The following are the five important elements of decision-making:

(1) Concept of good decision.

(2) Environment of decision.

(3) Psychological elements in decision.

(4) Timing of decision.

(5) Communication of decision.

(1) Concept of Good Decision:

The most important task before the manager of any enterprise is to take a good decision. The objectives of an enterprise can be achieved only by a good decision. A good decision is always acceptable to all reasonable persons and is based on sound judgement and factual informations. No decision should be taken without examining the situation, correlating it with the facts and scientifically analysing the facts. Such a decision satisfies the concept of good decision.

(2) Environment of Decision:

The success and failure of the whole enterprise depends on the nature; procedure and standard of a decision taken by its manager. The organisational environment and formal structure decides the relationship between units on the one hand and individuals on the other.

This relationship forms the basis of environment prevailing in an organisation and indirectly affects a decision. Similarly, political, social and economic situation in and outside the organisation affects a decision which the manager takes for implementation by the enterprise.

(3) Psychological Elements is Decision:

Every manager takes decision on the basis of the given facts, information and scientific analysis. But out of many alternatives his choice falls on this element. It is this choice on which his psychological impact is felt. In fact psychologically manager comes closer to the choice and that is why he feels like choosing the one which he feels is in the best interest of the whole enterprise.

The manager’s habits, temperament, social environment, upbringing, domestic life and political leanings all have a trace on his choice of alternative, consequently on his decisions.

(4) Timing of Decisions:

Decision if taken at a time when it is needed helps the management in achieving the objectives more successfully. Any decision taken in time obviously leaves a lasting impression on the minds of those who are affected by the decision. The impact of the decision will have lasting effect on the personnel of the enterprise and its effect will be on the working of the enterprise.

(5) Communication of Decision:

The communication of decision is as important as taking of the decision. Both go together. Decisions if not properly and timely communicated carry no weight howsoever important or good they may be. A good decision is based on scientific analysis of facts and is taken and communicated when it is needed the most.

Principles of Decision Making:

Eminent authors of management are of this opinion that on right and appropriate decisions, the success and failure of the enterprise depend. Therefore, a manager has to take all precautions before arriving at a decision.

Following are the important principles which may be taken into consideration while taking decision:

(1) Marginal Theory of Decision-Making:

Marginal theory of decision-making has been suggested by various economists. Economists believe that a business undertaking works for earning profit. To earn profit is their prime motto. That is why they agree that the manager must take every decision with the aim in view that the profit of his organisation goes on increasing till it reaches its maximum. Therefore, the economists argue that an organisation with sole aim of maximisation of profit needs a marginal analysis of all its profit. Decision-making too should be based on marginal analysis.

According to economists marginal analysis of a problem is based on Law of Diminishing Returns. With extra unit of labour and capital put in production, the production increase but it increases at a proportionately reduced rate. From every extra unit of labour and capital the production diminishes and a time comes when the increase in production stops with ‘zero’ as the production of the last unit used therein.

At this stage further production is discounted. A decision is taken to the effect that no additional unit of labour and capital now is required to be introduced in the production. Production of the last unit is marginal one where – after further introduction of extra unit becomes uneconomical or non-yielding.

The marginal principle can be effectively used while taking decision on matters relating to – (i) production, (ii) sales, (iii) mechanisation, (iv) marketing, (v) advertising, (vi) appointment and other matters where marginal theory can be scientifically and statistically used and a good decision is rendered possible.

(2) Mathematical Theory:

It will be wrong if we say that the decision-making techniques owe too much to the mathematical theory of taking decisions. Venture analysis, game theory, probability theory, waiting theory are a few of the theories on the basis of which a manager analyses a given fact and takes decision accordingly. This has given rise to a scientific approach to the decision-making process.

(3) Psychological Theory:

The nature, size and purpose, of the organisation play an important role in decision-making. Manager’s aspirations, personality, habits, temperament, political leanings and social and organisational status, domestic life, technological skill and bent of mind play a very important role in decision ­making. They do help in decision-making.

They all in some form or the other leave an impact on the decisions taken by the manager. No doubt the manager is not free to decide whether he wishes to. He is also bound by his responsibilities and answerability. But psychology of the manager has a bearing on the decision he takes and this fact cannot be brushed aside. Decision-making is a mental process and the psychology of those who are deliberating and of the person who take the final decision has a definite say in decision-making.

(4) Principle of Limiting Factors:

The decisions taken are based on limited factors nevertheless they are supposed to be good because of the simple fact that under the circumstances it was the only possibility. From this principle it emerges that though there are numerous alternative available to a decision-making but he takes cognizance to only those alternatives which suit the time, purpose and circumstances and which can be properly and thoroughly analysed considering the human capacity and then finally one of the alternatives is chosen which forms the basis of a decision.

(5) Principle of Alternatives:

Decision is an act of choice. It is a selection process. Out of many available alternatives the manager has to choose the one which he considers best in the given circumstances and purpose.

(6) Principle of Participation:

This principle is based on human behaviour, human relationship and psychology. Every human being wants to be treated as an important person if it is not possible to accord him a V.I.P. treatment. This helps the organisation in getting maximum from every person at least from those who have been given place of importance and honour.

Participation signifies that the sub-ordinates, even if they are not concerned, should be consulted and due weightage should be given to their viewpoint. Japanese do this. Japanese institutions – business or government make decisions by consensus. This makes all of them feel that they are very much part of the decision. The Japanese debate a proposed decision throughout its length and breadth of the organisation until there is an agreement.

A few may disagree with Japanese method of decision-making because they may agree that it is not suited to our conditions. Such a method involves politicking, delays the decisions and sometimes may result into indecisiveness. But worker’s participation in decision-making can be ensured by the Japanese method.

Those favouring Japanese method and workers participation, advance the argument that decisions are important. But according to modern thinking the decision should not be within the purview of only a selected few. Those who are to carry out the decisions must be actively associated with their decision-making also.

Principle of participation – Firstly, aims at the development and research of all possible alternatives. If larger number of people concerned are asked to search for alternatives on the basis of which decisions are expected to be taken then greater participation is assured which is surely an important aim of this principle.

Secondly, this principle asks for debating and deliberating by more and more people so as to know the mind of all and to assess the possible reaction of a particular decision which the manager has in mind.

Further, the principle of participation is becoming popular due to following reasons:

(1) The participants feel that the business is their own of which they are important parts;

(2) Opposition to a decision is considerably reduced, and those who are to carry the decision are gladly accepting even if any change is being introduced;

(3) Guidance and directions function of management are being easily performed;

(4) Decisions are the result of best possible selection of the alternatives, therefore decisions may yield results to the advantage of the organisation on the expected lines;

(5) Increase in the efficiency of workers

(6) Development of co-ordinated efforts

(7) Development of good human relations

(8) Development of team spirit and better understanding because of good human relations; and

(9) Assurance of growth and prosperity to both the organisation as well as the whole working force – managerial, supervisory and operating.

Today the managers are more interested in eliciting the participation of workers with their decisions with a view to get more co-operation and to exercise effective control over them in the accomplishment of the tasks assigned by the objectives of the organisation.

Procedures

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. Perception is, therefore, an important and first step without which decisions relating to any of the problems of the organisation cannot be taken. Other steps follow “perception” is the first step in decision­-making.

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. Perception is a sort of location of the problem whereas conception is the preparation of design or programme for solving the problem. But only perception and conception cannot offer the solution.

For solution investigation is to be carried out. Informations relevant to a particular concept is to be sought, acquired and then analysed. Relative merits and demerits of a different analysed concepts should be measured. Alternative course of action is to be thought, analysed and compared to. This needs investigation with which the manager should be armed.

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 himself 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.