Bba602 Slm Unit 06

Unit 6 Decision-Making SkillsStructure

6.1 IntroductionObjectives

6.2 Concept of Decision-MakingImportance of Decision-Making

6.3 Decision-Making ProcessImportance of Ethics and Values in Reaching Decisions

6.4 Decision-Making TechniquesGrid AnalysisPareto AnalysisDecision TreesBlind Spot AnalysisRisk AnalysisDelphi TechniqueImpact AnalysisThe Futures Wheel

6.5 Challenges in the Process of Decision-Making6.6 Summary6.7 Glossary6.8 Terminal Questions6.9 Answers

6.10 Case Study

Caselet

Do managers actually matter?The word ‘Google’ is recognized the world over and the work culture of thecompany is also known for its innovative and liberal approach to managingpeople and making important short-term and long-term decisions. The topmanagement at Google encourages their people to take all big and smalldecisions on the basis on data, analytics and scientific experimentation.Data to inform decision-makingGooglers believe in and implement the strategy of collected data to answerall the important questions and at the same time, recognize that unless thequestion being asked is properly phrased, the answers received, or therequired data would be rendered useless.

Management Development and Skills Unit 6

Sikkim Manipal University Page No. 104

So, the aim is to start with questions and be very clear about the informationneeds at the outset. Let us look at a great case example from their HRdepartment.Within their global HR function, Google has created a People AnalyticsDepartment that helps the organization with making HR decisions with data.One question Google wanted answered was: Do managers actually matter?This is a question that the Google management has been asking itself fromthe time of the inception of the company. Its founders regularly question thedegree of the contribution that managers make to the organization. To testthe impact, all managers were asked to stop conducting managerial activitiesand just contribute to other tasks individually. It turned out that the experimentwas a failure and after much chaos, the managers were brought back in.Source: Adapted from http://smartdatacollective.com/bernardmarr/85871/analytics-google-great-example-data-driven-decision-making (Retrieved on14 June 2013)

6.1 Introduction

In the previous unit, you have studied the concept, process, techniques andimportance of the problem-solving and the challenges in executing creative ideas.

Decision-making is the most difficult and the most significant componentof the management process. It is an underlying characteristic of leadership andfalls under the responsibility area of managers. A manager has to make all thedecisions related to the objectives of the organization, like job structure, motivatingpeople in-house to work for objectives, controlling activities etc. Decision-makingrequires the managers to follow the right process carefully as all the decisionstaken would determine how the organization resolves its issues, allocatesresources and accomplishes its objectives.

Decision-making is clearly an activity in which all human beings are involvedin day-in and day-out, whether it is domestic matters or business related issues.We need to take the most thoughtful and right decisions suitable to the prevalentsituation. However, studies prove that most people have poor decision-makingabilities and require an understanding of its process, techniques and how theycan start taking right decisions.

In this unit, you will learn about the concept, importance and process ofdecision-making. You will also study popular decision-making techniques andthe importance of ethics and values in reaching decisions.



Objectives

After studying this unit, you should be able to:• describe the concept and importance of decision-making• explain the decision-making process• apply the different types of decision-making techniques• identify the challenges faced in the process of decision-making

6.2 Concept of Decision-Making

The simplest way to understand decision-making is to view a decision as an actof choice by which an individual or organization selects one position or actionfrom several alternatives. ‘Decide’ is a verb derived from Latin prefix ‘de’ whichmeans ‘off’ and the work ‘caedo’ which means ‘to cut’. In this sense somecognitive process cuts off as preferred or selects a particular course of actionfrom among a set of possible alternatives.

‘Decision-making is a conscious and human process, involving bothindividual and social phenomenon based upon actual and value premises, whichconcludes with a choice of one behavioural activity from among one or morealternatives with the intention of moving toward some desired state of affairs’.(Shull et al, 1970)

Decision-making is thus an act of projecting one’s own mind upon anopinion or course of action. Three most important aspects of human behaviourinvolved in decision-making are:

• Cognition – Activities of the mind associated with knowledge• Conation – The action of the mind implied by words like willingness, desire

and aversion• Affection – The aspect of mind associated with emotions, feelings, mood

and temperament.Some popular definitions of decision-making include:

1. ‘The selection based on some criteria of one alternative behaviourfrom two or more possible alternatives’– George R. Terry

2. ‘A decision is an act of choice wherein an executive forms aconclusion about what must be done in a given situation. A decisionrepresents a behaviour chosen from a number of possiblealternatives.’ – D. E. McFarland



3. Decision-making is a cognitive process of reaching a decision.4. ‘A position or opinion or judgment reached after due consideration.’5. ‘Choosing between alternative courses of action using cognitive

processes — memory, thinking, evaluation, etc.’6. ‘Decision-making is the process of mapping the likely consequences

of a decision, working out the importance of individual factors, andchoosing the best course of action to take.’

7. ‘Decision-making is the process of selecting from several choicesand taking action.’

8. ‘Decision-making is the process of identifying and choosingalternatives based on the values and preferences of the decisionmaker.’

9. ‘Decision-making implies choosing the best amongst the availablealternatives. It does not mean to bring out a list alternatives but tochoose the one that has the highest probability of success oreffectiveness and second there must be some genuine alternativesto choose from. Every decision must be made after measuring it onjudgment parameters. These parameters are the reflection of thevalues and preferences of decision maker often affected by corporaterules or culture, law, best practices etc.’

10. ‘Decision-making is the most difficult process because the alternativesinvolve the risk of being incorrect hence it is the process ofsubstantially reducing uncertainty and doubts involved and bringingout a reasonable choice from among them.’ This definition stressesthe information-gathering function of decision-making. It should benoted here that a very few decisions are made with absolute certaintybecause complete knowledge of the available alternatives is seldompossible. Thus, every decision involves a certain amount of risk anduncertainty.

6.2.1 Importance of Decision-making

Decision-making is an integral part of daily life of all the managers. Managing isalmost impossible without making decisions. The importance of decision-makingis explained as under:

1. Performing management functions: All managers have to performcertain functions which require them to take decisions. Decision-makingpermeates in all these functions in the following manner:



(i) Decision-making in Planning: Managers have to constantly choose— What is to be done? Who has to do it and when? How it is to bedone? and so on. In other words, managers have to make decisionswhile framing objectives, policies, methods, rules, programmes etc.

(ii) Decision making in Organizing: In the course of organizing, managershave to decide the required activities for achieving objectives suchas assigning duties, delegating authorities to monitor these activitiesand establishing relationships etc. All these activities require themanagers to take decisions.

(iii) Decision making in Directing: Directing means communicating withpeople, leading and motivating a team. Thus, it requires managersto decide the medium, timing, media etc of communication.

(iv) Decision making in Controlling: Controlling requires a manager tocompare the performance viz-a-viz set standards and decide thecorrective measures in case of variations. Therefore, in the controllingprocess also a manager has to be decisive at every stage.

2. For the success of enterprise: ‘A decision may ultimately influence thesurvival of the organization.’ Appropriateness of decisions is the soledeciding factor for the survival, growth and success of the organization.

3. Mark of manager’s existence: Decision-making is the basis fordistinguishing managers or leaders from mere executors in anorganization.

4. To evaluate managers: Managers are evaluated and rewarded on thebasis of accuracy and relevance of their decisions. In fact, they are theyardstick of a manager’s effectiveness.

5. Solving problems: Decisions help to resolve issues and managers areresponsible for deciding the best possible solution in order to resolve crucialand complex problems.

6. Limiting the risk: Sound decisions processed through the right approachlimit the risk involved in actions.

7. Optimum utilization or resources: Both proper allocation and theoptimum utilization of resources are the result of sound and effectivedecision-making ability.

8. Achieving objectives effectively: All managers have the single-pointagenda of achieving preset objectives, hence, all their decisions arenaturally directed towards exploiting the opportunities effectively.



9. Facing challenges: All managers have to make decisions to meetchallenges arising from competitor activities, consumer behaviour,technological advancement etc. and ensure success.

Advantages of good decision-making

1. Better utilization of resources

Decision-making enables a manager to optimize the utilization of availableresources like men, money, material, machine etc. so as to achieve the objectivesof the organization.

2. Facing problems and challenges

Quick, correct and in-time decisions enable managers to face challenges andresolve problems.

3. Business growth

Timely and thoughtful decisions enable managers to meet the challenges andresolve issues and thereby contribute to the growth of an organization.

4. Achieving objectives

Rational decisions help managers to ensure timely achievement of objectivesand managers can rationalize the decisions only after having analysed andevaluated all the available alternatives.

5. Increases efficiency

Efficiency is the return and investment relationship and can be attained bymaximizing the ratio of returns over the investment. Rational decisions result inhigher returns at low cost.

6. Facilitate innovation

Rational decisions facilitate innovation and help the managers to develop newideas, new products, new process, etc. Innovation gives a competitive advantageto the organization.

7. Motivates employees

Rational decisions enable managers to encourage and motivate employees inorder to enable the organization to yield higher profits.



Self Assessment Questions

1. Three most important aspects of human behaviour are involved in decision-making include _______, _______ and __________.

2. In the course of ________, managers have to decide the required activitiesfor achieving objectives such as assigning duties, delegating authoritiesto monitor these activities and establishing relationships etc.

3. Managers can rationalize the decisions only after having analysed andevaluated all the available alternatives. (True/False)

6.3 Decision-Making Process

The decision-making process involves the following steps:

1. Identification of problems

The first step of the decision-making process is to recognize the actual problem.Whenever some problem or the opportunity emerges, there is a need to decideupon alternatives to successfully come out of the situation. Problem in generalis the outcome of situational disparity between the existing and the expectedone. It may also be the threat or the environmental alterations causing a decisionproblem. The manager therefore has to identify and define the actual problem ina clear manner rather than looking for alternatives to find a stopgap solution.

2. Diagnosing the problem

In this step, the manager has to identify the root cause of the problem or thecontributing factors. Diagnosis is essential to clearly understand the problem,its elements, symptoms, magnitude, urgency and relationship with other problemsand its impact over them. It is hence the manager’s responsibility to ensure thecorrect diagnosis which in turn will help the manager to reach the solution easilyand quickly.

3. Establishing specific objectives

In this step, a manager should clearly state the objective of making a particulardecision. Objective may be set in qualitative or quantitative terms or both butthey should be clear, flexible and realistic. In fact, they should serve as theyardstick to evaluate the results in contrast to the decisions made.



4. Identifying limitations or constraints

The next step is to recognize limitations or constraints of a possible alternative.Usually limitations would relate to inadequacy of funds, insufficient workforce,desired skill set, experience, time factor or legal provisions etc. Once themanager is able to recognize the limiting factor it would be easier for theorganization to reach the solution.

5. Finding alternatives

In this step, a manager has to search for various alternatives to find the possiblesolution. Once the alternatives are sourced, the manager has to squarely analysethem so as to arrive at the best solution. This process can be expensive andtime consuming as well and managers rarely get the time to complete the task.Moreover, many alternatives may also tend to raise confusion. Hence, managersare advised to restrict the alternatives which are most relevant to the problemsand should not invest more time and money than is actually worth it.

6. Analysis and evaluation of alternatives

Now it is the time to analyse the alternatives, which means methodicalclassification of available data. This is to identify the pros and cons in relation toeach other. Peter Drucker has suggested a four-step process to evaluate thealternatives in order to arrive at the right decision:

(i) Risk: There is no riskless alternative. The manager should therefore, weighthe risk of each alternative against the expected gains.

(ii) Economy of effort: The manager should see which alternative can givethe greatest result with the least effort.

(iii) Timing: The choice of alternative also depends upon the prevailing situationat a particular point of time.

(iv) Limitation of resources: Managers should see whether all means (human,physical and financial means) necessary to carry out the decisions areavailable.

7. Selection of appropriate alternative

The next step for the manager is to decide on the best alternative. Focusingupon the following two aspects facilitates the manager to arrive at the conclusionfaster:

• The alternative should contribute to the achievement of organizationalobjectives

• It should maximize the result in the given set of conditions.



In complex issues, alternatives may emerge as a clear choice, however,good judgement and experience plays an important role in arriving at the bestsolution.

8. Implementation of the decision

Implementation of a decision has high significance as the manager is associatedwith the continuous and ongoing process until the consequences are known.Implementation includes the following:

(i) Establishing derivative plans and their communication amongst executorsfor implementation.

(ii) The decision should be presentable in simple language(iii) Resources should be properly allocated.(iv) Seek cooperation in implementation.(v) Responsibility should be assigned for specific tasks.

9. Feedback

The final step of decision making is the process of feedback. The manager hasto constantly monitor the progress and the implementation. Correct all deviationswith immediate effect and modify the decision if needed in the changingcircumstances.

Identification ofproblem

Diagnosing theproblem

Establishing specific objectives

Feedback Identifying limitations

Evaluating alternatives

Selecting appropriate alternative

Implementing the decision

Figure 6.1 Decision-making Process



Activity 1Imagine that you are a manager at a large organization. The attrition rate atyour organization has gone up alarmingly in the last six months. You havebeen given the responsibility of making decisions regarding ways that wouldhelp in retaining employees. What process would you follow in dealing withthis problem?Hint: You will need to go through all steps of the decision making process,starting with identifying the problem causing high attrition.

6.3.1 Importance of Ethics and Values in Reaching Decisions

Business ethics are the professional judgment that individuals use to resolvemoral and ethical issues in an organization. It is important because every decisionor strategy should reflect the values on which an organization is based.

Consumers and societies today are willing to see more corporateaccountability and managers, therefore, are required to give active thought tothe company’s code of ethics, which should not be limited to employees onlyand must be followed by all of its stakeholders such as customers, suppliers,and the community.

Companies may use business ethics as an additional evaluation processfor business decisions to determine how they affect company's culture, valuesor social objectives. Business ethics have two dimensions: normative anddescriptive.

Descriptive ethics, also known as comparative ethics, are the study ofpeople's beliefs about morality. It contrasts with prescriptive or normative ethics,which is the study of ethical theories that prescribe how people ought to act, andwith meta-ethics, which is the study of what ethical terms and theories actuallyrefer to. The following examples of questions that might be considered in eachfield illustrate the differences between the fields:

• Descriptive ethics: What do people think is right?• Normative (prescriptive) ethics: How should people act?• Applied ethics: How do we take moral knowledge and put it into practice?• Meta-ethics: What does 'right' even mean?

Ethical decision-making empowers managers to make good choices andstrike out the bad ones.




4. _________ is essential to clearly understand the problem, its elements,symptoms, magnitude, urgency and relationship with other problems andits impact over them.

5. Business ethics have two dimensions: _______ and __________.

6.4 Decision-Making Techniques

Some popular decision-making techniques that managers use are given below:

6.4.1 Grid Analysis

Grid analysis is a technique used to choose one out of multiple options in asituation.

When you find yourself in a situation where there are a number of suitableoptions to choose from, and therefore, difficult to decide which one would be thebest, you can opt for grid analysis. For example, if you are recruiting a middle-level executive for your organization and there are 5 equally competent shortlistedcandidates, how would you decide? Grid analysis can be used here. The mainsteps are:

1. Create a table with all your options listed in a row and the columns will beof the different factors that you would consider about the candidates, suchas education, work experience, communication skills, general knowledgeof the industry, and so on.

2. Next, score each candidate for each factor on a scale of 0-5, where 0means poor and 5 means very good.

3. Then, rate the factors themselves in the order of importance. For instance,educational qualification will rate over general knowledge of the industry.Again, use the 0-5 scale.

4. Now, multiply each score from step 2 with the values for relative importanceof the factor that you calculated in step 3. This will give you weightedscores for every factor-option combination.

5. Last, add up the weighted scores for each option. The highest scoringcandidate would be your best choice.



6.4.2 Pareto Analysis

Pareto analysis is a statistical technique used to select a limited number oftasks to produce significant overall effect. Pareto principle, also known as the80/20 rule, presents the theory that 20% of the work produces 80% of resultswhile the rest of the 80% of your work produces only 20% of results. This is alsoknown as the vital few and the trivial many.

In late 1940s, Joseph M. Juran suggested this principle and named it afterItalian economist Vilfredo Pareto, who observed that 80% of income in Italy wentto 20% of the population. Later, his surveys in a number of countries brought tohis surprise the similar distribution ratio.To perform a Pareto analysis, you will need to follow these steps:

1. Form a table listing the causes and their frequency as a percentage.2. Arrange the rows in the decreasing order of importance of the causes, i.e.

high importance to low.3. Add a cumulative percentage column to the table.4. Plot with causes on x-axis and cumulative percentage on y-axis.5. Join the above points to form a curve.6. Plot (on the same graph) a bar graph with causes on x-axis and percent

frequency on y-axis.7. Draw a line at 80% on y-axis parallel to x-axis. Then drop the line at the

point of intersection with the curve on x-axis. This point on the x-axisseparates the important causes on the left and less important causes onthe right.

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Figure 6.2 A sample Pareto analysis



6.4.3 Decision Trees

A decision tree projects the image of a potential decision and provides managerswith an opportunity to chart other alternatives also. It helps the manager to analysehiring, marketing, investments, equipment purchases, pricing and other decisionsof similar sort. Usually decision trees are helpful in reviewing the risk involvingdecisions.

The term decision tree is derived from its graphical appearance showinginitial decision as the base. Various other alternatives projected upon futureenvironmental conditions and the payoffs associate the branches with the trunk.

Decision trees enforce managers to make a precise analysis of conditionsto be associated with future decisions and ascertain the consequences of variousalternatives. It is a flexible method and can be used in several situations wheresequential decisions, various probable conditions or the highlighting of alternativesneeds to be strongly emphasized.

6.4.4 Blind Spot Analysis

It is a method to reveal obsolete assumptions of environment from the mentalframe of the decision maker. In other words, it helps the manager to dispel andeliminate the biased or misinterpreted decision alternatives. Blind spot also refersto a competitive blind spot.

A blind spot is an unidentified, undetected flaw left in a plan by a manager/decision maker. It refers to the areas where the competitor will see no significancein the events, or perceive them either incorrectly or very slowly. This may resultin inappropriate strategic decisions, underestimation of competitors’ capabilitiesand resources, inability to grab newer opportunities and decreasing marketposition and profitability.

6.4.5 Risk Analysis

Risk analysis is the process to identify the likeliest threats to an organizationand analyze organizational vulnerabilities related to these threats. While the exactnature of potential disasters or their hazards as a consequence are difficult todetermine, comprehensive risk assessment of all the threats is always beneficialand therefore must be performed. Irrespective of the threat type, the goals ofbusiness and recovery planning should ensure the safety of customers,employees and other personnel during and after the occurrence of disaster.

It is important to determine disaster probabilities. Geographical location,topography of the area, proximity to major sources of power, bodies of water



and airports, degree of accessibility to facilities within the organization, historyof local utility companies in providing uninterrupted services, history of the area’ssusceptibility to natural threats, proximity to major highways which transporthazardous waste and combustible products though not all but are some of thefactors to determine the disaster probabilities.Potential exposures may be classified as natural, technical or human threats.Natural Threats: Floods, fire, seismic activity, high winds, snow and ice storms,volcanic eruption, tornado, hurricane, epidemic, tidal wave, typhoon etc.Technical Threats: Power failure/fluctuation, heating, ventilation or airconditioning failure, malfunction or failure of CPU, failure of system software,failure of application software, telecommunications failure, gas leaks,communications failure, nuclear fallout etc.Human Threats: Robbery, bomb threats, embezzlement, extortion, burglary,vandalism, terrorism, civil disorder, chemical spill, sabotage, explosion, war,biological contamination, radiation contamination, hazardous waste, vehiclecrash, airport proximity, work stoppage (internal/external), computer crime etc.

Instead of making an attempt to determine exact probabilities of eachdisaster, a general rating system of high, medium and low can be applied initiallyto identify the possible threat probabilities.

6.4.6 Delphi Technique

The Delphi technique was originally created to obtain the opinion of expertswithout gathering them all together face to face.

People in groups tend to display certain knowledge and distinctivecharacteristics known as group dynamics. This allows for a special applicationof the basic technique. The ‘change agent’ or ‘facilitator’ acts as an organizer,getting each person in the target group to express their concerns pertaining to aprogram, project or policy. The facilitator listens attentively, forms ‘task forces,’‘urges everyone to make lists,’ and while doing this, the facilitator learns somethingabout each member and identifies the ‘leaders,’ the ‘compulsive talkers,’ as wellas those who frequently turn sides during the argument -—the ‘weak or the non-committal.’

The Delphi method was initially developed in the 1950s by the RANDCorporation in Santa Monica, California. This approach consists of a surveyconducted in two or more rounds and provides the participants in the secondround with the results of the first so that they can adjust the original evaluationsif they want to, or stick to their original opinion.



Delphi studies can be complicated procedures to implement and requirespecific resources and experts, according to the scope of the study planned.The typical Delphi study process includes the preparation, a survey in two ormore rounds and finally analyses and application (implementation) after thesurvey has been concluded. All three activities are equally significant for theprocess.

6.4.7 Impact Analysis

Impact analysis is a challenging exercise carried out in order to capture andstructure all the potential consequences of a decision at first and secondly toensure that they are managed appropriately. Larger or more risky decisions callfor experienced people, ideally from different functional backgrounds within theorganization to do the analysis instead of one single individual to make the entireeffort. The following steps may help you to conduct an effective impact analysis:

1. Prepare for impact analysis

The first step is to employ a team of experienced professionals, helping them toaccess the right information sources. Everyone involved in the assessmentmust be clearly briefed with the proposed solutions and problems intended tobe addressed.

2. Brainstorm the major areas affected

It is an exercise to recognize the areas that are majorly affected by a decision. Ithelps to predict what departments or workforce in the line would it affect andwhat consequences it may bring.

3. Evaluate impacts

Work out the possibilities of all negative and positive impacts that a decisionmay cause along with their intensity and size. Evaluating the consequences ofthe decision in the end is also of great importance.

4. Manage the consequences

It is important to determine whether you would sustain the decision whatevernegative consequences or the cost it may bring about. If yes, decide the following:

• Actions to be taken in order to manage, mitigate or nullify the effects.• Steps to motivate affected people to realize and support the change.• Actions to be taken to manage the eventualities.



6.4.8 The Futures Wheel

The Futures Wheel is a technique to identify direct or indirect consequences oftrends and events. Jerome C. Glenn, who was a student of Antioch GraduateSchool of Education, invented this method in 1971. It is a powerful technique toexplore future trends, and at the same time, a very simple method in application.Its creative application may involve an individual or even the group. Policy makersand planners across world implement Futures Wheel currently to recognizepotential problems and opportunities, new markets, products and services toassess alternative tactics and strategies.

trend orevent

Figure 6.3 The Futures Wheel

The Futures Wheel is a useful technique to organize thinking and questionsabout the future. Write the name of a trend or event on a paper and circle it withsmall spokes to form a wheel-like structure. Each spoke at its end shouldpossess primary consequences while secondary impacts of each primary impactshould form a second ring in the wheel. This ripple effect continues until a usefulpicture of the implications of the event or trend is clear. The Futures Wheel ismost commonly used to:



• Analyse possible impacts of current trends and potential future events• Organize thoughts about future events or trends• Create forecasts within alternative scenarios• Show complex interrelationships• Display other future researches• Develop multi-concepts• Aid in group brainstorming


6. ________ analysis is a technique used to choose one out of multipleoptions in a situation.

7. ________ __________is also known as the principle of the ‘vital few andthe trivial many’.

8. _________ _______ analysis is a method to reveal obsolete assumptionsof environment from the mental frame of the decision maker.

9. The ________ _________ is a technique to identify direct or indirectconsequences of trends and events.

Activity 2Imagine that you are a manager at a large organization. You have beenasked to reduce the workforce in your team from 10 to 5. You need to decidewhich employees to keep and which to let go. Which analysis techniquewould you select and why?Hint: You will need to rate all 10 as per the same parameters.

6.5 Challenges in the Process of Decision-Making

The main challenges that a manager may face while making crucial decisionsare:

1. Time consuming: A manager has to spend a lot of time to analyse therisk-benefit ratio of all the available alternatives. Group discussions andseeking advice from many people further delays the process, and mayfinally result in delayed or no decisions.



2. Compromised decisions: In group decisions members always presenta different opinion and an attempt to please all the members would lead toa compromised decision upon implementation.

3. Subjective decisions: Individual decisions are subjective to theknowledge, education, experience, perception, beliefs, moral, attitude, etc.of the manager. Subjective decisions may not always be the best possibledecisions for a particular situation.

4. Biased decisions: Many a time managers take decisions which are eitherbeneficial to themselves, their group or are intended to grant favours tosomeone. This produces negative effects on employees, workers,consumers and even the society.

5. Limited analysis: Most managers do not explore all the alternatives beforearriving at a decision in particular due to inaccuracy of data or limited timeavailability. Inexperienced researchers and wrong sampling also result ina limited analysis, resulting in poor decisions.

6. Uncontrollable environmental factors: Environmental factors such aspolitical, social, technological and others, mislead managers to takeincorrect decisions.

7. Uncertain future: The only thing that is certain about future is that it isuncertain therefore decisions taken in present may not produce theexpected or predetermined results in the future.


10. A manager has to spend a lot of time to analyse the _______ _________of all the available alternatives.

11. Environmental factors such as political, social, technological and others,mislead managers to take incorrect decisions. (True/False)

6.6 Summary

Let us recapitulate the important concepts discussed in this unit:• Decision-making is the most difficult and the most significant component

of the management process. It is an underlying characteristic of leadershipand falls under the responsibility area of managers.



• The simplest way to understand decision-making is to view a decision asan act of choice by which an individual or organization selects one positionor action from several alternatives.

• The first step of the decision-making process is to recognize the actualproblem. Whenever some problem or the opportunity emerges, there is aneed to decide upon alternatives to successfully come out of the situation.

• Implementation of a decision has an equal significance as the manager isassociated with the continuous and ongoing process until theconsequences are known.

• Business ethics are the professional judgment that individuals use toresolve moral issues in an organization. It is important because everydecision or a strategy should reflect the values on which an organizationis based.

• Grid Analysis is a technique used to choose one out of multiple options ina situation.

• Pareto Analysis is a statistical technique used to select a limited numberof tasks to produce significant overall effect.

• A decision tree projects the image of a potential decision and providesmanagers with an opportunity to chart other alternatives also.

• The Futures Wheel is a technique to identify direct or indirectconsequences of trends and events. Jerome C. Glenn, who was a studentof Antioch Graduate School of Education, invented this method in 1971.

6.7 Glossary

• Blind spot analysis: Based on the works of Michael E. Porter, BenjaminGilad, and others, blind spot analysis is based on comparing a firm’smanagement and organizational drivers and dynamics with competitive,organizational and industry realities.

• Decision-making: Decision making is a process of first diverging toexplore the problem to be solved or the available opportunities to seekand then converging on one or more solutions.

• Risk: The possibility, likelihood or chance of experiencing an undesired,unwelcome, unpleasant, dangerous outcome or result is known as risk.



• Pareto analysis: Pareto analysis is a statistical technique used to selecta limited number of tasks to produce significant overall effect.

• Grid analysis: Grid analysis is a technique used to choose one out ofmultiple options in a situation.

• Decision tree: A decision tree projects the image of a potential decisionand provides managers with an opportunity to chart other alternatives also.

• Impact analysis: Impact analysis is a challenging exercise carried out inorder to capture and structure all the potential consequences of a decisionat first and secondly to ensure that they are managed appropriately.

6.8 Terminal Questions

1. What do you understand by decision making? What is its importance inmanagement?

2. Elaborate the process of decision making.3. Write in detail about the Delphi technique used for decision-making.4. What is the process followed in grid analysis?5. Write a detailed note on impact analysis.6. What are the challenges faced in making correct and ethical management

decisions?

6.9 Answers


1. Cognition, conation, affection2. Organizing3. True4. Diagnosis5. Normative, descriptive6. Grid7. Pareto principle8. Blind spot analysis9. Futures Wheel



10. Risk-benefit ratio11. True

Terminal Questions

1. The simplest way to understand decision-making is to view a decision asan act of choice by which an individual or organization selects one positionor action from several alternatives. For further details, refer section 6.2.

2. The first step of the decision-making process is to recognize the actualproblem. For further details, refer section 6.3.

3. The Delphi technique was originally created to obtain the opinion of expertswithout gathering them all together face to face. For further details, refersection 6.4.6.

4. Grid analysis is a technique used to choose one out of multiple options ina situation. For further details, refer section 6.4.1.

5. Impact analysis is a challenging exercise carried out in order to captureand structure all the potential consequences of a decision. For furtherdetails, refer section 6.4.7.

6. The main challenges that a manager may face while making crucialdecisions are listed here. For further details, refer section 6.5.

6.10 Case Study

Strategic Decision-Making to Increase ProfitsRuchi Superstores Ltd (RSL) is one of the pioneers in the concept of retailgrocery in India. In spite of its presence in the market for a long time, thestores of the firm were still recording losses. After the preliminary study atRuchi I store, it was obvious that change in strategy was required and somesmart decisions will need to be taken.It was clear that each decision will have to be analysed in detail and so, anoperational plan for implementation was prepared.To increase the sales, the product assortment required detailed analysisand the changes in terms of additions and deletions of the brands and stockkeeping units (SKUs). For this, the data giving detailed sales figures of SKUsin Delhi over a specific period were used. A few categories were analyzedand the framework was suggested to the company for periodic analysis.



1. The analysis of shampoo sales showed that Ruchi I did not keepsachets, which form a major part of sales in Delhi. It was decided thatthe store would stock sachets of not only the shampoo bottle brandsthat were being sold but also some additional brands. Ketchup salesanalysis showed that Top’s brand was popular and it was decided thatketchup bottles of three sizes of Top’s would be stocked.

2. Analysis of inventory levels showed that certain categories and brandsrequired rationalization of inventory levels to avoid stock-outs as well ascontrol of high inventory in others. The company took a quick decisionand reduced the inventories of Revlon and Lakme stocks. Also, the newinventory levels of each SKU were suggested.

3. An analysis of store dynamics shows that most of the store profits comefrom a smaller part of the sales, while other products act as loss leaders.Hence, the categories, which form a major part of the profits, wereidentified. It was decided that these categories be the focus ofpromotional effort as increase in their sales greatly improves the bottomline of the company.

4. The Gross margin return on investment (GMRoI) of each category wascalculated and the categories with very low and very high GMRoI wereespecially analysed, so as to make decisions regarding productassortment and inventory levels of the category.

5. Finally, the cost structure of the store was presented and it was decidedthat more focus would be placed on reduction of pilferage, since in theretail industry, lower operating costs are the greatest competitiveadvantage.

We see, finally, that all the 5 decisions were relevant for Ruchi I and eachwould go a long way in improving the profitability of the store dramatically.Also, the operational plans were prepared in many cases for the company.It was also decided that the option of providing permanent markdowns in allSKUs would be used, which would help to increase the sales level.Discussion Questions1. What other decisions could have been taken to help increase profits at

the store?2. What were the key steps that were taken to help profit levels?

Hint: Shampoo sachets would be added.Source: Compiled by Author



References

• James G. March (2009), Primer on Decision Making: How DecisionsHappen, Free Press.

• J. Edward Russo ( 2001) Winning Decisions: Getting It Right the FirstTime, Crown Business

E-References

• http://businesscasestudies.co.uk/business-theory/strategy/decision-making.html#ixzz2QnwWanc0 (Retrieved on 18 April 2013)

Bba602 Slm Unit 06

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