Decision Making

1.   Introduction

Decision-making is an integral part of modern management. Essentially, Rational or sound decision making is taken as primary function of management. Every manager takes hundreds and hundreds of decisions subconsciously or consciously making it as the key component in the role of a manager. Decisions play important roles as they determine both organizational and managerial activities. A decision can be defined as a course of action purposely chosen from a set of alternatives to achieve organizational or managerial objectives or goals. Decision making process is continuous and indispensable component of managing any organization or business activities. Decisions are made to sustain the activities of all business activities and organizational functioning.

Decisions are made at every level of management to ensure organizational or business goals are achieved. Further, the decisions make up one of core functional values that every organization adopts and implements to ensure optimum growth and drivability in terms of services and or products offered.

Decision making is the process of making a choice between a number of options and committing to a future course of actions.

Decisions are taken to support organizational growth. The whole fabric of management, i.e. its day to day operation is rightly built on managerial decisions. Top notch companies, as evidenced by their functions, effective communication tools are utilized in addition to normal consultation process to make decisions that would have large scale implications on the company’s prospects.

As a matter of fact, capable of taking critical decisions is one of the many attributes that every manager should have, be it top level or middle or entry level. By nature a human being during his existence and by virtue of his instinct makes decisions for his survival, as social psychologists put it. By and large, managers are polished individuals to take decisions to affect others, ie the organization’s existence and growth thus is annotative with human endeavor to live and succeed. Success succeeds on the decisions taken, be it by an individual or an organization.

2. Components of Decision Making

Decision making in management has three components, viz.,

1.    Alternatives: There are two or more alternatives. Decision making means to select the best alternative.

2.    Choice: Decision making involves a choice. It means to choose the best solution for solving the problem.

3.    Objectives or Problem: Decision making is objective oriented. It is done to achieve an objective or to solve a problem.

Steps In Decision Making Process

Six steps in the decision making process with diagram are discussed below.

1. Defining and Analysing the real problem

The manager should first find out what is the real problem. The problem may be due to bad relations between management and employees, decrease in sales, increase in cost, etc. After finding out the true problem manager must analyse it carefully. He should find out the cause and effect of the problem.

2. Developing Alternative Solutions

After defining and analyzing the real problem, the manager should develop (make) alternative (different) solutions for solving the problem. Only realistic solutions should be considered. Group participation and computers should be used for developing alternative solutions.

3. Evaluating the Alternative Solutions

The manager should carefully evaluate the merits and demerits of each alternative solution. He should compare the cost of each solution. He should compare the risks involved. He should also compare the feasibility of each solution. He should find out which solution will be accepted by the employees.

4. Selecting the best Solution

After evaluating all the solutions, the manager should select the best solution. He should select a solution which is less costly and less risky. He should select a solution which is most feasible and which is accepted by the employees. In short, the manager should select a solution which has the most merits and least demerits. The best solution is called the "Decision".

5. Implementing the Decision

After making the decision, the manager should implement it. That is, he should put the decision into action. He should communicate the decision to the employees. He should persuade the employees to accept the decision. This can be done by involving them in the decision making process. Then the manager should provide the employees with all the resources, which are required for implementing the decision. He should also motivate them to implement the decision.

6. Follow Up

After implementing the decision, the manager must do follow up. That is, he must get the feedback about the decision. He should find out whether the decision was effective or not. This is done by comparing the decision with the action, finding out the deviations (differences) and taking essential steps to remove these deviations. So, follow-up is just like the control function. It helps to improve the quality of future decisions.

3.Decisions under Risk and Uncertainty

When the outcome of a decision is not known with certainty, a manager faces a decision-making problem under either conditions of risk or conditions of uncertainty. A decision is made under risk when a manager can make a list of all possible outcomes associated with a decision and assign a probability of occurrence to each one of the outcomes. The process of assigning probabilities to outcomes sometimes involves rather sophisticated analysis based on the manager’s extensive experience in similar situations or on other data.

Probabilities assigned in this way are objective probabilities. In other circumstances, in which the manager has little experience with a particular decision situation and little or no relevant historical data, the probabilities assigned to the outcomes are derived in a subjective way and are called subjective probabilities. Subjective probabilities are based upon hunches, “gut feelings,” or personal experiences rather than on scientific data.

An example of a decision made under risk might be the following: A manager decides to spend $1,000 on a magazine ad believing there are three possible outcomes for the ad: a 20 percent chance the ad will have only a small effect on sales, a 60 percent chance of a moderate effect, and a 20 percent chance of a very large effect. This decision is made under risk because the manager can list each potential outcome and determine the probability of each outcome occurring.

In contrast to risk, uncertainty exists when a decision maker cannot list all possible outcomes and/or cannot assign probabilities to the various outcomes. When faced with uncertainty, a manager would know only the different decision options available and the different possible states of nature. The states of nature are the future events or conditions that can influence the final outcome or payoff of a decision but cannot be controlled or affected by the manager. Even though both risk and uncertainty involve less-than-complete information, there is more information under risk than under uncertainty.

An example of a decision made under uncertainty would be, for a manager of a pharmaceutical company, the decision of whether to spend $3 million on the research and development of a new medication for high blood pressure. The payoff from the research and development spending will depend on whether the president’s new health plan imposes price regulations on new drugs. The two states of nature facing the manager in this problem are (1) government does impose price regulations or (2) government does not impose price regulations. While the manager knows the payoff that will occur under either state of nature, the manager has no idea of the probability that price regulations will be imposed on drug companies. Under such conditions, a decision is made under uncertainty.

4.   Types of Problems

Nature of problem determines the approach to decision making to be followed to solve it. There are three broad categories.

· Structured: Well-structured problems are constrained problems with convergent solutions that engage the Application of a limited number of rules and principles within well-defined parameters.

· Unstructured: Problems possess multiple solutions, solution paths, fewer parameters which are less manipulate able, and contain uncertainty about which concepts, rules, and principles are necessary for the solution or how they are organized and which solution is best

Semistructured 

 a gray area lies between the structured and unstructured range. Here part of the

decision can be specified allowing for certain factors out of control

Example Business

Bank has a policy that two persons, Mr. A & B would open the bank 30 min before bank timings, so that Bank should be open for public dealing at 9 a.m. No other situation has been forecast in the policy.

Structured Staff shall be in the bank by 8:00 a.m. to ensure opening for public dealing at 9 a.m. This

Procedure will be followed no matter what.

Semi Structured Branch Manager is informed a day earlier that Mr. A will be unable to make it the next day. Rest is left at the discretion of branch manager's judgment to decide who else is to be made responsible to open the branch in the morning.

· Unstructured Employees start reaching before 9 a.m. but branch is not open. The decision taken by

employees there and then would be totally unstructured due to the novelty of the situation arose

5. What is Crisis? A sudden and unexpected event leading to major unrest amongst the individuals at the workplace is called as organization crisis. In other words, crisis is defined as any emergency situation which disturbs the employees as well as leads to instability in the organization. Crisis affects an individual, group, organization or society on the whole. Characteristics of Crisis Crisis is a sequence of sudden disturbing events harming the organization. Crisis generally arises on a short notice. Crisis triggers a feeling of fear and threat amongst the individuals.

Why Crisis?

Crisis can arise in an organization due to any of the following reasons:

• Technological failure and Breakdown of machines lead to crisis. Problems in internet, corruption in the software, errors in passwords all result in crisis.
• Crisis arises when employees do not agree to each other and fight amongst themselves. Crisis arises as a result of boycott, strikes for indefinite periods, disputes and so on.
• Violence, thefts and terrorism at the workplace result in organization crisis.
• Neglecting minor issues in the beginning can lead to major crisis and a situation of uncertainty at the work place. The management must have complete control on its employees and should not adopt a casual attitude at work.
• Illegal behaviors such as accepting bribes, frauds, data or information tampering all lead to organization crisis.
• Crisis arises when organization fails to pay its creditors and declares itself a bankrupt organization.

Crisis Management

The art of dealing with sudden and unexpected events which disturbs the employees, organization as well as external clients refers to Crisis Management.

The process of handling unexpected and sudden changes in organization culture is called as crisis management.

Need for Crisis Management

• Crisis Management prepares the individuals to face unexpected developments and adverse conditions in the organization with courage and determination.
• Employees adjust well to the sudden changes in the organization.
• Employees can understand and analyze the causes of crisis and cope with it in the best possible way.
• Crisis Management helps the managers to devise strategies to come out of uncertain conditions and also decide on the future course of action.
• Crisis Management helps the managers to feel the early signs of crisis, warn the employees against the aftermaths and take necessary precautions for the same.

Essential Features of Crisis Management

• Crisis Management includes activities and processes which help the managers as well as employees to analyze and understand events which might lead to crisis and uncertainty in the organization.
• Crisis Management enables the managers and employees to respond effectively to changes in the organization culture.
• It consists of effective coordination amongst the departments to overcome emergency situations.
• Employees at the time of crisis must communicate effectively with each other and try their level best to overcome tough times. Points to keep in mind during crisis
• Don’t panic or spread rumours around. Be patient.
• At the time of crisis the management should be in regular touch with the employees, external clients, stake holders as well as media.
• Avoid being too rigid. One should adapt well to changes and new situations.

6. Group decision making 

Group decision making is a type of participatory process in which multiple individuals acting collectively, analyze problems or situations, consider and evaluate alternative courses of action, and select from among the alternatives a solution or solutions. The number of people involved in group decision-making varies greatly, but often ranges from two to seven. The individuals in a group may be demographically similar or quite diverse. Decision-making groups may be relatively informal in nature, or formally designated and charged with a specific goal. The process used to arrive at decisions may be unstructured or structured. The nature and composition of groups, their size, demographic makeup, structure, and purpose, all affect their functioning to some degree. The external contingencies faced by groups (time pressure and conflicting goals) impact the development and effectiveness of decision-making groups as well.

In organizations many decisions of consequence are made after some form of group decision-making process is undertaken. However, groups are not the only form of collective work arrangement. Group decision-making should be distinguished from the concepts of teams, teamwork, and self managed teams. Although the words teams and groups are often used interchangeably, scholars increasingly differentiate between the two. The basis for the distinction seems to be that teams act more collectively and achieve greater synergy of effort. Katzenback and Smith spell out specific differences between decision making groups and teams:

• The group has a definite leader, but the team has shared leadership roles
• Members of a group have individual accountability; the team has both individual and collective accountability.
• The group measures effectiveness indirectly, but the team measures performance directly through their collective work product.
• The group discusses, decides, and delegates, but the team discusses, decides, and does real work.

GROUP DECISION MAKING METHODS

There are many methods or procedures that can be used by groups. Each is designed to improve the decision-making process in some way. Some of the more common group decision-making methods are brainstorming, dialetical inquiry, nominal group technique, and the delphi technique.

BRAINSTORMING.

Brainstorming involves group members verbally suggesting ideas or alternative courses of action. The "brainstorming session" is usually relatively unstructured. The situation at hand is described in as much detail as necessary so that group members have a complete understanding of the issue or problem. The group leader or facilitator then solicits ideas from all members of the group. Usually, the group leader or facilitator will record the ideas presented on a flip chart or marker board. The "generation of alternatives" stage is clearly differentiated from the "alternative evaluation" stage, as group members are not allowed to evaluate suggestions until all ideas have been presented. Once the ideas of the group members have been exhausted, the group members then begin the process of evaluating the utility of the different suggestions presented. Brainstorming is a useful means by which to generate alternatives, but does not offer much in the way of process for the evaluation of alternatives or the selection of a proposed course of action.

One of the difficulties with brainstorming is that despite the prohibition against judging ideas until all group members have had their say, some individuals are hesitant to propose ideas because they fear the judgment or ridicule of other group members. In recent years, some decision-making groups have utilized electronic brainstorming, which allows group members to propose alternatives by means of e-mail or another electronic means, such as an online posting board or discussion room. Members could conceivably offer their ideas anonymously, which should increase the likelihood that individuals will offer unique and creative ideas without fear of the harsh judgment of others.

DIALETICAL INQUIRY.

Dialetical inquiry is a group decision-making technique that focuses on ensuring full consideration of alternatives. Essentially, it involves dividing the group into opposing sides, which debate the advantages and disadvantages of proposed solutions or decisions. A similar group decision-making method, devil's advocacy, requires that one member of the group highlight the potential problems with a proposed decision. Both of these techniques are designed to try and make sure that the group considers all possible ramifications of its decision.

NOMINAL GROUP TECHNIQUE.

The nominal group technique is a structured decision making process in which group members are required to compose a comprehensive list of their ideas or proposed alternatives in writing. The group members usually record their ideas privately. Once finished, each group member is asked, in turn, to provide one item from their list until all ideas or alternatives have been publicly recorded on a flip chart or marker board. Usually, at this stage of the process verbal exchanges are limited to requests for clarification—no evaluation or criticism of listed ideas is permitted. Once all proposals are listed publicly, the group engages in a discussion of the listed alternatives, which ends in some form of ranking or rating in order of preference. As with brainstorming, the prohibition against criticizing proposals as they are presented is designed to overcome individuals' reluctance to share their ideas. Empirical research conducted on group decision making offers some evidence that the nominal group technique succeeds in generating a greater number of decision alternatives that are of relatively high quality.

DELPHI TECHNIQUE.

The Delphi technique is a group decision-making process that can be used by decision-making groups when the individual members are in different physical locations. The technique was developed at the Rand Corporation. The individuals in the Delphi "group" are usually selected because of the specific knowledge or expertise of the problem they possess. In the Delphi technique, each group member is asked to independently provide ideas, input, and/or alternative solutions to the decision problem in successive stages. These inputs may be provided in a variety of ways, such as e-mail, fax, or online in a discussion room or electronic bulletin board. After each stage in the process, other group members ask questions and alternatives are ranked or rated in some fashion. After an indefinite number of rounds, the group eventually arrives at a consensus decision on the best course of action.

ADVANTAGES AND DISADVANTAGES 
OF GROUP DECISION MAKING

The effectiveness of decision-making groups can be affected by a variety of factors. Thus, it is not possible to suggest that "group decision making is always better" or "group decision making is always worse" than individual decision-making. For example, due to the increased demographic diversity in the workforce, a considerable amount of research has focused on diversity's effect on the effectiveness of group functioning. In general, this research suggests that demographic diversity can sometimes have positive or negative effects, depending on the specific situation. Demographically diverse group may have to over-come social barriers and difficulties in the early stages of group formation and this may slow down the group. However, some research indicates that diverse groups, if effectively managed, tend to generate a wider variety and higher quality of decision alternatives than demographically homogeneous groups.

Despite the fact that there are many situational factors that affect the functioning of groups, research through the years does offer some general guidance about the relative strengths and weaknesses inherent in group decision making. The following section summarizes the major pros and cons of decision making in groups.

Pros and Cons of Group Decisions

Like any other process, the process of taking group decisions has its own sets of advantages and disadvantages. 

Advantages

·         Group decisions help to combine individual strengths of the group members and hence has a set of varied skill sets applied in the decision-making process.

·        
It always means enhanced collective understanding of the course of action to be taken after the decision is taken.

·        
A group decision gains greater group commitment since everyone has his/her share in the decision-making process.
It imbibes a strong sense of team spirit amongst the group members and helps the group to think together in terms of success as well as failure.

Disadvantages

·        
Individual opinions can be biased or affected with preconceived notions that can hinder the process.

·        
One of the major disadvantages is that it is more time-consuming than the process of individual decision-making.

·        
It takes longer to be finalized since there are many opinions to be considered and valued.

·        
In case of authoritarian or minority group decision-making, the people whose opinions are not considered tend to be left out from the decision-making process and hence the team spirit ceases to grow.

·        
The responsibility and accountability of the decisions are not equally shared in some cases which leads to a split in the group and hence hampers the overall efficiency of the group.

·        
While involved in the group decision-making process it is always better to study the pros and cons of each style and hence formulate a group-decision-making process that suits your group.

7. Quantitative Techniques for Decision Making

Decision making is crucial for survival of business. Businesses have to make decision considering the limited amount of information. Decision making problems are divided into two types deterministic and probabilistic. Deterministic model of problem solving depends on the relationship between uncontrollable factors and continuing process of optimizing system performance. A model is developed in under assumption related to existing business condition. If the variables under assumption do not truly reflect the current business conditions, the model developed also will not reflect the reality. Mathematical optimization utilizes mathematical equation to determine the business decision. The business decision derive is in a numerical form. A business model for decision making is constructed by analyst based on inputs of a decision maker. A business model is developed over a period of time using a progressive approach method.

Optimization Modeling Process

Optimization model is developed in three steps, 1st step is describing the problem, 2nd step is elaborating the solution and 3rd step is controlling the problem.

The optimized problem of the 1st step can be classified into linear and non-linear depending upon on nature of variables. Optimization problem has three following aspects:

• An objective function to maximize or minimize.
• A set of variables which affect the value of the objective function.
• A set of uncontrollable factors referred as parameters.

The solution of optimized problem satisfying all parameters and constraints is referred as feasible solution. The objective of an optimization process is to value of variables, which minimize or maximize objective giving out an optimal solution.

Linear Programming

Linear programming is a mathematical procedure of determining linear allocation of business variables. For constructing linear program following factors are essential:

• The objective function needs to be linear.
• The objective must be to either maximize or minimize a linear function.
• The constraints in the program should also be linear.

In formulating a linear program certain variables are integer in nature, such as function with integer variable is known as integer programming.

Decision Tree

In a certain decision-making process, probability plays an important role. On the decision model based upon probability is decision trees.

Scenario modeling

Business environment is always unpredictable and can throw up unusual situation more than often. Thus, organizations find themselves in the middle of dynamic environment. Here model and methods like sensitivity analysis, stability analysis, what-if analysis, scenario modeling, etc. is utilized.

Therefore, model under used uncertainties are as follows:

• Scenario Analysis: this model assumes a different scenario a business may find itself with certain value of parameters.
• Worst Case Analysis: this model assumes an extreme case scenario in computing different variables.
• Monte-Carlo Model: this model assumes uncertainty through statistical distribution.

Theory of Constraints

Theory of constraints is a management concept which helps organization deal with situation, which hampers its growth and march towards higher level of performance. Theory of constraint encourages an organization to deal one constraint at a time and consist of following steps:

• Identifying constraints of the existing system.
• Identifying was to potential extract more out of system constraints.
• Exploiting constraints to its fullest potential should be made priority.
• As the company overcomes 1st constraint, it should look forward to working upon other constraints.