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BCOM IV SEM - BUSINESS DECISIONS

UNIT 01
What is Decision?
Decision is a process of selection from a set of alternative courses of action, which is thought to fulfill the
objectives of the decision problem more satisfactorily than others.
It is a course of action, which is consciously chosen for achieving a desired result. A decision is a process that
takes place prior to the actual performance of a course of action that has been chosen.
In terms of managerial decision making, it is an act of choice, wherein a manager selects a particular course of
action from the available alternatives in a given situation. Managerial decision making process involves
establishing of goals, defining tasks, searching for alternatives and developing plans in order to find the best
answer for the decision problem.
The essential elements in a decision making process include the following
!. The decision maker,
". The decision problem,
#. The environment in which the decision is to be made,
$. The objectives of the decision maker,
%. The alternative courses of action,
&. The outcomes e'pected from various alternatives, and
(. The final choice of the alternative.
Characteristics of Decision Making
The foregoing description reveals the following characteristics of decision making
i! Decision making is a process of selection or choice among alters native courses of action. The need for
decision making arises only when more than one alternative e'ists for doing the work.
ii! The aim of decision making is to find out the best possible course of action. It is a rational and purposeful
activity designed to attain well)defined objectives.
Decisions relate means to ends. In order to identify the best alternative, it is necessary to evaluate all available
alternatives. As decision making is always purposeful, there may just be a decision not to decide.
iii! Decision making is an intellectual or rational process. As a mental e'ercise, it involves considerable
deliberation and thoughtful consideration of various factors influencing the choice. It is the end process
preceded by reasoning and judgment.
i"! Decision making involves a certain commitment. A decision results into the commitment of resources and
reputation of the organisation.
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This commitment may be for short term or long term depending upon the type of decision. Decision making
involves a time dimension and a time lags.
"! Decision making is always related to the situation or the environment. A manager may take one decision in a
particular situation and an opposite decision in a different situation. In some situations, there may just be a
decision not to decide.
"i! Decision making is a pervasive function of management. This function is performed by managers at all
levels though the nature of decisions may differ from one level to another. Decision making is a continuous
process.
"ii! Decision making is a human and social process. It involves the use not simply of the intellectual abilities
but also of intuition, subjective values and judgment.
It is not a purely intellectual process. *erception and human judgment are indispensable and no techni+ue can
replace them. ,ut knowledge and e'perience also provide basis for correct decisions.
"iii! The choice in decision making implies freedom to choose from among alternative courses of action
without coercion. It also implies uncertainty about the final outcome.
-hen there is no choice of action, no decision is necessary. The need for making any decision occurs only
when some uncertainty as to outcome e'ists.
Conce#t of Decision Making
Decision making is a cognitive process that results in the selection of a course of action among several
alternative scenarios.Decision making is a daily activity for any human being. There is no e'ception about that.
-hen it comes to business organi.ations, decision making is a habit and a process as well./ffective and
successful decisions make profit to the company and unsuccessful ones make losses. Therefore, corporate
decision making process is the most critical process in any organi.ation.
In the decision making process, we choose one course of action from a few possible alternatives. In the process
of decision making, we may use many tools, techni+ues and perceptions.In addition, we may make our own
private decisions or may prefer a collective decision.0sually, decision making is hard. Majority of corporate
decisions involve some level of dissatisfaction or conflict with another party.
Decision Making $rocess%
1ollowing are the important steps of the decision making process.
STE$ 1% IDENTI&IC'TION O& T(E $U)$OSE O& T(E DECISION%
In this step, the problem is thoroughly analysed. There are a couple of +uestions one should ask when it comes
to identifying the purpose of the decision.
-hat e'actly is the problem2 -hy the problem should be solved2 -ho are the affected parties of the problem2
Does the problem have a deadline or a specific time)line2
STE$ *% IN&O)M'TION +'T(E)IN+%
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A problem of an organi.ation will have many stakeholders. In addition, there can be do.ens of factors involved
and affected by the problem.
In the process of solving the problem, you will have to gather as much as information related to the factors and
stakeholders involved in the problem. 1or the process of information gathering, tools such as 34heck 5heets3 can
be effectively used.
STE$ ,% $)INCI$-ES &O) .UD+IN+ T(E '-TE)N'TIVES%
In this step, the baseline criteria for judging the alternatives should be set up. -hen it comes to defining the
criteria, organi.ational goals as well as the corporate culture should be taken into consideration.
As an e'ample, profit is one of the main concerns in every decision making process. 4ompanies usually do not
make decisions that reduce profits, unless it is an e'ceptional case. 6ikewise, baseline principles should be
identified related to the problem in hand.
STE$ /% B)'INSTO)M 'ND 'N'-0SE T(E DI&&E)ENT C(OICES%
1or this step, brainstorming to list down all the ideas is the best option. ,efore the idea generation step, it is
vital to understand the causes of the problem and prioriti.ation of causes.
1or this, you can make use of 4ause)and)/ffect diagrams and *areto 4hart tool. 4ause)and)/ffect diagram
helps you to identify all possible causes of the problem and *areto chart helps you to prioriti.e and identify the
causes with highest effect.
Then, you can move on generating all possible solutions 7alternatives8 for the problem in hand.
STE$ 1% EV'-U'TION O& '-TE)N'TIVES%
0se your judgement principles and decision)making criteria to evaluate each alternative. In this step, e'perience
and effectiveness of the judgement principles come into play. 9ou need to compare each alternative for their
positives and negatives.
STE$ 2% SE-ECT T(E BEST '-TE)N'TIVE%
:nce you go through from 5tep ! to 5tep %, this step is easy. In addition, the selection of the best alternative is
an informed decision since you have already followed a methodology to derive and select the best alternative.
STE$ 3% E4ECUTE T(E DECISION%
4onvert your decision into a plan or a se+uence of activities. /'ecute your plan by yourself or with the help of
subordinates.
STE$ 5% EV'-U'TE T(E )ESU-TS%
/valuate the outcome of your decision. 5ee whether there is anything you should learn and then correct in
future decision making. This is one of the best practices that will improve your decision)making skills.
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I6#ortance of 7ecision 6aking
!. I6#8e6entation of 6anageria8 f9nction -ithout decision making different managerial function such as
planning, organi.ing, directing, controlling, staffing can;t be conducted. In other words, when an employee
does, s<he does the work through decision making function. Therefore, we can say that decision is important
element to implement the managerial function.

". $er"asi"eness of 7ecision 6aking% the decision is made in all managerial activities and in all functions of
the organi.ation. It must be taken by all staff. -ithout decision making any kinds of function is not possible. 5o
it is pervasive.

#. E"a89ation of 6anageria8 #erfor6ance% Decisions can evaluate managerial performance. -hen decision is
correct it is understood that the manager is +ualified, able and efficient. -hen the decision is wrong, it is
understood that the manager is dis+ualified. 5o decision making evaluate the managerial performance.

$. (e8#f98 in #8anning an7 #o8icies% Any policy or plan is established through decision making. -ithout
decision making, no plans and policies are performed. In the process of making plans, appropriate decisions
must be made from so many alternatives. Therefore decision making is an important process which is helpful in
planning.

%. Se8ecting the :est a8ternati"es% Decision making is the process of selecting the best alternatives. It is
necessary in every organi.ation because there are many alternatives. 5o decision makers evaluate various
advantages and disadvantages of every alternative and select the best alternative.

&. S9ccessf98; o#eration of :9siness% /very individual, departments and organi.ation make the decisions. In
this competitive world= organi.ation can e'ist when the correct and appropriate decisions are made. Therefore
correct decisions help in successful operation of business.