Study Notes

Decision Making
Meaning and Process
Decision Making – meaning and process

Introduction

We make decisions as part of our everyday routine, from big ones, like career related, to more
mundane decisions, like what to have for breakfast.

In an organisation too, many decisions are to be taken right from big ones like what the
company wants to achieve in long term to mundane decision related to everyday operations. An
organization needs to make decisions at one point or other as part of managerial process, which
are in the best interest of the organization. As such, decision making is also an integral part of
every organisation. The job of management involves the making of innumerable decisions. A
decision is required to make where there is a problem or an opportunity.

Since decision-making is an element in the planning process of management, many consider

decision making as synonymous with management itself. Managers spend considerable amount
of time in making decisions. Good decisions increase organizational efficiency.

Meaning of Decision and Decision making

Decision is a choice whereby a person comes to a conclusion about a given circumstance or

situation. For example, tossing a coin in a cricket match is done to ‘decide’ which team will bat
first. Likewise, different situations may come in our life where we have to choose a particular
option by giving up other options. The difficulty of making a decision will vary depending on the
problem. When we make a choice, we are making a decision. That decision is taken by
considering certain factors relevant to the situation which guides us in taking the decision.
Decision, as such, represents a course of behaviour or action about what one is expected to do
or not to do.

Since ‘decision’ refers to a choice which is made from the available alternatives, to make a
decision, there must be some alternatives. These alternatives are analysed and finally a
particular alternative is selected i.e., the decision is taken. If there are no alternatives, we have
no option to select.

Decision-making, therefore, involves the selection of a course of action from among two or
more possible alternatives to arrive at a solution for a given problem. Every decision-making
process produces an outcome that might be an action, a recommendation, or an opinion.

Note - doing nothing or remaining neutral is usually among the set of options one chooses from,
and therefore, selecting that course is also making a decision.

Decision making is an on-going activity and plays vital role in the functioning of an organization.
All managerial functions viz., planning, organizing, staffing, directing, and controlling are carried
through decisions. However, its role is needed the most in the planning function in deciding
the goals and objectives of an organisation, and the course of action to achieve those goals.
Decision-making is thus the core of managerial activities in an organisation.

2
Decision Making – meaning and process

Elements or features of Decision making

 Decision making is invariably a rational process that aims at objective analysis to arrive
at the best outcome.
 It is concerned with the detailed study and evaluation of the available alternatives for
finding the best possible alternative. As such, it is also an action.
 Decision–making is a selection process and is concerned with selecting the best type
of alternative.
 Decision making is a mental process. It is the outcome of constant thoughtful
consideration.
 Decision making process is a consultative process done by professionals/members of
an organisation to drive better functioning of any organization.
 It is a continuous and dynamic activity that pervades all other activities pertaining to
the organization.
 The decision making has a purpose i.e. decision taken is aimed at achieving the
organisational goals.
 It leads to commitment. The commitment depends upon the nature of the decision
whether short term or long term.

Rational
thinking

Commitment Evaluative

Decision
making

Purposive Selective

Mental
Process

Figure 1: Features of decision making

3
Decision Making – meaning and process

Process of Decision making

Decision making is the process of making choices by identifying a decision, gathering

information, and assessing alternative resolutions. The process of decision making involves the
following steps:

 Find and define the problem

 Establishing objectives
 Classifying and prioritizing objectives
 Developing selection criteria
 Identifying alternatives
 Evaluating alternatives against the selection criteria
 Choosing the alternative that best satisfies the selection criteria
 Implementing the decision
 Review results of decision

Figure 2: Steps in decision making process

 Step 1 – Defining the problem or identifying the opportunity

As a first step it is important to identify the problem to be solved or the opportunity for
which a decision has to be made. For example, if there are differences between
standards of performance and actual performance, a manger would need to take
decision about how to solve the problem of underperformance. Similarly, when the
manager perceives some opportunities i.e. when he visualizes a chance to achieve more
than the present state, decision- making becomes important to capture that opportunity.

As part of this step, the management must also establish what objective it wants to
achieve by taking the decision. If there are more than one objective, then those need to
be classified in the order of priority. The management should also identify the selection
criteria or any factors that have to be taken into consideration while taking the decision.
This step requires gathering of information related to the problem/opportunity, and
various criteria to be kept in mind.

4
Decision Making – meaning and process

 Step 2 – Identifying alternatives

The next step in decision- making is to identify the viable alternatives to solve the
problem or to capture the opportunity. In generating the alternatives, the manager can
use his past experience as well as generate new alternatives in the light of the changed
situation by utilizing his creativity. The manager can also observe the methods followed
by others in similar situations. In selecting the alternatives, the manager must take into
account the strengths and weaknesses of the organization and the opportunities and
threats that exist in its external environment.

 Step 3 - Evaluating alternatives

A major part of decision making involves the analysis of a defined set of alternatives
against selection criteria. These criteria usually include costs and benefits, advantages
and disadvantages, and alignment with preferences. For example, when choosing a
place to establish a new business, the criteria might include rental costs, availability of
skilled labor, access to transportation and means of distribution, and proximity to
customers. The decision maker may face a problem when trying to evaluate alternatives
in terms of their strengths and weaknesses. This can be especially challenging when
there are many factors to consider.

 Step 4 – choosing the alternative

The next step in the decision-making process is to select the best alternative. The
evaluation of alternatives helps the manager in considering their consequences. Based
on the relative importance of the factors, a manager makes a decision that best meets
the criteria and objective. Time limits and personal emotions also play a role in the
process of choosing between alternatives.

 Step 5 – Implementing the decision

This is the step of implementing the decision to solve the problem or to capture the
opportunity at hand. The manager must ensure the effective implementation of the
decision in the organization. Effectiveness of the decision depends on its acceptability by
the subordinates. For this the manager must communicate the decision to them to get
their support.

 Step 6 – Review of decision/follow-up

The aim of implementing the decision is to solve the problem or to take the opportunity.
Therefore, the manager must evaluate the result of the decision. The follow-up of the
decision will help him in adjusting the decision for any distorted result. For a decision to
be considered as the best, it must fulfil the conditions of the decision situation and
achieve the objective for which it was taken.

When it comes to making decisions, one should always weigh the positive and negative
business consequences and should favour the positive outcomes. This avoids the possible
losses to the organization and keeps the company running with a sustained growth.