management chap 4

A Global and Entrepreneurial Perspective

MANAGEMENT

PRINCIPLES OF MANAGEMENT
Sr. No.Chapter No.Chapter Heading11Management: Science, Theory and Practice (27th September 2010)24Essentials of Planning and Managing by Objectives (4th Oct)35Strategies, Policies and Planning Premises (11th Oct)46Decision Making (18th Oct)57The Nature of Organizing, Entrepreneuring, and Reengineering68Organization Structure: Departmentation79Line/ Staff Authority, Empowerment and Decentralization810Effective Organizing and Organization Culture914Human Factors and Motivation1015Leadership1116Committees, Teams and Group Decision Making1218The System and Process of ControllingSessional EvaluationExternal Evaluation1515205050Quiz per ClassAssignment & PresentationMid-termTotal SessionalExternal Exam

Decision Making
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Chapter 4

TABLE OF CONTENTS

The importance and limitations of rational decision making

Development of alternatives and the limiting factor

Evaluation of alternatives

Selecting an alternative: three approaches

Programmed and Non- programmed decisions

Decision Making under certainty, uncertainty, and risk

Creativity and Innovation

DECISION MAKING

Decision making is the selection of a course of action amongst all possible alternatives

THE IMPORTANCE AND LIMITATIONS OF RATIONAL DECISION MAKING
Rationality in decision making:Deciding or acting rationally is attempt to reach some goals that cannot be attained without action.A clear understanding of alternative courses is required, by which a goal can be rached under existing circumstances and limitationsThe information and the ability to analyze and evaluate alternatives in the light of goals sought is also requiredA desire to come to the best solution by selecting the alternative that most effectively satisfies goal achievement is another requirementAchieving complete rationality is seldom:Future may always have uncertaintiesIt is difficult to recognize all the possible alternatives to reach the goal, mostly in new situationsMostly all the alternatives can not be analyzed, even after using the newest analytical techniques

THE IMPORTANCE AND LIMITATIONS OF RATIONAL DECISION MAKING
Limited or Bounded RationalityThe polymath Herbert Simon in 1956, proposed that rationality is bounded. Because getting information is costly and decision outcomes typically unknown, instead of maximizing utilities, people only try to satisfice.Satisficing, a "handy blended word combining satisfy with suffice",is a decision-making strategy that attempts to meet criteria for adequacy, rather than to identify an optimal (best)solution

DEVELOPMENT OF ALTERNATIVES AND THE LIMITING FACTORS
After we are done with setting our goalsAnd finalizing a clear planning premisesNow it is required to develop alternativesThere are always alternatives to any course of action, that could be developed by ingenuity, research and common senseIf we dont find any alternative, then we need to work hard upon it.The principle of limiting factor:By recognizing and overcoming those factors that stand critically in the way of a goal, the best alternative course of action can be selected

EVALUATION OF ALTERNATIVES
After we have developed appropriate alternatives, we need to select them after due evaluationDecision making is involved in every step of decision making like selecting goals, in choosing critical premises etcThe alternatives must be evaluated in terms of quantitative as well as quantitative factorsQuantitative factors (intangible factors):the factors that can be measured in numerical terms such as deadlines, costs etcQualitative factors (intangible factors):the factors that are difficult to be measured numerically such as the morale of labor, the political climate, the risk of technological change etc

EVALUATION OF ALTERNATIVES
Marginal Analysis:The objective is to increase the profit, and with increasing output, the additional cost is also incurred/ required.If the additional revenue of a larger quantity is greater than its additional cost, more profit can be made by producing moreHowever, if the additional revenue of the larger quantity is less than its additional cost, a larger profit can be made by producing lessCost Effectiveness AnalysisThis is also called as Cost benefit analysis.It seeks the best ratio of benefit and cost

SELECTING AN ALTERNATIVE: THREE APPROACHES

Experimentation

How to select from amongst alternatives?

Choice Made

Reliance on the past

Research and Analysis

ExperienceExperience is the best teacherGood judgment includes the process of thinking problem through, making decisions and seeing programs succeed or fail. Some times intuition is also helpfulHowever relying on past experience for future action can be dangerousIf you dont realize the underlying reasons of mistake or failureSome times the lessons of experience could not be applied to the new problemsExperience if carefully analyzed to find out the reason for success or failure, only then could be usefulLearning from others experiences is also wise

Experimentationto implement the alternatives and then to find out which one is the best, especially keeping all intangible factors in accountIt is expensiveAfter trying one alternative in managerial situations, the results may still not be duplicated in the futureThere are certain production related or other situations, where the experimentation is ultimately required such as making a planeA product be tested in a selected market first before expanding the sales nation-wideA candidate is given a probation period on job

Research and AnalysisIt is the pencil and paper approachOne of the most effective techniques for decision makingIt involves a search for relationships among the more critical variables, constraints and premisesThis is far more cheaper than experimentationSimulation: a technique where extensive blue prints of the problems are madeIt may be a representation of variables in a problem situation by mathematical terms and relationships

Programmed Decisions:These are used for structured or routine work.For example routine or repetitive workNon Programmed Decisions:These are used for unstructured, novel and ill-defined situations of a non recurring natureFor example Strategic decisionsMost of the decisions are a combination of both typesMost of the structured problems are dealt with lower level managers while the unstructured problems are dealt by upper level managers
PROGRAMMED OR NON PROGRAMMED DECISIONS

In situation of certainty, it is known what will happen when a decision is madeThe information is available and considered to be reliableThe cause and effect relationships are knownIn a situation of uncertainty,The complete information is not availableIt is not known whether the data is reliable or notThe future situations also could be predicted through premisingIn situations with risks:The objective probability of an outcome may be estimated by using mathematical modelsThe subjective probability may be estimated by judgment and experience
DECISION MAKING UNDER CERTAINTY, UNCERTAINTY, AND RISK

Creativity:The ability and power to develop new ideasInnovation:The use of new ideasThe creative process: It consists of four overlapping and interacting phases:
Unconscious scanning
It is unconscious and requires an absorption in the problem
Intuition
It connects the unconscious to the consciousIt may involve apparently contradicting factorsIt needs time to work upon, requires that people find new combinations and integrate diverse concepts and ideasIt is promoted by brain storming and other techniques
CREATIVITY AND INNOVATION

3.Insight
It is the result of the hard workThis may sometime be distracting or be a result of distractionThe insights are usually required to be noted down and then evaluated as creative ideas
4.Logical formulation/ verification
This is the final stage of the creative process.Insights are tested in the light of logic or experiment or by criticism.

BRAIN STORMINGThe group thinking technique was developed by Alex F. OsbornIt helps problem solving by finding new and unusual solutionsIn sessions of brain storming, a multiplication of ideas is sought and following rules are followed:No ideas are ever criticizedThe more radical the ideas are, the betterThe quantity of ideas production is stressedThe improvement of ideas by others is encouragedThis was criticized by the fact that individuals may better develop ideas while working alone/ themselvesHowever later researches showed that in some situations, the group approach works well

LIMITATIONS OF TRADITIONAL GROUP DISCUSSIONSSome times group discussions may slow down creativityGroup members may take only one idea to the discussion table, excluding the possibility of other alternativesSome of the group members may not present their ideas for fear of being ridiculedLower level mangers may prefer to stay silent in front of senior managersPeople tend to get along with others and hence may not give unpopular ideasGroup may try to conclude the process, not putting efforts in searching for alternatives

management chap 4

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