Decision Making- a Primary Task of the Manager

Topics: Decision making, Decision theory, Decision tree Pages: 7 (2370 words) Published: September 21, 2010

As the term implies, decision making is the process of selection of a course of action from among alternatives. All decisions made in an environment of at least some uncertainty. However, the degree will vary from relative certainty to great uncertainty. There are certain risks involved in making decisions. In a situation involving certainty, people are reasonably sure about what will happen when they make a decision. The information is available and is considered to be reliable, and the cause and effect relationships are known. In a situation of uncertainty, on the other hand, people have only a meager database, they do not know whether or not the data are reliable, and they are very unsure about whether or not the situation may change.

In a risk situation, factual information may exist but it may be incomplete. To improve decision making, one may estimate the objective probabilities of an outcome by using, for example, mathematical models. On the other hand, subjective probability, based on judgement and experience, may be used. Fortunately, there are a number of tools available that help managers make more effective decisions. All intelligent decision makers dealing with uncertainty like to know the size and nature of the risk they are taking in choosing a course of action. One of the deficiencies in using the traditional approaches of operations research for problem solving is that many of the data used in a model are merely estimates and others are based on probabilities. The ordinary practice is to have staff specialists come up with “best estimates”. However new techniques have been developed that gives a more precise view of risk. Virtually every decision is based on the interaction of a number of important variables, many of which have an element of uncertainty but, perhaps,a fairly high degree of probability. Thus, the wisdom of launching a new product might depend on a number of critical variables the cost of introducing the product, the cost of producing it, the capital investment that will be required, the price that can be set for the product, the size of the potential market, and the share of the total market that it will represent.

Manager’s main job is decision making and quite often they have to decide on what is to be done, who is to do it, when, where, and so on and so forth. The first step in decision making after having decided our goals and our planning premises is to develop all the possible ways of reaching the goals. If one thinks hard enough more than one way to achieve the goals can be identified. If you cannot find more than one way to the goals then I would say probably you have not thought hard enough. This is because almost always alternatives exist. There is a good statement I remember on this occasion-I quote the unknown “ If there seems to be only one way of doing a thing, that way is probably the wrong way.” Now you can understand the limitations and boundaries within which the manager has to act. On the way to achieving the desired goals there would be more often than not something that would stand in the way, obstructing the path. This something that stands in the way accomplishing a desired goal is a limiting factor.

The principle of limiting factor states as follows: By recognizing and overcoming those factors that stand critically in the way of a goal, the best alternative course of action can be selected. Steps In Decision-making Process Let us now look at the process of decision making. Having found many alternatives to the goal, the next logical step is to decide and select one of them for adoption. Obviously, you need to evaluate them find the most appropriate one for implementation. In evaluating the alternatives, the managers are likely to do so: Quantitative Factors–

1. The factors that can be measured in numerical terms, 2. Qualitative Factors–factors that are...
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