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Question 1: Write a note on decision making in management. How one willtake decision under risk and uncertainty.Answer:

Decision-making is a crucial part of good business. The question then is ‘how

is a good decision made?One part of the answer is good information, and experience in interpreting

information. onsultation ie seeking the !iews and expertise of other peoplealso helps, as does the abilit" to admit one was wrong and change one#s

mind. There are also aids to decision-making, !arious techniques which helpto make information clearer and better anal"sed, and to add numerical and

ob$ecti!e precision to decision-making %where appropriate& to reduce the

amount of sub$ecti!it".'anagers can be trained to make better decisions. The" also need a

supporti!e en!ironment where the" won#t be unfairl" criticised for makingwrong decisions %as we all do sometimes& and will recei!e proper support

from their colleague and superiors. ( climate of criticism and fear stifles risktakingand creati!it") managers will respond b" ‘pla"ing it safe# to minimise

the risk of criticism which diminishes the business# effecti!eness in

responding to market changes. *t ma" also mean managers spend too muchtime tr"ing to pass the blame around rather than getting on with running the

business.Decision-making increasingl" happens at all le!els of a business. The +oard

of Directors ma" make the grand strategic decisions about in!estment anddirection of future growth, and managers ma" make the more tactical

decisions about how their own department ma" contribute most effecti!el" to

the o!erall business ob$ecti!es. +ut quite ordinar" emplo"ees areincreasingl" expected to make decisions about the conduct of their own

tasks, responses to customers and impro!ements to business practice. Thisneeds careful recruitment and selection, good training, and enlightened

management.Types of Business Decisions1. Programmed Decisions These are standard decisions which alwa"sfollow the same routine. (s such, the" can be written down into a series of fixed steps which an"one can follow. The" could e!en be written as computer

program2. Non-Programmed Decisions. These are non-standard and non-routine.ach decision is not quite the same as an" pre!ious decision.3. Strategic Decisions. These affect the long-term direction of the businesseg whether to take o!er ompan" ( or ompan" +

4. Tactical Decisions. These are medium-term decisions about how toimplement strateg" eg what kind of marketing to ha!e, or how man" extra

staff to recruit5. perational Decisions. These are short-term decisions %also calledadministrati!e decisions& about how to implement the tactics eg which firmto use to make deli!eries.

!igure 1" #e$els of Decision-%a&ingFigure 2: The Decision-Making Process

The model in igure abo!e is a normati$e model, because it illustrateshow a good decision oug't to (e made. +usiness /tudies also uses positi!emodels which simpl" aim to illustrate how decisions are, in fact, made inbusinesses without commenting on whether the" are good or bad.

#inear programming models help to explore maximising or minimisingconstraints eg one can program a computer with information that establishes

parameters for minimising costs sub$ect to certain situations and information

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about those situations.Spread-s'eets are )idely used for *)'at if+ simulations. ( !er" largespread-sheet can be used to hold all the known information about, sa",pricing and the effects of pricing on profits. The different pricing assumptions

can be fed into the spread-sheet ‘modelling# different pricing strategies. This

is a lot quicker and an awful lot cheaper than actuall" changing prices to see

what happens. On the other hand, a spread-sheet is onl" as good as theinformation put into it and no spread-sheet can full" reflect the real world.+ut it is !er" useful management information to know what might happen to

profits ‘what if# a skimming strateg", or a penetration strateg" were used forpricing.

The computer does not take decisions) managers do. +ut it helps managersto ha!e quick and reliable quantitati!e information about the business as it is

and the business as it might be in different sets of circumstances. There is,

howe!er, a lot of research into ‘expert s"stems# which aim to replicate thewa" real people %doctors, law"ers, managers, and the like& take decisions.

The aim is that computers can, one da", take decisions, or at least

programmed decisions %see abo!e&. or example, an expedition could carr"an expert medical s"stem on a lap-top to deal with an" medical emergenciese!en though the nearest doctor is thousands of miles awa". (lread" it is

possible, in the 0/, to put a credit card into a ‘hole-in-the-wall# machine and

get basic legal ad!ice about basic and standard legal problems.,onstraints on Decision-%a&ing

 Internal Constraints

These are constraints that come from within the business itself.

- $aila(ility of finance. ertain decisions will be re$ected because the"cost too much

- /isting Business Policy. *t is not alwa"s practical to re-write businesspolic" to accommodate one decision- People+s a(ilities and feelings. ( decision cannot be taken if it assumeshigher skills than emplo"ees actuall" ha!e, or if the decision is so unpopularno-one will work properl" on it.

External Constraints

These come from the business en!ironment outside the business.

- National 0 legislation- ,ompetitors+ (e'a$iour, and their likel" response to decisions "ourbusiness makes

- #ac& of tec'nology- conomic climateuality of Decision-%a&ing/ome managers and businesses make better decisions than others. 1ood

decision-making comes from2-

3. Training of managers in decision-making skills. /ee De!eloping'anagers

. 1ood information in the first place.4. 'anagement skills in anal"sing information and handling its

shortcomings.5. xperience and natural abilit" in decision-making.

6. 7isk and attitudes to risk.

8. 9uman factors. :eople are people. motional responses comebefore rational responses, and it is !er" difficult to get people to make

rational decisions about things the" feel !er" strongl" about. 7i!alriesand !ested interests also come into it. :eople simpl" take different

!iews on the same facts, and people also simpl" make mistakes.