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What are the administrative problems related with Decision Making?

It is very important that the management of the organization always takes the correct decisions. The reason is that if a wrong decision has been taken at any level, it can create problems for the whole organization. However it is also true that despite the best efforts of the management, there are certain problems that may arise during the process of decision-making. These problems related with decision making can be described as follows:-

1. The Timing of Decision: A difficulty that is generally faced by the management while taking a decision is related with the timing of the decision. The reason is that it is very important that the decision should be made at the most opportune time. Therefore, deciding the most appropriate time for taking the decision is a problem in itself. The decision will not be effective if it is not taken at the appropriate time.

2. Need for Correct Decisions: The managers are required to decide if the decision taken by them is correct or not. In case the decision is not correct, a lot of time and money will be wasted. It needs to be mentioned that the correctness of the decision depends on the capabilities of the person making the decision as well as on the information available regarding the problem and the analysis of such information. For example if correct facts are not available with the managers, the decision may be based on incorrect premises. Therefore, the premises should be based on the correct problem and they should also be properly analyzed so that a correct decision can be made.

3. Effective Communication: After a decision has been taken by the management of the organization, it is also required that the decision should be properly communicated to all the persons for whom the decision has been taken. For this purpose, the decision needs to be communicated in such a way that it can be easily understood by these persons. On the other hand, if the decision taken by the management has not been properly communicated to all the persons who have the responsibility to implement the decision, the decision will not be implemented effectively and as a result, it will remain on paper only. Therefore, the management has to deal with various communication barriers and communicate the decision properly.

4. Participating in Decision Making: It is considered that the best way to take an important decision is to hear the views of all the persons that are concerned with the decision before making the final decision. By receiving the views of different persons concerned with the decision, a wider viewpoint regarding the problem can be achieved. However, it has been seen that the top level management of the organization takes all the important decisions at its own level and other persons are not allowed to take part in this process. In this way, the authority of taking significant decisions is confined to a few persons only. However, such a situation can create problems in the effective implementation of the decision. While taking a decision, the views of the persons who are going to be directly impacted by the decision should also be considered. Therefore, in order to avoid such a situation, the management should allow all the concerned persons to participate in the decision-making.

5. Decision Environment: The physical and organizational environment also has an impact on the process of decision-making in an organization. In case favorable environment exists for decision-making, mutual understanding and cooperation are also present. The result is that all the decisions are accepted by others in good spirit and in the same way, these decisions are also implemented effectively. At the same time, such atmosphere also allows the scope for creative thinking and research.

6. Implementing Decisions: Sometimes, the management of the organization may also face problems in implementing a particular decision. Therefore, after a decision has been made by the management, it is also equally important that sincere efforts should be made to implement the decision. The managers and their subordinates play an important role in the implementation of the decisions. Therefore, the managers can consult their subordinates or they may also take advice from specialists but the final decision has to be made by the managers themselves. At the same time, it is also the responsibility of the manager to ensure that the decision is being implemented properly. On the other hand, if a decision proves to be unsuccessful, the manager has to face criticism. In this way, the implementation of a decision may also create problems that have to be handled by the managers.

What are the various theories of Decision Making?

The different theories that are related with decision making are as follows:-

1. Marginal Theory: in case of this theory, the emphasis is on increasing the profit. According to the advocates of this theory, profits can be increased when the marginal costs of inputs are the same as the marginal revenues. In this regard, the marginal cost is the additional cost of producing an additional unit and on the other hand, the marginal revenue is related with the extra revenue achieved from such a product. Therefore, in case of a difference between the marginal costs and revenues, maximum profit cannot be achieved. In such a case, either additional revenue will be generated at less additional costs or vice versa. However, it has been seen that it is very difficult to find the marginal point for each factor of production because the cooperation of every person is required for carrying these functions.

2. Psychological Theory: In case of this theory, the emphasis is on the maximization of customer satisfaction. According to this theory, the manager plays the role of an ‘administrative man’ instead of being an economic man. Therefore, the manager tries to protect the economic interests of the organization and at the same time, efforts are made to increase customer satisfaction. The manager selects a particular alternative that is also capable of helping the customers. Therefore, the psychological theory provides that the interests of the consumers should always be kept in mind while taking a decision.

3. Mathematical Theory: In mathematical theory, various models are used. Therefore it is also called the operations research theory. Generally the techniques that are used in mathematical theory include linear programming, network theory, Monte Carlo technique, simulation models etc. In this case, the analyst defines the problem and uses symbols for unknown data and then makes efforts to solve the problem. As compared to the other theories, mathematical theory is much more systematic.

Explain the different types of Decisions?

There are four basic standards that can be used for deciding the nature of the decision and also the level of authority that should make the decision. These are:-

i. The degree of futurity in the decision;

ii. The impact of the decision on other functions or on the business as a whole;

iii. The number of quantitative factors in the decision; and

iv.The decision is rarely taken or it has to be taken periodically.

1. Organizational and Personal Decisions: when a particular decision has been taken by a person as an executive of an organization, such decision can be considered as an organizational decision. The impact of such decision can be felt on the working of the entire organization. The power of taking an organizational decision can also be delegated by a superior to the subordinates. On the other hand, an executive can also take a decision that is related with himself. Such decisions are known as personal decisions. Generally the effect of these decisions is on the personal life of the decision-maker. At the same time, the authority of taking such decision cannot be delegated to others.

2. Routine and Strategic Decisions: The routine decisions have to be made periodically and therefore there are certain established procedures, policies and rules regarding these decisions. The routine decisions have to be made regarding the day-to-day affairs of the organization. For the purpose of making these decisions, fresh information or discretion is not required. The routine decisions are generally taken by the middle or the lower level management of the organization. On the other hand, the strategic decisions are related with significant matters and therefore they have to be taken by the top-level management of the organization. These strategic decisions are related with policy matters and therefore, different alternatives have to be developed and analyzed. The strategic decisions have an impact on the organizational structure, objectives, finances and the working conditions etc. The strategic decisions are basic and the effect of these decisions can be felt for a long time.

3. Programmed and Non-programmed Decisions: The programmed decisions are of a routine nature and no specific procedure has to be followed for taking these decisions. The effect of these decisions is short-term and these decisions are taken by the lower level management of the organization. For example, the decision to make routine purchases or to grant a leave can be described as programmed decisions.

4. Policy and Operating Decisions: The policy decisions are used for deciding the basic policies related with the organization. These decisions are taken by the top management of the organization. The policies that have been decided by the top management also act as the basis for the operating decisions. No decision can be taken that goes beyond the policy framework. In this way, the policy decisions are very important and their impact is also long-term. On the other hand, the operating decisions are less significant. These are related with the day-to-day operations of the organization. The operative decisions are taken while keeping in view the policies that have been decided by the organization. The operative decisions are taken by the middle and the lower level management because in these decisions, real execution and supervision is also involved. For example, the decision to grant bonus to the employees of the organization can be described as a policy decision but once this decision has been made, the exact amount that is going to be paid to each employee will be an operated decision.

5. Individual and Group Decisions: The classification of decisions as individual and group decisions is based on the number of persons that are involved in the process of making the decision. Therefore if only one person has taken the decision, it can be described as an individual decision. Such decisions are generally taken by the owners of small businesses. Even in case of large organizations, it is possible that the major decisions may be taken by one person alone. Generally the individual decisions are also programming decisions. But when a group of persons is involved in taking the decision, it is described as a group decision. For example, the decision taken by the board of the company can be described as a group decision. Generally group decisions are very significant for the organization and they are related with policy matters. As a result, these decisions have to be taken by the group after comprehensive discussions by the persons who have the responsibility to take the decision. However, a major problem that is present in case of group decisions is the problem of delay.

What are the conditions for Decision Making?

As mentioned above, the process of decision-making involves selecting the most appropriate alternative out of the various alternatives that are available to the managers. At the same time, the decision taken by the managers at present will also have an effect on future. For this purpose, the decision-making process involves the visualization of the conditions that may be present in future. Therefore, it can be said that there is at least a certain amount of uncertainty present in the decision-making process. Certain risks are related with the process of decision-making and the conditions may also vary from certainty to complete uncertainty. Due to this reason, the strategy of making decisions under different conditions may also vary. Therefore the different conditions under which the decisions have to be taken can be described as follows:-

1. Certainty: When the certainty conditions are present, it can be reasonably expected by the managers what is going to happen when a particular decision has been taken by them. In this case, the required information is available and such information is also a reliable. In the same way, the cause and effect relationship is also known. The result is that the decisions taken by the managers under these situations at different times provide the same results. In these situations, the managers use a deterministic model, and it is assumed that all the factors are exact and there is no role for chance.

2. Risk: In a risk situation, although the factual information may be present but it can be insufficient. Mostly the managers have to take business decisions under risk situations. The reason is that the information available with the managers does not provide answers to the overall questions regarding the outcome of the decision. The manager is required to develop estimates regarding the likelihood of different events taking place. These estimates can be based on past experiences or on the other information or intelligence. Decision-making under these conditions can be improved if the managers can estimate the objective chances of an outcome by using certain methods like the mathematical models. On the other hand, the managers may also use subjective probability that is based on their experience and judgment. For this purpose, several tools are available to the managers that can help in taking decisions under risk conditions.

3. Uncertainty: In case of uncertainty conditions, very little information is available to the managers and the managers are not sure regarding the reliability of such information. Due to the reason that the managers do not have proper information, the managers should be aware of the fact that they are not in a position to predict the events. It is not available to the managers to evaluate the interaction of different variables for the purpose of making the decision. As a result, it becomes difficult to take a decision on this uncertainty conditions. However, there are certain techniques that can be used by the managers for making a better decision under uncertainty conditions. For example, they may use decision trees, risk analysis and preference theory for making the right decisions in uncertainty conditions.

Rationality in decision-making

It is widely believed that the element of rationality should also be present in decision making. In this regard, it is said that the decisions taken by the managers can be effective if they are also rational. However, the meaning of the term rationality, particularly in the context of decision-making, is not clear. The purpose of decision-making is to achieve an objective. Rationality requires that the person making the decision should be aware of the alternative courses of action that can be used to achieve the objectives. Similarly, the person should have complete information and also the ability to properly analyze the alternative courses of action available for achieving the objective. At the same time, it is also required that there should be the desire to find the appropriate solution and for this purpose the selected alternative should be capable of achieving the objective. In this regard, rationality can be described in terms of objective and intelligent action. In case of rationality, there is also a behavioral nexus present between the ends and means. This means that if the appropriate means have been selected for achieving the desired ends, the decision can be described as a rational. However it is not possible that there can be complete rationality in the process of decision-making, particularly in case of management decisions. The decisions are made for future and therefore there is always a certain amount of uncertainty involved in it. In the same way, it is also very difficult to identify the entire alternative that may be available to achieve the objectives. This can be particularly true in cases where an opportunity may be involved to do the things that have not been done earlier. Even the latest software may not be able to properly evaluate all the available alternatives.

Rationality also has other limitations. These limitations are related with time, information and also related with certainty. Therefore, although the managers want to be rational while making a decision, they have to satisfy with limited rationality only. The reality is that the managers cannot be totally rational while making a decision. For example, sometimes the aversion to risk that is present among the managers may interfere with the desire of the managers to select the possible solution. In this way, the element of risk may also act as a limitation. A large number of managers want to play it safe and therefore, they take risk only by remaining within the limits of rationality and also, keeping in view the size and nature of the risk.

Explain the various techniques of Decision Making?

The process of decision-making can be quite complex. In this regard, there are different techniques ranging from mathematical analysis to guesswork that can be used by the managers for making a decision. In this regard, the selection of the appropriate technique depends on the judgment of the person who is going to make a decision. However, the below mentioned techniques are generally used for making a decision:

1. Intuition: In case of decision-making on the basis of intuition, the inner feelings of the person making the decision are relied upon. In this case, the decision is made by the person on the basis of his or her conscience. The person considers the problem and then an answer to the problem appears in the mind of the person. In this case, it needs to be noted that each person has his own influences, preferences and psychological makeup. All these things have a significant impact on the decision made by the person. In the same way, the past experiences, training and knowledge of the person making the decision also play an important part in case of the decisions made on the basis of intuition.

2. Facts: It is generally believed that the decisions made on the basis of facts are the best decisions. The reason is that a decision that has been made on the basis of facts is based on factual data. Due to this reason, these decisions are sound and proper. At the same time, there are a number of software programs that can help in analyzing a large number of facts and data. In this way, these days, most managers rely upon the analysis of data while making a decision. However, there can be circumstances where it may not be possible to collect all the relevant facts while making a decision. Most of the managers complain regarding the fact that all the facts are not available to them while making a decision. At the same time, it is also very important that all the facts have been properly classified and interpreted by the managers. In this way, a decision cannot be made only on the basis of facts. In this process, the experience, knowledge and the beliefs of the person making the decision also play an important role as the help in analyzing the facts.

3. Experience: The past experiences of the managers also play a role in making a decision. For example, if a manager had to deal with a similar problem in the past also, a similar decision can be taken by the manager in the present case if the earlier decision had proved to be successful. At the same time, experience also plays an important role because all the facts are comprehended by a person in view of the experiences that a person has. However, the past experiences should not be followed blindly. Each new situation should be analyzed independently. The reason is that even if a particular decision has proved to be successful in the past, it is possible that the same decision may not work at present also. In the same way, it is not necessary that a decision that has failed in the past will not be successful in the future also. Therefore, past experience of the managers can help but it should not be the only basis for making the decision.

4. Considered Opinion: Considered opinion can also be used by the managers as a basis for making the decision. The reason is that apart from the relevant facts, opinions are also important in the process of decision-making. When a particular problem has been considered by a large number of persons, it may appear as a logical and sound basis for making the decision. For example, while making a decision regarding a new product, a marketing manager may take into account the relevant marketing statistics but at the same time, the considered opinions of different people may also help in making the final decision.

5. Operations Research: while traditionally, decisions were taken by the managers on the basis of their experience or intuition but these days, systematic techniques are also available to the managers for analyzing data. One such technique is known as operations research which is used by the managers while taking important decisions. In this way, the technique of operations research can help the managers in taking the appropriate decision as it provides the scientific basis to solve the problems in which the interaction of base components of the organization is involved.

6. Linear Programming: The technique of linear programming is used for deciding how the limited resources available with the organization can be used in the best possible way so that the objectives can be achieved. This technique is based on the assumption that a linear relationship is present between variables and the limits of variations can be certain. In this way, the technique of linear programming can be used for making decisions in the fields of production, warehousing or transportation.

What is the Process of Decision Making?

It is not possible to take a decision in isolation as every decision is impacted by the past experiences and also by the present conditions and future expectations. At the same time, once a decision has been taken, it is very difficult to reverse it. Therefore it is important to discuss the problem and then take the appropriate decision after all available alternatives have been considered. In this way, the steps that are involved in the process of decision-making can be described as follows:

1. Defining the Problem: the first step that is related with the process of decision-making is to find the real problem. There are many cases when it is not easy to find the real problem. Therefore, the managers should see what the real reason behind the trouble is and what can be the possible solutions to the problem. On the other hand, if the problem is not defined correctly, the decision made for such a problem will also be wrong and as a result, the money and efforts spent to find the decision will be wasted. At the same time, new problems may also be created by the wrong decision instead of solving the real problem.

Before a manager tries to define the problem, it is necessary that the manager should identify the strategic or the critical factor of the problem. It has been mentioned that the theory of strategic factor is necessary when it comes to the application of the process of decision-making. It has also been emphasized that in the process of decision-making, the analysis that has to be made by the manager is in reality a search for strategic factors. These factors can be the basic cause of obstacles due to which it had become difficult to find the proper solution to a problem. On the other hand, when the problem has been properly defined by the managers, then it becomes easy for the managers to solve the problem. Therefore, the determination of the problem is the first step in the process of decision-making.

2. Analyzing the Problem: After a problem has been identified by the managers, the next step in the process of decision-making is to analyze the problem. For this purpose, the managers should gather all information related with the problem and then they are required to decide if the information available to them is sufficient for taking a decision. It has been generally seen that the managers do not have the sufficient information for making a particular decision. For example in some cases, it may be too costly to get the required information. It has been said that for the purpose of making a sound decision, it is not necessary that the managers should have all the facts but it is very important that the managers should be aware of the fact that sufficient information is not available to them so that they can be aware of the level of risk that is involved in a particular decision and also the level of rigidity and precision that can be adopted in the proposed course of action. In this way, whatever information is available to the managers, it should be used for the purpose of analyzing the problem. On the other hand, if sufficient information is not available to the managers, then the level of risk related with the decision should be analyzed.

3. The Alternative Courses of Action Available: A number of solutions are available in case of every problem. On the other hand, if only one solution would have been available regarding a particular problem, there would have been no need for making a decision. Therefore, it is the responsibility of the manager to make efforts to discover that these are the alternatives that are available so that satisfactory results can be achieved while making a decision. Unless several alternatives have been developed by a manager, it is likely that the manager will not be able to make the most appropriate decision. At the same time, it also needs to be noted that even in most desperate situations, several alternatives can be available. Therefore, it is very important that the managers evaluate all the alternatives that are available to them and then make the most appropriate decision. Unless the managers have developed all the possible alternatives, the most appropriate decision cannot be made.

4. Evaluating the Alternatives: After all the available alternatives have been identified by the managers, the next step in the process of decision-making is to evaluate all the alternatives available and then to select the most appropriate one. For this purpose, the managers have to consider the advantages and disadvantages of various alternatives. For this purpose the pros and cons of each alternative has to be evaluated. With the help of this process, the managers can foresee the risk that may be involved in case of each alternative. The managers should evaluate each alternative in terms of the time and money that has to be spent on them. This helps the managers in selecting the alternative that is most economical. A decision is easy to make when it becomes clear that the consequences of a particular alternative is favorable as compared to the other alternatives. On the other hand, when several alternatives are available that have similar advantages, it is difficult for the managers to make their choice. Therefore in such cases, the managers can also combine two or more alternatives. In the same way, there can be a situation where none of the alternatives present before the managers can provide favorable consequences. Therefore, in such a case, the manager may have to make a significant decision of not accepting any of the alternatives available. At the same time, the manager may also try to develop new alternatives.

5. Experience: All managers are aware of the significance of experience in making decisions. The reason is that past experience in making decisions acts as a guide for the managers. The problems and the difficulties that were faced by the managers in the past,help the managers in taking steps in advance so that these problems are not faced again. However, the managers should not blindly follow the past experience. Therefore only if the circumstances in the past as well as at present are exactly the same, only then the managers should select the alternatives from the past. On the other hand, if the two situations are different, the alternative selected in the past may not be the most appropriate in present. Therefore, in such a case, the same decision should not be made by the managers. While the managers rely on the experience, they should also evaluate the situation that was present in the past or in present and at the same time, the future effect of the decision should also be evaluated. In this way, although the past experience can help the managers in making a decision but it should not be the only factor on which the managers rely upon.

6. Experimentation: Generally, in case of a scientific study, experimentation is used. In this case, the different available alternatives are put in practice and therefore the alternative that provides the best results is selected. But in case of management, this type of experimentation cannot be relied upon by the managers. The reason is that it will be very costly to put all the available alternatives to practice. Still, this type of experimentation can be used in a limited way. Therefore whenever any new product is launched in the market, the management may decide to launch the product only in a limited area for the purpose of knowing the reaction of the consumers. In the same way, if the management of the organization is willing to go for a new setup, it may decide that the setup should first of all be applied in a particular branch only. Therefore, the managers should always take their decisions on the basis of the facts available to them as well as on the basis of the analysis of results of such experimentation.

7: Taking the Decision and Following It: When the managers have evaluated the various alternatives available to them, they can take a final decision. This decision has to be communicated to all the persons who have the responsibility to take action regarding the decision. For this purpose, the follow-up action taken by the managers regarding a decision can show if the decision taken by them was based on any wrong premises or facts. If this is the case, the managers can review the decision and can also make the required changes. In this way, it is also very important that the managers follow up the decision taken by them.

What is Decision Making?

Decision-making is considered as an integral part of a manager’s job. The reason is that every day a manager has to make decisions about one thing or the other. In this regard, a decision can be described as the process of selecting out of the available alternatives. Therefore, while making the decision, one course of action has to be selected out of the alternative course of actions that are available. In this way, a number of alternatives may be available to manager but it is the responsibility of the manager to select the best alternative.

Nature of decision-making:
A decision is always related with a problem, conflict or a difficulty. Therefore, decisions help in resolving these conflicts or to deal with these problems. In all the organizations, there are differences of opinions; however the decisions made by the managers can help in maintaining effectiveness of the group. Although it is not necessary that decisions have to be made in case of all problems and in some cases, only the supply of information may be sufficient. For example, there may be a conflict regarding when the various groups should report for re-orientation. Therefore in such a case, by supplying information regarding the training program for different groups, the situation can be handled. Decision-making requires the managers to select from the various alternatives that are available to them. However, the managers may have to select various possibilities before arriving at the final decision. In this way, decision-making is not only related with selecting the best alternative. Sometimes the material that is required for making a decision may be available but still it is not possible to arrive at a decision. Therefore, making a decision also requires a prediction regarding the future while keeping in mind the past as well as the information available at present. As the impact of a decision made in present has to be felt in future, it is necessary that the available information should be analyzed properly and a prediction regarding the future should be made. On the other hand, if the premises on which the decision is based are not true, it is highly probable that the decision will also be erroneous.

Many times, the decisions made by the managers are also impacted by the practice known as ‘follow the leader’. In this case, an influential manager or a leader of the group has set a precedent and this path is readily followed by the others. Therefore in such a case, the decisions made by the leader act as a guide for the others and they also make similar decisions. On the other hand, there are certain situations when the answers to the pertinent questions regarding a problem may also help in making the decision. With the help of these answers, the available choices can be narrowed down and in this way, they facilitate in making the decision.

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