LESSON IV

MANAGERIAL DECISION

Learning Objectives
At the end of this lesson students should be able to:

1. Have greater insight into decision-making processes.

2. Apply that insight to make more effective decisions.

3. Possess a range of different perspectives on what counts as an ‘effective’ decision.

4. Equipped to understand and influence the decision-making processes of other

individuals and groups.

5. Understand better how people perceive and decide about risk.

Managerial Decision

Managerial decisions is concerning the operation of the firm, such as the choice of firm
size, firm growth rates, and employee compensation. Decision making is crucial for running an
organization which faces a large number of problems requiring decisions.

It is the act of making a choice among available alternatives. There are innumerable
decisions that are taken by human beings in day-to-day life. In business undertakings, decisions
are taken at every step. It is also regarded as one of the important function of management.
Managerial functions like planning, organizing, staffing, directing, co-ordinating and
controlling are carried through decisions. Decision making is possible when there are two or
more alternatives to solve a single problem or difficulty. If there is only one alternative then
there is no question of decision making. It is believed that the management without a decision
is a man without a backbone. Therefore, decision making is a problem-solving approach by
choosing a specific course of action among various alternatives.

"Decision-making is the selection, based on some criteria from two or more possible
alternatives. “- George R.Terry

"A decision can be defined as a course of action consciously chosen from available
alternatives for the purpose of the desired result" -J.L. Massie

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 Importance of Making Effective Decision Making in Human Resource are:

● Better utilization of resources

● Business growth

● Facing problems and challenges

● Achieving Objectives

● Facilitates Innovation

● Increases Efficiency

● Motivates Employees

Decision making is considered as the backbone for the business management because
without taking the right decision at right time, nothing can be performed. The further
importance of decision making can be discussed under the following points:

Proper utilization of resources: Organization has various resources like man, money, method,
material, machine, market and information. All these resources are properly utilized without
any leakage and wastage with the help of right decision at right time. As a result, an
organization can operate at a minimum cost.

Selecting the best alternative: As we know that the problem has multiple solutions. Decision
making is important to select the best alternative among various alternatives by analyzing them
one by one using various financial, statistical, and accounting tools/ technique.

Evaluation of the managerial performance: Decision making is not only important to select
the best alternative but also essential for evaluating the performance of a manager. The
quality/success of manager largely depends upon the number of right decision that he/she can
take for the organizational success. Therefore, decision making is important to judge the
performance of top level of management.

Employee’s motivation: Decision making is important to motivate the employees within an

organization. It provides an overall framework of operation and guideline to the operating level
of staffs. It also provides different types of facilities and benefit on time. As a result, employees
are motivated to their job or work as per the organizational requirement.

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Indispensable element/ component: Decision making is indispensable element/ component for
the organizational success because without taking the right decision at right time, nothing can
be performed as per the plan.

Achievement of goal/ objectives: Decision making is important to achieve the organizational

goals/objectives within given time and budget. It searches the best alternative, utilize the
resources properly and satisfy the employees at the workplace. As a result, organizational goal
or objectives can be achieved as per the desired result.

Pervasive function: Decision-making is a pervasive function of managers aimed at achieving

organizational goals. Decisions are to be taken in all managerial functions such as planning,
organizing, motivating, directing and controlling and in all functional areas such as production,
marketing, finance, personnel and research and development. It indicates that the decision-
making is spread over many areas of the organization.

However, for the rationality, reliability, and enforceability of decisions, managers

should follow a sequential set of steps. It is said that a decision is rational if appropriate means
are chosen to reach desired ends. In this regards, various management authorities have
recognized and described different steps in the process of decision-making. Ricky W. Griffin
has suggested six steps in the process of decision making. Accordingly, the steps are:

Identification of problem

The initial stage of the decision-making process is to identify the exact problem. The
problem may occur due to the gap between thinking and do the process. The reason of problems
may be internal or external. Decision makers should identify the correct problems before taking
any decision. It is not an easy job or task. Therefore, he/she may use his own knowledge, skills,
experience and collect information from internal and external sources. It is believed that
identification of the correct problem is almost half part of the decision-making process.

Analysis of problem

After identification of the correct problem decision maker should analyze the problem
systematically and scientifically in terms of cost, time, legality, organizational resources, and

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short-term as well as the long-term impact of the problem. While analyzing the problem he/she
may use various financial, accounting and statistical tools or techniques.

Developing an alternative course of action

As we know that a problem has multiple solutions. Therefore, the decision maker
should develop the various possible alternatives for a better decision. While developing the
alternative course of action he/she may use their own knowledge, skills, experiences and
technical support from the professional planner and experts as well.

Evaluating alternative course of action

After developing various possible alternatives, the decision maker should evaluate all
alternatives one by one for a better decision. In this step he/she should try to search the answers
to the following questions:

a. Whether the alternative is feasible in terms of cost, time, legality and other
organizational resources or not?
b. Whether the alternative is satisfactory to solve the organizational problems or not?
c. Whether the features of alternatives are matched with the objectives of the business
or not?

Selecting the best alternative

After analyzing the various alternatives, the decision maker has to select the best
alternative among the various alternative by considering the short-term as well as long-term
impact. For this purpose, he/she may use his/her knowledge, skills and experiences. He/she
may also concern with other stakeholders for a better decision.

Implementation of decision

After selecting the best alternative, the manager or superior should convert decision
into action. For this purpose, he/she should communicate with their subordinate and manage
the various additional resources for the implementation of the organizational decision.

Review of decision

The last step of the decision-making process is to get response or feedback from other
stakeholders of the organization. If the response is positive then the decision-making process

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is successfully completed. It the response is negative then he/she must go through the first step
to take a new organizational decision.

FRAMEWORK for Resolving Ethical Problems

This framework help to resolve ethical problems starting with identifying the problems and
parties involve in implementing the course of action and monitoring its progress. When trying
to solve an ethical problem, you may find it useful to refer to the following framework, which
is based on the framework included in ICAEW's Code of Ethics.

ICAEW Framework - how to resolve ethical problems

1) Gather the relevant facts and identify the problems

 Do I have all the facts relevant to the situation?

 Am I making assumptions? If so, could facts be identified to replace these
assumptions?
 Is it really your problem? Can anybody else help?

2) Identify the affected parties

 Who are the individuals, organizations and key stakeholders affected?

 In what way are they affected?
 Are there conflicts between different stakeholders?
 Who are your allies?

3. Consider the ethical issues involved

 Have you referred to ICAEW's Code of Ethics?

 What are the professional, organizational and personal ethics issues?
 Would these ethical issues affect the reputation of the accountancy profession?
 Would these ethical issues affect the public interest?

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4. Identify which fundamental principles are affected

What are the threats to compliance with the fundamental principles?

 Integrity
 Objectivity
 Professional competence and due care
 Confidentiality
 Professional behavior
 Have you considered the following threats?
 Self interest
 Self-review
 Advocacy
 Familiarity
 Intimidation

Safeguards can be created by:

 Profession, legislation and regulation

 Work environment
 Individual

5) Refer to the employing organization’s internal procedures

 Does your organization’s policies and procedure provide guidance on the

situation?
 How can you escalate concerns within the organization? Who should be
involved in?
 What role and at what stage?
 Does the organization have a whistleblowing procedure?

6) Consider and evaluate alternative courses of action

You should consider:

 Your organization’s policies, procedures and guidelines

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  Applicable laws and regulation
 Universal values and principles generally accepted by society
 Consequences

Test your proposed course of action. Ask yourself the following questions:

 Have all the consequences associated with the proposed course of action been
discussed and evaluated?
 Is there any reason why the proposed course of action should not stand the test
of time?
 Would a similar course of action be undertaken in a similar situation?
 Would the suggested course of action stand to scrutiny from peers, family and
friends?

7) Implement the course of action and monitor its progress

When faced with an ethical issue, it may be in your best interests to document your
thought processes, discussions and the decisions taken. Written records will be useful if you
need to justify your course of action.

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Activity IV.
I. Activity: How Good Are Your Decision-Making Skill?
Search this site https://www.mindtools.com/pages/article/newTED_79.htm and
click the button in the column that best describes you. Please answer questions as
you actually are (rather than how you think you should be), and don't worry if some
questions seem to score in the 'wrong direction'. When you are finished, please click
the 'Calculate My Total' button at the bottom of the test.

II. Case Analysis

Martha recently took over as the general manager of Goody Enterprise after its
general manager retired upon reaching 60 years old. Martha is fresh from the
master’s degree in Business Administration. Martha has always wanted to make a
difference in everything she does and she believes that her predecessor has practiced
some tradition style of management such as being bureaucratic and authoritarian.
Martha has learned that for Goody, she should exercise a participative style of
management.
Goody is one of the more popular brands of slippers and shoes. Many of its
workers are already nearing retirement, or those with ages of 50 years old. Some
are in their 30s and 40s. Martha took over the general manager position when her
father decided to put her in the factory. Incidentally, her father had inherited the
factory from his parents who has instilled with the family the legacy of quality
slippers and shoes.
On her first day as general manager, she remembered all the case studies,
journal, and reading from her MBA. She thought that the factory needs a
participative style and her office would always be open to everybody. She started
to put suggestion boxes in every area. She also installed an employee of the month
for the office posts, sales representative of the month for the sales agent, and worker
of the month for the factory workers – all outstanding employees in each month.
There were also teams that were designed to provide projects and plans to foster
more open communication and camaraderie among the employees. The monthly
meetings gave the employees the opportunity to have more hand in planning and
their suggestions are more valued and well taken. Initially, in the next few months,
Martha felt that she succeeded in putting all these changes in the company. She felt

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that they appreciate the changes which would make the employees happier while at
work.
But on the 4th month, some of the employees who were members in the
committee team started to absent in the meetings. These employees were the older
ones, or those in their 50’s. They instead went to see Martha and aired their
apprehension in attending the meetings. They said that they felt uncomfortable in
giving suggestions and they were much better in just doing their daily routine in the
factory.
Martha felt disappointed and started asking herself what went wrong with the
changes? She was about to introduce the use of a computerized system of making
the shoes, and she had already called up the operator of the new machine who would
train the workers. What will she do now? It seems that the changes seemed
unappreciated, more so unwelcomed after all.

Case Questions:
1. Is there something wrong with Martha’s leadership? Why?
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2. Were the changes introduced too drastic?
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3. Would she continue her plan?
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4. What will she do now?
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5. Is it normal for the workers to react that way? Why?
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