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Basic Steps in Decision Making

Updated on March 8, 2010

Decision making is a key managerial responsibility that the managers have to make decisions frequently; the process is initiated whenever a manager observes a problem. Perhaps unconsciously, the manager 1st defines the problem and then formulates the objectives, recognizes the constraints and evaluates the alternatives. After that, he or she selects the apparent “best” course of action which he thinks will lead to the best possible solutions of the problem

The process of analysis of alternatives whether formal or informal takes two basic forms, that are

Qualitative analysis

Quantitative analysis

By making decisions through qualitative analysis, a manager generally depends on personal judgments, past experiences with similar problems and rule of thumb, such as intuitive “feel” for situation may be sufficient for making a decision

The history of management though is indicative of the fact that the decisions made by virtue of qualitative analysis cannot be proved reliable in every situation. This establishes the need of managers for making decisions based on quantitative analysis, the quantitative analysis are specially useful in the situations when the managers have no experiences with similar problems and rule of thumb does not work effectively. It is also useful when a problem is so important and complex that is requires a thorough analysis (if a great deal of money or a perplexing set of variables is involved). The quantitative analysis for decisions making are also applied in the situations when the problem is repetitive. Here a simple and a quantitative procedure can save the manager’s time.

Basic Steps in Decision Making

· Defining problem

The 1st step in rational thinking on business management problems, as well as in thinking on any subject is to define properly the problem in hand. It is surprising how often this principle is violated by decisions makers who think they know what decisions they must make but actually do not. Nor only a clear-cut definition, but it is also important that the problem be defined whenever possible in such a way that quantitative methods can be used in reaching a solution. Use of newer techniques requires a precise statement of the problem in quantitative terms.

· Assembling relevant information and all possible data relating to relevant matters:

When a problem has been isolated and it is known what decisions must be made, the next logical step is to assemble all the relevant information that can be obtained. In assembling the statistical data about a problem, the 1st thing is to discover what information has already been collected.

· Classifying and analyzing the information and collected data:

Classification is a process of separating a mass of individual facts or observations into groups on the basis of some similarity. The items put into one group have certain characteristics in common that differentiate them from items put in other groups. The most common method of presenting data after they have been properly classified is the tabular form, which is orderly arrangement of data in columns and rows., if the number of groups in the classification is small, the data can be presented in Paragraph form. If the number of classes is large, however, the tabular form is the only practical methods of presentation. In many situations the information supplied in the form of statistical tabulation may give the manager all the information he needs. In many other instances, however, that data need further analysis to extract from them all the valuable information they can contain. This requires the analysis of statistical data. The requirements of the methods of analysis data is going on constantly, with the result that more and more significant information is being extracted from collection of statistical data.

· Developing various alternatives to solver the problem

· Evaluating carefully all the alternatives solution to judge their usefulness and suitability to effectively solve the problem

· Selecting the best possible alternative on the basis of careful evaluation of possible alternative developed as per foregoing step

· Testing the selected alternatives to ensure that it really achieves the desired objectives and solves the problem under reference and then to implement the decision taken

Usefulness of Financial Statements and Budgeting for Decision Making

It may be stated that budgeting and forecasting are very useful tools for identification of business problem in the areas of finances, production, sales etc. Effectiveness of the budgetary control system depends upon reliable and timely. Management information System through which the actual position of business always remains in careful view, the weak areas are readily spotlighted and decisions about remedial measures are taken in the time before a particular situation takes a serious turn. The analysis of monthly and annual financial statements reveal good and ban areas in the business operations and thus equip the management with useful information on basis of which necessary action for improvement can be taken in time

Who should make the decisions?

Decisions about routine matters of a department or division may be made by the departmental or division officers themselves in consultation with the related departments viz finance, production or Sale department. Important matters affecting whole of the company must however be decided by the board of Directors or by the Managing Director on the basis of Principles and procedure described

In order to save precious time of top management, it is advisable to delegate powers at different levels of management to deal with different financial, administrative operational matters and to tae suitable decisions for effective solution of all problems encountered a particular area, department, section etc, during the course of normal working, this would generate confidence among lower management level and train them to effectively meet all situations without waiting for orders of higher officers on routine matters


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    • profile image

      ANURADAHA 5 years ago

      Nice work....

    • Rizwan Amjed profile image

      Rizwan Amjed 5 years ago

      Thank you All

    • profile image

      esther obadimu 5 years ago

      you've really encourage me to know how decisions are made.

      thank you so much


    • Rizwan Amjed profile image

      Rizwan Amjed 7 years ago

      Thank you very much Philipo

    • Philipo profile image

      Philipo 7 years ago from Nigeria

      Ver informative and educative hub. Thanks for sharing.