either out of a fast-changing external environment and lack of relevant and reliable information on the problem.

In a practical solution, a manager may experience some elements of certainty, risk and some elements of uncertainty. Therefore, he makes decisions by applying his judgement, creativity and experience to the extent to which it is uncertain and he uses data base procedures to the extent to which it is certain. Kreitner has rightly pointed out the relationship between the degree of confidence with which the manager can make decisions and the degree of uncertainty being forced on him.

Relationship between uncertainty and confidence shown in Figure 7.2

Figure 7.2. Relationship between uncertainty and confidence

Figure 7.2 reveals that as the degree of uncertainty increases, the confidence in a decision decreases and vice-versa. The more uncertain a manager is about the key or principal factor in a decision, the less confidence he or she will have about the successful outcome of the decision.

ROLE OF INFORMATION IN DECISION MAKING In real-life situations, managers make two types of decisions, that is, intuitive and factual decisions.

Intuitive decisions are those decisions that are made by managers on the basis of their personal experience, skill, judgement and intuition. These decisions are based on the assumption that whatever they feel andCo

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believe is best, they choose it. On the one hand, factual decisions are based on the analysis of required and relevant information regarding the problem. Since such decisions are backed by facts and data, they carry a higher probability of being correct. Although the supply of information to managers both in the process of planning and controlling is of special importance, its role in decision making is not less significant.

Information is considered as a basic requirement for decision making. This is because not only the quality of the decision but the effectiveness also of the entire decision making process to a large extent depends on the availability of the required, relevant and reliable information. In the process of decision making, information is also regarded as an important input and its profitable at every stage of the decision making process makes it more effective. This is because managers require information on the various aspects of the problem right from the stage of identifying and defining the problem. It is only with the help of information that the problem can be defined in its right perspective which in a long way would help a manager to solve the problem more effectively. Information regarding the problem has a contributory role in providing a proper and better view of the decision situation and in reducing the degree of uncertainty and complexity involved in it. Similarly, a manager needs information even to develop alternative courses of action and then selecting the most appropriate one. In brief, the role of information in decision making may be outlined as under:

Information plays a significant role in identifying and defining the problem situation.

It also helps in developing tentative solutions and selecting a suitable one to solve the problem.

The availability of required information encourages managers to use quantitative techniques in decision making.

Adequate and relevant information on the problem situation may be of further help in reducing uncertainty and complexity associated with the problem.

The availability of information may also encourage factual decision making and ensure a higher degree of objectivity and precision in making decisions.

In order to ensure timely availability of the required quantity and quality of information to managers at different levels of the organisation for the purpose of decision making, a management information system is installed. This helps in organising and maintaining a flow of information through its network in the organisation. In a management information system, information is generated systematically both from inside and outside the organisation. It is compiled, stored, processed and then supplied to managers working at different levels in the organisation. Different levels of management are identified as decision making centres and are thereby connected with the MIS in such a way so that the needed information in usable form may be supplied to managers without loss of time and value.

In modern organisations, computer-aided information systems are being used to facilitate the collection, storage and rapid transmission of the needed information. Nevertheless, it cannot substitute the decision making process and role of the manager. At the most, it can help managers in the process of decision making by providing a support system.

TECHNIQUES OF DECISION MAKING Decision making is an integral part of a managerial job. Not only the efficiency of the manager, but

also the success, growth and development of the organisation to a great extent depends on the quality of decisions taken by managers. To help them in the process of decision making, meaningful efforts have been made to develop techniques for it.

The use of these techniques improves the efficiency of decision making as well as the quality of the decisions made by the manager. These techniques of decision making may be grouped into two groups, that is, traditional techniques and modern techniques. Traditional techniques may further be classified into two groups: techniques for programmed decisions and modern techniques for non-programmed decisions.

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TRADITIONAL TECHNIQUES OF DECISION MAKING FOR PROGRAMMED DECISIONS

1. HABITS

It is a very common technique of decision making used to solve repetitive and routine problems. In this technique, less or no efforts are to be made to make decisions. As the problem arises, it is solved without much deliberation or thinking about it. Gradually, the habit is formed in respect of such repetitive problems which is used as a technique of decision making. For example, we make many decisions in our daily life to solve simple, minor and routine problems in an inherited manner by using the force of habit.

2. STANDARD PROCEDURES AND RULES

In every organisation, certain procedures and rules are formulated to solve simple and repetitive problems. So when the problem arises, managers apply these procedures and rules and solve it. These procedures and rules are basically in the form of standing plans such as policies, procedures, rules, etc. These operating procedures and rules have twin objectives. On the one hand, they help and guide managers to make decisions and solve problems. On the other hand, they also help to maintain coordination as well as consistency in respect of managerial actions and decisions. It is because the same procedure and decision are followed by every manager.

3. ORGANISATIONAL STRUCTURE

The relationship of superior and subordinate arising out of assignment of work and delegation of authority in an organisation also serves as a systematic and continuous means of decision making. As stated earlier, managers need to have enough authority to solve problems and make decisions. So authority is delegated from the top to the lower levels. It includes, among other rights, the right to make decisions. The authority for making decisions is also supported by a proper information network. All managers or decision making centres at which they work are attached with an information system so that the required information to make decisions may be supplied to them.

DECISION-MAKING TECHNIQUES FOR NON-PROGRAMMED DECISIONS

The quantitative and scientific techniques of decision making are included in this group. These techniques have a greater application to solve complex and novel problems. In order to make non-programmed decisions, managers do not totally rely on their personal abilities like judgement, skill, creativity, etc. They also use these abilities through some scientific method and prepare an optimal blend of the two.

The main objective of developing and introducing these quantitative techniques is to ensure a high degree of precision and accuracy in decision making. These techniques are also known as techniques of ‘operation research’, which are very often used to solve complex problems regarding inventory control, capacity planning, product mix, sales forecasting, production planning and control, capital budgeting, etc. Some of these techniques are described as under:

1. LINEAR PROGRAMMING

This technique is used to determine the optimal combination of limited resources to achieve a given purpose at a minimum cost. It is based on the assumption that there exists a linear relationship between the variables. For example, in the production department these variables may be identified as units of output per machine in a given time, direct labour/material cost per unit of output, number of operations per unit, etc. These variables have a linear relationship that the greater use of resources will increase production in the same proportion but within certain limits. Thus, byCo

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developing liner equation optimum combination of cost, time and utilisation of machines can be prepared. The objective function of this technique is either to maximise benefit or to minimise cost.

2. QUEUING THEORY

This is also known as the ‘waiting line theory’ to be applied to maintain a balance between the cost of the waiting line and the cost of preventing a waiting line in respect of personnel, equipment and services. It is based on the assumption that although delays are costly, eliminating them may be even more costly. This technique may be used in service organisations like transportation, hospitals, banks, etc.

3. GAMES THEORY

Games theory is used to make decisions specially in competitive and conflicting situations. The competitor or conflicting party is also involved in the game and its role is assigned to another member in the game. Moves and counter-moves are made by each member considering the other as a rival. In the games theory, one member chooses a particular course of action which will frustrate and defeat a rival’s action and help in winning the game.

4. PROBABILITY THEORY

This statistical device is based on the assumption that certain things are likely to happen in future in a pattern which can be predicted to some extent by assigning various probabilities. The decision making based on probabilities is common in all areas of management and the organisation such as production, distribution, finance, etc. In this technique, pay-off matrices and decision trees are constructed to represent variables. Pay-off matrices help in choosing an appropriate strategy which most likely would make the maximum contribution to achieve the objectives.

A decision tree is an extension of payoff matrices helping managers to assign financial results to various available courses of action, modifying these results with probabilities and finally making a comparison to select an appropriate course of action.

5. SIMULATION

According to the simulation technique, instead of studying and analysing the behaviour of a particular system under several alternative conditions in a real situation, a model of it is prepared in an artificial setting. All the features and variables of the actual system are structured in the model and by making changes in the variables, their consequences are studied and a suitable course of action is developed to tackle the situation in a real system.

For example, instead of studying and analysing the transportation system of Delhi in a real setting, its model can be prepared and various properties of the real situation can be simulated in it. By making changes in respect of several variables of the model, the results can be evaluated and the likely behaviour of events can be observed in the model. On the basis of it, the necessary modifications can be made in the transportation systems and solve the problems related to it.

6. NETWORK TECHNIQUES

Network techniques of project evaluation and review technique (PERT) and critical path method (CPM) are used for planning, monitoring and implementing time-bound projects. These techniques help managers to decide the logical sequence in which various activities will be performed. By applying these techniques large and complex projects can be executed successfully within the given time schedule and structure of cost.

MODERN TECHNIQUES OF DECISION MAKING On account of drastic changes taking place in the field of management, the process of decision making

has also become complicated and complex. In the context of a fast-changing environment and growing

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competition it has attracted the attention of management scholars. Consequently, new techniques of decision making and problem solving have been developed some of which are:

1. HEURISTIC TECHNIQUES

This technique is based on the assumption that the process of decision making with regard to complex and strategic problems cannot be fully rational and scientific. In an environment of uncertainty and diversity, which is further marked by conflicting interest, the information gap and subjective human behaviour, norms of rationality cannot be followed.

Thus, it is necessary for the decision maker to take a fragmented view of the problem breaking it into small components. Decomposition of the complex problem into small parts and study and analysis of each part may lead to an appropriate solution by developing heuristics. These can be developed on the basis of the trial-and-error technique or rule of thumb by managers for various components at different stages. These heuristics may be used with the help of a computer in a more efficient manner to solve highly complex and strategic problems.

This technique is a more refined way of the trial-and-error method. It is because with the help of the trial-and-error method, heuristics are developed which are further used to apply an analytical approach and creativity to solve problems.

2. PARTICIPATIVE DECISION MAKING

In order to encourage industrial democracy and to make the role of employees more meaningful and contributive, the need of the participation of workers in management and decision making has become more pressing. Normally, decisions are made at a higher level of management and imposed on lower level managers for implementation. But to secure the maximum cooperation and commitment from the lower level managers, they have to be involved and associated in the process of decision making. By associating lower level managers or subordinates in decision making, balanced and timely decisions are made. It also helps to boost morale and motivate subordinates and provide training and development opportunities to them.

Creativity

Creativity is a human faculty which helps managers to solve complex and non-repetitive problems. Bu applying creativity, managers generate new, novel, improved ideas and approaches to solve problems. Creativity may be defined as the ability to think originally and come out with some novel idea. It is a part of the genuine human thinking process by which a particular individual comes up with an idea that may not occur to others. Nevertheless, it is neither a superhuman ability nor a divine gift. It can be developed through proper training and hard work. Creative ideas may be generated at individual as well as group levels. Interaction among the members of the group is considered a more important source of creativity. In every situation, creative persons go beyond the conventional and beaten track and come up with offbeat ideas and new ways of doing things. The process of creativity consists of the following stages:

Preparation Stage

Creative ideas need some preparation. They do not arise in a vacuum, rather a creative thinker has to play with vague and wild imagination for quite some time. It mainly involves turning and twisting the problem, looking at it from different angles and relating it with similar problems.

Incubation Stage

If a creative person draws a blank during the preparation stage, he forgets the problem and goes to other problems or activity. After some time, he may experience a sudden reflection of that which he had relegated to the background. So he forms a new idea about it by default.

Illumination Stage

This stage implies a sudden flash of an idea which was being hatched by a creative person. OnceC op yr ig ht ©

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the idea is illuminated, the creative person experiences profound relief and satisfaction.

Elaboration Stage

The illuminated idea conceived by a creative person is to be set in the right perspective. It has to be verified, revised, modified and accommodated to suit the problem or decision situation.

The creative approach to problem solving and decision making is marked by the following features:

The creative approach discards habitual and conventional ways of doing things and the creative thinker normally deviates from them.

Application of the creative approach calls for looking into the problem situation from diverse angles which have not been tried so far.

The creative person does not take things for granted; rather he challenges them. He redefines and restructures the problem situation afresh in a new way.

A creative approach allows deviation from rationality and systematic approach.

The application of a creative approach may begin with wild, impracticable and speculative ideas. But to make them more acceptable and accommodating they have to be revised and modified.

TECHNIQUES OF GROUP DECISION MAKING In order to increase the effectiveness of the decision making process and increasing the quality of

decisions made, certain techniques are used. These techniques are as under:

1. BRAINSTORMING

This is one of the important techniques of group decision making. In this technique, a small group of managers ranging between five and 10 is formed. Generally one of them is given the role of leader of the group. He throws light on the various aspects of the problems and explains its nature to the members.

He also keeps them informed about the decision rule to be followed in the process. All the members sit together and begin discussing the problem and seek its solution as members of free association. They concentrate mainly on the generation of ideas about the problem and its solution. All ideas generated by the members are put on a blackboard to make every member familiar with the ideas generated. They are also given an opportunity to make improvements upon them.

The following rules are generally followed by the members in the process of brainstorming:

The members of the group are asked to generate ideas about the problem and its solution and they are not allowed to criticise and evaluate the ideas of other members.

All ideas generated by the members are taken care of; even if the idea is wild or crude it is included in the list. Sometimes such ideas may prove to be a real solution to the problem.

The entire process of brainstorming is focused on generating as many ideas as possible. It is done so that the best solution may not be overlooked.

Every member is allowed to give suggestions on the various ideas so generated. This is done to improve upon these ideas.

In the subsequent session, ideas so generated are reviewed and alternatives are evaluated.

The technique of brainstorming is to produce new ideas and solutions by stimulating creativity among the group members. They are given an opportunity to do so by working on the contributions

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of others. This technique does not offer a readymade solution to the problem. Rather, it aims at generating possible alternative solutions and leads to evaluation of those for selecting a suitable one.

2. DELPHI TECHNIQUE

This technique is a more refined and modified version of the brainstorming technique. In this, a small group of specialised experts is formed and they are asked to express their opinion on the problem or situation and its solution. The opinions expressed by individual experts are not made known to the others because anonymity is desired. The Delphi technique is a method of collecting the various judgements of experts to solve the problem. These opinions are consolidated and summarised by the leader of the group and are sent back to the experts for further analysis. The Delphi technique involves the following steps:

A questionnaire is prepared on the various aspects of the problem.

The questionnaire is sent to experts to seek their responses on the various questions. The experts respond independently and send their responses to the leader of the group.

The leader of the group compiles and analyses the responses received by him and a second questionnaire is prepared on the basis of it.

The second questionnaire is sent to the members and they are asked to respond to the new set of questions.

On analysis of the second set of questions, if any area remains untouched or not touched adequately, a third questionnaire may be designed and sent.

The leader attempts to develop unanimity on each aspect of the problem and may come to know a new and more refined version. It may help to develop a possible solution to the problem.

In the Delphi technique, anonymity is maintained and the members keep responding to the responses of others. There is no direct interaction among them. Every expert gives his independent opinion. He does not know on whose response what new question has been framed.

3. NOMINAL GROUP TECHNIQUE

This is also one of the important techniques that is used to improve the effectiveness of group decision-making. It resembles the brainstorming technique but is considered more effective. This is because all the members of the group are physically present but do not interact with each other. This technique is specially used to identify a problem and select criteria to be used to evaluate various alternatives. Under this technique, a group of individuals is formed to address a particular problem. The problem is experienced by them and they are asked to write all the possible ideas that come to their mind about it. Discussion among the group members is not allowed. Rather, they report their ideas to the leader who puts them on a flip chart. The members are further asked to add new ideas to the list on the basis of the ideas of others. Once all possible ideas have surfaced and been recorded, the members may be allowed to suggest a possible solution and comment on the ideas. After discussing all the ideas, their relative merits and demerits are ascertained. After this, the members of the group privately vote on an idea and assign a particular rank to it on the basis of priority of the alternative solutions. The idea getting the highest ranking is selected as a solution to the problem. The group members further discuss the result and continue to generate and discuss ideas. The technique of a nominal group like other techniques encourages creativity among the members. It also helps to overcome the negative effect of authority and status among the members. It is used not only to generate ideas but it follows the sequence of generation, discussion and vote on the ideas of members. Since it is a high structured technique, it may possibly limit creativity to some extent.Co

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Figure 7.3. Nominal group process

4. FISH BOWL TECHNIQUE

This is an extension of the brainstorming technique. It is more structured and direct in nature. In this technique a group of experts is formed. They sit around the table and the central place is occupied by the leader of the group. In the first instance, the member who occupies the central place expresses his opinion on the problem and suggests some solution for it. The other members are allowed to ask questions and clarification of the problem put forward by the group leader.

Once his viewpoint has been discussed fully and understood, he gives up his chair to another member who now becomes the leader. Again, the second member gives his viewpoint in the light of the views expressed by the first leader. The members can ask questions based on the new ideas which must stem from the first round of discussion. This cycle of discussion continues till all the members have done their turn as group leader.

The exchange of ideas and discussion takes place only between members of the group and the group leader. The members are not allowed to interact with each other. In this technique, the members of the group have opportunities to express their viewpoints as members as well as leaders. At the end, all the viewpoints and ideas are taken stock of and further discussed collectively to arrive at a suitable solution.

ETHICS OF DECISION MAKING Managers who take decisions in the organisation are known as captains of industry. They take

decisions to solve problems faced by them. Many decisions made by them may not directly affect the interest of society and its culture. This is because being at the realm of using resources of the organisation they are expected to take decisions that maximise the gains of the organisation. But in practice modern managers are under great ethical pressure while taking decisions. It is not only the economic implications of decision made by them. their social value and ethical dimensions have become equally important. Therefore a discussion of decision making seems to be incomplete without considering its social and ethical implications. In many organisations, ethical considerations and values have become a part of decision making criteria.

Briefly speaking, the ethical behaviour of a manager may be defined as a pattern of behaviour that conforms to established and accepted social norms and values. Ethics play an important role particularly in those managerial decisions that directly involve the interests and objectives of society such as policies regarding selection, recruitment, dismissal, salary and wages, etc. For example, a decision to close one of the unprofitable units of the organisation involves the ethical issue of reducing employment opportunities. Similarly, a decision to switch over to a new technology should be made by taking into account not only economic considerations but ethical ones as well as social implications.

Managers should carefully understand and consider the ethical values and implications of their decisions. It requires a high degree of honesty and integrity on the part of managers.

FACTORS AFFECTING ETHICAL BEHAVIOUR Why do managers make ethical decisions that benefit them most and the interests of others are affected

adversely? There are many factors which affect ethical decision making behaviour among managers. These factors may be classified into two groups:

Individual personality

Organisational environment.C op yr ig ht ©

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An individual’s personality traits and their development have a definite impact on his ethical behaviour. Generally, an individual whose morale has been fully developed and who is capable of judging what is morally right would behave ethically. The level of ethical behaviour would also depend on the value system of his or her family and other social institutions affecting the growth of his personality. It is in the light of this that many business schools are making efforts to inculcate moral values in the personalities of prospective managers. This is done to make them readily acceptable by the organisations at the time of selection.

Similarly, the internal environment of an organisation and its culture also affects one’s ethical behaviour. Many organisations support and reward ethical behaviour of employees. Rather, it becomes a well-established norm for employees to be ethical while working in the organisation. By being morally and ethically sound, they meet the expectations of the organisation and get many benefits like promotion, pay hike, higher status, etc. But business ethics is a very complicated matter. Some ethics experts have rightly pointed out that “just being a good person, in your own way, having sound personal ethics, may not be sufficient to handle the ethical issues that arise in a business organisation. Many people who have limited business experience suddenly find themselves making decisions about product quality, advertising, pricing, hiring practices and pollution control. The values they learned from family, church and school may not provide specified guidelines for these complex business decisions. Years of experience in a particular industry may be required to know what is acceptable.”

The above lines indicate that it is not only a matter of learning ethical and moral values on the part of employees but also long experience in an organisation may help managers to address ethical issues efficiently.

DECISION CRITERIA FOR ETHICAL DECISIONS Modern managers face many situations that require ethical decisions. They can use three criteria to

make such decisions:

Utility

Right

Justice

According to utilitarian criterion, managers take hard decisions by taking into account all possible consequences or outcomes of the decision. In other words, they evaluate the decisions and actions on the basis of their consequences. While taking a decision they ensure that it should produce the greatest good for the greatest number of people. This mode of taking decisions is very popular in business.

The second ethical criterion for decision making mainly focuses on ‘rights’. It holds that all people have basic rights. According to this criterion, the decisions and actions of managers in a business must be consistent with these rights. These fundamental rights may include the right to property, freedom of expression, knowledge, privacy, etc. The decisions made by managers should respect and protect these rights.

Another criterion to be used to make ethical decisions is ‘justice’. According to this criterion, decisions made by managers must ensure equitable distribution of cost and benefit among the various parties entitled to it. It urges upon managers to be fair, impartial and equitable, while making decisions and taking action. This criterion if followed by managers would ensure the protection of the less powerful and unrepresented group of people.

While using the above criteria one should look into both the positive as well as the negative aspects. For example, in profit-making organisations, managers tend to feel safe and comfortable while using criterion based on utility. But a growing awareness among customers, employees and other parties about their rights may force managers to adopt criterion based on rights.

Similarly, in a society that consists of weaker sections, managers may adopt a third criterion of justice to make decisions. In is, therefore, the top management of the organisation that generally attempts to build

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an environment that encourages ethical decision making. James Weber has suggested the following guidelines to add an ethical dimension to decision making:

By formulating and implementing an appropriate policy and ‘code of ethics’.

By using a formal committee to ensure that a code of ethics is followed by the employees of an organisation.

By including techniques of ethical and moral values in training and development programmes of the organisation.

In order to encourage the use of ethical values in decision making, Saul Gellerman has suggested the following guidelines:

Provide clear guidelines for ethical behaviour.

Teach ethical guidelines and their importance.

In grey areas where there are questions about the ethics of an action, refrain from it.

Set up an auditing agency that checks on illegal and unethical deeds.

Conduct frequent and unpredictable audits.

Punish trespassers in a meaningful way and make it public so that it may deter others.

Emphasise regularly that loyalty to the organisation does not excuse improper behaviour or actions.

LEARNING TO BE MORE CREATIVE All persons are creative but the degree of creativity differs. In order to become more creative the

following mental locks suggested by Roger Von seem to be relevant because these mental locks tend to stifle our creativity:

1. Looking for the Right Answer

The given problem may have several right answers depending on one’s perspectives.

2. Always Trying to be Logical

Logic does not always prevail; given human emotions and inconsistencies of the organisation, ambiguity and contradiction may dominate the situation.

3. Strictly Following the Rules

If things are to be improved, arbitrary limits on thinking and behaviour need to be questioned.

4. Insisting on being Practical

Impractical answers to ‘what if’ questions can become stepping stones to creative insight.

5. Avoiding Ambiguity

Creativity can be developed by objectivity and specificity.

6. Fearing and Avoiding Failure

Fear of failure can polarise us into not acting on our good ideas. This is unfortunate because we learn many valuable and lasting lessons from our mistakes.

7. Forgetting how to Play

The playful experimentation of childhood too often disappears by adulthood.

8. Becoming too Specialised

Cross fertilisation of specialised areas helps in defining problems and generating solutions.

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9. Not Wanting to Look Foolish

Humour can release tension and unlock our creative energies. Seemingly foolish questions can enhance understanding.

10. Saying‘I am not Creative’

By nurturing small and apparently insignificant ideas, we can convince ourselves that we are indeed creative.

If the above-mentioned mental locks are conquered and unlocked, the creative problem solving process can be used to its full advantage.

ROLE OF CREATIVITY IN DECISION MAKING The process of management is dynamic in nature. It requires an innovative and creative approach on

the part of managers. Its role in decision making is more significant. While managing the affairs of organisations, managers very often face problems that are open-ended and unstructured. These problems perhaps cannot be solved by applying predetermined procedures and rules and other scientific and rational approaches. To solve these problems, managers redefine and reformulate them in their own way and discover solutions by applying a creative approach.

For example, problems of growth and development, industrial discipline, sales promotion, development and introduction of a new product, motivation and morale, productivity and resolution of conflicts, etc., can be solved by adopting this approach. The creative approach of problem solving and decision making does not help the manager in only discovering and generating alternative courses of action but also provides new ground to make a proper diagnosis of the problem and defining it precisely. By applying a creative approach, the manager may get an insight into the problem and can throw sharp light on it from different angles.

It stimulates the unconscious mind of the manager and forces him to come up with new ideas, which otherwise would never have been discovered. Thus, whether in the definition stage, or search for alternatives or the final selection of an appropriate alternative, the creative approach may prove more useful for the manager in all these stages.

In the context of problem-solving and decision-making, the significant role of creativity has been described by one management consultant as “Creativity is a function of knowledge, imagination and evaluation. The greater our knowledge, more ideas, patterns or combinations we can achieve. Merely having the knowledge does not guarantee the formation of new patterns; the units and places must be shaken and inter-related in new ways. The embryonic ideas must be evaluated and developed into usable ideas.”

These lines clearly reveal that a creative approach requires not only knowledge but also involves the use of imagination and abilities to analyse and synthesise the problem in new ways. Similarly, in the beginning, ideas or solutions so discovered may not be that much practical and acceptable. They are to be revised, modified and properly accommodated within the problem situation.

DECISION MAKING BEHAVIOUR MODELS When a manager is confronted with some problems, how he perceives it, how he reacts to it, and

finally, how he moves to solve it, all amount to his decision-making behaviour. There are two basic approaches or models of decision-making behaviour among managers.

1. NORMATIVE MODEL OR RATIONAL MODEL OR ECONOMIC MAN MODEL

This model is idealistic, rational and prescriptive in nature because it prescribes how managers should behave in the process of decision making. It is idealistic in the sense that it cannot be fully

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applied to a practical solution and rational in the sense that while using this approach the manager tries to become as much rational as is possible.

This approach implies the use of scientific and logical methods. It is marked by the following features:

The approach of decision making followed by managers is systematic, logical and full of reasoning.

The use of scientific and systematic methods call for a scientific attitude on the part of managers backed by empirical verification.

In this model, the manager is expected to be objective on his part. He should not allow his bias, emotions and likes and dislikes to interfere with decision making.

The manager using this model should have an access to required, relevant and reliable information on the problem situation.

The manager must attempt to reach some goals that require positive action on his part. These goals must be definite and clear.

The manager must have a clear understanding of action by which goals can be achieved under the existing environment.

The manager who uses this approach must have an ability to analyse and evaluate alternatives in the context of the goal to be pursued and must have a desire to optimise benefits by selecting the best course of action.

The model of rational decision making is preferably applied to problems that are routine and repetitive in nature and can be programmed. As the problem arises, the manager studies and analyses it. He applies predetermined procedures and rules without allowing his personal bias to interfere and finally solves it. The decision making environment seems to be certain because the decision maker has full knowledge regarding the problem faced by him. Rational decision making occurs relatively in a close setting intentionally created by the decision maker.

He takes into account only those variables that can be quantified. And he avoids the complexities of the external environment by making very simple assumptions regarding it. Also, a model of rational decision making facilitates the application of quantitative techniques for decision making to make it more precise and accurate. This approach, to some extent, is related to the ‘economic man model’. This is because economic man is always in search of an optimal solution or the best way of doing things to maximise his benefits. He is also solely governed by economic considerations and uses mathematical and statistical devices to solve problems. By and large, he behaves like a rational decision maker.

2. BEHAVIOURAL MODEL OR BOUNDED RATIONALITY OR ‘ADMINISTRATION MAN MODEL’

In real life situations, the decision maker cannot be fully rational in his approach to solve all types of problems. This is because absolute rationality is a superhuman phenomenon and cannot be attained. On the basis of this assumption, the behavioural approach has been developed.

Contrary to the normative approach of decision making, it highlights how decisions are actually made by managers in practice. This approach of decision making is more pragmatic.

The manager who is basically a human being cannot be fully rational. He may be confronted with many personal and organisational constraints, problems and limitations, for example, lack of resources, information, his capabilities, and complexities and uncertainties involved in a decision making environment.

After having taken into account several factors that affect real-life decision making, Herbert Simon has proposed the theory of ‘bounded rationality’ This theory states that the real-life decision

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maker must reconcile with inadequate information about the nature of the problems and their solution, lack of time or money to compile more complete information, distorted perception, an inability to remember a large amount of information and the limits of his own intelligence. In other words, the norm of rationality is bounded by these limitations and therefore this concept is known as ‘bounded rationality.’ The major limitations and inadequacies that bound the rationality of a manager are as follows:

1. Lack of Information

This is one of the most important limitations to rationality. In some cases, managers may not have access to the required and relevant information on the problem. Therefore, they are bound to deviate from the norms of rationality to solve it.

2. Time Constraint

In order to comply with the norm of rationality, managers are required to study and analyse the problem to discover alternative courses of action, to evaluate them and then to select an appropriate one. This is a time-consuming job and does suit every type of problem. This is because some of the problems may require the prompt attention of managers and by the time they complete the formalities, there may be further complications.

3. Environmental Uncertainties

Decisions are made by managers and are got implemented later. But the future environment is full of complexities and uncertainties. They cannot be predicted with a high degree of accuracy. These environmental complexities and uncertainties may force managers to accommodate their choice accordingly. Sometimes, they are totally dominated and guided by these forces.

4. Conflicting Objectives

Many decision situations may involve the formulation of multiple objectives that may be conflicting to each other. In these situations the process of compromise and adjustment becomes more relevant and effective rather than rationality. This is because to reduce conflict the formula of ‘give and take’ has to be adopted which is less rational and more situational.

5. Nature of the Problem

The concept of rationality is also bounded by the nature of the problem. Sometimes, the problem may be very complex, unstructured and cannot be defined by using the norms of rationality. To solve such problems, managers have to use their own intuition and experience to restructure and reformulate them.

6. Organisational Constraints

The rationality involved in the process of decision-making is also affected by several organisational variables. These are the philosophy of the organisation, power structure, multiplicity of goals, existence of informal groups and set of organisational plans. To deal with the situation, the manager has to be firm and flexible, cautious and bold. And he may be bound to make those decisions which are more practicable and feasible even by defying the norms of rationality. This is because he is more concerned and guided by these organisational variables.

Thus, in real-life situations, decision making on the part of the manager is sub-rational, fragmented and pragmatic activity. This is because the rationality used by the manager is subject to the ground realities of decision situations. According to Herbert Simon, the norms of satisfying represents and describes the actual decision making behaviour of the manager in the organisation. The norms of satisfying imply picking a course of action that is satisfactory or good enough under the circumstances. It is true that many managerial decisions are made with a desire to be as safe as possible. It is also believed that most managers do attempt to make the best decisions within the limits of rationality and in the light of the size and nature of risk involved in uncertainty. One who makes decisions within the limits of rationality is considered as an administrative man as against an economic man who represents rational decision making.Co

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The administrative man makes satisfying decisions by playing safe. Such decisions are easy to understand, more acceptable and practical.

HOW TO IMPROVE THE EFFECTIVENESS OF DECISION MAKING AND PROBLEM SOLVING

Decision making is an integral part of a managerial job. The efficiency of a manager largely depends on how he has been making decisions to solve problems and tackle situations. Decision making, in fact, is a tough task because excellent decisions may turn out poorly on account of an unforeseen event. Even if a decision works well as per prediction, a manager cannot be completely sure about the effectiveness and outcome of another decision. In this connection, Norman Mailer has suggested two criteria by which the potential and effectiveness of decisions can be estimated. The first is the objective quality of the decision that is determined by how well the formal decision making process is carried out. The second is an acceptance of the decision by those who would execute it, which is to be determined by its nature and by who makes it.

In addition to using the process of rational decision making and making effective decisions there are certain guidelines that may be followed by managers:

In day-to-day functioning, managers are preoccupied with many problems. Some of them may be more urgent and others may allow managers to defer them for some time. To be effective at his job, he must set a priority order of these problems and get them solved accordingly.

The availability of required, relevant and authenticated information is a basic requirement of effective decision making. This is because it facilitates factual decisions that are more qualitative as compared with intuitive ones.

Though there are many processes and models of rational decision making, they will be of use only when managers know how and when to use them. To ensure effectiveness one has to be more methodical and careful, keeping in mind common mistakes.

The rule-of-thumb approach or heuristics may have both positive as well as negative aspects. Managers need to understand how these can lead to bias or overconfidence. Once managers of aware of them, they can make deliberate efforts to avoid and check them.

To ensure effective decision making, enough authority has to be delegated from higher levels to lower levels of management so that every manager is made capable of taking decisions without loss of time.

Effective decision-making in an organisation calls for well-coordinated decision making centres to maintain consistency and cooperation because the decisions made at a higher level may be used as input by managers at a lower level.

To simplify the decision-making process, a required set of procedures, rules, policies and methods should be formulated in a clear manner and should be communicated to all concerned managers in the organisation.

Participative decision-making should be encouraged to get maximum contribution, cooperation and commitment of subordinates to implement decisions.

To make the decision-making process more effective and to ensure quality of decisions, a proper combination of rationality with reality should be prepared as per the requirements of the situation.

To decide upon complex, diverse and novel situations, creativity, effectiveness and dynamism are required on the part of managers. To develop these qualities, systematic training should be imparted and a development programme should be conducted for them.

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CHALLENGES FOR DECISION MAKERS The foregoing discussion on decision making reveals that it is really a tough job for the manager to

decide accurately and precisely on each and every problem faced by him. Not only the survival of the organisation but also his own existence in it to a large extent depends on his capabilities and talent for making qualitative decisions. To keep pace with the changing environment, the entire process of decision making has to be accelerated and toned up so that he can cope with new challenges and added dimensions of the problem. New elements are to be introduced through training to force the manager to become more capable and confident to deal with complex and diverse situations. The proper knowledge of the following factors can help him to understand the complexities of decisions and to cope with them effectively:

1. Multiple Criteria

In a modern organisation, decisions must satisfy multiple conflicting criteria representing the interests of different groups.

2. Intangibles

While evaluating and selecting an appropriate course of action, intangible factors such as customer satisfaction, image of the organisation, morale of employees etc., should also be taken into account.

3. Risk and Uncertainty

These two factors are mainly related to the decision making environment. More risk and a high degree of uncertainty may force the manager to go for that course of action that is being dictated by the environment.

4. Long-term Implications

While making decisions, the manager should also consider the long-term implications of it.

5. Interdisciplinary Input

The decisions made by a manager may affect several interest groups. Therefore, their advice may be sought and considered.

6. Pooled Decision Making

In view of the possible advantages of participative decision making, the manager, instead of taking decisions on his own, should prefer to consult and involve his subordinates in the decision making process.

7. Value Judgement

Decisions are made by managers who are of different backgrounds, perceptions, aspirations and values. They may generate controversy of what is good or bad or ethical or unethical.

In order to make qualitative decisions, managers must be aware of the rapid changes taking place in the external environment. They are expected to tone up the whole process of decision making and make it more responsive to the situation.

SUMMARY Decision making is an important managerial activity. Every manager has to take decisions to solve

problems and handle situations so that he can get things done by others. Decision making is not only a part of planning but is an integral part of the managing process. It may be defined as a process of choosing a suitable option from available alternative options. The decision-making process is a social process that involves the use of ethical and moral values also. It is goal-oriented and an all-pervasive activity that permits the manager to use his discretion along with decision rules. In an organisation, the decisions made

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by a manager ensure an efficient utilisation of resources to achieve ‘objectives’. Not only the survival and prosperity of the organisation, the existence of the manager also depends on the quality of decisions made by him.

In order to solve routine and repetitive problems, the manager makes a programmed decision. They are made by using the prescribed decision rules and techniques. Whenever the problem arises, he applies those rules and gets them solved. On the other hand, sometimes the manager faces a problem that has not arisen in the past and is unique in nature. To solve such a problem he has to make a non-programmed decision. To much such a decision, no set rules or technique can be applied. Rather, the manager solves such problems by using his managerial experience and creativity.

Strategic decisions are those that are made on vital issues by top-level managers having long-term implications and that affect many functional areas. To implement strategic decisions, certain other decisions are also made by the manager. These decisions are known as operational decisions. Such decisions are made by lower-level managers who are mainly involved in the implementation of strategic decisions. Decisions are also made either by the manager at his individual level by using the authority delegated to him. Such decisions are known as individual decisions. As against this, sometimes decisions are made by two or more managers who may be working in similar positions or may be in the relationship of superior and subordinate. These decisions are known as group decisions that are considered to be more qualitative and superior.

The process of decision making involves many stages including identification and definition of the problem, specification of objectives, collection of data, developing alternatives, evaluating them and finally selecting a suitable one.

Managers make decisions in a different environment. Sometimes they may face complete uncertainty and do not know the nature of the problem. But sometimes, they may have full knowledge of the problem and they may also predict the outcome of a decision. Such situations are considered as certainty. Between these two they may face a situation known as environment of risk.

Information is one of the important inputs to be used by managers in decision making. Information does not only help in defining the problem but an effectiveness of the entire decision making process depends on the availability of relevant and reliable information on the problem. It helps the manager at every stage of the decision making process.

In order to make programmed decisions, three important techniques are used. These are known as traditional techniques that include habit, organisational plans and procedures and organisational structure. In addition to these, many techniques are used to make non-programmed decisions such as linear programming, queuing theory, game theory, probability theory, simulation and network techniques. Apart from these, modern managers also use the heuristic technique, participative technique and the creative technique. Among these, creativity has a very important role in decision making particularly to solve unstructured and complex problems. It is mental ability that can be developed by rigorous training and practice. The creative individual thinks of a situation or problem in an altogether new manner and finds out new and novel ideas about it. He does not follow a beaten path, rather he is regularly in search of new ones which deviate conventional ones. By using creativity, the manager makes an insight into the problem and comes to know about new aspects or dimensions of the problem. Creativity in fact stimulates the unconscious mind of the person and forces him to develop new ideas.

In order to understand the decision making behaviour of the manager, two important models may be used: rational model and behavioural model. These two models indicate how the manager behaves while making decisions. According to the rational model, the manager acts systematically, logically, uses scientific methods and remains very knowledgeable about the problem. He remains objective on his part and does not allow his biases to interfere. But in practice, many environmental, organisational and personal constraints limit his rationality. These factors include lack of information, environmental uncertainties, conflicting objectives, nature of the problem and other factors. Due to these, the manager is bound to

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reconcile with the ground realities while making decisions. This type of model is known as the model of bounded rationality or ‘behavioural model’. In practice, a combination of these two is followed by the manager.

In modern organisations, the practice of using techniques of group decision making has been well established. These techniques are very helpful in making the entire process of decision making more effective and encouraging the use of creativity in it. The techniques of group decision making include brainstorming, Delphi technique, nominal group technique and fish bowl technique. Brainstorming is mainly focused on generating new ideas by acting upon the ideas of others. It stimulates the sub-conscious mind of the people to develop new ideas. Later, these ideas which seem to be wild and crude may be further refined and made useable.

The Delphi technique is a more extended version of brainstorming. It aims at generating and evaluating ideas through repetitive use of questionnaires. In the nominal group technique, which is similar to brainstorming, the members of the group generate, discuss, evaluate and vote for each idea. First of all, the members without interacting with each other are asked to write all the possible ideas about the problem that come to their mind and report them to the leader of the group. The leader puts them on a flip chart and the members continue to develop new ideas on the basis of those given in the chart. Similarly, in the fish bowl technique, which is more structured and direct, each member is given an opportunity to express his opinion on the problem as a leader of the group as well as a member of the group. All ideas so generated are further discussed at the end collectively and a final solution to the problem is chosen.

Modern management has added a new dimension of ethics to the decision-making behaviour of managers. While making decisions, they are also expected to consider the ethical aspect. The ethical behaviour of the manager may be considered as a pattern of behaviour consistent with accepted social norms and values. Ethical behaviour is greatly influenced by personality factors and the internal environment of the organisation. It requires a higher degree of honesty and integrity on the part of managers. And such behaviour must be encouraged by implementing suitable policies. While making decisions, managers generally adopt the criteria of utility, right and justice. For promoting ethical behaviour in decision making, a ‘code of conduct’ is framed and efforts are made to ensure that it is followed by managers.

TEST QUESTIONS

Decision making involves choosing from among alternative solutions. Comment.

Discuss the elements involved in the decision-making process.

Managers cannot be rational decision-makers in real-life situations. Discuss.

Explain the various modern techniques of decision making for programmed decisions.

Compare and contrast the decisions made under conditions of certainty, risk and uncertainty.

Explain the role of creativity in decision making.

What are programmed decisions? Briefly discuss the various traditional and modern techniques of taking such decisions.

Define the term ‘bounded rationality’. Explain the practical limitations to decision making situations.

Define the role of information systems in decision making.

Give suggestions to improve the effectiveness of decision making.

Write short notes on

(a) Strategic and tactical decisions.C op yr ig ht ©

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(b) Programmed and non-programmed decisions.

(c) Creativity in decision making.

(d) Pervasiveness of decision making.

OBJECTIVE TYPE QUESTIONS

Which of the following statements are correct and which are incorrect? Give reasons to support your answers.

Creative decision-making rejects all past decisions.

A management information system is designed to transmit information from one manager to another.

Brainstorming permits group members to openly criticise each other.

Tactical decisions are made to implement strategic decisions.

A real-life decision-maker who makes decisions within bounded rationality is known as an ‘administrative man.’

Managerial decision-making is a sub-rational and pragmatic activity.

A rational decision maker operates in a ‘closed system.’

A rational approach of decision-making is generally applicable to non-routine and new problems.

A rational approach of decision-making is normative, idealistic and prescriptive.

Programmed decisions involves more use of intelligence, skill, judgement and experience of managers.

Non-programmed decisions implies more use of predetermined procedures and rules.

Strategic decisions are similar to non-programmed decisions.

Non-programmed decisions demand a low amount of subjective judgement from managers.

REFERENCES

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CASE STUDY I Why the Ford Mustang Wasn’t Put Out to Pasture

It’s a miracle the car is still around. The ageing coupe was scheduled to die by now because of the costs of keeping up with safety, pollution and fuel economy regulations. Yearly sales slipped from 500,000 in the Mustang’s mid-60s heyday to fewer than 100,000 in the 90s.

“The Mustang was literally resurrected within the company”, development engineer Kurt Achenbach says.

What kept the Mustang alive was the dedication of a small group of Ford engineers, themselves Mustang buffs, who couldn’t imagine Ford without Mustang. Known as the Gang of Eight, they secretly culled the debris of earlier, unsuccessful plans to continue the Mustang. Most of those were radical, expensive redesigns that changed the character of the car. Or they were cheap-to-build cars not better enough than the current Mustang to justify the expense.

The reprieve came through extraordinary means. In the process, Ford learned more about cutting costs and development than it probably could have learned any other way. Some of these lessons already have been rolled into development of the next-generation Taurus family car and a truck due in 1996, engineers say.

The Gang of Eight concentrated on keeping some key hardware engine, transmission and parts of the chassis, or platform to retain the Mustang’s identity and keep it cheap and quick to develop. At the same time, they identified ways to eliminate quality and handling problems that had plagued the car.

They pitched the notion to top management and after tough questions from CEO Harold ‘Red’ Poling got a thumbs-up. “This was not an easy project. Some very important people, who shall remain nameless, said we could never do it”, project boss Will Boddie recalls. “We basically signed a contract with (Poling) saying we agree to deliver this car at this budget by this time.”

The team promised a 37-month turnaround three months sooner than Ford’s previous fastest, the 40-month development of the 1990 Lincoln Town Car. Mustang’s team, by slashing red tape and

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bureaucracy delivered in 35 months. The budget was to be $ 565 million, but was expanded, by consensus, to $ 700 million. That was after managers decided to re-equip the ageing Mustang Factory at Dearborn, Michigan, to build 175,000 a year, instead of 140,000.

It helped that Ford President Alex Trotman, then running the company’s North American operations (later promoted to CEO) was also a Mustang buff. “He was our guardian angel on the project”, Mustang business manager Johan Coletti says. Other key executives of sales and marketing boss Robert Rewey and vice-chairman Allan Gillmouru also were early backers.

Once the pact was made, the Gang of Eight moved more people and equipment into an old Montgomery Ward warehouse in Alien Park, the Detroit suburb adjacent to Dearborn. At maximum, the team numbered 450. Today it is a skeleton crew of 60. Says Coletti: “It was very un-Ford. Usually guys won’t move in until the carpet’s down and everything’s done. We had guys in there doing design before there was even running water. We were using porta-johns. We didn’t shake hands much in the early days.”

Although Ford dislikes the comparison, the Mustang group operated much like Chrysler’s platform team that brought out the successful line of family cars collectively known as LH. The keys: group members focus on one car, instead of splitting time among several projects; and everybody is under the same roof.

“We made decisions in minutes around the coffee pot that would normally take three months,” Boddie says.

And there was a vision, mainly shaped by the seemingly endless consumer clinics Ford conducted with both Mustang enthusiasts and ordinary buyers. “Cheap, beautiful and powerful. Those were the goals. Any decision you made along the way that didn’t accomplish those goals, you were making the wrong decision,” Boddie says.

Thus the Mustang team nixed using the Ford Thunderbird’s sophisticated good-handling rear suspension. Too costly. “About $ 300 per car,” Boddie says.

And it spurned the company’s world-class overhead-camshaft Romeo V-8 engine. “Remember cheap speed,” says engine and transmission engineer John Bicanich.

“The Mustang buyer is not the $ 100,000-a year guy trying to decide how much to spend. It’s the guy in love with the car, has to have it and is scraping together every cent he can afford,” Boddie explains.

Just like at Chrysler, Ford executives helped by steering clear. “The big boost we got from our management was freedom. We didn’t have to check every time we wanted to do something,” Boddie says. “I didn’t expect that level of trust.”

Questions

What evidence of the seven sources of decision complexity can you detect in this case?

Which source of decision complexity was probably the most difficult for the Mustang team? Explain your reasoning.

Why was the team approach appropriate for the Mustang project?

What was the key (or keys) to Ford’s successful development of the new Mustang?

How well did Ford adhere to the principles of total quality management (TQM) when developing the new Mustang? Explain.

CASE STUDY II

In a large state electricity board, the maintenance of records and decision-making in the personnelCo py ri gh t © 2 00 9. G lo

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EBSCO Publishing : eBook Business Collection (EBSCOhost) - printed on 2/13/2017 9:59 AM via TRIDENT UNIVERSITY AN: 878340 ; Moshal, B. S..; Principles of Management Account: s3642728

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department was a gigantic task. While the individual service records of senior engineers were maintained at the central office, those of junior engineers and operating staff were scattered all over the state. All decisions concerning senior engineers were taken at the central office. Some decisions concerning creation of posts, promotions and inter-regional transfers of junior engineers were also taken at the central office.

Moreover, requests for posts from field officers were also finally approved at the central office. In the case of senior engineers, an attempt was made to put individual records on the Cardex System. However, this experiment could not succeed for a variety of reasons. Consequently, files had been developed for their promotions and transfers.

The General Manager, Personnel, felt that to keep track of a vast number of personnel and to enmesh the organisational needs with those of individuals, it was very necessary to obtain all the relevant data with respect to each individual and to process all personal data with the help of modern digital computers. He felt that a computerised information system would result in the following advantages:

More objective assessment of manpower requirements and availability of skill in the organisation.

More speedy and efficient handling of personnel issues such as appraisal, training, promotions and transfers.

Availability of more accurate information regarding increments, efficiency bars, retirement dates and benefits.

The General Manager, Personnel, was aware of the fact that within the organisation operational data on power generation and distribution thereof was being analysed with the help of computers by a group of specially trained staff. He, therefore, requested this group to help him prepare a proposal on a computerised manpower information system.

The salient features of the proposal were as follows:

A beginning may be made with computerised data for all engineering staff.

Two data files may be developed. The master file may contain all the basic data, while the secondary file may contain data which requires updating at quarterly intervals.

For several purposes, the programme could be relatively simple, while special programmes would have to be prepared for certain purposes. In some cases, the computer may have to just scan its memory and print the outputs.

The cost of the project would include the initial cost of the hardware and necessary accessories. Development of software, creation of a data bank, periodical updating of data and the systems development for special reports requested by the Personnel Department. The cost would also include salaries and benefits for staff associated with this activity.

Questions

Is the computerised system in line with the existing culture of decision making in the organisation?

In what way could a computerised system affect decision-making in the Personnel Department?

What would be the possible unfavourable reaction of engineering staff to the new proposal?

Should cost-benefit analysis be undertaken before implementation ofthe proposal?

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U. S. o r ap pl ic ab le c op yr ig ht l aw .

EBSCO Publishing : eBook Business Collection (EBSCOhost) - printed on 2/13/2017 9:59 AM via TRIDENT UNIVERSITY AN: 878340 ; Moshal, B. S..; Principles of Management Account: s3642728

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