Unit 6

Decision-Making Skills

Structure
6.1 Introduction
Objectives
6.2 Concept of Decision-Making
Importance of Decision-Making

6.3 Decision-Making Process

Importance of Ethics and Values in Reaching Decisions

6.4 Decision-Making Techniques

Grid Analysis
Pareto Analysis
Decision Trees
Blind Spot Analysis
Risk Analysis
Delphi Technique
Impact Analysis
The Futures Wheel

6.5
6.6
6.7
6.8
6.9
6.10

Challenges in the Process of Decision-Making

Summary
Glossary
Terminal Questions
Answers
Case Study

Caselet
Do managers actually matter?
The word Google is recognized the world over and the work culture of the
company is also known for its innovative and liberal approach to managing
people and making important short-term and long-term decisions. The top
management at Google encourages their people to take all big and small
decisions on the basis on data, analytics and scientific experimentation.
Data to inform decision-making
Googlers believe in and implement the strategy of collected data to answer
all the important questions and at the same time, recognize that unless the
question being asked is properly phrased, the answers received, or the
required data would be rendered useless.

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So, the aim is to start with questions and be very clear about the information
needs at the outset. Let us look at a great case example from their HR
department.
Within their global HR function, Google has created a People Analytics
Department 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 from
the time of the inception of the company. Its founders regularly question the
degree of the contribution that managers make to the organization. To test
the impact, all managers were asked to stop conducting managerial activities
and just contribute to other tasks individually. It turned out that the experiment
was 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 on
14 June 2013)

6.1 Introduction
In the previous unit, you have studied the concept, process, techniques and
importance of the problem-solving and the challenges in executing creative ideas.
Decision-making is the most difficult and the most significant component
of the management process. It is an underlying characteristic of leadership and
falls under the responsibility area of managers. A manager has to make all the
decisions related to the objectives of the organization, like job structure, motivating
people in-house to work for objectives, controlling activities etc. Decision-making
requires the managers to follow the right process carefully as all the decisions
taken would determine how the organization resolves its issues, allocates
resources and accomplishes its objectives.
Decision-making is clearly an activity in which all human beings are involved
in 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 prevalent
situation. However, studies prove that most people have poor decision-making
abilities and require an understanding of its process, techniques and how they
can start taking right decisions.
In this unit, you will learn about the concept, importance and process of
decision-making. You will also study popular decision-making techniques and
the importance of ethics and values in reaching decisions.
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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 act
of choice by which an individual or organization selects one position or action
from several alternatives. Decide is a verb derived from Latin prefix de which
means off and the work caedo which means to cut. In this sense some
cognitive process cuts off as preferred or selects a particular course of action
from among a set of possible alternatives.
Decision-making is a conscious and human process, involving both
individual and social phenomenon based upon actual and value premises, which
concludes with a choice of one behavioural activity from among one or more
alternatives with the intention of moving toward some desired state of affairs.
(Shull et al, 1970)
Decision-making is thus an act of projecting ones own mind upon an
opinion or course of action. Three most important aspects of human behaviour
involved 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 behaviour
from two or more possible alternatives George R. Terry
2. A decision is an act of choice wherein an executive forms a
conclusion about what must be done in a given situation. A decision
represents a behaviour chosen from a number of possible
alternatives. D. E. McFarland
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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, and
choosing the best course of action to take.
7. Decision-making is the process of selecting from several choices
and taking action.
8. Decision-making is the process of identifying and choosing
alternatives based on the values and preferences of the decision
maker.
9. Decision-making implies choosing the best amongst the available
alternatives. It does not mean to bring out a list alternatives but to
choose the one that has the highest probability of success or
effectiveness and second there must be some genuine alternatives
to choose from. Every decision must be made after measuring it on
judgment parameters. These parameters are the reflection of the
values and preferences of decision maker often affected by corporate
rules or culture, law, best practices etc.
10. Decision-making is the most difficult process because the alternatives
involve the risk of being incorrect hence it is the process of
substantially reducing uncertainty and doubts involved and bringing
out a reasonable choice from among them. This definition stresses
the information-gathering function of decision-making. It should be
noted here that a very few decisions are made with absolute certainty
because complete knowledge of the available alternatives is seldom
possible. Thus, every decision involves a certain amount of risk and
uncertainty.

6.2.1 Importance of Decision-making

Decision-making is an integral part of daily life of all the managers. Managing is
almost impossible without making decisions. The importance of decision-making
is explained as under:
1. Performing management functions: All managers have to perform
certain functions which require them to take decisions. Decision-making
permeates in all these functions in the following manner:
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(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 be
done? and so on. In other words, managers have to make decisions
while framing objectives, policies, methods, rules, programmes etc.
(ii) Decision making in Organizing: In the course of organizing, managers
have to decide the required activities for achieving objectives such
as assigning duties, delegating authorities to monitor these activities
and establishing relationships etc. All these activities require the
managers to take decisions.
(iii) Decision making in Directing: Directing means communicating with
people, leading and motivating a team. Thus, it requires managers
to decide the medium, timing, media etc of communication.
(iv) Decision making in Controlling: Controlling requires a manager to
compare the performance viz-a-viz set standards and decide the
corrective measures in case of variations. Therefore, in the controlling
process also a manager has to be decisive at every stage.
2. For the success of enterprise: A decision may ultimately influence the
survival of the organization. Appropriateness of decisions is the sole
deciding factor for the survival, growth and success of the organization.
3. Mark of managers existence: Decision-making is the basis for
distinguishing managers or leaders from mere executors in an
organization.
4. To evaluate managers: Managers are evaluated and rewarded on the
basis of accuracy and relevance of their decisions. In fact, they are the
yardstick of a managers effectiveness.
5. Solving problems: Decisions help to resolve issues and managers are
responsible for deciding the best possible solution in order to resolve crucial
and complex problems.
6. Limiting the risk: Sound decisions processed through the right approach
limit the risk involved in actions.
7. Optimum utilization or resources: Both proper allocation and the
optimum utilization of resources are the result of sound and effective
decision-making ability.
8. Achieving objectives effectively: All managers have the single-point
agenda of achieving preset objectives, hence, all their decisions are
naturally directed towards exploiting the opportunities effectively.
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9. Facing challenges: All managers have to make decisions to meet

challenges 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 available
resources like men, money, material, machine etc. so as to achieve the objectives
of the organization.
2. Facing problems and challenges
Quick, correct and in-time decisions enable managers to face challenges and
resolve problems.
3. Business growth
Timely and thoughtful decisions enable managers to meet the challenges and
resolve issues and thereby contribute to the growth of an organization.
4. Achieving objectives
Rational decisions help managers to ensure timely achievement of objectives
and managers can rationalize the decisions only after having analysed and
evaluated all the available alternatives.
5. Increases efficiency
Efficiency is the return and investment relationship and can be attained by
maximizing the ratio of returns over the investment. Rational decisions result in
higher returns at low cost.
6. Facilitate innovation
Rational decisions facilitate innovation and help the managers to develop new
ideas, new products, new process, etc. Innovation gives a competitive advantage
to the organization.
7. Motivates employees
Rational decisions enable managers to encourage and motivate employees in
order to enable the organization to yield higher profits.

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Self Assessment Questions

1. Three most important aspects of human behaviour are involved in decisionmaking include _______, _______ and __________.
2. In the course of ________, managers have to decide the required activities
for achieving objectives such as assigning duties, delegating authorities
to monitor these activities and establishing relationships etc.
3. Managers can rationalize the decisions only after having analysed and
evaluated 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 decide
upon alternatives to successfully come out of the situation. Problem in general
is the outcome of situational disparity between the existing and the expected
one. It may also be the threat or the environmental alterations causing a decision
problem. The manager therefore has to identify and define the actual problem in
a 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 the
contributing factors. Diagnosis is essential to clearly understand the problem,
its elements, symptoms, magnitude, urgency and relationship with other problems
and its impact over them. It is hence the managers responsibility to ensure the
correct diagnosis which in turn will help the manager to reach the solution easily
and quickly.
3. Establishing specific objectives
In this step, a manager should clearly state the objective of making a particular
decision. Objective may be set in qualitative or quantitative terms or both but
they should be clear, flexible and realistic. In fact, they should serve as the
yardstick to evaluate the results in contrast to the decisions made.

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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 the
manager is able to recognize the limiting factor it would be easier for the
organization to reach the solution.
5. Finding alternatives
In this step, a manager has to search for various alternatives to find the possible
solution. Once the alternatives are sourced, the manager has to squarely analyse
them so as to arrive at the best solution. This process can be expensive and
time consuming as well and managers rarely get the time to complete the task.
Moreover, many alternatives may also tend to raise confusion. Hence, managers
are advised to restrict the alternatives which are most relevant to the problems
and 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 methodical
classification of available data. This is to identify the pros and cons in relation to
each other. Peter Drucker has suggested a four-step process to evaluate the
alternatives in order to arrive at the right decision:
(i) Risk: There is no riskless alternative. The manager should therefore, weigh
the risk of each alternative against the expected gains.
(ii) Economy of effort: The manager should see which alternative can give
the greatest result with the least effort.
(iii) Timing: The choice of alternative also depends upon the prevailing situation
at 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 are
available.
7. Selection of appropriate alternative
The next step for the manager is to decide on the best alternative. Focusing
upon the following two aspects facilitates the manager to arrive at the conclusion
faster:
The alternative should contribute to the achievement of organizational
objectives
It should maximize the result in the given set of conditions.
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In complex issues, alternatives may emerge as a clear choice, however,

good judgement and experience plays an important role in arriving at the best
solution.
8. Implementation of the decision
Implementation of a decision has high significance as the manager is associated
with the continuous and ongoing process until the consequences are known.
Implementation includes the following:
(i) Establishing derivative plans and their communication amongst executors
for 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 has
to constantly monitor the progress and the implementation. Correct all deviations
with immediate effect and modify the decision if needed in the changing
circumstances.
Identification of
problem

Diagnosing the
problem

Establishing specific
objectives

Identifying
limitations

Feedback

Selecting
appropriate
alternative

Implementing the
decision

Evaluating
alternatives

Figure 6.1 Decision-making Process

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Activity 1
Imagine that you are a manager at a large organization. The attrition rate at
your organization has gone up alarmingly in the last six months. You have
been given the responsibility of making decisions regarding ways that would
help in retaining employees. What process would you follow in dealing with
this 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 resolve
moral and ethical issues in an organization. It is important because every decision
or strategy should reflect the values on which an organization is based.
Consumers and societies today are willing to see more corporate
accountability and managers, therefore, are required to give active thought to
the companys code of ethics, which should not be limited to employees only
and must be followed by all of its stakeholders such as customers, suppliers,
and the community.
Companies may use business ethics as an additional evaluation process
for business decisions to determine how they affect company's culture, values
or social objectives. Business ethics have two dimensions: normative and
descriptive.
Descriptive ethics, also known as comparative ethics, are the study of
people'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, and
with meta-ethics, which is the study of what ethical terms and theories actually
refer to. The following examples of questions that might be considered in each
field 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 and
strike out the bad ones.

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Self Assessment Questions

4. _________ is essential to clearly understand the problem, its elements,
symptoms, magnitude, urgency and relationship with other problems and
its 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 a
situation.
When you find yourself in a situation where there are a number of suitable
options to choose from, and therefore, difficult to decide which one would be the
best, you can opt for grid analysis. For example, if you are recruiting a middlelevel executive for your organization and there are 5 equally competent shortlisted
candidates, how would you decide? Grid analysis can be used here. The main
steps are:
1. Create a table with all your options listed in a row and the columns will be
of the different factors that you would consider about the candidates, such
as education, work experience, communication skills, general knowledge
of the industry, and so on.
2. Next, score each candidate for each factor on a scale of 0-5, where 0
means 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 importance
of the factor that you calculated in step 3. This will give you weighted
scores for every factor-option combination.
5. Last, add up the weighted scores for each option. The highest scoring
candidate would be your best choice.

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6.4.2 Pareto Analysis

Pareto analysis is a statistical technique used to select a limited number of
tasks to produce significant overall effect. Pareto principle, also known as the
80/20 rule, presents the theory that 20% of the work produces 80% of results
while the rest of the 80% of your work produces only 20% of results. This is also
known as the vital few and the trivial many.
In late 1940s, Joseph M. Juran suggested this principle and named it after
Italian economist Vilfredo Pareto, who observed that 80% of income in Italy went
to 20% of the population. Later, his surveys in a number of countries brought to
his 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.

40%

100%

30%

80%
60%

20%
40%
10%

20%

0%

0%

Cumulative Percentage of
Defective Cases

Percentage of Defective
Cases

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-axis
separates the important causes on the left and less important causes on
the right.

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Figure 6.2 A sample Pareto analysis

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6.4.3 Decision Trees

A decision tree projects the image of a potential decision and provides managers
with an opportunity to chart other alternatives also. It helps the manager to analyse
hiring, marketing, investments, equipment purchases, pricing and other decisions
of similar sort. Usually decision trees are helpful in reviewing the risk involving
decisions.
The term decision tree is derived from its graphical appearance showing
initial decision as the base. Various other alternatives projected upon future
environmental conditions and the payoffs associate the branches with the trunk.
Decision trees enforce managers to make a precise analysis of conditions
to be associated with future decisions and ascertain the consequences of various
alternatives. It is a flexible method and can be used in several situations where
sequential decisions, various probable conditions or the highlighting of alternatives
needs to be strongly emphasized.

6.4.4 Blind Spot Analysis

It is a method to reveal obsolete assumptions of environment from the mental
frame of the decision maker. In other words, it helps the manager to dispel and
eliminate the biased or misinterpreted decision alternatives. Blind spot also refers
to 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 significance
in the events, or perceive them either incorrectly or very slowly. This may result
in inappropriate strategic decisions, underestimation of competitors capabilities
and resources, inability to grab newer opportunities and decreasing market
position and profitability.

6.4.5 Risk Analysis

Risk analysis is the process to identify the likeliest threats to an organization
and analyze organizational vulnerabilities related to these threats. While the exact
nature of potential disasters or their hazards as a consequence are difficult to
determine, comprehensive risk assessment of all the threats is always beneficial
and therefore must be performed. Irrespective of the threat type, the goals of
business 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
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and airports, degree of accessibility to facilities within the organization, history

of local utility companies in providing uninterrupted services, history of the areas
susceptibility to natural threats, proximity to major highways which transport
hazardous waste and combustible products though not all but are some of the
factors 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 air
conditioning 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, vehicle
crash, airport proximity, work stoppage (internal/external), computer crime etc.
Instead of making an attempt to determine exact probabilities of each
disaster, a general rating system of high, medium and low can be applied initially
to identify the possible threat probabilities.

6.4.6 Delphi Technique

The Delphi technique was originally created to obtain the opinion of experts
without gathering them all together face to face.
People in groups tend to display certain knowledge and distinctive
characteristics known as group dynamics. This allows for a special application
of 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 a
program, project or policy. The facilitator listens attentively, forms task forces,
urges everyone to make lists, and while doing this, the facilitator learns something
about each member and identifies the leaders, the compulsive talkers, as well
as those who frequently turn sides during the argument -the weak or the noncommittal.
The Delphi method was initially developed in the 1950s by the RAND
Corporation in Santa Monica, California. This approach consists of a survey
conducted in two or more rounds and provides the participants in the second
round with the results of the first so that they can adjust the original evaluations
if they want to, or stick to their original opinion.
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Delphi studies can be complicated procedures to implement and require

specific resources and experts, according to the scope of the study planned.
The typical Delphi study process includes the preparation, a survey in two or
more rounds and finally analyses and application (implementation) after the
survey has been concluded. All three activities are equally significant for the
process.

6.4.7 Impact Analysis

Impact analysis is a challenging exercise carried out in order to capture and
structure all the potential consequences of a decision at first and secondly to
ensure that they are managed appropriately. Larger or more risky decisions call
for experienced people, ideally from different functional backgrounds within the
organization to do the analysis instead of one single individual to make the entire
effort. 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 to
access the right information sources. Everyone involved in the assessment
must be clearly briefed with the proposed solutions and problems intended to
be addressed.
2. Brainstorm the major areas affected
It is an exercise to recognize the areas that are majorly affected by a decision. It
helps to predict what departments or workforce in the line would it affect and
what consequences it may bring.
3. Evaluate impacts
Work out the possibilities of all negative and positive impacts that a decision
may cause along with their intensity and size. Evaluating the consequences of
the decision in the end is also of great importance.
4. Manage the consequences
It is important to determine whether you would sustain the decision whatever
negative 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.

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6.4.8 The Futures Wheel

The Futures Wheel is a technique to identify direct or indirect consequences of
trends and events. Jerome C. Glenn, who was a student of Antioch Graduate
School of Education, invented this method in 1971. It is a powerful technique to
explore 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 makers
and planners across world implement Futures Wheel currently to recognize
potential problems and opportunities, new markets, products and services to
assess alternative tactics and strategies.

trend or
event

Figure 6.3 The Futures Wheel

The Futures Wheel is a useful technique to organize thinking and questions

about the future. Write the name of a trend or event on a paper and circle it with
small spokes to form a wheel-like structure. Each spoke at its end should
possess primary consequences while secondary impacts of each primary impact
should form a second ring in the wheel. This ripple effect continues until a useful
picture of the implications of the event or trend is clear. The Futures Wheel is
most commonly used to:

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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

Self Assessment Questions

6. ________ analysis is a technique used to choose one out of multiple
options in a situation.
7. ________ __________is also known as the principle of the vital few and
the trivial many.
8. _________ _______ analysis is a method to reveal obsolete assumptions
of environment from the mental frame of the decision maker.
9. The ________ _________ is a technique to identify direct or indirect
consequences of trends and events.
Activity 2
Imagine that you are a manager at a large organization. You have been
asked to reduce the workforce in your team from 10 to 5. You need to decide
which employees to keep and which to let go. Which analysis technique
would 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 decisions
are:
1. Time consuming: A manager has to spend a lot of time to analyse the
risk-benefit ratio of all the available alternatives. Group discussions and
seeking advice from many people further delays the process, and may
finally result in delayed or no decisions.

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2. Compromised decisions: In group decisions members always present

a different opinion and an attempt to please all the members would lead to
a compromised decision upon implementation.
3. Subjective decisions: Individual decisions are subjective to the
knowledge, education, experience, perception, beliefs, moral, attitude, etc.
of the manager. Subjective decisions may not always be the best possible
decisions for a particular situation.
4. Biased decisions: Many a time managers take decisions which are either
beneficial to themselves, their group or are intended to grant favours to
someone. This produces negative effects on employees, workers,
consumers and even the society.
5. Limited analysis: Most managers do not explore all the alternatives before
arriving at a decision in particular due to inaccuracy of data or limited time
availability. Inexperienced researchers and wrong sampling also result in
a limited analysis, resulting in poor decisions.
6. Uncontrollable environmental factors: Environmental factors such as
political, social, technological and others, mislead managers to take
incorrect decisions.
7. Uncertain future: The only thing that is certain about future is that it is
uncertain therefore decisions taken in present may not produce the
expected or predetermined results in the future.

Self Assessment Questions

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 leadership
and falls under the responsibility area of managers.

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The simplest way to understand decision-making is to view a decision as

an act of choice by which an individual or organization selects one position
or action from several alternatives.
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 decide upon alternatives to successfully come out of the situation.
Implementation of a decision has an equal significance as the manager is
associated with the continuous and ongoing process until the
consequences are known.
Business ethics are the professional judgment that individuals use to
resolve moral issues in an organization. It is important because every
decision or a strategy should reflect the values on which an organization
is based.
Grid Analysis is a technique used to choose one out of multiple options in
a situation.
Pareto Analysis is a statistical technique used to select a limited number
of tasks to produce significant overall effect.
A decision tree projects the image of a potential decision and provides
managers with an opportunity to chart other alternatives also.
The Futures Wheel is a technique to identify direct or indirect
consequences of trends and events. Jerome C. Glenn, who was a student
of Antioch Graduate School of Education, invented this method in 1971.

6.7 Glossary
Blind spot analysis: Based on the works of Michael E. Porter, Benjamin
Gilad, and others, blind spot analysis is based on comparing a firms
management and organizational drivers and dynamics with competitive,
organizational and industry realities.
Decision-making: Decision making is a process of first diverging to
explore the problem to be solved or the available opportunities to seek
and 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.

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Pareto analysis: Pareto analysis is a statistical technique used to select

a limited number of tasks to produce significant overall effect.
Grid analysis: Grid analysis is a technique used to choose one out of
multiple options in a situation.
Decision tree: A decision tree projects the image of a potential decision
and provides managers with an opportunity to chart other alternatives also.
Impact analysis: Impact analysis is a challenging exercise carried out in
order to capture and structure all the potential consequences of a decision
at 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 in
management?
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
Self Assessment Questions
1. Cognition, conation, affection
2. Organizing
3. True
4. Diagnosis
5. Normative, descriptive
6. Grid
7. Pareto principle
8. Blind spot analysis
9. Futures Wheel
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10. Risk-benefit ratio

11. True

Terminal Questions
1. The simplest way to understand decision-making is to view a decision as
an act of choice by which an individual or organization selects one position
or action from several alternatives. For further details, refer section 6.2.
2. The first step of the decision-making process is to recognize the actual
problem. For further details, refer section 6.3.
3. The Delphi technique was originally created to obtain the opinion of experts
without gathering them all together face to face. For further details, refer
section 6.4.6.
4. Grid analysis is a technique used to choose one out of multiple options in
a situation. For further details, refer section 6.4.1.
5. Impact analysis is a challenging exercise carried out in order to capture
and structure all the potential consequences of a decision. For further
details, refer section 6.4.7.
6. The main challenges that a manager may face while making crucial
decisions are listed here. For further details, refer section 6.5.

6.10 Case Study

Strategic Decision-Making to Increase Profits
Ruchi Superstores Ltd (RSL) is one of the pioneers in the concept of retail
grocery in India. In spite of its presence in the market for a long time, the
stores of the firm were still recording losses. After the preliminary study at
Ruchi I store, it was obvious that change in strategy was required and some
smart decisions will need to be taken.
It was clear that each decision will have to be analysed in detail and so, an
operational plan for implementation was prepared.
To increase the sales, the product assortment required detailed analysis
and the changes in terms of additions and deletions of the brands and stock
keeping units (SKUs). For this, the data giving detailed sales figures of SKUs
in Delhi over a specific period were used. A few categories were analyzed
and the framework was suggested to the company for periodic analysis.
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1. The analysis of shampoo sales showed that Ruchi I did not keep
sachets, which form a major part of sales in Delhi. It was decided that
the store would stock sachets of not only the shampoo bottle brands
that were being sold but also some additional brands. Ketchup sales
analysis showed that Tops brand was popular and it was decided that
ketchup bottles of three sizes of Tops would be stocked.
2. Analysis of inventory levels showed that certain categories and brands
required rationalization of inventory levels to avoid stock-outs as well as
control of high inventory in others. The company took a quick decision
and reduced the inventories of Revlon and Lakme stocks. Also, the new
inventory levels of each SKU were suggested.
3. An analysis of store dynamics shows that most of the store profits come
from a smaller part of the sales, while other products act as loss leaders.
Hence, the categories, which form a major part of the profits, were
identified. It was decided that these categories be the focus of
promotional effort as increase in their sales greatly improves the bottom
line of the company.
4. The Gross margin return on investment (GMRoI) of each category was
calculated and the categories with very low and very high GMRoI were
especially analysed, so as to make decisions regarding product
assortment and inventory levels of the category.
5. Finally, the cost structure of the store was presented and it was decided
that more focus would be placed on reduction of pilferage, since in the
retail industry, lower operating costs are the greatest competitive
advantage.
We see, finally, that all the 5 decisions were relevant for Ruchi I and each
would 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 all
SKUs would be used, which would help to increase the sales level.
Discussion Questions
1. 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
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References
James G. March (2009), Primer on Decision Making: How Decisions
Happen, Free Press.
J. Edward Russo ( 2001) Winning Decisions: Getting It Right the First
Time, Crown Business
E-References
http://businesscasestudies.co.uk/business-theory/strategy/decisionmaking.html#ixzz2QnwWanc0 (Retrieved on 18 April 2013)

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