- 1 Meaning Definitions Principle Importance of Decision Making
- 1.1 PRINCIPLES OF DECISION-MAKING
Meaning Definitions Principle Importance of Decision Making
Meaning Definitions Principle Importance of Decision Making :- Hello friends in this post we are provided the materials of the b.com second part its name is fundamental of Business Entrepreneurship notes and its the first chapter of this subject and in this article you learn many more knowledge of Entrepreneurship like as Meaning and definitions of decision making, characteristics and nature of decision making, Types of Decisions, Principles of Decision Making, Entrepreneurship is primarily a decision making process, Importance of decision Making, Process of Decision Making,
What do you understand by decision-making ? What are the various types of managerial decisions ? Explain in detail.
Define Decision Making. What are the various principles of decision-making ? (Kanpur, 2007)
State in brief the nature of decision-making.
MEANING AND DEFINITIONS OF DECISION MAKING
Decision-making is an important and necessary activity of every business. A few decisions are rather routine and can be made quickly after consulting only a few persons. But many decisions in-volve answers to complex and serious long range problems. For these a great deal of information is needed before a decision can be
reached. The quality of a decision way well determine the ultimate success or failure ofthe business and its destiny.
A decision is an act of choice wherein an executive forms a con-clusion about what must be done in a given situation. In other words, a decision is the selection of the best course of action from among a set of alternatives. The word decision is derived from the Latin Word, ‘Deciso’ meaning cutting away or cutting off or in practical
content, ‘to come to a conclusion.’
Various authors have defined decision-making as follows :
According to D. E. McFarland, “A decision is an act of choice wherein executive forms a conclusion about what must be done in a given situation, a decision represents a course of behaviour chosen from a number of possible alternatives. “
According to George R. Terry, “Decision-making is the selection based on some criteria from two or more possible alternatives. ” According to R. S. Davar, “Decision-making may be defined as the selection based on some criteria of one behavior alternative from two or more possible alternatives. To decide means ‘to cut off or in practical content, ‘to come to a conclusion. “
Thus, decision-making is a mental process of selection of one best alternative for doing a work to realise the certain objectives, It represents a judgement, a final word or a commitment to act in a certain manner in the given set of circumstances. It is really a mental exercise which decides what to do.
CHARACTERISTICS AND NATURE OF DECISION-MAKING
The process of decision-making has the following basic characteristics ;
(1) An Intellectual Activity ; Decision-making is a mental and intellectual activity because the final selection is made after thoughtful consideration,
(2) Process of Selection : Decision-making is basically a process of choice making. It chooses the best alternative from various alternative course of action. If there is only one alternative, there is no decision-making.
(3) Decision-making is a result oriented Process : A decision is always taken to realize certain objectives. No decision can be without any purpose. Decision-making is the end process. It is preceded by detailed discussion and selection of alternatives.
(4) Dynamic Process : Decision-making is a dynamic process. An individual takes a number of decisions every day. It is continuous process that pervades all business activities.
(5) Decision-making is situational : An entrepreneur takes decision according to the situations prevailing. Different decisions may also be taken to solve the same problem as the situation is changed from time to time.
(6) Evaluation of Alternatives : Before taking any decision, the decision-maker evaluates various pros and cons of the different alternatives. It involves the evaluation of available alternatives through critical appraisal methods.
(7) Decision may be both positive or negative : A decision may be both positive or negative. A decision may direct others to do or not to do.
(8) Decision-making is only a mean and not an end : Decision-making pave the way of solving a problem but does not solve the problem itself. Thus decision-making is only a mean and not an end.
TYPES OF DECISIONS
Decisions may be of different types; some of the important types,of managerial decisions are as below :
(1) Programmed and Non-programmed Decisions : Prof, Simon has classified all decisions into two classes : (i) Programmed decisions, and (ii) Non-programmed decisions. such classification of decisions is made on the basis of the use of operations research. Programmed decisions are normally of repetitive and routine nature and an organisation can develop specific processes for handling these decisions, Programmed decisions have impact and are taken by lower level managers, such as, granting leave to an employee, purchase of materials in normal routine, etc. If a manager spends appreciable time in dealing with programmed decision, he is wasting time which he could more profitably spend in dealing with non-programmed decisions.
Non-programmed decisions are of non-repetitive nature, Their need arises because of some specific circumstances, such as, opening of a new branch, introducing a new product in the market etc. They involve judgement, intuition and creativity. Such decisions are taken by top management. For example, if a large number of employees suddenly started absenting themselves without information, it would constitute a problem involving the non-programmed decision. The management should thoroughly probe into the cause and consequences of such a problem.
(2) Policy and Operative Decisions : Policy decisions are of a fundamental character affecting the whole business. Such decisions are taken by top management. Policy decisions are important decisions which involves a change in the procedure, programme or strategy of the organisations. On the other hand, decisions relates to-day operation of an organisation is known as operative decision. Generally, this type of decision is taken by middle level management people. The reason is that they are working at supervisory level and have a good knowledge of the operations. Division of Work, delegation of authorities, time of payment of over-time wage etc. are the examples
of operative decisions,
(3) Strategic and Routine Decisions : Strategic or Basic decisions relate to policy matters and usually involve large investments or expenditure of funds. These decisions are mostly non-repetitive in nature. These decisions are taken by higher level of management after careful analysis and evaluation of various alternatives. A slight mistake in these decisions is bound to injure the entire organisation. Major capital expenditure decisions, all decisions affecting organisation, productivity, pricing, location and size of the business etc. are the main examples of strategic decisions. Routine decisions are taken in the context of day-co-day Operations of the organisation. They are not very important. Mostly ‘they are of repetitive nature and do not require much analysis and evaluation and can be made quickly. Authority for taking such decisions is generally delegated to middle and first-line managers. They do not involve any high risk or uncertainty. For instance, sending samples of a product to the Government investigation center is a routine decision.
(4) Individual and Group Decisions : Individual decisions are those decisions which are made by one individual whether owner of the business or by top executive. When size of business unit is small and decisions have to be taken are of great importance and technical knowledge is required, then owner of an enterprise takes all decisions himself. On the other hand, group decisions are the decisions taken by a group of managers-board, team, committee or a sum committee. Here the top management feels that no individual can take effective decision to solve a problem. The top management fixes the time within which the committee is expected to submit its report with concrete result.
(5) Major and Minor Decisions : Decisions may be classified as Major and Minor. For example, if it relates to the purchase of a big machine worth, say a lakhs of rupees, it is a major decision. On the other hand, purchase of fountain pen, ink or a few reams of paper are minor matters and may be decided by the Office Superintendent.
PRINCIPLES OF DECISION-MAKING
Decision-making is not a simple job. A quality decision may be taken by the decision-maker if he adopts certain principles. The principles may be discussed as follows :
(1) Principle of Alternatives : This principle involves an evolution of all possible alternatives of a given event. All the alternatives are evaluated and screened in the order of their usefulness. Finally, the best alternative is selected according to the circumstances and purpose.
(2) Principle of Limiting Factor : This principle emphasizes the need of more attention of some strategic or important factors involved in n process of decision making. The limiting factor may be time, cost or resources. Decisions are supposed to be good when the limiting factors is considered while taking decision. The reason is that this decision can be implemented in a particular situation.
(3) Principle of Timing : This principle is based on the fact that if decisions have not been taken at right time, opportunities of profit will escape from our hands. Decision after time has gone have no importance. So managers should follow the principle of timing while decision-making.
(4) Principle of Proportion : Each firm has limited resources of production, so proportionate combination of resources is required to obtain the maximum production. This principle helps to select the best alternative in the process of decision-making.
(5) Principle of Participation : This principle is based on human behaviour and human relationship. It emphasizes the need of employees participation in decision-making. The emplovee should be given proper opportunity to discuss the problem and suggesting the alternative solutions. This will honour the presence of subor- dinates and result in winning their confidence.
(6) Psychological Theory : According to this principle, there are certain psychological concepts too, affecting the quality of decisions like personality of decision makers, their education, ex- perience, ambition and level of satisfaction etc. The reason is that decision-making is a mental process.
(7) Principle of Goal-orientation : An organisation is functioning to achieve certain goals. These decisions are taken and action is directed to achieve the goals. The value of decision depends upon the quantum of goals achieved. Therefore, decision should be sound and result-oriented. The decision should be based on facts.
“Entrepreneurship is primarily a decision-making process.” Discuss this statement and explain the importance of decision-making.
ENTREPRENEURSHIP PRIMARILY A DECISION-MAKING PROCESS
Decision making is the act of choosing between two or more alternatives. As such, it involves identifying a problem, analyzing potential alternatives and their consequences and selecting the solution judged best. In a free enterprise system, entrepreneurs make decisions under conditions of certainty, risk and uncertainty.
An entrepreneur must realize that “there are no problem, only Opportunities,” Decision making is an important task of an entrepreneur. It can be said that “only entrepreneurs i make décisions because every decision involves an amount of risk, reward and opportunities, it defines performance and results.” Effective therefore make potential and profitable decisions. They make strategic decisions. They make ‘right’ rather than acéptable decisions, decisions are not based only on good intentions, therapy Contain action commitments.
Everyday problems, opportunities, and challenges require that entrepreneurs should make decisions. They must evaluate the prevailing environment to identify that alternative which seems most profitable. They put their decisions into action and evaluate the resulting outcomes. Decisions making is a key activity for an entrepreneur. It is involved in aspects of venturing and planning functions. An entrepreneur must be clear and creative when it comes to decision-making. He must believes in himself and should be possessing ability •to take decisions effectively. Decisions taken should be based on quantitative facts. Not only this, decision taken is not enough unless it is implemented. Boldness and enthusiasm are required to implement a decision. Once, a decision is implemented, all doubts and uncertainties should be left behind. A positive attitude of the entrepreneur, a sense of security allows him to make key decisions without little fear of consequences. Thus, it is rightly said that entrepreneurship is primarily a decision-making process.
IMPORTANCE OF DECISION-MAKING
Decision-making affects the performance of an organisation and the welfare of its constitutions employees, stockholders and customers. Entrepreneur performs other functions also in addition to making decisions, but their main responsibility lies in making decisions and solving problems rather than performing routine operations. Decision-making is the first step in managerial planning. Whatever an entrepreneur does, he does through decision-making. George Terry regards managerial life as a perpetual choice making challenge. Decisions are always made in the course of each of the management activities—planning, organizing , staffing, directing, controlling. With the help of decision-making they determine the objectives, policies, procedures and programmers Of the organization. Decision-making is undoubtedly the heart and core executive activity in the business. In brief, importance Of decision making may be summarized as follows :
(1) Effective Performance of Management Process ; Various functions, such as planning, organizing , co-ordination directing, controlling etc., involved in the management process can only be executed effectively with the help of decision-making, Decision-making is the core function of entrepreneurs as it involves in all functions.
(2) Selection of the Best Alternative : Decision-making is of great importance in selection, of the best alternatives. A decision is an act of choice wherein an executive forms a conclusion about what must not be done in a given situation. A decision represents a course of behaviour chosen from a number of possible alternatives. For instance, there may be number of alternatives to increase the profit of the company—increase in productivity, increase in sales, reduction in costs etc. At which situation and time, which will be the suitable alternative, is decided by the decision-making process.
(3) Reduce the Risk : There exists uncertainty in the business environment which cause risks for a business. In the decision-making process, all informations and facts related to decisions are collected and analysed by the entrepreneur. This will help to reduce the risk by forecasting the factors related to uncertainty and their affects.
(4) Indicate Entrepreneurial Success : Riøht decisions taken at right time brings success to an organization. On the other hand, wrong decisions cause failure of business. So decision- making process indicate the entrepreneurial success.
(5) Helpful in achievement of goals : Decision-making permeates through the entire management process and gives rational basis for planning and realistic promises for the executive action. Thus, it proves helpfial in the attainment of goals.
(6) Complexities and technological changes : Rapid changes in the technology and complexities of the business environment have increase the importance of decision making, To implement them necessary changes, they have to take various decisions.
“Decision-making is the primary task of the manager.” Discuss and explain the process of Scientific Decision-making.
PROCESS OF DECISION-MAKING
Decisiona making now-a-days is not a guess work but a scientific Process of observation, investigation and interpretation of facts Felating to the problem, situation, issue or an objective in order to förmulate the required decisions. Rational thinking and logical, reaSoning to matters is the essence of decision-making. Decision-making is a process Different authors of have describedt different steps or stages in’ •the process of decision-making. The folloWing procedure should followed in arriving at acorrect decision ;
(1) Identification of a Problem : Identification of a problemmeans recognition of a problem in a clearcut manner. A clearunder standing of the real problem is the most important task in theprocess of decision-making, as the right answer can be found only for a right question. C.I. Barnard says that “knowing the right question is winning almost half the battle.” Actually, accurate diagnosis of a problem is as essential for manager as knowing the correct disease is for a doctor. The decision-maker should sort Out the strategic points underlying the subject-matter of the potential decision. For example, in deciding about production targets critical factor is plant capacity, in sales target the marketability, in fixing salaries or wages productivity and financial capacity are the factors of decisive nature. The entire problem has to be Viewed in its all aspects through study and survey to identify it cöfrrectly. For example, if the total sales of company gets declining then high selling price would be considered responsible for this problem. But declining of sales may be due to fall in quality of goods or carelessness in the selling efforts. Without knowing the real cause of problem, if management decides to reduce the selling price, there may be loss instead of profit. Hence, scientific method should be used to identify the real aspect of problem.
(2) Analysing the Problem : After the problem is correctly grasped, the next step is to collect the facts and figures essential to analyse the problem. The problem should be divided into many sub-problem and each element of the problem must be investigated thoroughly and systematically. The cost structure, sales potential, financial position, price factors, Labour matters and other administrative matter can be analysed on the basis of the observed facts. Information gathering and data processing are important steps to arrive at logical decisions intended to resolve any issue.
(3) Developing Alternative Solutions : Next step in decision-making is the ‘quest’ from alternatives from amongst the analysed facts and figures. Alternate approaches to solve problem are to be thought of on the basis of facts and factors investigated. For example, deciding on issue of increasing the capital; alternatives by issue of shares, debentures, loans etc. Increasing the sales-alternatives, more advertising, reducing sales price, more role for sales men etc. These alternatives indicate the importance Of strategic factors and also the significance of complementary factors in formulating a decisive course of action to solve a problem.
(4) Evaluation of Alternative Solutions : Next, the pros and cons of available alternatives are analysed and an alternative is compared with other alternatives The available alternatives are screened in the order of maximum benefit derived from them. Each alternative is evaluated in terms of risks involved in implementing them. Both tangible and intangible factors are considered while evaluating each alternative. Tangible factors include profit earned, money invested, rate of return on investment, time taken etc. while intangible factors include public relations, loyalty of employees, goodwill of the company etc. Peter F. Drucker suggests the following criteria to evaluate the available alternative course of action :
- (i) Risk : Degree of risks involved in each alternative.
- (ii) Economy of efforts : Cost, time and efforts involved in each alternative.
- (iii) Timing or situation : Whether the problem is urgent.
- (iv) Limitation of Resources : Financial, physical and human resources available within the organisation.
(5) Selection of the Best Solution : In this process of decision-making, the best alternative is selected out of various available alternatives. In attempting to selection from alternative, several basic approaches to decision-making are open to the manager. Among these, experimentation technique, research and analysis technique are important approaches. Least cost and maximum benefit would guide the manager in projecting the final decision.
(6) Implementing the Decision : Next, the manager has to implement the decision to achieve desired goals. This step involves gaining acceptance of the decision by those directly influenced by it and developing control to see whether the decision is being carried out properly. Decision therefore, be communicated in clear terms so that it can be implemented easily and early. Skill in communication is an essential talent for a good decision-maker. The motivation of employees and co-ordination of their efforts are other phases of implementation of decisions.
(7) Feedback and Control : The management should receive continuous information and evaluate them regarding the effect of his implemented decision. If he considers it necessary, he may modify his decision and strategy to make the decision a success. As Mervin Kahn says, “The solution ma.y have to be modified to make It palatable to the individual or goa1s.”