Unit-II:

Conceptual Foundations:

Decision Making Concept and method, tools, procedures

Meaning and Definitions of Decision Making:

One of the most important functions of a manager is to take decisions in the organization. Success or
failure of an organization mainly depends upon the quality of decision that the managers take at all
levels. Each managerial decision, whether it is concerned with planning, organizing, staffing or
directing is concerned with the process of decision-making.

A decision is a course of action which is consciously chosen from among a set of alternatives to
achieve a desired result. It means decision comes in picture when various alternatives are present. It
is also a mental process. Whether the problem is large or small in the organization, it is usually the
manager who has to comfort it and decide what action to take

According to D. E. McFarland, “A decision is an act of choice – wherein an executive forms a

conclusion about what must not be done in a given situation. A decision represents a course of
behavior chosen from a number of possible alternatives”.

According to Haynes and Massie, “a decision is a course of action which is consciously chosen for
achieving a desired result”

According to R. A. Killian, “A decision in its simplest form is a selection of alternatives”.

Characteristics of Decision-Making:

The important characteristics of decision-making may be listed thus:

1. Goal-Oriented:- Decision-making is a goal-oriented process. Decisions are usually made to

achieve some purpose or goal. The intention is to move ‘toward some desired state of affairs’.

2. Alternatives:- A decision should be viewed as ‘a point reached in a stream of action’. It is

characterized by two activities – search and choice. The manager searches for opportunities, to arrive
at decisions and for alternative solutions, so that action may take place. Choice leads to decision
3. Analytical-Intellectual:- Decision-making is not a purely intellectual process. It has both the
intuitive and deductive logic; it contains conscious and unconscious aspects. Part of it can be learned,
but part of it depends upon the personal characteristics of the decision maker.

4. Dynamic Process:- Decision-making is characterized as a process, rather than as, one static entity.
It is a process of using inputs effectively in the solution of selected problems and the creation of
outputs that have utility.

5. Pervasive Function:- Decision-making permeates all management and covers every part of an
enterprise. In fact, whatever a manager does, he does through decision-making only; the end products
of a manager’s work are decisions and actions. Decision-making is the substance of a manager’s job.

6. Continuous Activity:- The life of a manager is a perpetual choice making activity. He decides
things on a continual and regular basis. It is not a one shot deal.

7. Commitment of Time, Effort and Money:- Decision-making implies commitment of time, effort
and money. The commitment may be for short term or long-term depending on the type of decision
(e.g., strategic, tactical or operating).

8. Human and Social Process:- Decision-making is a human and social process involving
intellectual abilities, intuition and judgment. The human as well as social imparts of a decision are
usually taken into account while making the choice from several alternatives.

9. Integral Part of Planning:- As Koontz indicated, ‘decision making is the core of planning’. Both
are intellectual processes, demanding discretion and judgment. Both aim at achieving goals.

Factors Involved in Decision-Making:

There are two kinds of factors to be considered in decision-making in favor of any alternative.

These may be classified as:

(i) Tangible and

(ii) Intangible Factors.

1. Tangible factors:- Among the tangible factors relevant to decision-making the important ones are:
(a) Sales;

(b) Cost;

(c) Purchases;

(d) Production;

(e) Inventory;

(f) Financial;

(g) Personnel and

(h) Logistics.

II. Intangible Factors:

Among the intangible factors which may influence decision-making in favor of any alternative, the
important ones are the effects of any particular decision:

(a) Prestige of the enterprise,

(b) Consumer behavior,

(c) Employee morale; and so on.

Techniques and Methods of Decision-Making:

Important decision-making techniques are four and they have been discussed as under:

(1) Marginal Analysis:- This technique is also known as ‘marginal costing’. In this technique the
additional revenues from additional costs are compared. The profits are considered maximum at the
point where marginal revenues and marginal costs are equal.” This technique can also be used in
comparing factors other than costs and revenues.

For Example – If we try to find out the optimum output of a machine, we have to vary inputs against
output until the additional inputs equal the additional output. This will be the point of maximum
efficiency of the machine. Modern analysis is the ‘Break-Even Point’ (BEP) which tells the
management the point of production where there is no profit and no loss.

(2) Co-Effectiveness Analysis:- This analysis may be used for choosing among alternatives to
identify a preferred choice when objectives are far less specific than those expressed by such clear
quantities as sales, costs or profits. Koontz, O’Donnell and Weihrich have written that “Cost models
may be developed do show cost estimates for each alternative and its effectiveness. Social objective
may be to reduce pollution of air and water which lacks precision. Further, he has emphasised for
synthesizing model i.e., combining these results, may be made to show the relationships of costs and
effectiveness for each alternative.”

(3) Operations Research:- This is a scientific method of analysis of decision problems to provide
the executive the needed quantitative information in making these decisions. The important purpose
of this is to provide the managers with scientific basis for solving organizational problems involving
the interaction of components of the organization. This seeks to replace the process by an analytic,
objective and quantitative basis based on information supplied by the system in operation and
possibly without disturbing the operation.

This is widely used in modern business organizations. For Example – (a) Inventory models are used
to control the level of inventory, (b) Linear Programming for allocation of work among individuals in
the organization.

(4) Linear Programming:- It is a technique applicable in areas like production planning,

transportation, warehouse location and utilization of production and warehousing facilities at an
overall minimum cost. It is based on the assumption that there exists a linear relationship between
variables and that the limits of variations can be ascertained.

Process and Steps in Decision-Making:- In decision-making process steps normally refers to

processes, procedures and phases which are usually followed for better decision.

According to Stanley Vance decision-making consists of the following six steps:

1. Perception.

2. Conception.

3. Investigation.
4. Deliberation.

5. Selection.

6. Promulgation

1. Perception:- Perception is a state of awareness. In a man consciousness arises out of perception.

Consciousness gives tilt to the decision-making process. The executive first perceives and then
moves on to choose one of the alternatives and thus takes a decision.

2. Conception:- Conception means designs for action or programme for action. Conception relates to
that power of mind which develops ideas out of what has been perceived.

3. Investigation:- The investigation provides an equipment with the help of which the manager tries
to go ahead with a debate either in his mind independently or with his co-workers.

4. Deliberation:- Weighing the consequences of possible course of action is called deliberation. The
manager may either weigh the relative merits and demerits and the following consequences in his
own mind or share his mental exercise with others to equip him better. The deliberations remove bias
and equip the manager with different ideas and alternatives and help him in arriving at a decision
which may safely be ascribed as good decision.

5. Selection:- Selection is an act of the choice which in management terminology is known as

decision. After deliberations one of the alternatives, the best possible in the circumstances, is
selected.

6. Promulgation:- Perception, conception, investigation, deliberation and lastly selection will carry
weight only when selected – the chosen alternative, that is, the decision – is properly and timely
communicated to all those who are concerned and for whom the decision is meant. Only proper
promulgation will help its execution.

MIS and Decision making

MIS and Decision Making Process MIS is a system providing management with accurate and timely
information. Such information is necessary to facilitate the decision-making process and enable the
organizations planning, control, and operational functions to be carried out effectively. MISs increase
competitiveness of the firm by reducing cost and improving processing speed. The power of technology
has transformed the role of information in a business firm. Now information has become recognized as
the lifeblood of an organization and without information, the modern company is dead [7].

MIS and its organizational subsystems contribute to the decision making process in many ways. Power
[8] has stated that making decisions is an important part of working in the business environment.
Companies often make decisions regarding operational improvements or selecting new business
opportunities for maximizing the company's profit. Companies develop a decision-making process based
on individuals responsible for making decisions and the scope of the company's business operations. A
useful tool for making business decisions is a management information system. Historically, MIS was a
manual process used to gather information and funnel it to individuals responsible for making decisions.

MIS is an organization – wide effort to provide decision making process information. The system is a
formal commitment by executive to make the computer available to all managers. MIS sets the stage for
accomplishments in the other area, which is DSS, the virtual office and knowledge based systems. The
main idea behind MIS is to keep a continuous supply of information flowing to the management.
Afterwards, by data and information gathered from MIS, decisions are made [5].

According to Obi (2003), MIS is useful in the area of decision making as it can monitor by itself
disturbances in a system, determine a course of action and take action to get the system in control. It is
also relevant in nonprogrammer decisions as it provides support by supplying information for the search,
the analysis, the evaluation and the choice and implementation process of decision making. Adebayo
(2007) stressed the need for MIS in decision making as it provides information that is needed for better
decision making on the issues affecting the organization regarding human and material resources [9].

MIS may be viewed as a mean for transformation of data, which are used as information in decision-
making processes. Figure 1 shows this understanding about information as data processed for a definite
purpose [10].
Concept of information System-

An information system is a combination of software, hardware, and telecommunication networks to

collect useful data, especially in an organization. Many businesses use information technology to
complete and manage their operations, interact with their consumers, and stay ahead of their competition.
Some companies today are completely built on information technology, like eBay, Amazon, Alibaba,
and Google.

Typical components of information systems

Now that you know what an information system is, let’s look at its components. It has five components –
hardware, software, data, and telecommunications.

1. Hardware – This is the physical component of the technology. It includes computers, hard disks,
keyboards, iPads, etc. The hardware cost has decreased rapidly while its speed and storage capacity has
increased significantly. However, the impact of the use of hardware on the environment is a huge concern
today. Nowadays, storage services are offered from the cloud, which can be accessed from
telecommunications networks.

2. Software – Software can be of two types, system software and application software. The system
software is an operating system that manages the hardware, program files, and other resources while
offering the user to control the PC using GUI. Application software is designed to manage particular tasks
by the users. In short, system software makes the hardware usable while application software handles
specific tasks.

An example of system software is Microsoft windows, and an example of application software is

Microsoft Excel.

Large companies may use licensed applications which are developed and managed by software
development companies to handle their specific needs. The software can be proprietary and open source,
available on the web for free use.

3. Data – Data is a collection of facts and is useless by themselves, but when collected and organized
together, it can be very powerful for business operations. Businesses collect all the data and use it to make
decisions that can be analyzed for the effectiveness of the business operations.
4. Telecommunications – Telecommunication is used to connect with the computer system or other
devices to disseminate information. The network can be established using wired or wireless modes. Wired
technologies include fiber optics and coaxial cable, while wireless technologies include radio waves and
microwaves

Examples of information systems

Information systems have gained immense popularity in business operations over the years. The future
of information systems and their importance depends on automation and the implementation of AI
technology.

Information technology can be used for specialized and generalized purposes. A generalized information
system provides a general service like a database management system where software helps organize the
general form of data. For example, various data sets are obtained using a formula, providing insights into
the buying trends in a certain time frame.

Types of information systems

There are various information systems, and the type of information system a business uses depends on its
goal and objective. Here are the four main types of information systems:

1. Operations support systems – The first type of information system is the operation support
system. Such type of information system mainly supports a specific type of operation in a
business. An example is the transaction processing system used in all banks worldwide. This type
of information system enables the service provider to assess a specific process of business.
2. Management information systems – This is the second category of information systems,
consisting of hardware and software integration allowing the organization to perform its core
functions. They help in obtaining data from various online systems. The data thus obtained is not
stored by the system; rather, it is analyzed in a productive manner to help in the management of
an organization.
3. Decision support systems – An organization can make an informed decision about its operations
using decision support systems. It analyses the rapidly changing information that cannot be
determined in advance. It can be used in completely automated systems and human-operated
systems. However, for maximum efficiency combination of human and computer-operated
systems is recommended.
 4. Executive information systems – EIS or executive support system is the last category that serves
as management support systems. They help in making senior-level decisions for an organization.

Facts of information systems

The products of information technology are part of our daily lives. Here are some of the facts about
information systems.

• Necessary for businesses to grow- Every organisation has computer-related operations that are critical
to getting the job done. In a business, there may be a need for computer software, implementation of
network architecture to achieve the company’s objectives or designing apps, websites, or games. So, any
company that is looking to secure its future needs to integrate a well-designed information system.

• Better data storage and access- Such a system is also useful for storing operational data, documents,
communication records, and histories. As manual data may cost a lot of time, information systems can be
very helpful in it. Information system stores data in a sophisticated manner, making the process of finding
the data much easier.

• Better decision making- Information system helps a business in its decision-making process. With an
information system, delivering all the important information is easier to make better decisions. In
addition, an information system allows employees to communicate effectively. As the documents are
stored in folders, it is easier to share and access them with the employees.

Methods of collection-

What is Data Collection?

In Statistics, data collection is a process of gathering information from all the relevant sources to find a
solution to the research problem. It helps to evaluate the outcome of the problem. The data collection
methods allow a person to conclude an answer to the relevant question. Most of the organizations use data
collection methods to make assumptions about future probabilities and trends. Once the data is collected,
it is necessary to undergo the data organization process.

The main sources of the data collections methods are “Data”. Data can be classified into two types,
namely primary data and secondary data. The primary importance of data collection in any research or
business process is that it helps to determine many important things about the company, particularly the
performance. So, the data collection process plays an important role in all the streams. Depending on the
type of data, the data collection method is divided into two categories namely,

 Primary Data Collection methods

 Secondary Data Collection methods

Primary Data Collection Methods

Primary data or raw data is a type of information that is obtained directly from the first-hand source
through experiments, surveys or observations. The primary data collection method is further classified
into two types. They are

 Quantitative Data Collection Methods

 Qualitative Data Collection Methods

Let us discuss the different methods performed to collect the data under these two data collection
methods.

Quantitative Data Collection Methods

It is based on mathematical calculations using various formats like close-ended questions, correlation and
regression methods, mean, median or mode measures. This method is cheaper than qualitative data
collection methods and it can be applied in a short duration of time.

Qualitative Data Collection Methods

It does not involve any mathematical calculations. This method is closely associated with elements that
are not quantifiable. This qualitative data collection method includes interviews, questionnaires,
observations, case studies, etc. There are several methods to collect this type of data. They are

Observation Method

Observation method is used when the study relates to behavioral science. This method is planned
systematically. It is subject to many controls and checks. The different types of observations are:

 Structured and unstructured observation

 Controlled and uncontrolled observation

 Participant, non-participant and disguised observation

Interview Method
The method of collecting data in terms of verbal responses. It is achieved in two ways, such as

 Personal Interview – In this method, a person known as an interviewer is required to ask

questions face to face to the other person. The personal interview can be structured or
unstructured, direct investigation, focused conversation, etc.
 Telephonic Interview – In this method, an interviewer obtains information by contacting people
on the telephone to ask the questions or views, verbally.

Questionnaire Method

In this method, the set of questions are mailed to the respondent. They should read, reply and
subsequently return the questionnaire. The questions are printed in the definite order on the form. A good
survey should have the following features:

 Short and simple

 Should follow a logical sequence

 Provide adequate space for answers

 Avoid technical terms

 Should have good physical appearance such as color, quality of the paper to attract the attention
of the respondent

Secondary Data Collection Methods

Secondary data is data collected by someone other than the actual user. It means that the information is
already available, and someone analyses it. The secondary data includes magazines, newspapers, books,
journals, etc. It may be either published data or unpublished data.

Published data are available in various resources including

 Government publications

 Public records

 Historical and statistical documents

 Business documents

 Technical and trade journals

Unpublished data includes

 Diaries
 Letters

 Unpublished biographies, etc.

Age of information-

The Information Age is the idea that access to and the control of information is the defining
characteristic of this current era in human civilization.
The current era, in which relatively much larger amounts of information are widely available
generally through network platforms.
The era in which the rapid creation and global transfer of information through mass communication
contribute to the globalization of knowledge.
The period beginning in the last quarter of the 20th century marked by the increased production,
transmission, consumption of, and reliance on information.
The era in which the rapid creation and global transfer of information through mass communication
contributes to the globalization of knowledge