Unit 2 (P 23) Planning and Decision Making: Decision making

Managerial decision making:

• According to Peter Drucker, "Whatever a manager does, he does through decision-making".
• Decision making is cornerstone of planning which is an act of making choices.
• Decision making can be regarded as the mental processes (cognitive process) resulting in the selection of a course of action among several alternative scenarios. 
• Every decision making process produces a final choice. The output can be an action or an opinion of choice.
• It helps managers respond to opportunities and threats.
• The main purpose is to choose such strategy which directs the resource conversion process in such a way, as to optimize the attainment of the objective.

Nature of decision making:

• Decision making process:
• Identifying and diagnosing the problem:
• Generating alternative solutions:
• Evaluating alternatives:
• Making the choice:
• Implementing the decision:
• Evaluating the decisions:

Types of decision:

• Type by frequency: On the basis of frequency of occurrence, they are:
• Programmed: Is Decision making on the issues related to the day to day running of organization. It is structured and repetitive type, and more common to lower level.
• Non-programmed: Is decision making on the issues which are non-routine and new to the organization.  It is more common to higher level.
• Type by nature: on the basis of different aspect of focus.
• Operating: decision for day to day issues
• Strategic: decision on new issues
• Administrative: decision on issues arising for the balance between operating and strategic decisions.

Styles of Decision making:

• Autocratic decision making style: 
• Style 1: manger makes decision on the basis of the information available about the current environmental situation.
• Style 2: manager makes decision on the basis of the information collected from the subordinates.
• Consultative: 
• Style 3: Managers consults about the problem with the individual subordinate and get information, idea and suggestion.
• Style 4: Manager consults about the problem with the group of subordinates collectively for information, ideas, and suggestion.
• (Note:  Manager Decision in both the style of consultative may or may not reflect subordinates influences)
• Group process:
• Style 5: Manager shares problem with the subordinates in groups. Collects information, ideas and suggestion with the joint effort from all the group members. The alternative with more number of votes and which is more likely to solve the problem is selected.
• (Note: which style to choose depends upon the decision maker, the group and the situation)

Condition of decision making:

• The decision making condition can be viewed in three categories:
• Condition of certainty: when manager has all the information of the environment, and can precisely predict the consequences of actions, it is called condition of certainty.
• Condition of uncertainty: When manager don’t have enough information about the environment, and cannot predict the consequences of actions, it is called condition of uncertainty.
• Condition of risk: When the manager has difficult in predicting the outcomes of the alternatives with certainty, it is called condition of risk.

Group decision making:

• Advantage:
• Builds team feeling.
• More information, ideas, and concrete solutions.
• Better communication, and share responsibility.
• Builds interpersonal and leadership skill.
• Disadvantage:
• Making decision takes time.
• Group think occurs.
• Create conflict.
• Techniques of group decision making:
• Brainstorming:  It’s a method of idea generation to solve problem which are new to the organization. 
• Nominal group technique: it consist of two stages, firstly the individual work separately, and secondly, they work as an interacting group to evaluate and choose alternatives.

Planning and Decision making tools:

• Non-Quantitative technique:
• Factual information: Information is basis for rational decision making. The decision are more scientific an unbiased.
• Intuition and experience: The decisions are made on hunches, instinct, inner feelings, or previous experience.
• Expert opinion: Also called Delphi technique, where the decision is made from the opinion of the experts and experienced persons.
• Quantitative techniques:
• Probabilities and pay-offs: It is statistical measure of the chance a certain event will occur. The two types of probabilities are: Objective probabilities are derived mathematically form reliable historical data and subjective probabilities are estimated form past experience or judgment. Payoffs are the outcomes of each alternative. The alternative with highest payoff is selected. 
• Linear programming: It is a mathematical technique for deciding among competing demands of limited resources. It is use to find the exact solution which minimize cost and maximize gains. A series of linear equation evaluates each factor in the problem in relation to other factors.
• Queuing theory: It is used to manage the waiting lines by use of calculated probability, of flow in the line. It tries to balance costs and customer waiting line.
• Simulation: It is descriptive model, which is concerned with modeling terms of the business problem rather than the solution to problem. It reduces the risk and expense of decision making by using hypothetical and historical data instead of the live data.
• Game theory: It is the study of people making independent choices. It focuses on formulation of a strategy against the competition, which will provide maximum countering action. The outcome of the game is preparedness of manger to respond to the action of the competitors. It helps in determining the competitive behavior or the every possible move that a competitor can make.
• Decision tree: it is based in probability factors, which will graphically represent form of numbers of possible future events or actions that may affect decision. The outcome that has highest desirable end value is the course to be followed. It helps the decision maker to evaluate alternative in terms of best estimates of future results.