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Concept, Importance and Step of Decision Making

Subject: Business Studies

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Overview

Decision-making is the act of making a choice among available alternatives. There are innumerable decisions that are taken by human beings in day-to-day life. In business undertakings, decisions are taken at every step. It is also regarded as one of the important functions of management.

Concept, Importance and Step of Decision Making

Concept of Decision-Making

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Decision-making is the act of making a choice among available alternatives. There are innumerable decisions that are taken by human beings in day-to-day life. In business undertakings, decisions are taken at every step. It is also regarded as one of the important functions of management. Managerial functions like planning, organizing, staffing, directing, co­ordinating and controlling are carried through decisions. Decision making is possible when there are two or more alternatives to solve a single problem or difficulty. If there is only one alternative then there is no question of decision making. It is believed that management without a decision is a man without a backbone. Therefore, decision making is a problem-solving approach by choosing a specific course of action among various alternatives.

"Decision-making is the selection, based on some criteria from two or more possible alternatives."- George R.Terry

"A decision can be defined as a course of action consciously chosen from available alternatives for the purpose of the desired result." - J.L. Massie

In conclusion, we can say that decision making is the process of choosing a specific course of action from various alternatives to solve organizational problems or difficulties.

Importance of Decision-Making

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source:www.slideshare.net

Decision making is considered as the backbone for the business management because without taking the right decision at the right time, nothing can be performed. The further importance of decision making can be discussed under the following points:

  1. Achievement of Goal/Objectives:
    Decision making is important to achieve the organizational goals/objectives within given time and budget. It searches the best alternative, utilizes the resources properly and satisfies the employees at the workplace. As a result, organizational goals or objectives can be achieved as per the desired result.

  2. Employees Motivation:
    Decision making is important to motivate the employees within an organization. It provides an overall framework of operation and guidelines to the operating level of staff. It also provides different types of facilities and benefits on time. As a result, employees are motivated to their job or work as per the organizational requirement.

  3. Proper Utilization of Resources:
    An organization has various resources like man, money, method, material, machine, market and information. All these resources are properly utilized without any leakage and wastage with the help of the right decision at the right time. As a result, an organization can operate at a minimum cost.

  4. Selecting the Best Alternative:
    As we know that the problem has multiple solutions. Decision making is important to select the best alternative among various alternatives by analyzing them one by one using various financial, statistical, and accounting tools/techniques.

  5. Evaluation of the Managerial Performance:
    Decision making is not only important to select the best alternative but also essential for evaluating the performance of a manager. The quality/success of the manager largely depends upon the number of right decisions that he/she can take for organizational success. Therefore, decision making is important to judge the performance of the top level of management.

  6. Indispensable Element/ Component:
    Decision making is an indispensable element/ component for organizational success because without taking the right decision at the right time, nothing can be performed as per the plan.

  7. Pervasive Function:
    Decision-making is a pervasive function of managers aimed at achieving organizational goals. Decisions are to be taken in all managerial functions such as planning, organizing, motivating, directing and controlling and in all functional areas such as production, marketing, finance, personnel, and research and development. It indicates that the decision-making is spread over many areas of the organization.

Steps of Decision-Making Process

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source:slideplayer.com

For the rationality, reliability, and enforceability of decisions, managers should follow a sequential set of steps. It is said that a decision is rational if appropriate means are chosen to reach desired ends. In this regard, various management authorities have recognized and described different steps in the process of decision-making. Ricky W. Griffin has suggested six steps in the process of decision making. Accordingly, the steps are:

  1. Implementation of Decision:
    After selecting the best alternative, the manager or superior should convert the decision into action. For this purpose, he/she should communicate with their subordinates and manage the various additional resources for the implementation of the organizational decision.

  2. Developing an Alternative Course of Action:
    As we know that a problem has multiple solutions. Therefore, the decision-maker should develop the various possible alternatives for a better decision. While developing the alternative course of action he/she may use their own knowledge, skills, experiences and technical support from the professional planner and experts as well.

  3. Identification of Problem:
    The initial stage of the decision-making process is to identify the exact problem. The problem may occur due to the gap between thinking and do the process. The reason for problems may be internal or external. Decision-makers should identify the correct problems before taking any decision. It is not an easy job or task. Therefore, he/she may use his own knowledge, skills, experience and collect information from internal and external sources. It is believed that the identification of the correct problem is almost half part of the decision-making process.

  4. Analysis of Problem:
    After identification of the correct problem decision-maker should analyze the problem systematically and scientifically in terms of cost, time, legality, organizational resources, and short-term as well as the long-term impact of the problem. While analyzing the problem he/she may use various financial, accounting and statistical tools or techniques.

  5. Selecting the Best Alternative:
    After analyzing the various alternatives, the decision-maker has to select the best alternative among the various alternative by considering the short-term as well as long-term impact. For this purpose, he/she may use his/her knowledge, skills, and experiences. He/she may also concern with other stakeholders for a better decision.

  6. Review of Decision:
    The last step of the decision-making process is to get responses or feedback from other stakeholders of the organization. If the response is positive then the decision-making process is successfully completed. It the response is negative then he/she must go through the first step to take a new organizational decision.

  7. Evaluating Alternative Course of Action:
    After developing various possible alternatives, the decision-maker should evaluate all alternatives one by one for a better decision. In this step, he/she should try to search the answers to the following questions.

    - Whether the alternative is feasible in terms of cost, time, legality and other organizational resources or not?
    - Whether the alternative is satisfactory to solve the organizational problems or not?
    - Whether the features of alternatives are matched with the objectives of the business or not?

 

 

References:

Pokhrel, Dhurb Raj et.al., Business Studies-XII, Asmita Book Publication, Kathmandu

Poudyal, Santosh Raj et.al., Business Studies-XII, Asmita Book Publication, Kathmandu

Bhandari, Kedar Prasad, Business Studies-XII, Bundipuran Prakashan, Kathmandu

Things to remember
  1. Decision making is a key part of a manager's activities.
  2. Decision making is related to planning, organizing, directing and controlling functions of a manager.
  3. Decision making is important to achieve the organizational goals/objectives within given time and budget. 
  4. Decision-making is a pervasive function of managers aimed at achieving organizational goals.
  • It includes every relationship which established among the people.
  • There can be more than one community in a society. Community smaller than society.
  • It is a network of social relationships which cannot see or touched.
  • common interests and common objectives are not necessary for society.
Questions and Answers

Decision-making is the act of making a choice among available alternatives. There are innumerable decisions that are taken by human beings in day-to-day life. In business undertakings, decisions are taken at every step. It is also regarded as one of the important function of management. Managerial functions like planning, organizing, staffing, directing, co­ordinating and controlling are carried through decisions. Decision making is possible when there are two or more alternatives to solve a single problem or difficulty. Every decision-making process produces the final choice. 

Every decision-making process produces the final choice. Many problems may arise in an organization while conducting the regular organizational activities. So, the problems must be solved for the smooth operation of organizational activities. It is believed that the management without a decision is a man without a backbone. Therefore, decision making is a problem-solving approach by choosing a specific course of action among various alternatives.

According to George R. Terry, "Decision-making is the selection, based on some criteria from two or more possible alternatives.“ 

According to J. L. Massie, "A decision can be defined as a course of action consciously chosen from available alternatives for the purpose of the desired result"

In conclusion, we can say that decision making is the process of choosing a specific course of action from various alternatives to solve the organizational problems or difficulties.

The further importance of decision making can be discussed under the following points:

  • Proper utilization of resources: Organization has various resources like man, money, method, material, machine, market and information. All these resources can be properly utilized with the help of right decision at right time.  As a result, an organization can operate at a minimum cost.
  • Selecting the best alternative: There are many alternatives to solve the problems. All of the alternatives cannot solve the problems. So, the best alternative should be selected. The best alternative can be selected through rational decision making. Therefore, decision making helps to select the best alternative from the various alternative.
  • Evaluation of the managerial performance: Decision making  is essential for evaluating the performance of a manager. The quality of manager largely depends upon the number of right decision that he/she can take for the organizational success. Therefore, decision making is important to judge the performance of top level of management.
  • Employees motivation: Decision making provides an overall framework of operation and guides line to the operating level of staffs. It also provides different types of facilities and benefit on time. Due to this, employees are motivated to their job or work as per the organizational requirement.
  • Indispensable element/ component: Without taking the right decision at right time, nothing can be performed as per the plan. So, decision making is indispensable element/ component for the organizational success.
  • Achievement of goal/ objectives : Decision making  searches the best alternative, utilize the resources properly and satisfy the employees at the workplace. Due to this the organizational goals/objectives within given time and budget can be achieved. Therefore, the organizational or objectives can be achieved as per the desired result.
  • Pervasive function: Decision-making is a pervasive function of managers aimed at achieving organizational goals. Decisions are to be taken in all managerial functions such as planning, organizing, motivating, directing and controlling and in all functional areas such as production, marketing, finance, personnel and research and development. 

Any five importance of decision making are as follows:

  • Proper utilization of resources: Organization has various resources like man, money, method, material, machine, market and information. All these resources can be properly utilized with the help of right decision at right time.  As a result, an organization can operate at a minimum cost.
  • Selecting the best alternative: There are many alternatives to solve the problems. All of the alternatives cannot solve the problems. So, the best alternative should be selected. The best alternative can be selected through rational decision making. Therefore, decision making helps to select the best alternative from the various alternative.
  • Evaluation of the managerial performance: Decision making  is essential for evaluating the performance of a manager. The quality of manager largely depends upon the number of right decision that he/she can take for the organizational success. Therefore, decision making is important to judge the performance of top level of management.
  • Employees motivation: Decision making provides an overall framework of operation and guides line to the operating level of staffs. It also provides different types of facilities and benefit on time. Due to this, employees are motivated to their job or work as per the organizational requirement.
  • Indispensable element/ component: Without taking the right decision at right time, nothing can be performed as per the plan. So, decision making is indispensable element/ component for the organizational success.

Decision making is not a single activity. It involves a series of activities which are done in a sequence. The following are the steps for effective decision making:

  • Identification of problem: The problem is the difference between standard and the actual work performance. The reason of problems may be internal or external. Decision makers should identify the correct problems before taking any decision. Every decision-making process begins with recognizing and defining the real problem faced by the organization.
  • Analysis of problem: After identification of the correct problem decision maker should analysis the problem. The problems should be analyzed systematically and scientifically in terms of cost, time, legality, organizational resources, and short-term as well as the long-term impact of the problem. While analyzing the problem, he/she may use various financial, accounting and statistical tools or techniques.
  • Developing an alternative course of action: This step involves developing alternatives and finding the various possibilities for courses of action. As we know that a problem has multiple solutions. But all alternatives of solving a problem may not be equally profitable. It needs critical thinking to visualize the possible alternatives. 
  • Evaluating alternative course of action: After developing various possible alternatives, the next step in the decision-making process is to evaluate each alternative courses of action to identify their strong and weak points. In this step he/she should try to search the answers to the following questions:
  1. Whether the alternative is feasible in terms of cost, time, legality and other organizational resources or not?
  2. Whether the alternative is satisfactory to solve the organizational problems or not ?
  3. Whether the features of alternatives are matched with the objectives of the business or not ?
  • Selecting the best alternative: After analyzing the various alternatives, the decision maker has to select the best alternative among the various alternative to solve the problem effectively and efficiently. For this purpose, he/she may use his/her knowledge, skills and experiences. He/she may also concern with other stakeholders for a better decision. 
  • Implementation of decision: After selecting the best alternative, the manager or superior should convert decision into action. All the decisions of the organization are worthless if they are not implemented. For this purpose, he/she should communicate with their subordinate and manage the various additional resources for the implementation of the organizational decision. 
  • Review of decision: The last step of the decision-making process is to get response or feedback from other stakeholders of the organization. If the response is positive then the decision-making process is successfully completed. It the response is negative then he/she must go through the first step to take a new organizational decision.

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