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DECISION MAKING

DECISION MAKING. MEANING OF DECISION MAKING. In Order to :. According to George R. Terry : “Decision making is the selection based on some criteria from two or more possible alternatives”.

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DECISION MAKING

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  1. DECISION MAKING

  2. MEANINGOF DECISION MAKING In Order to : According to George R. Terry : “Decision making is the selection based on some criteria from two or more possible alternatives”. According to Earnest Dale : “Entrepreneurial decisions are those decisions, which are always made in the course of one of the true entrepreneurship activities : Planning, Organising, Staffing, Directing, Controlling, Innovation, and Representation”. Through Decision Making Entrepreneurs Resulting in : Achieve goals and objectives • Plan • Organise • Direct • Control Effectiveness and Efficiency

  3. CHARACTERISTICS OF DECISION MAKING Selectionof the best alternative: Decision making is the process of selecting the best alternative among the various alternatives available for the solution of a given problem. Rational Selection: Rational selection means selection that is balanced, objective and unbiased, based on sound judgement and logical analysis, comparison and evaluation. Only, such a course can lead to the choice of the best solution out of a variety of possible solutions. 3. Responsibilities of Entrepreneur: All major decisions are responsibility of the entrepreneur for smooth functioning of enterprise.

  4. 4. Decisions are Means: The process of entrepreneurship aims at achieving pre-determined objectives and decisions are an important means of doing so but they are not the end. The end is to achieve the objectives through the process of decision making and not only to decide and sit. 5. Risk and Uncertainty: It is very difficult to forecast the outcome of future activities with complete accuracy. Therefore, decision making involves an element of risk and uncertainty. A wrong decision can lead the whole enterprise unit to losses and even closure. 6. Decision may be positive or negative: A decision can be both positive or negative. What is right or wrong in doing or not doing, depends upon the situations and conditions of the event.

  5. 7. Involves commitment: A decision reflects the commitment of a person who takes the decision. The person taking the decision is committed to implement it and to prepare the whole network of plans according to the decision making. 8. Time and Psychological Factors: Time is an important dimension of decision making. The psychological factors like intelligence, experience, habits, temperament, etc. have also impact on the decisions taken by entrepreneur. 9. Future course of Action: Decisions are made for future course of action based on the basis of past experience and present conditions.

  6. 10. Continuous Process: Decision-making is a continuous and regular process because an entrepreneur is required to take decisions continuously for different activities. 11. Communication: The process of decision- making is completed only when the decision are properly communicated in time to all those who are affected by the decision or who are to implement them. 12. Flexible: Decision making process is flexible, changeable and dynamic in nature. The techniques used for making decisions vary with the types of problems involved. Thus, it changes with the change of situation.

  7. STAGES OF CREATIVE THOUGHT

  8. TYPES OF CREATIVITY INNOVATION-Creativity to think totally new ideas. SYNTHESIS- Creativity to absorb, combine and use ideas from different sources and making it new. EXTENSION-Creativity to use old or new ideas. DUPLICATION- Creativity to use other’s successful ideas.

  9. IDENTIFYING THE PROBLEM ANALYSING THE PROBLEM DEVELOPING ALTERNATIVE SOLUTIONS DECISION MAKING PROCESS PROCESS OF DECISION MAKING PROCESS MONITOR THE SOLUTION (1) (2) (3) (7) (6) (5) (4) EVALUATE THE ALTERNATIVE SOLUTIONS MAKE DECISIONS IMPLEMENT THE SOLUTION

  10. All human beings are faced with certain situations in their everyday life, where they need to take important decisions. However, decisions that are made without any planning have a risk of leading to failure. To avoid such problems, it is necessary to take decisions in an organized way, which can be done by following the 6 steps to decision making process... Defining the Problem: The first step towards a decision making process is to define the problem. Obviously, there would be no need to make a decision without having a problem. So, the first thing one has to do is to state the underlying problem that has to be solved. You also have to clearly state the outcome or goal that you desire after you have made the decision. This is a good way to start, because stating your goals would help you in clarifying your thoughts.

  11. Problem analysis: The most important aspect of this step is to find the limiting factor or the critical factor. This limiting factor has to be changed or removed so that the decision or problem solving can be taken and the desired goal is accomplished. The ability of manager to locate this limiting factor in the problem is crucial to his success in finding optimum solution to the problem. For eg : if sales of a business are reduced ,the sales manager has to find the limiting factor which could be ineffective advertisement, faulty distribution,price,after sales services. Develop Alternatives:The situation of making a decision arises because there are many alternatives available for it. Hence, the next step after defining the main problem would be to state out the alternatives available for that particular situation. Here, you do not have to restrict yourself to think about the very obvious options, rather you can use your creative skills and come out with alternatives that may look a little irrelevant. This is important because sometimes solutions can come out from these out-of-the-box ideas. You would also have to do adequate research to come up with the necessary facts that would aid in solving the problem.

  12. Evaluate the Alternatives:This can be said to be the one of the most important stages of the decision making process. This is the stage where you have to analyze each alternative you have come up with. You have to find out the advantages and disadvantages of each option. This can be done as per the research you have done on that particular alternative. At this stage, you can also filter out the options that you think are impossible or do not serve your purpose. Rating each option with a numerical digit would also help in the filtration process. Make the Decision:This is the stage where the hard work you have put in analyzing would lead to. The evaluation process would help you in looking at the available options clearly and you have to pick which you think is the most applicable. You can also club some of the alternatives to come out with a better solution instead of just picking out any one of them.

  13. Implement the Solution:The next obvious step after choosing an option would be implementing the solution. Just making the decision would not give the result one wants. Rather, you have to carry out on the decision you have made. This is a very crucial step because all the people involved in the implementation of a solution should know about the implications of making the decision. This is very essential for the decision to give successful results. Monitor your Solution: Just making the decision and implementing it is not the end of the decision making process, it is very important to monitor your decision regularly. At this stage, you have to keep a close eye on the progress of the solution taken and also whether it has led to the results you expected.

  14. IMPORTANCE OF DECISION MAKING Heart of Entrepreneurship: All goals, strategies, policies and programmes are determined through decisions. Therefore, the central pole of entrepreneur is to make decisions which determine the future of enterprise. Pervasive Activity: Decision making is a pervasive activity. It exists in every part and at every level of enterprise. Universal Mark of an Entrepreneur: An entrepreneur is viewed as a specialist in the art of decision making. He is responsible for making decisions rather than doing the work personally. An entrepreneur is a man who decides.

  15. 4. Core of Planning: Decision making is the sole of planning. Planning is deciding in advance what to do. 5. Basis of effective control: Control is crucial to an enterprise's success. Through decision making, entrepreneurs constantly monitor process, compare actual process with standards and take corrective action in case of any deviations. 6. To face challenges: Entrepreneurs can face challenges of modern time through good decisions. In the environment of turbulence, entrepreneurs are forced to make more and more decisions at a faster and faster pace.

  16. TYPES OF DECISIONS

  17. STRATEGIC DECISION : WHAT ? Strategic decisions deals with the big picture of the business. The focus of strategic decisions is typically external to the business and usually future oriented. Strategic decision-making creates the forward thrust in the business. It includes decisions about: What business are you in? What is your vision for the business? What's your business' identity? What do you stand for? Which direction is the business headed? How will the business compete?

  18. TACTICAL DECISIONS - ‘HOW?' Tactical decisions involve the establishment of key initiatives to achieve the overall strategy. For example, if you have decided to be the Number 1 provider in your market (a strategic decision) then you will develop tactics (e.g. implement a marketing system, increase number of therapists) to achieve that outcome. In a small business you may have 4 or 5 key tactics that you are going to use to achieve your overall strategy. Again this layer of decision-making can sometimes be overlooked yet it is the glue that creates a strong connection between your long-term vision and your day-to-day activities. Tactical decision-making is the domain of 'mission' statements. Think in terms of the battlefields from which the term has emerged. The overall strategy, that is, what the army is there to do, is to win the war. Then you have a number of 'missions' you send troops on, preferably diplomatic ones, the cumulative effect of which is intended to win the war.

  19. OPERATIONAL DECISIONS -'HOW WILL WE DEPLOY RESOURCES ?' Operational decisions determine how activities actually get done. They are the 'grass roots' decisions about who is going to do what and when. It includes: How will we spend your money this month? How will we service that client? What is our procedure for delivering an order? Who will be doing quality control?

  20. OPERATIONAL V/S STRATEGIC DECISIONS

  21. NON-QUANTITIVE/ DESCRIPTIVE METHOD Experience: Past experience is a good method for decision making. The knowledge gained by past experience is a helpful guide for future course of action. But, it may be dangerous to rely upon the past experience blindly. Hunch & Intuition: Intuition is related to inner feeling. It is a feel for the situation. An intuitive decision maker is an activist, moves fast, questions quickly about situations and finds unique solutions to difficult problems. 3. Judgement: It is the result of the interaction of knowledge, ideas and opinions. Judgement is based on past experience. Therefore a judgement decision may be a fast and inexpensive to make, but it cannot cope with new and complex situations.

  22. 4. Heuristics: Heuristics means to find or discover by using procedures that lead to systematically work through issues in an established manner. 5. Principle of Management: These principles may help to shape the environment in which the decisions are made. 6. Behavioural Techniques: Behavioural models such as brain storming, nominal groups and dalphi methods all these help the entrepreneur to search for optimal solutions in situations where few models apply.

  23. 7. Institutional Documents and Procedures: Certain documents such as policies, rules or procedures are also used for making decisions. In most of the enterprises, programmed decisions are handled through rules, standard operating procedures and policies. These bring uniformity in decisions and avoids biasness. 8. Groups: An interactive group can make more effective decisions than individuals. Several people can gather more information, can provide a variety of prospective on the problem, and are more likely to be committed than a single person.

  24. QUANTITATIVE METHODS Facts: Facts give the decision maker confidence and courage to proceed further. Facts also help assume consistency and logicalness. They reduce the unknown area of decisions and show the progress of work towards decisions. Experimentation: Through test decisions hypothesis or choice for alternative can be confirmed or supported, or proved to be sound. Experimentation provides an objective, rational and methodological approach to decision making.

  25. 3. System and Mathematical Models: A mathematical model is generally constructed to represent the system being studied. This allows testing of problem without much cost. 4. Economic & Financial Techniques:Some economic theories like marginal analysis, cost effective analysis, opportunity cost analysis, utility theory etc. have proved of greater use of decision making. Similarly financial techniques such as ratio and profit and loss analysis, pay back analysis etc. also help in decision making process. They serve as a means of evaluation and selection of analysis.

  26. 5. Statistical Methods:Statistical methods such as theory of probability, sampling techniques, analytical tables etc. are important tools of decision making. 6. Operation Research or Specialised Decision Models: Operations research is an important tool of decision making. Probability Theory: It tells us that certain things are likely to happen in accordance with a predictable manner. Game Theory: It is used to make decisions in competitive situations. It brings into picture the actions of the competitor. It provides an optimum solution in which an individual in certain situations can develop a strategy which will maximise gains with small losses, regardless of what the competitor does.

  27. c) Quening Theory: This theory attempts to balance the cost of waiting lines versus the cost preventing waiting lines by increased service and facilities. It is based on the premise that sometimes it is more costly to eliminate all delay than to keep some of the delay. d) Linear Programming: It determines the optimum allocation or use of limited resources to achieve some desired objective. e) Other Tools: There are many other tools of decision making such as Pert, Symbolic Logic etc.

  28. MODERN TECHNIQUES Risk Analysis: It is important to know the size and nature of risk in choosing the course of action. Risk analysis theory develops for every critical variable in a decision problem a probability distribution curve. Decision Trees: The tree shows in what direction the chance events are and what their values in terms of profits and losses are for each alternative. Therefore, decision trees replace broad judgementswith a focus on the important elements in a decision, bring out into the open premises that are hidden, and disclose the reasoning process by which decisions are made under uncertainity.

  29. 3. Preference Theory: This theory is based upon premise that individual attitudes towards risk analysis vary. Hence, decisions should be made only after assessing a person’s willingness to take risks in a variety of situations and by developing an individual’s preference curve for that person. 4. Expected Value and Pay-off Matrix: Entrepreneur also makes use of the expected value concepts and pay-off matrix in arriving at objective and rational decisions.

  30. GROUP DECISION MAKING There are several instances in professional as well as personal life when decision-making requires opinions and inputs from more than one or two people. This is where group decisions come into the picture. Group decision-making is a complex process, which can be achieved by several methods. Group decision making basically means when decisions are made in groups. Groups can be in the form of committees, review panels, board of directors, task force or similar groups. Groups consists of experts who are best qualified to take decisions that effect them. Experts from different fields can take better decisions than an individual taking decisions independently and single-handedly.

  31. TECHNIQUES OF GROUP DECISION MAKING Authoritarian Style The authoritarian style is like a dictatorship, in which the decision ultimately rests in the hands of one person. This style of decision-making is applicable in the presence of a powerful person who dictates the entire process of decision-making and has the final authority on the outcome. This style, although in use at various places, tends to have more disadvantages than advantages because the people whose opinions are disregarded might have negative feelings about the entire process. A variation of this method is the minority control method wherein the group discusses the issues but the power of decision-making rests not in the hands of one but a small group of people within the group.

  32. Brainstorming This group decision-making method is best when the decision-making has to be started from scratch, which means creating the various options and then weighing them. This is an excellent method for group decisions, which is very popular owing to the complete creative freedom it offers to all the participants. There can be a facilitator to facilitate the entire discussion just to ensure that the people don’t digress. The facilitator can merely help to start off the conversation, provide subtle hints and nudges when the participants get stuck and thus help to make effective and creative group decisions. The positive aspect of this method is that it values the opinion of every individual member and the final decision is reached by consensus.

  33. Voting Based Method This is a group decision-making process, which is convenient to use when the group has certain set of defined options before it and needs to pick out the optimum solution. A voting system allows every participant to cast his/her vote for the option that he/she thinks is the best. The option that gathers the maximum number of votes is selected. This method however does not value the individual opinion of each and every participant in the group. A variation of this method is the majority method wherein a majority of people within the group has the power to pass the final decision.

  34. ADVANTAGES OF GROUP DECISION MAKING • Advantages of Group Decisions : • Group decisions help to combine individual strengths of the group members and hence has a set of varied skill sets applied in the decision making process. • Individual opinions can be biased or affected with pre-conceives notions are restricted perspectives, group decision help to get a broader perspective owing to differences of perception between individual in the group.

  35. A group decision always means enhanced collective understanding of the course of action to be taken after the decision is taken. • A group decision gains greater group commitment since everyone has his/her share in the decision making. • Group decisions imbibe a strong sense of team spirit amongst the group members and helps the group to think together in terms of success as well as failure.

  36. DISADVANTAGES OF GROUP DECISION MAKING • Disadvantages of Group Decisions: • One of the major disadvantages of group decision making is that it is more time consuming than the process of individual decision making. • Group decisions take longer to be finalized since there are many opinions to be considered and valued. • In case of authoritarian or minority group decision making, the people whose opinions are not considered tend to be left out from the decision making process and hence the team spirit ceases to grow. • The responsibility and accountability of the decisions are not equally shared in some cases which leads to a split in the group and hence hamper the overall efficiency of the group.

  37. TIPS FOR ENTREPRENEURS Set Goals and Find the Facts Sense of Timing Involvement of Subordinates Communicates Effectively Be Flexible Follow Through

  38. PROBLEMS IN DECISION MAKING 1. Lack of information: Decision makers may not have the full information about the decision situation. Information means the total number of alternative courses of action. Decisions taken in the absence of complete information are likely to be wrong. 2. Caliber of person: All the information available is required to be analysed and processed in order to have a comparison of alternatives. But the accuracy of analysis, processing and comparison depends upon the caliber of the persons who have been assigned this duty. 3.Personal interest of decision making: The third main problem in the process of group decision making is that the decisions are taken keeping in view the personal interest of the majority because every person throws his weight in favour of those alternatives serve his own interests.

  39. 4.Decision environment: The entrepreneurial physical, social and psychological environment prevailing in the enterprise also has a great impact on the thinking of the entrepreneur. 5.Changing entrepreneurial conditions : A decision taken today by an entrepreneur may become obsolete tomorrow because of speed of innovations, technology, financial patterns, global marketing, and government policies. These decisions require diversity in decision making, as is difficult even for groups to achieve. 6.Participation in decision making: It is required that all those who are concerned may be made to participate in the decision making process but such participation invites problems also because all of them do not have the required level of education, knowledge, information, skill and intelligence. 7.Communication barriers: Communication gap is also another major problem. Either most of the decisions are not communicated in time to those whose are directly concerned or who are to take part in its implementation or the same are communicated in such a language as distorts its very sense and intent.

  40. AIDS FOR DECISION MAKING • Intution: Intuition includes guess work and common sense views based on a keen and quick insight. Previous experiences and training also contribute a lot in this regard. Entrepreneurs having a strong power of intuition can generally take prompt and appropriate decisions. • Experience: Personal experience, or experience of others is the most important and valued basis utilised for making rapid decision. The experience gives the entrepreneur the requisite vision that trains him to apply knowledge he has acquired to the best of its uses. It enables him to recognise the crucial factors influencing the decisions. • Considered opinion: The democratic management relies upon the considered opinion based on group decisions., as they provide maturity and rationalisation in the decision making process.

  41. 4. Facts: Relevant adequate and up-to-date facts and figures provide solid basis for decision making . In fact, decisions become wrong only when adequate facts are not available on the particular issue or problem. 5. Quantitative decision making tools: The modern entrepreneurship has been dependent upon certain refined mathematical and statistical aids like operations research, simulation, linear programming, game theory, break-even analysis and so on. These quantitative decision making tools have been very effective , offering a great help in decision making .

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