DECISION MAKING

Introduction Prime role of Managers as Decision Makers. (a) Decisions to be made before business is undertaken. (b) Decision to be made when business is in operation: (1) Decision Regarding Production. (2) Finance Decisions. (3) Decision About personnel. (4) Decisions about sales & Distribution.

Definition Koontz & ODonnell : Decision Making is actual selection from among various alternatives of a course of action. It is at the core of planning. George R Terry : Decision making can be defined as the selection based on some criteria of one behavior alternative from two or more possible alternatives.

Process of/ Stages of Decision Making. 1.Defining & Clarifying Problem. 2.Collecting & Analyzing Data. 3. Analyzing the problem. 4.Developing alternative solutions. 5. Evaluating & Selecting Solution. 6. Implementing & Assessment of Decision.

Defining & Clarifying problem Problem means discrepancy between existing and desired state. Very often problem may not be as simple as it looks Eg. : Problem of decrease in sales Collecting and analyzing data Two types of data are there: Internal data External data Classification and analysis through tables, diagrams and formulas should be carried out

Analyzing the problem It becomes helpful in following respects It clarifies the future of the decision It clarifies the effects on other departments It clarifies whether the decision is regarding some routine matters or a special matter How much importance is to be given to the economic, social and political forces for analyzing the problem

Developing alternative solution If alternatives are not there, there is no decision to be made All possible alternatives must be thought so that risk of wrong decision could be minimized Eg. Sources of finance. Evaluating & Selecting solutions Comparative advantages & disadvantages are searched out Important factors like risk, economy, effort, time factor, and limitations could be considered.

Implementation & assessment of decisions Solution selected has to be made effective Feasibility of the decision is to be verified Instructions should be issued Meetings should be arranged Efficient system of communication and dispersal of authority and responsibility should be made Barriers if any should be tackled

Decision Tree Quantitative Method. It makes it possible to see a large no. of decisions arising out of the main decision. A chain of sub- decisions reveals various alternatives enabling managers to make choice of the best alternative from among them. Is a systematic Portrayal of future acts ( decisions ) & events ( consequences ) in an organized form directly connected with the analysis of a problem having sequential outcomes over a period of time.

The method is known as Decision tree because… Can be represented either vertically or horizontally.

Characteristics 1) Several alternatives emerge out of a main decision. 2) Presented in a tabular form. 3) The final result in its monetary terms is presented for each of these alternatives. 4) The choice is made after careful consideration of the result & after a systematic comparison of alternative as well. 5) The probability theory is employed for decision making.

6) As the result, some event occurs which are depicted in the decision tree. 7) It is a graphical presentation.

Decision Tree for Playing Tennis

Illustration Suppose a large industrial unit desires to raise sales of its product.It can finalize decision after finding out various alternatives, making a comparison & quantifying their consequences through the portrayal of decision tree.

PERT PERT : Program Evaluation & Review Technique. Projects include huge amount of money & time. Therefore there must be careful analysis of the whole project. One of the technique used for the purpose of planning & control of such projects is PERT. It is used to determine minimum time within which a programme or a project can be completed systematically.

PERT was developed in 1958 by the US navy in planning for scheduling & controlling polaris missile system. Later it was made compulsory to implement any programme in US military.

Illustration : ActivityDescriptionTime(In hours) ATo requisition part A1 BTo put it on lathe4 CTo get it colored3 DTo assemble it2 ETo requisition part B1 FTo put it on sharper7 GTo get it polished5 HTo assemble it2

E F G B C D A 1 Hour 3 Hours 7 Hours 3 Hours 2 Hours 1 Hour 5 Hours

Dummy Activity : Sometimes two activities take place at same time but one of them may not be necessary before the next activity is taken up. Illustration showing Dummy Activity.

Dummy activity A C D B F E AA 1 Hour 3 Hours 7 Hours 0 Hour 2 Hours 3 Hours 5 Hours

Characteristics of PERT. Planning & Control: Planning the project & controlling its performance to complete in the shortest possible time. Division of Activities. Events. Mutually Related. Expected Time. Related to time. ( PERT / Time & PERT / Cost ). Presentation by Chart. Critical Path.

CPM CPM : Critical Path Method. This method is also used to determine the estimated time of each of the activities & on that basis to determine minimum time to complete a project. The expected time to complete the project is determined on the basis of time required by the Critical Path. Critical Path : The longest path. Slack or Float : Surplus time. NOTE: There is no Slack or Float in Critical Path. Illustration for Understanding Slack or Float

Difference B/w PERT & CPM. PERT 1. Was Developed in Was developed by Navy special project office for the Polaris project 3. More Used in research and development 4. The point at which activity is completed is called event whereas different portions of tasks are known as Activity CPM 1. Was Developed in Was developed I Du Pont company by walker and kelly 3. More used in construction projects 4. The point at which activity is completed is called Node whereas different portions of tasks are known as Job

Advantages of PERT. 1) Planning. 2) Control. 3) Management By exception. 4) Utilization of resources. 5) Estimated Time. 6) Balance. 7) Savings in Time. 8) Flexibility. 9) Manpower Planning.

Limitations of PERT. Difficulty in Estimating. Repetitive Activities. Cost Control. Support of Top Managers. Complications. Estimates.