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Methods of Decision Making

METHODS OF DECISION MAKING: 

A.      Marginal income or Cost analysis: This method is used to compare additional revenues arising from additional costs. Break even point is that point in which the cost equals revenue and it can be defined as a no loss, no gain situation. Profit can be enjoyed by a firm only when the revenue exceeds cost that is after crossing the break even point. A manager must have all the necessary data pertaining to total cost and its various components in order to arrive at a decision.

How to make effective decisions?

Decision Making Methods

B.      Cost-effective analysis: This tries to find out the cheapest way in reaching the objective or shall we say the greatest value for expenditure. Mass production facilitates in factorizing the economies of scale where the objective is oriented towards output and sustained availability of the product year round.

C.      Experience: The mistakes committed become great lessons in due course of time generally and this holds good for managers involved in making crucial decisions. It ensures right decisions to be taken in similar situations. But one has to remember that decisions are inclined to make an impact on future events. So, it is up to the manger to take the right kind of decisions using his intuitions as well as experience. The late chairman of SIMPSONS GROUP, Anantharamakrishnan was very intuitive and under his leadership the organization touched new heights and diversified its activities like never before.

Note: Anantharamakrishnan is remembered for his successful business practices, efficient management of the labour unions and for triggering the growth of the automobile industry of Chennai which has earned the city the epithet “Detroit of India”. As a result he himself came to be remembered as the “Henry Ford of South India.” Courtesy: Wikipedia

D.      Experimentation: Why people go for test-marketing? Because when the factors are intangible, you have to try out every alternative only through experiments or trail and error. Market surveys and questionnaires are useful tools when it comes to launching of a new product in the target market.

E.       Research and analysis: This involves the application of tools and techniques of operations research  to the process of decision making based on mathematical functions. Risk-analysis and Decision-trees are the other methods used that illustrate decision points, chance events, and probability of each course of action.

TYPES OF DECISIONS:

·         Routine and Strategic: Routine- regular decisions involving day to day affairs of the firm- leave procedures, work atmosphere. Strategic decisions are central to the firm’s operations- price fixing, product elimination etc.

·         Individual and Group decisions: Managers at the top level are inclined to take individual decisions and some important inter-departmental decisions may be taken up by members of the respective groups.

·         Programmed and Non-programmed decisions: Decision taken by the low-level personnel which are regular and repetitive in nature are programmed-late attendance, medical compensation etc., Non-repetitive and unusual decisions like mergers and acquisitions, collaboration agreements belong to the non-programmed category.

·         Simple and Complex decisions: Where the problem is simple but the outcome has a high degree of certainty are called mechanistic or routine decisions. Where the problem is simple but the outcome has a low degree of certainty are judgmental in nature. Where the problem is complex and the outcome has a high degree of certainty are analytical and where the problem is complex but the outcome has low degree of certainty are adaptive decisions.

MAKING EFFECTIVE DECISIONS:

·         Timing of decisions: A new product only if introduced into the market at the right time will be a success for which the manager should select the appropriate time for taking the decisions.

·         Effective communication: The decisions taken should be communicated down the line for effective implementation.

·         Top management support: The support of top management is indispensable for effective decision-making since it offers goodwill and trust.

·         Principle of Flexibility: There should be enough room for revision of decisions when there is a need.

·         The size of commitment and its impact on people: Care must be given to those decisions where the size of the project is big and its impact on people is huge

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