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Decision-making is an important part of management process. It covers every part of an enterprise. In fact, whatever a manager does, he does through decision-making only. For example, a manager has to decide (i) what are the long-term objectives of organization; how to achieve these objective; what strategies, policies, producers to be adopted (planning); (ii) how the jobs should be structured, what type of structure, how to much jobs with individuals (organizing); (iii) how to motivate people to peak performance, which leadership style should be used, how to integrate effort and resolve conflicts (leading); (iv) what activities should be controlled, how to control them, (controlling). Thus, decision-making is a central, important part of the process of managing. Managers are essentially decision makers only. Almost everything, managers do involves decision-making. Managers scout for problems, make decisions for solving them and monitor the consequences to see whether additional decisions are required. Good decision making is a vital element of good management because decisions determine how the organization solves its problems, allocates its resources and accomplishes its goals. However, decision-making is not easy. It must be done amid ever changing factors, unclear information and conflicting points of view. A decision is a choice made from available alternatives. Decision-making is the process by which individuals select a course of action among several alternatives, to produce a desired result.
for example, may hire people based on merit regularly and also pick up candidates recommended by an influential party, at times. Depending on the situational requirements, managers take suitable decisions using discretion and judgement.
The quality of decision-making skills is one of the critical factors in managerial success. Managers are evaluated by the decision they make and, more often, by the results obtained from their decisions. So, it would be useful to distinguish between decisions made by managers, at different levels in the organization.
problem; and such situation has to be treated de novo each time they occur. Nonprogrammed decisions are quite common in such organisations as research and development firms where situation are poorly structured and decisions being made are non-routine and complex. Table 3.1 summarises the characteristic of programmed and non-programmed decisions. Table 3.1Characteristic of Programmed and Non-Programmed Decisions Programmed decisions Problems are routine and repetitive. Solutions are offered in accordance with some habit, rule, or procedure. Non-Programmed decisions Problems are unique and novel. There are no pre-established
policies or procedures to rely on. Each situation is different and needs a creative solution.
The conditions for programmed decisions are highly certain. Made by lower-level people.
The
conditions
for
non-
Making a good decision is a difficult exercise. It is the product of deliberation, evaluation and thought. To make good decisions, managers should invariably follow a sequential set of steps as shown in figure 4.1.
Figure 4.1
Basic Steps of Decision-Making (The arrows in the model indicate constant revaluation and feedback of every step in the decision making process. Thus, managers are provided with useful information through which future decisions can be made.)
or poor sales planning. In order to state the true problems, the following questions should be looked into carefully: What is the problem? What is the difference between, what is and what should be? For example, a firm may have a 5 percent current market share and feels that after making reasonable assumptions about future, its market share should be higher. The difference between the current state and the desired of affairs indicates the problems for the firm. Which problems to solve? Dynamic organizations have to grapple with numerous problems continually and it may not be possible, given the limited time and resources, to solve all the problems. Therefore, it is essential to distinguish between problems which merit immediate attention and which can be postponed to a future date. One way of solving this puzzle is to identify the problems potential for becoming more serious in future. It should also be seen whether the problem would create problems elsewhere in the organization, if left unattended. Another factor in deciding about problems priority, is the time constraint. Rush orders should be executed quickly and should take precedence over orders which can be executed after a month. What is the real cause of problem? To avoid the danger of prescribing a wrong medicine for the organizations, the manager should consider the decision environment properly. For example, high employee turnover in an organization may be due to low salaries, poor working conditions, tight supervision, poor scheduling, dissatisfaction with the jobs etc. the manager should analyse all these causes thoroughly before defining the real problem. An attitude survey may be undertaken to find out why employees are leaving the organization. If most of the employees complain about task monotony and low compensation, the manager should try to define the problem in terms of restructuring
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the jobs, so as to make them more attractive, challenging and rewarding. The pressure of events should not force executives to jump to premature conclusions; instead, they should obtain all the facts and analyse the causes for the problem. They should appreciate the message, behind the saying: A problem well-defined is half solved. According to Drucker, critical factor analysis helps in identifying the causes properly. The critical factor spells the difference between actual and desired results. If a machine goes out of order due to non availability of an essential component; the component is the strategic or critical factor. According to Barnard, the nature of the strategic factor will shift when the problem is defined correctly. After defining the problem, that is non-availability of the component, a new situation will arise, where the new limiting factor would be, obtaining the component and so on. The important point is to list all the possible causes and testing each cause, trying to decide whether one is more likely than another, to have created the deviation between the current and desired state o affairs. To define the problem correctly, the decision maker should collect as many facts as he can and try to separate these facts from beliefs, opinions and preconceived notions. It is true that certain intangible factors always compel the managers decisions to be based on incomplete information. Some guess work is inevitable. It is worth remembering that the best diagnostician is not the man who makes the largest number of correct diagnoses, but the man who can spot early, and rectify away, his own mistaken diagnosis immediately. Where facts cannot be collected, opinions should be obtained. The manager may be required to use judgement and experience before defining the problem in specific measurable terms.
problems either by looking through organizational records or by seeking expert advice from outside consultancy agencies. Such a step, would prevent them from developing creative and imaginative alternatives and achieving the best possible solutions to their problems. Many a manager in business, competent at choosing among alternatives, have been left behind by a competitor who had the creative imagination to consider more, different and better alternatives. Developing alternative solutions (to the problem) guarantees adequate focus and attention on the problem. It helps managers to fully test the soundness of every proposal before it is finally translated into action. Managers should encourage people to develop different solutions for the same problem. He should organise dissent in an effective way, he should allow people to disagree and come out with original, untested ideas. In the absence of disagreements, the decision maker would become the prisoner of the organization. Everyone in the organization would argue forcefully, to obtain the decision they favour. To break the cake of custom, the manager should make sure of argued, documented, thought-through disagreements. Further, a decision without an alternative is a desperate gamblers throw. It is worth remembering, the definition that if there is no choice of alternatives, there really is no decision to be made. Disagreement alone can offer alternatives to a decision. Again, disagreement is needed to stimulate creativity people in the organization. People would gradually be encouraged to learn new and different way of perceiving and understanding organizational problems. The ability to develop alternatives is as important, as making a right decision among alternatives. Ingenuity, research, and creative imagination are required to make sure that the best alternatives are considered before a course of action is selected. For example, to improve the morale of employee, which is negatively affecting the productivity in the organization, the following alternatives may be considered: (i)
adequate compensation package; (ii) incentive schemes for improved performance; (iii) restructuring the jobs, so as to make them more meaningful, interesting and challenging; (iv) offering better training facilities; and (v) sympathetic, considerate and
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understanding supervisors and so on. The number of alternatives to be generated depends on various factors: time available itself. Within these constraints, manager should develop all possible alternative solutions because if the correct alternative is not considered is not considered and put into action, the problem cannot be solved. The development of alternatives is creative, innovation activity. It calls for divergent thinking; it calls for system thinking. In other words, managers should try to seek solutions outside the present realm of their knowledge; they are forced to look into all the relevant factors before coming out with a novel solution. Past experience and hunches do not always help managers in preparing for future events. They must try to look beyond the organizational barriers, visualize new market and product opportunities, new ways of doing things and novel approaches to meeting the competitive environment. A scientific approach to decision-making is called for. They should be prepared to say, Maybe there is a better way, lets try it. Such a flexible mental framework would help in developing better alternatives as time rolls by.
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The opportunity cost method is suggested, quite frequently, in order to evaluate each alternative. When one alternative is selected in place of another, the cost of the selected one is measured in terms of the benefits available from the rejected one. While evaluating the available alternatives, the decision maker should try to visualize both, the desirable and undesirable characteristics. All pertinent facts must be collected, they
must be classified, the pros and cons must be considered and the important points must be distinguished from trivial or peripheral matters. The primary objective of evaluation is not to find out one magic solution. The attempt is made chiefly to limit the alternatives to a manageable and economically feasible number. As rightly commented by Drucker, the right decision grows out of the clash and conflict of divergent opinions and out of the serious consideration of competing alternatives. Comparisons are usually made on the basis of values assigned to each alternative. The strengths and weaknesses of each alternative become apparent, as they are compared with the criteria and weights, established for the purpose. For example, while making the decision for purchasing a two wheeler, an individual might decide to identify five important factors and decide to assign the following weights for them: External appearance (10), Price(6), Fuel savings (5), After-sale service(4). (Table 4.1). The below rating is based on the assessment made by the decision maker, himself. The rating would be drastically different, if the choice is given to a college student. For example, he may prefer Hero-Honda by assigning maximum points for external appearance. The point is, that subjective judgement invariably creeps into the decision- making process. The final decision in most of the cases is product of deliberation, evaluation and thought.
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100 cc 8 6 10 6 190
150 cc 7 8 9 10 203
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Peter Drucker has offered the following four criteria for making the right choice among available alternatives: i. The risk: The manager has to weigh the risks, of each course of action against the expected gains. He must decide, as to how much risk he can assume and find out the solution that meets this viewpoint. ii. Economy of effort: The alternative that will give the greatest output for the least inputs in terms of material and human resources, is obviously the best one, instead of picking up elephant gun to chase sparrows, managers may well select the one, that ensure efficient and effective utilization of available resources. iii. Timing: If the situation has great urgency, the best alternative is the one that dramatizes the decision and serve notice on the organization, that something important is happening. On the other hand, if consistent effort is needed, a show start that gathers momentum may be preferable.
iv.
Limitation of resources: Physical, financial and human resources impose a limitation on the choice of selection, of these, the most important resources, whose limitations have to be considered, are the people who will carry out the decision. No decision can be better understood than the people who have to carry it out. Their vision, skill, understanding and competence determine what they can and cannot do. If adequate human resources are not currently available, the decision should be deferred. Every effort must be made, therefore, to raise the ability and standard of the people working in the organization.
making abilities. It would be better to establish follow-up procedure to evaluate the decision. Managers can set up a budget, allocate time and money, assign responsibility for individual to work out the specific tasks involved. They can fix up a time for obtaining the periodic progress report, regarding how the decision is actually implemented. If the decision is not yielding the desired results and the decision turns out to be a poor one, they should not hesitate to reverse the trend. They should not hesitate to ride out a decision that does not accomplish its objective. During this stage, the manager should also see whether the subordinates are unwilling or unable to implement the decision. The manager should, thus, encourage them to participate in the decisionmaking at an early stage and, also provide attractive incentives for satisfactory performance.
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Under the classical theory proposed by Taylor, Fayol, Weber etc (structure is needed to carry out work; work is divided and distributed; your job is to do the assigned work and deliver results); individuals are assumed to be rational beings, working toward organizational goals scrupulously. Decision making process is supposed to be logical, unemotional and rational. The decision making process discussed in the previous section, implies that the decision maker can be fully objective and logical. For example, during the Second World War, Germany had some of the finest military brains and Generals like Rommel (the Desert Fox) had developed some excellent battle strategies and plans. In spite of these effective battle strategies, Germany lost because Hitler often ignored the advice of his military experts and made poor decisions based on his own judgment of the situation. Decision making, therefore, is not an unemotional and rational process. Behaviorists like March and Simon argued in favour of a strictly unemotional analysis of cold facts. Judgment is inevitable and deliberation, evaluation and through-all creep into the decision making process. In this section, these two approaches normative decision theory (classical) and descriptive decision theory (behavioral) are discussed at length.
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advantage by searching and evaluating all possible alternatives. The decision making process, described in the earlier section, is based on certain assumption: Decision making is a goal-oriented process: According to the rational economic model, the decision maker has a clear, welldefined goal that he is trying to maximize. Before formulating the goal, the decision maker can identify the symptoms of a problem of a problem and clearly specify one best way to solve the same. All choices are known: It is assumed, that in a given decision situation, all choices available to the decision- maker are known or given and the consequences or outcomes of all actions are also known. The decision maker can list (i) all the relevant criteria, (ii) all feasible alternatives, and (iii) the consequences for each alternative. Order of preference: It is assumed that the decision maker can rank all consequences, according to preference, and select the alternative which has the preferred consequences. In other words, the decision maker knows how to relate consequences to goals. He knows which consequence is best (optimality-criterion). Maximum advantage: The decision maker has the freedom to choose the alternative that best optimizes the decision. In order words, he would select that alternative which would maximize his satisfaction. The decision maker complete knowledge, and is a logical, systematic maximiser, in economical-technical terms. The above model is prescriptive and normative; it explains how decision maker ought to behave. Rationally is an idea and can be rarely achieved in an organization. Many factors intervene in being perfectly rational, namely:
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1. Impossible to state the problems accurately: It is often impossible to reduce organizational problem to accurate level. An accurate, precise and comprehensive definition of the problems, as assumed under the model, may not be possible, moreover, relevant goals may not be fully understood or may be in conflicts with each other. Striking a balance between goals such as growth, profitability, social responsibility, ethics, survival, etc., may be difficult and as such, the assumption that the decision maker has a single, well defined goal in an organizational setting appears to be unfortunate. 2. Not fully aware of problem: Frequently, the manager does not know that he has a problem. If the organization is successful and is flourishing, managers may not be in a position to assign their valuable time to searching future problems. As rightly commented by Webers if currently performance is satisfactory, few of us use present to search for future problems. 3. Imperfect knowledge: It is, too simplistic to assume that the decision maker has perfect knowledge regarding all alternative, the probabilities of their occurrence, and their consequence. Indeed managers rarely, if any, have access to perfect information. 4. Limited time and resources: Most managers work under tremendous pressure to meet the challenges posed by internal as well as external factors. They have to operate under do or die situation and investing more time than necessary would mean lost opportunities, and consequently last business. This pressure to act pushes the decision managers to choose quickly. Moreover, obtaining full information would be too costly. If resources are limited, the decisions should be taken in such a manner so as to achieve efficiency and effectiveness. Less effective solution may be accepted, if
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substantial savings are made in the use of resources. Working under severe time and cost constraints, managers may settle down for less optimal decisions rather than wasting time effort in finding an ideal solution. 5. Cognitive limits: Most of the decision makes may not be gifted with supernatural powers to turn out a high-quality decision, every time they sit through a problem. They may not be able to process large amounts of environmental information, loaded with technicalities and competitive data, thoroughly. Also, difficulties arise relating them successfully to confusing organizational objectives. When managers are invaded with indicate details regarding of various field, they try to simplify the decision making process by reducing the number of alternatives to a manageable number. When the thinking capacity is overloaded, rational decisions give way to bounded decisions. Instead of considering 8 to 10 alternatives, managers may deal with only three or four, to avoid overloading and confusion. They simplify the complex fabric or the environment, into workable conceptions of their decision problem. 6. Politics: The normative model, unfortunately, ignore the influence of powerful individuals and groups on the decision making process. Many studies have revealed decision making to be political in nature, accommodating the dissimilar and sometimes, conflicting interests of different groups (labour unions, consumer councils, government agencies, local community). In order to satisfy these groups, the decision maker may have to assign weightage to less optimal solutions, at the expense of organizational efficiency. Thus, the rational economic model is based on a defective logic and reasoning. It is an idealistic, perhaps even nave, model of decision making which works only when all the underlying assumption prevail. The complexities of the real world force to reject
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the traditional concepts. We are compelled to consider a more realistic theory, which receive inputs from both the quantifiable and non-quantifiable variables; a theory which focus on human involvement in the various step of the (decision making) process and allows for the impact of numerous environment factors.
them (subjective) previously, to satisfy their goals. This search stops, when they reach a point that meets their subjective standards. They select a course of action whose consequences are good enough. Subjective rationality would be preferable to objective rationality where people have to take decisions under time and cost limitations. 5.3.2 SATISFICING DECISIONS Thus, instead of searching for and choosing the best alternative, many managers accept decisions that are only good enough, rather than ideal. Such decisions are referred to as satisficing decisions the Scottish word meaning satisfying. Examples of satisficing criteria include fair price, reasonable profits, adequate market share etc. According to March and Simon, it is often, too inefficient or too costly to make optimal decisions in organizations. For example, while selecting a new employee, the organization can just hire the first applicant who meets all the minimum requirements instead of wasting time and effort looking for an ideal personality. According to Hitt, Middlemist and Mathis, satisficing can occur for various reasons: (i) time pressure, (ii) a desire to see through a problem quickly and switch on to other matters, (iii) a dislike for detailed analysis that demands more refined techniques, (iv) to avoid failures and mistakes that could affect their future in a negative way. In many situations putting off a decisions until full information is obtained, may prove to be a costly mistake. It may result in lost opportunities and lost markets. Simons administrative model, thus, provides a highly useful approximation to how decision maker actually fashion, it provides reasonable approach. By examining decision making while process in a fragmented fashion, it provides reasonable freedom and flexible for managers while deciding on important matters. It also highlights the importance of looking into the behavioral aspects in the decision making process. This knowledge certainly helps in understanding of how and why managerial decisions have been made.
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Table 5.1 Differences between the Rational economic model and the Administrative model The Rational-Economic Model Perfect rationality Perfect knowledge of problems, consequences/outcomes. Normative. Exhaustive search for a number of alternatives. Optical decisions. Concentration technical economic terms, and quantifiable variables. The Administrative Model Bounded rationality. Imperfect knowledge of problem, consequences/outcomes. Descriptive. Search for seemingly feasible
alternative rather than an exhaustive list. Satisficing Concentration aspects; the good enough for
decision
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and bargaining. According to Stevenson et-al, coalition building gives several managers an opportunity to contribute to decision making, enhancing their commitment to the alternative that is finally adopted.
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Groups play an important role in decision making in organizations. Most of the organizational decisions are made in a group context only, because they offer the advantage of experience, wide knowledge and mutual support. Groups such as committees, study teams, task forces, review panels are especially useful for nonprogrammed decisions because these decisions are complex and few individuals have all the knowledge and skills, necessary to make the best decision. Groups use a number of methods to make decisions: (i) Lack of response, a proposed solution by one or a few member may not be received by the group as a whole; (ii) (iii) Authority rule, the group leader announces the decision; Minority rule, a few influential members possessing expertise and/ or loud voices influence the outcome; (iv) (v) Majority rule, decisions decided by voting process; Consensus, the most acceptable (not necessarily the best) solution for all member; (vi) Unanimity to resolve complex problem, members rally behind a point of view. Groups use one or more of the above methods while taking decisions in organizations. One interesting question in this connection would be: are there any differences between group decisions and individual decisions? Individuals working alone would solve a problem in one way and the member of small groups would solve the same problem in a different way.
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Group decision-making is different in process and outcome from decision making done by individuals in the following ways: 1. Conformity: The forces that promote conformity within the group are the attitudes, beliefs, emotions which majority of the group members have in common. As members interact daily, these beliefs would come into play; for example, they may exchange views regarding individual freedom and dignity, regarding the union-management relations, regarding the importance of cooperation among themselves etc. these feeling and beliefs, over a period of time, get strengthened slowly and make way for group norms. Norms are the ideas about how group members are supposed to behave, in and outside of the group. They are the standards of performance of individual employees if conducted and legislated by the group in course of time. Norms not only specify appropriate behaviour but also indicate the limits if behavior. Each member of the group, in course of time, comes to know the norms of the group, which not only specify appropriate behavior but also indicate the limits of behavior. Thereafter, any violation or disregard of the group norms will be punished; observance and conformity will be rewarded. To avoid unpleasant consequences, such as ostracism, physical violence, members generally tend to confirm. Thus, group member (as decision maker) are under pressure to conform to groups standards of conduct and, quite often, this may force them to soft-pedal the decision making activity where the problem may not be thoroughly examined, many of the alternatives may not be developed, and, more often than not, member may agree on the first alternative suggested by an influential member. 2. Group think: Generally speaking, people join a group because they expect it to satisfy their needs. Cohesion develops, if these hopes are realized. One unfortunate tendency in respect of cohesive groups is to disallow critical thinking on the part of members and forcing them towards complete unanimity. Groupthink is an extreme form of consensus, in which the group thinks as a unit rather than as a collection of individuals. Members exhibit a tremendous desire for unanimity. Seeking consensus
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became an end in itself. Free exchange of idea is inhibited. In order to promote consensus, member adopt low-risk, conservative, and mediocre decisions. They try to avoid being too harsh in their judgement of one anothers ideas. As a result of little or no real criticism, the illusion of unanimity is created. This process leads to watereddown decisions. 3. Superiority: The use of groups allow a variety of inputs from those, who possess different skills. Members, drawn from different disciplines, can bring a greater amount of information and expertise to bear on a problem, to generate more creative alternative solutions and make it more likely that the solution would be understood, accepted and implemented. 4. Risky shift: The average risk-taking score tends to be higher in groups. There is considerable evidence to show that in some situations, groups make riskier decisions than individuals. Why do groups make riskier decisions than individuals? Four explanations can be offered: (a) Taking moderate risks is something that is highly rated in our society. Moderate risk has a strong cultural value than caution. (b) Risk-taking offers an opportunity for a group member to become the leader. Dominant and influential members generally occupy the leadership berths in a group. (c) Groups are able to share information in an open environment. Members become more familiar with the problem, being discussed. Initially, they encourage caution, go-slow tactics and once the problem is familiarized, they are willing to take adventurous, risky decisions, (d) if a proper adopted by a group fails, buckpassing is easy and no one individual can be held wholly responsible. Group decisions dilute and thin out responsibility. So whenever managers are forced to solve knotty problems these are turned over to groups. The following table (6.1) summarizes the advantages and disadvantage of group decision-making.
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Table 6.1 Advantages and Disadvantage of Group Decision-Making. Advantage A group has more information an individual. Members, drawn from diverse fields, can provide more information and knowledge about the problem. A group can generate a greater number of alternatives. It can bring to bear a wider experience, a greater variety of opinions and a more through probing of facts than a single individual. Participation in group decisions increases acceptance and Presence of some group member, who are powerful and influential may intimidate and prevent other members from participating freely. Domination is counterproductive; it puts a damper on the groups best problem solvers. People understand the decision better because they and heard it develop; then paving the way for smooth decision. Interaction between individuals The group consists of several individuals and hence, it is easy to implementation of the It may be very costly to secure participation from several Groups create pressures towards conformity; other infirmities, like group think, force members to compromise on the least common denominator. Disadvantage Groups are notorious time-wastes. They may waste a lot of time energy, organized. downing and getting
commitment on the part of the people, who now see the solution as their own and acquire a
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greater creativity. Groups may also be able to capitalize on individual talents, allowing individual to work on problems at which they are most adept-specialization of labor.
pass
the
buck
and
avoid
responsibility. Finally, disagreement over arriving at a decision may lead to conflict, resentment and ill feeling between group members.
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5.2.2. SYNETICS: The term Synetics (a Greek word) means the fitting together of diverse elements. William J.J. Gordon developed this technique to stimulate creative solutions by piecing together distinct, novel and sometimes irrelevant ideas. A Synetics group consists of members having varied background and training. The leader, who plays a vital role in, forcing members to break the traditional ways, states the problem and asks members to review the same, thoroughly. The group begins to offer possible solutions, after analyzing and appraising the problem fully. The leader, at this stage, asks the members to break the cake of custom and come out with novel ideas. Methods like role-playing, analogies, Paradoxes are used to develop creative ideas. Members are even asked to remain in a room until they find at least one novel idea. An expert would assist the members in considering the feasibility of ideas at the same time. Thus, in contrast to brain-storming where evaluation of ideas is postponed till the members run out of new ideas, Synetics help in the proper evaluation of members of the group. Like brainstorming, Synetics technique is costly and time consuming. However, it may be used to solve complex and technical problems. 5.2.3. NOMINAL GROUP TECHNIQUE: The nominal group is a paper group, it is a group name, only. Developed by two researchers at the University of Wisconsin, Andre Delbecq and Andrew Van de Ven, the technique includes the following steps: (a) The leader explains the problem to the member of the target group, (b) Each member writes down his ideas silently and independently. (c) Each member then presents a single (usually his best) idea at a time to the group, which is written on black board for all to see. (d) A discussion is held to explain and evaluate the ideas, (e) silent individual voting on priority. The basic idea in NGT is to respect interpersonal communication and to increase the deliberation and contribution of individual members. The NGT follows a highly structured process and tries to integrate creative thinking, through group interaction in order to solve organisational problems in a useful manner.
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5.2.4. THE DELPHI TECHNIQUE: The Delphi technique, developed by name Norman Dalkey and Olaf Helmer in the 50s at Rand Corporation, to forecast the damage that a Russian nuclear attack on the United States would cause, does not require the physical presence of the members. It is a technique used to obtain information from physically dispersed experts, through the use of written questionnaires. The following two-steps process is generally used in the Delphi technique. In the first stage, the problem is identified by the leader, the experts are identified and contacted, a questionnaire is carefully structures and mailed out to experts, the leader collects the responses sent by experts and prepares a feed-back report. In the second stage, the feedback report and in a more advanced second-stage, questionnaires are sent to the members once again for reaction and reassessment. Each members evaluates the feed-back report, develops new suggestions, votes on the priority of the ideas contained in it. This process is continued until a clear solution emerges. One important limitation of Delphi technique is the amount of time needed to assemble the experts under one roof, collect their opinions through questionnaires on a continuous scale. However, it has the advantage of being able to involve people with special qualification who are separated geographically in decision making. The absence of faceto-face interactions insulates members from the under influence of others. As rightly pointed out by Bedian nad Glueck, the Delhi technique reduce committee activity, eliminate the bandwagon effort of majority opinion, minimizes influences of face-toface pressures, and provides each panel member with the time to deliberate and carefully think out responses.
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7.1. CERTAINTY:
When the decision-maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative, a state of certainty exists. For example, if a company considers an Rs 1, 00, 000 investments in new equipment, that it knows for certain, will yield Rs 40,000 in cost savings per year over the next five years, managers can calculate before tax rate of return of about 40 per cent. If managers compare this investment with the one that will yield only Rs 30,000 per year in cost savings, they can safely select the 40 per cent return. However, few decisions are certain in the real world. Most contain risk or uncertainty.
7.2. RISK:
Risk means that a decision has clear-cut goals and that good information (incomplete but reliable, factual information) is available, but the future outcomes associated with each alternative are subject to chance. In this case, some information is available but it is insufficient to answer all questions about the outcome. Lotus had a bet on IBMs OS/2 as the likely successor to the DOS software operating system that controlled basic PC functions and was caught off guard by the success of windows spread sheet market. Likewise, Mc Donalds took a calculated risk and lost with the introduction of its Arch Deluxe sandwich line. Mc Donalds had information that indicated a line of sandwiches targeted towards adults would be successful, but the Arch Deluxe, introduced at a cost of $100 million, flopped in the market place. Reliable information, though incomplete, is still useful to managers in coping with risk, since they can employ it to calculate the probability that a given event will take place and then pick up a decision alternative with favourable odds. The two basics types of probabilities are objective and subjective.
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Objective probabilities are estimated from past experience or judgment. Decisionmaking based on probabilities is common in all areas of management today. For instance, laundry product manufacturers would not think of launching a new detergent without determining its probability of acceptance, by means of consumer panels and test marketing. A number of inferential statistical techniques can help managers objectively, cope with risk.
7.3. UNCERTAINTY:
Under conditions of uncertainty; the decision maker does not know all the alternatives, the risks associated with the each, or the likely consequences of each alternative. This uncertainty basically comes from the complex and dynamic nature of modern organisations and their environments. The decisions are generally made on the basis of calculated guesses than on hard factual data. Intuition, judgment and experience always play a major role in such situations. For example, a company that decides to expand its operations in a strange country (remember Enron?) may know little about the countrys culture, laws, economic environment and politics. The political situation may be so volatile and fluid that even the experts may find it extremely difficult to predict a possible change in Government.
7.4. AMBIGUITY:
Ambiguity means that the goals to be achieved or problem to be solved is unclear, alternatives are difficult to define, and information about outcomes is not available. It is like a teacher asking his students to complete an assignment, without giving any topic, direction or guidelines. Ambiguity naturally, is a most difficult decision situation confronting managers, operating in rapidly changing environment. Despite the odds, managers are expected to conjure up goals, develop possible scenarios for decision alternatives and somehow come up with acceptable solutions. Fortunately, most decisions do not fall under this category.
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8.1. ADVANTAGES
Decision making have following advantages:1. Decision making is the primary function of management: The functions of management starts only when the top-level management takes strategic decisions. Without decisions, actions will not be possible and the resources will not be put to use. Thus decision-making is the primary function of management. 2. Decision-making facilitates the entire management process: Decision-making creates proper background for the first management activity called planning. Planning gives concrete shape to broad decisions about business objectives taken by the top-level management. In addition, decision-making is necessary while conducting other management functions such as organising, staffing, coordinating and communicating. 3. Decision-making is a continuous managerial function: Managers working at all levels will have to take decisions as regards the functions assigned to them. Continuous decision making is a must in the case of all managers/executives. Follow-up actions are not possible unless decisions are taken. 4. Decision-making is essential to face new problems and challenges: Decisions are required to be taken regularly as new problems, difficulties and challenges develop before a business enterprise. This may be due to changes in the external environment. New products may come in the market, new competitors may enter the market and government policies may change. All this leads to change in the environment around the business unit. Such change leads to new problems and new decisions are needed.
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5. Decision-making is a delicate and responsible job: Managers have to take quick and correct decisions while discharging their duties. In fact, they are paid for their skill, maturity and capacity of decision-making. Management activities are possible only when suitable decisions are taken. Correct decisions provide opportunities of growth while wrong decisions lead to loss and instability to a business unit.
8.2. CONCLUSION
Decision making is the process through which managers identify organizational problems and attempt to resolve them. Situation differ in Decision Making Process. Managers follow different types of models during decision making. All decision-making involves elements of risk and reward. For every decision there are risks. Many organizations are structured so that major decisions are taken at the highest levels. This is because decisions at the top can have major effects for the whole organization. Using both normative and descriptive approaches, there have been many successful applications of behavioral decision theory in management, business, and other settings. In large part, thesuccesses reflect the importance of Ben Franklins original insight into problem decomposition: Decision making can usually be improved by breaking a problem into parts, working on the parts separately, and then combining them to make a final decision.
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REFERENCES
[1] Book of management text and cases by VSP Rao and V Hari Krishna. [2] Beach, L. R. (1990). Image theory: Decision making in personal and organizational contexts. Chichester, U.K.: John Wiley & Sons. [3] Breese, J. S., & Heckerman, D. (1999). Decision-theoretic troubleshooting: A framework for repair and experiment. In J. Shanteau, B. A. Mellers, D. A. Schum (Eds.), Decision science and technology: Reflections on the contributions of Ward Edwards. Norwell, MA: Kluwer Academic Publishers. (p. 271-287). [4] Dawes, R. M. (1988). Rational choice in an uncertain world. San Diego, Harcourt, Brace, Janovich. [5] Edwards, W. The theory of decision making. Psychological Bulletin, 1954, 380-417. [6] Klein, G., Orasanu, J., Calderwood, R., & Zsambok, C. E. (1993). Decision making in action:
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