MANAGEMENT & ENTREPRENEURSHIP (21EE61) MODULE – 1

SYLLABUS:

Management – Definition, Importance - Nature and Characteristics of Management, Management

Functions, Roles of a Manager, Levels of Management, Managerial Skills, Management & Administration,
Management as a Science, Art & Profession.
Planning – Nature, Importance and Purpose of Planning, Types of Plans, Steps in Planning, Limitations
of Planning, Decision Making – Meaning, Types of Decisions, Steps in Decision Making.

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MANAGEMENT
 Henri Fayol (29 July 1841 – 19 November 1925) was a French mining engineer, mining executive
Management as a process of forecast followed by planning, organization, command, coordination and
control of activities of others.
 Frederick Winslow Taylor
(March 20, 1856 – March 21, 1915)
"Management is the art of knowing what you want to do and then seeing that they do it in the best and
the cheapest way."

 Mary Parker Follett

(3 September 1868 – 18 December 1933)

“Management, she says, is the "art of getting things done through people."

 George R Terry (1877 - 1955)

A 'Management Is a distinct process consisting of planning, organizing, actuating and controlling; utilizing
in each both science and art, and followed in order to accomplish pre-determined objectives."
 Harold Koontz (1909-1984)
"Management is the art of getting things done through others and with formally organized groups."

Definition of Management:
 Simplest definition is that it is defined as the art of getting things done through people.
 Management can also be defined as the process consisting of planning, organizing, actuating,
and controlling performed to determine and accomplish the use of people and resources.
 It is systematic way of doing things.
 A manager is one who contributes to the organizational goals indirectly by directing the
efforts others by not performing the task by himself
 A person who is not a manager makes his contribution to the organizations goals directing by
performing the task himself.
The definition involves the act of achieving the organizations objectives. Management involves the act
of achieving organizations objectives.

Important Management activities or functions included in this process are:

1. Planning: means thinking of their actions in advance.
2. Organizing: means that managers coordinate human and material resources of the organization.
3. Actuating: means that managers motivate and direct subordinates.
4. Controlling: means that mangers attempt to ensure that there is no deviation from the norm or
plan.
5. Innovating: means creating new ideas which may improve a product, process or practice.

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MANAGEMENT & ENTREPRENEURSHIP (21EE61) MODULE – 1
6. Representing: means representing his/her organization before various outside groups which may
have some stake in the organization.

Nature of management:
1. All the managers carry out the managerial functions of planning, organizing, staffing leading
and controlling
2. management applies to any kind of organization
3. applies to managers at all organizational levels
4. the aim of the managers is same create the surplus
5. managing is concerned with productivity, which implies effectiveness and efficiency

Characteristics of management:
Management is:
1. Intangible (not measurable and cannot be seen) but its presence can be felt by efforts in the
production sales and revenues.
2. universal and it is applicable to all sizes and forms of organizations
3. a group activity and it involves getting things done with and through others
4. Is goal oriented and all actions of management are directed at achieving specific goals.
5. is science as well art and emerging now as a profession
6. is multidisciplinary and it has contributions from psychology, sociology, anthropology

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MANAGEMENT & ENTREPRENEURSHIP (21EE61) MODULE – 1

Scope of the management:

 The management is a must for every organization which encompasses for profit as well as non-
profit organizations, government as well as non-government organizations, and service as well
as manufacturing organizations.
 It is in fact difficult to find an area of activity where management is not applicable.
 Management is not only limited to business enterprises for profits but also to the for non-
profit organizations like educational institutions, health care organizations, financial
organizations, stores management for keeping their cost of the operation at the optimal levels
 Government organizations like municipal corporations, water supply departments, electricity
boards in providing best possible services to the public
 Non-government agencies like environmental agencies benefit from management in achieving
their social objectives in cost effective manner
 Manufacturing organizations extensively use management to increase production to enhance
the quality of the products manufactured and similarly
 Service organizations benefit from management in providing an exemplary service experience
to the customers.

Management functions or The Process of Management

1. Planning is a function that determines in advance what should be done which is looking ahead
and preparing for the future
a. It is a process of determining the objectives and charting out the methods of attaining those
objectives.
b. It is determination of what, where and how it is to be done and how the results are to be
evaluated.
c. It is done for the organization as a whole but every division, department or subunit of the
organization.
d. It is a function which is performed by the managers at all levels-top (which may be as long as
five years), middle (shorter may be week) and supervisory.

2. Organizing and staffing is a function which may be divided into two main sections namely the
human organization and material organization.
a. Once the plans have been developed and the objectives established they must design and
develop a human organization to carry out plans successfully.
b. It may defined as a structure which results from identifying and grouping work, defining and
delegating responsibility and authority and establishing the relationships.
c. Staffing is also considered an important function in building the human organization involves
building the right person for the right job.
d. Fixes responsibility for a manager to find the right person for the right job and ensures enough
manpower for the various positions needed for the organization which involves selection and
training of future managers and suitable system of compensation
e. Different objectives require different kinds of organizations.

3. Directing is the next step after planning, organizing and staffing

a. Involves three sub-functions namely communication, leadership and motivation.
b. Communication is the process of passing information from one person to another
c. Leadership is the process of guiding and influencing the work of his subordinates by the
manager.
d. Motivation is the arousing the desire in the minds of the workers to give their best to their
enterprise.
e. To pull out the weight effectively, to be loyal to their enterprise and carry out the task
effectively.
f. Has two types of motivation financial and nonfinancial

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MANAGEMENT & ENTREPRENEURSHIP (21EE61) MODULE – 1

g. Financial: takes the form of salary, bonus, profit-sharing etc.

h. Nonfinancial: takes the form of job security, opportunity of advancement recognition praise
etc.

4. Controlling is a function which ensures everything occurs in conformity with plans adopted and
involves three elements:
a. establishing the standards of performance
b. Measuring current performance and comparing it against the established standards.
c. taking action to correct any performance that does not meet the standards, management
process.

5. Innovating: It is very much necessary for an organization to grow better, for which INNOVATION
becomes very essential. A frequent catchphrase used in Organization is “Innovate or evaporate”.
Innovation means creating new ideas in the organization which may improve a product, process or
practice for their betterment.

6. Representing: A manager is also required to spend a

part of his/her time in representing his organization
before various outside groups which may have some
stake in the organization. These stake-holders can be
government officials, labour unions, customers,
suppliers, financial institutions, etc. They have
influence over the organization. A manager must win
their support by effectively managing the social
impact of the organization.

Management Process blends into each other like the flowing water of a river. These sub-processes
have no clear-cut separate entity or a line of demarcation where one ends & the other begins.

Roles of a Manager:
I. Interpersonal roles:
a) Figure head: performs duties of ceremonial nature such as greeting the touring dignitaries,
attending the wedding of an employee etc.
b) Leader: every manager must motivate and encourage their employees, try to reconcile
their individual needs with the goals of the organization.
c) Liaison: in this role, every manager must develop contacts outside the vertical chain of
command to collect information useful for the organization.

II. Informational roles:

a) Monitor: must perpetually scan his environment for information; interrogate his liaison
and subordinates to get any solicited information useful for the organization.
b) Disseminator: manager passes the privileged information directly to the subordinates who
otherwise would not have access to it.
c) Spokesman: may require spending a part of the time in representing the organization
before various outside groups having some stake in the organization such as government
officials, labor unions, and financial institutions.

III. Decisional roles:

a) Entrepreneur: in this role the manager proactively looks out for innovation to improve the
organization by means of means creating new ideas, development of new products or
services or finding new uses for the old ones.
b) Disturbance handler: must act like a fire-fighter to seek solutions to various unanticipated
problems

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c) Resource allocator: must divide work and delegate authority among his subordinates.
d) Negotiator: must spend considerable time in negotiations.
Example: the foreman negotiating with the workers for the grievance problems

Levels of Management:

The term “Levels of Management’ refers to a line of demarcation between various managerial
positions in an organization. The number of levels in management increases when the size of the
business and work force increases and vice versa. The level of management determines a chain of
command, the amount of authority & status enjoyed by any managerial position. The levels of
management can be classified in three broad categories:
1. Top level / Administrative level - consists of board chairman, the company presidents, and
the executive vice presidents.
2. Middle level / Executory - consist of vast and diversified group consisting plant managers,
personnel managers and department heads.
3. Low level / Supervisory / Operative / First-line managers - is made up of foreman and
white collared supervisors.

Managers at all these levels perform different functions. The role of managers at all the three levels
is discussed below:

Managerial skills:
The manager is required to possess three major skills: Conceptual skill which deals with ideas, human
relations skill which deals with people and technical skill which deals with things.
1. Conceptual skill: deals with the ability of manager to take a broad and farsighted view of
organization and its future, ability to think in abstract ability to analyse the forces working in a
particular situation.
2. Technical skill: are managers understanding of the nature of the job that people under him have
to perform. It refers to the person’s knowledge and proficiency in any type of process or
technique.
3. Human relations skill: is the ability to interact effectively with people at all levels and the
manager sufficient ability to:
a. to recognize the feelings and sentiments of others.
b. to judge the possible reactions to and the outcomes of various courses of action
c. to examine his own concepts and values which may enable to more useful attitudes and about
himself.

Skill mix of a manager with the change in his level:

a. Top level: technical skill becomes less important
b. Middle management: human relations skill become more important
c. Supervisory skill: technical skill becomes more important.

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Management & Administration:

Sl. Differences Administration Management
1 Nature of Work It is concerned about the It puts into action the policies and
determination of objectives and plans laid down by the administration
major policies of an organization.
2 Type of function It is a determinative function. It is an executive function.
3 Scope It takes major decisions of an It takes decisions within the
enterprise as a whole framework set by the administration.
4 Level of authority It is a top-level activity. It is a middle level activity.
5 Nature of status It consists of owners who invest It is a group of managerial personnel
capital in and receive profits from who use their specialized knowledge
an enterprise. to fulfil the objectives of an enterprise.
6 Decision making Its decisions are influenced by Its decisions are influenced by the
public opinion, government values, opinions, and beliefs of the
policies, social, and religious managers.
factors.
7 Nature of usage It is popular with government, It is used in business enterprises.
military, educational, and religious
organizations.
8 Main functions Planning and organizing functions Motivating and controlling functions
are involved in it. are involved in it.
9 Abilities It needs administrative rather It requires technical activities
than technical abilities

Management as a Science, Art & Profession –

Management is called SCIENCE if -

1. the methods of the inquiry are systematic and empirical
2. if the information can be ordered and analysed and
3. results are cumulative and communicable

Systematic means orderly and unbiased attempt to gain knowledge must be with the personal or other
prejudgment. Inquiry being empirical means that it is not an armchair speculation or priory approach.
the scientific information so collected as raw data must be finally ordered and analysed with the
statistical tools which makes the results. Communicable and intelligible which also permits repletion
of the study and the results in the sense that what is discovered is added to which has been found before
which helps us to learn from past mistakes and obtain guides for the future.

Management as ART -
1. As the science considers the why phenomena management as an art is concerned with the
understanding how a particular task can be accomplished which involves art of getting things done
through others in a dynamic and non-repetitive fashion and has to constantly analyse the existing
situation, determine the objectives, seek the alternatives, implement, coordinate, control and
evaluate information and make decisions.
2. As the knowledge of management theory and principles is a valuable kit of the manager but it cannot
replace his managerial skills and qualities which has to be applied and practiced which makes us to
consider manager as an art.
3. Like the art of a musician or the art of a painter who uses his own skill and does not copy the skills
of others

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Management is a PROFESSION-
 Characteristics of a profession:
a. existence of organized and systematic knowledge
b. Formalized methods of acquiring training and experience.
c. existence of an association with the professionalization as a goal
d. existence of an ethical code to regulate the behaviour of the members of the profession
e. Charging of fees based on service.

 Management as Profession:
a. Does not have fixed norms of managerial behaviour
b. no uniform of code of conduct or licensing of managers
c. entry of managerial jobs are not restricted to individuals with a special academic degree
only and hence management cannot be called a profession

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PLANNING

Meaning of Planning:
1. Planning is an intellectual process which requires manager to think before acting.
2. It is thinking in advance. it is planning that managers of organization decide what is to be done,
when it is to be done, how it is to be done, and how has to do it.
3. Decision making is an integral part of planning.
4. It is the process of choosing among alternatives. Obviously, decision making will occur at many
points in the planning process.
5. Planning is a continuous process like a navigator constantly checks where his ship in going in the
vast ocean, a manger must constantly watch his plans must constantly monitor the conditions, both
within and outside the organization to determine if changes are required in his plans.

Nature of Planning:
Planning involves selection of objectives, goals and determines the ways and means of achieving them.
Thus planning bridges the gap from ‘where the Organization is’ to ‘where it wants to be’. Planning is
dynamic in nature and is basically a discrete exercise. Nature of planning indicates essential quality or
general characteristics of planning. Planning involves four essential qualities:
1. Planning must contribute to accomplish purpose and objectives.
2. It must be considered as parent exercise in all processes.
3. It must spread through all management functions.
4. It must be efficient in such a manner so as to achieve the designed goals at the least cost.

Importance of planning:
1. Minimizes risk and uncertainty
a. By providing a more rational, fact-based procedure for making decisions, planning allows
managers and organizations to minimize risk and uncertainty.
b. Planning does not deal with future decisions, but in futurity of present decisions.
2. Leads to success:
a. Planning does not guarantee success but studies have shown that, often things being equal,
companies which plan not only outperform the non-planners but also their past results.
b. This may be because when a businessman’s actions are not random arising as mere reaction
to the market place
c. Planning leads to success by doing beyond mere adaption to market fluctuations.
d. With the help of a sound plan, management can act proactively and not simply react.
e. It involves to attempt to shape the environment on the belief that business is not just the
creation of environment but its creator as well.

3. Focus attention on the organizations goals:

a. Planning helps the manger to focus attention on the organizations goals and activities.
b. This makes it easier to apply and coordinate the resources of the organization more
economically.
c. The whole organization is forced to embrace identical goals and collaborate in achieving them.
d. It enables the manager to chalk out in advance an orderly sequence of steps for the realization
of organizations goals and to avoid needless overlapping of activities.

4. Facilitates control:
a. In planning, the manager sets goals and develops plans and to accomplish these goals.
b. These goals and plans then become standards against which performance can be measured.
c. The function of control is to ensure that activities conform to the plans.
d. Thus control can be exercised only if there are plans.

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5. Trains executives:
a. Planning is also an excellent means for training executives.
b. They become involved in the activities of the organization and the plans arouse their interest
in the multifarious aspects of planning.

Forms of planning:
1. There are many forms and styles of planning, and planning practices are likely to vary from
organization to organization.
2. One useful way of classifying them is to distinguish between strategic planning and tactical
planning.
3. About Strategic planning involves deciding what the major goals of the entire organization will
be and what policies will guide the organization in its pursuit of these goals and depends on the
data collect in the outside the organization such as market analysis, estimates of costs,
technological developments and so on and if the data being mostly imprecise make strategic
planning less certain.
4. About Tactical planning involves deciding specifically how the resources of the organization will
be used to help the organization achieve these strategic goals. for example if the organization
has prepared a ten-year strategic plan which envisages a profit rate of 25% on capital employed
in the tenth year, it also necessary to prepare a more detailed tactical plan for the next year, with
a specific target of 10% on the capital employed.
5. Contingency planning takes into account possible occurrences. It is planning for ‘what to do if
there is a recession or if there is a change in government policy and so on.

Sl. Strategic planning Tactical planning

1 decides the major goals and policies of decides the detail use of resources for
allocation of resources to achieve these goals achieving these goals
2 Done at higher levels of management. Middle is done at lower levels of management
managers sometimes may not even be aware
that strategic planning is being considered.
3 it is long term planning it is short term planning
4 Is generally based on long term forecasts is generally based on the past performance of
about technology, political environment and the organization and is less uncertainly
is more uncertain.
5 is less detailed because it is not involved with is more detailed because it is involved with
the day to day operations of the organization the day-to-day operations of the organization

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Types of plans:

1. Plans are arranged in a hierarchy within the organization

2. At the top of this hierarchy stand objectives.
3. Objectives are the broad ends of the organization which are achieved by means of strategies.
4. Strategies in their turn are carried out by means of the two major groups of plans. Single use
plans and standing plans.
5. Single use plans are developed to achieve a specific end and when the end is reached the plan is
dissolved.
6. The two major types of plans are single use plans are programmers and budgets.
7. Standing plans on the other hand are designed for situations that recur often to justify the
standardized approach.
8. For example, it would be inefficient for a bank to develop a single use plan for processing a loan
application for each new client.
9. instead it uses one standing plan that anticipates in advance whether to approve or turn down
the request based on the information furnished, credit rating, etc. the major types of plans are
policies, procedures methods and rules.

Vision:
1. At the top of the hierarchy is the VISION.
2. This is the dream that an entrepreneur creates about the direction that his business should
pursue in future.
3. It describes his aspirations, beliefs and values and shapes Organization’s strategy.
4. VISIONING is an on-going process.
5. A VISION should be brief, focused, clear and inspirational to an organization’s employees.
6. It should be linked to customers’ needs and convey a general strategy for achieving the
mission.

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MANAGEMENT & ENTREPRENEURSHIP (21EE61) MODULE – 1

Mission:
1. The unique aim of an organization that sets it apart from others of its type.
2. It is an organization’s specialization in some area – service, product or client, which decides the
organization’s scope of business.
3. In addition to describing the scope of business, the firm’s mission statement may mention its
cultural values.
4. Mission also guides the development of strategies.
5. It establishes the context within which daily operating decisions are made and sets limits on
available strategic options.

Objectives:
1. Are the goals of the organization which the management wishes the organization to achieve?
2. These are the end points or pole-star towards which all business activities like organizing,
staffing, directing and controlling are directed.
3. Only after having defined these end points the can determine the kind of organization the kind
of personnel and their qualifications, the kind of motivation, supervision and direction and the
control techniques which he must employ to reach these points.
4. Objectives are the specific targets to be reached by an organization.
5. They are the translation of the organization’s mission into concrete terms against which the
results can be measured.
6. Example:1)university decision to admit a certain number of students or the hospitals decision
to admit a certain number of indoor patients.

Characteristics of the objectives:

Some of the important characteristics of the objectives are:
1) Objectives are multiple in numbers:
 Implies that every business enterprise has a package of objectives set out in various key areas.
 There are eight key areas in which objectives of performance and results are set which are
(i) market standing (ii) innovation (iii) productivity (iv) profitability
(v) physical and financial resources (vi) Manager performance and development
(vii) worker performance (viii) attitude and public responsibility.

2) Objectives change over time: Considering the timely advancements, changes in the ecosystem –
internal & external, customers’ reactions over a product; it will be essential for the enterprise to
change its corporate objectives.

3) Objectives are either tangible or intangible:

 For some objectives such as in the areas of market standing, productivity, and physical and
financial resources) there are quantifiable values available.
 Other areas of objectives are not readily quantifiable and are intangible, such as manager’s
performance, workers morale, public responsibility etc.

4) Objectives have priority:

 Implies that at one particular given point of time, the accomplishment of one objective is
relatively more important than others.
 Priority of goals also says something about the relative importance of certain goals regardless of
time. For example, the survival of organization is necessary condition for the realization of other
goals.

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5) Objectives are generally arranged in a hierarchy:

 This means that we have corporate objectives of the total enterprise at the top, followed by
divisional or departmental objectives, then each section and finally individual objectives.
 Objectives at all levels serve as an end and as a means.

6) Objectives sometimes clash with each other:

 The process of breaking down the enterprise into units requires that objectives be assigned to
each unit.
 Each unit is given the responsibility of attaining an assigned objective.

The process of allocating objectives among various units creates the problem of potential goal conflict
and sub-optimization, where in achieving the goals of one unit may put in risk of achieving the goals of
the other.

Requirements of sound objectives:

a. Objectives must be clear and acceptable:
The objectives must be clear and understandable amongst people which could be achieved by
unambiguous communication, should be compatible with their individual goals.
b. Objectives must support one another:
Objectives could interlock or interfere with one another which require the need for coordination
and balancing the activities of the entire organization, otherwise its members may pursue
different paths making it difficult for the manager to achieve the company’s overall objectives.
c. Objectives must be precise and measurable:
An objective must be spelled out in precise, measurable terms the reasons for which being
i. The more precise and measurable the goal, the easier it is to decide the way of achieving it.
ii. Precise and measurable goals are better motivators of people than general goals.
iii. Precise and general goals make it easier for lower level managers to develop their own
plans for actually achieving these goals.
iv. It is easier for managers to ascertain whether they are succeeding or failing if their goals
are precise and measurable.
d. Objectives should always remain valid:
The manager should constantly review, reassess and adjust them according to the changed
conditions.

Advantages of objectives:
The following are the benefits of objectives
1. They provide a basis for planning and for developing other type of plans such as policies,
budgets and procedures.
2. They act as motivators for individuals and departments of an enterprise by pointing the way to
desired performance.
3. They eliminate haphazard action which may result in undesirable consequences.
4. Facilitate coordinated behavior of various groups which otherwise may pull in different
directions.
5. Function as a basis for managerial control by serving as standards against which actual
performance can be measured.
6. They facilitate better management of the enterprise by providing a basis for leading, guiding,
directing and controlling the activities of people of various departments.
7. Lessen misunderstanding and other conflict and facilitate communication among people by
minimizing jurisdictional disputes.
8. Provide legitimacy to organization’s activities.

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Strategies:
 A corporate strategy is a plan which takes these factors into account and provides optimal match
between the firm and the environment.
 Two important activities are involved in strategy formulation
A. Environmental appraisal
B. Corporate appraisal

A. Environmental appraisal:
By analyzing the relevant environment it results in identifying various threats & Opportunities.
Components of External environment are grouped into 4 categories namely -
a. Political and legal factors:
Key environment factors which need to be studied are
i. stability of the government and its political philosophy.
ii. taxation and industrial licensing laws
iii. monitory and fiscal policies
iv. Restrictions on capital movement, repatriation of capital, state trading etc.

b. Economic factors:
i. level of economic development and distribution of income
ii. Trend in prices, exchange rates, balance of payments.
iii. Supply of labor, raw, material, capital etc.

c. Competitive factors:
i. identification of principle competitors
ii. analysis of their performance and programmers in major areas
iii. antimonopoly laws and rules of competition
iv. protection of patents, trademarks, brand names and other industrial property rights

d. Social and cultural factors:

i. literacy levels of population
ii. religious and social characteristics
iii. extent and rate urbanization
iv. rate of social change

B. Corporate appraisal:
 Involves the analysis of company’s strengths and weaknesses.
 A company’s strength may lie in outstanding leadership, excellent product design, low-cost
manufacturing skill, efficient distribution, efficient customer service, personal relationship with
customers, efficient transportation and logistics, effective sales promotion, high turnover of
inventories and capital etc.
 The company must plan to exploit these strengths to the maximum.

Standing plans:
Policies:
 A policy is a general guideline for decision making which sets up boundaries around decisions
including those that cannot be made and shutting out those that cannot.
 A policy can be considered as a verbal, written or implied overall guide setting up boundaries
that supply the general limits and the direction in which ,managerial action takes place Policies
suggest how to do the work.
 They do not dictate terms to subordinates and provide only a framework within which the
decisions must be made by the management in different spheres. For example:
1) Recruitment policy of a company is to recruit meritorious people through the employment
exchange

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2) Distribution policy of a fertilizer company is farmer oriented. Policies and objectives guide
thinking and action, but with a difference. Objectives are end points of planning while policies
channelize decisions to these ends.

Advantages of policies:
1) Policies ensure uniformity of action in respect of matters at various organizational points which
make actions more predictable.
2) Policies speed up decisions at lower levels because subordinates need not consult their
superiors frequently.
3) makes it easier for the superior to delegate more and more authority to the his subordinates
without being unduly concerned because he knows that whatever decision the subordinates
make will be within the boundaries of the policies.
4) Policies give a practical shape to the objectives by elaborating and directing the way in which
the predetermined objectives are to be attained.

Disadvantages of policies: Policies with broad areas of discretion and initiative lead to inconsistent
interpretations and make the very delegation of authority difficult which they are intended to
implement.

Types of policies:
Can be classified on the basis of sources, functions or organizational levels

1. Classification on the basis of sources: three types originated, appealed, implied and imposed
policies
(a) Originated policies:
 Are usually established formally and deliberately by top managers for the purpose of
guiding of actions of their subordinates and also their own.
 These policies are set out in print and embodied in manual.
(b) Appealed policies:
 Are those which arise from the appeal made by a subordinate to his superior regarding
the manner of handling a given situation and comes into existence because of the appeal
made by the subordinate to the supervisor.
(c) Implied policies:
 Are also policies which are stated neither in writing nor verbally.
 Such policies are called implied policies.
 Only by watching the actual behavior of the various superiors in specific situations can
the presence of implied policy is ascertained.
(d) Externally imposed policies:
 Are the policies which are imposed on the business by external agencies such as
government trade associations, and trade unions. Example: policy dictated by the
government law.

2. Classification on the basis of functions:

 On the basis of business functions, policies may be classified into production, sales, finance,
and Personnel policies.
 Every one of these functions has number of policies.
For example: Sales function may have policies relating to market.
Production function: may policies relating to the method of production, output, inventory,
research.
Finance function: may have policies relating to capital structure, working capital, internal
financing etc.
Personal function: may have policies relating to recruitment, training, working activities,
welfare activities etc.

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3. Classification on the basis of organizational level:

 On this basis range from major company policies through major departmental policies to
minor or derivative polices applicable to the smallest element of organization.

Procedures:
 Policies are carried out by means of more detailed guidelines called procedures.
 A procedure provides a detailed set of instructions for performing a sequence of actions
involved in doing a certain piece of work.
 The same steps are followed each time that activity is performed.
For example: the procedure for purchasing raw material may be -
i. the requisition from the storekeeper to the purchasing department.
ii. Calling tenders for purchase of materials.
iii. placing orders with the suppliers who are selected
iv. inspecting the materials purchased by the inspecting department
v. Making payment to the supplier of materials by the accounts department.
 Similarly, the procedure for the recruitment of personnel may be
i. inviting applications through advertisement
ii. screening the applications
iii. conducting written test
iv. conducting interview for those who have passed the written test and
v. Medical examination of those who are selected for the posts.
 Procedures may also exist for conducting the meetings of directors and shareholders, granting
loans to employees, issuing raw materials from the stores department, granting sick leaves to
the employees, passing bills by the accounts department.

Sl. Policies Procedures

1 Are the general guidelines to both thinking are the guidelines to action only usually for
and action of people at higher levels the people at the lower levels
2 Help in fulfilling the objectives of the show us the way to implement policies
enterprise.
3 are generally broad and allow some latitude Are specific and do not show latitude.
in decision making
4 are often established without any study or are always established after thorough study
analysis and analysis of work

Advantages and limitations of procedures:

Advantages:
1. They indicate a standard way of performing a task which ensures a high level of uniformity in
performance in the enterprise.
2. they result in work simplification and elimination of unnecessary steps and overlapping
3. they facilitate the executive control over performance by laying down the sequence and timing of
each task, executives dependence on the personal attributes of his subordinates is reduced
4. they enable employees to improve their efficiency by providing them with knowledge about their
entire range of work

Limitations:
1. By prescribing one standard way of performing a task, they limit the scope for innovation or
improvement of work performance.
2. By cutting across department lines and extending into various other departments, they sometimes
result in duplication, overlapping and conflict. These limitations can be overcome if the
management reviews and appraises the procedures periodically with an intention to improve them.

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Methods: A Method is a prescribed way in which one step of a procedure is to be performed. Methods
help in increasing the effectiveness and usefulness of the procedure. Improving methods increases the
productivity, reduces fatigue in operation and reduction in costs can be achieved.

Rules: Rules are detailed and recorded instruction that a specific action must or must not be performed
in a given situation. Like procedures, RULES also bring in predictability. A rule makes sure that a job is
done in the same manner every time & brings in uniformity in efforts & results.
A rule is different from policy, procedure or method.
- Not a policy because it does not give a guide to thinking and does not leave any discretion to
the party involved.
- Not a procedure because there is no sequence to a particular action.
- Not a method because it is not concerned with any one particular step of a procedure.

Single use plans

Programmes:
 Programmes are precise plans which are made to discharge a non – routine or non – repetitive
task.
 The essential ingredient of every programme are time phasing and budgeting.
 Often a single step in a programme is set up as a project. The chief virtue of a project lies in
identifying, a relatively separate and clear–cut work package within array of activities involved
in a programme.
Example:
Programme → Opening a New branch of an enterprise
Project (1) → Securing the necessary accommodation for the new branch.
Project (2) → Recruiting personnel to manage the branch.
Project (3), Project (4), Project (5) and so on many projects may exist.
 A schedule specifies the time when each of the series of actions should take place.

Budgets:
 A budget is a financial and/or quantitative statement prepared prior to a definite period of time,
of the policy to be pursued during that period, for the purpose of obtaining a given objective.
 Budgets are useful plans for an enterprise, planned for a future period of time containing
statements of expected results in numerical terms. Example: Sales Budget. Expense Budget,
Production Budget.

Business plan:
 It is an important document prepared by an entrepreneur as a start-up strategy to prove to its
stake holders about the company’s position to articulate and manage diverse aspects of the
business.
 A good business plan must provide full information on all the topics readers may be interested
in; must have an objective tone; must not be over critical of past failures or mistakes if any;
should not be filled only with technical details.

Steps in planning:

The various steps involved in planning are as follows:

1) Establishing verifiable goals or set of goals to be achieved:
 The first step in planning is to determine the enterprise objectives which are often set up by the
upper level or top managers, usually after number of possible objectives have been carefully
considered.

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 There are many types of objectives managers may select: desired sales volume or growth rate,
the development of a new product or service or even a more abstract goal such as becoming
more active in the community.
 The type of goal selected will depend on a number of factors: the basic mission of the
organization, the value its mangers hold and the actual and the potential abilities of the
organization.

2) Establishing planning premises:

It is the second step in planning to establish planning premises which is vital to the success of
planning as they supply pertinent facts and information relating to the future such as population
trends, general economic conditions, production costs and prices, probable competitive behavior,
capital and material availability and government control and so on. Planning can be variously
classified as under
a. internal and external premises
b. tangible and intangible premises
c. controllable and non-controllable premises
a. Internal and external premises
 Premises may exist within and outside company.
 Internal premises include sales forecasts, policies and Programmes of the organization,
capital investment in plant and equipment, competence of management, skill of labor, etc.
 External premises can be classified into three different groups Business environment,
factors which influence the demand for the product, and the factors which affect the
resources available to the enterprise.

b. Tangible and non-tangible premises:

 Tangible premises: those which can be quantitatively measured while Intangible
premises are those which being qualitative in character and cannot be measured.
 Tangible examples: population growth, industry demand, capital and resources invested
in the organization are all tangible.
 Intangible examples: political stability, sociological factors, business and economic
environment are all tangible.

c. Controllable and non-controllable premises:

 Some of the planning premises are controllable and some are non-controllable and because
of the non-controllable factors there is need for the organization to revise the plans
periodically in accordance with the current development.
Examples of uncontrollable factors: strikes, wars, natural calamities, emergency,
legislation etc. Examples of controllable factors: company’s advertising agency,
competence of management member’s skill of the labour force, availability of resources in
terms of capital and labour, attitude and behavior of the owners of the organization.

3) Deciding the planning period:

 It is the next task once the upper level managers have selected the basic long term goals
and the planning premises.
 Business plans are made in some instances once for a year and plans are made for decades
based on some logic and future thinking.
 The factors which affect the choice of period are:
a. Lead time in development and commercialization of new product.
b. The time required to recover capital investments or the pay-back period and
c. Length of the commitments which are already made.

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4) Finding alternate courses of action: The fourth step of planning is to search for & examine the
alternate courses of action. Example: securing the technical knowhow by engaging a foreign
technician or by training staff abroad.

5) Evaluating and selecting the alternate courses of action: After listing the alternates, selecting
the best alternate or course of action is done with the help of quantitative techniques and operations
research.

6) Developing the derivative plans: Once plan formulated, its broad goals must be translated on day
to day operations of organization Middle level managers must draw up the appropriate plans,
programmes and budgets for their sub-units which are described as derivative plans.

7) Establishing and Deploying Action Plans: Action represents ‘the lowest level of execution’. The
action plan identifies particular activities necessary for this purpose and specifies the who, what,
when, where and how of each action. A draft version of the action plan should be communicated to
inform those directly involved & gain their cooperation.

8) Measuring and controlling the process: Plan cannot be run without monitoring its progress. The
managers must check the progress of their plans.
a. Take whatever remedial action is necessary to make the plan work
b. Change the original plan is it is unrealistic.

Limitations of planning:
1. Planning is expensive and time consuming process. it involves significant amount of money,
energy and also risk without any assurance of the fulfilment of the organizations objectives
2. Sometimes restricts the organization to the most rational and risk free opportunities. Curbs the
initiatives of the manager and forces him to operate within the limits set by it and sometimes
cause delay in decision making in case of emergency.
3. Scope of planning is limited with rapidly changing situations.
4. Establishment of advance plans tends to make administration inflexible. Example: business
changes, change in government policy, may make the original plan lose its value.
5. Another limiting factor in planning is the formulating of the accurate premises.
6. Planning may sometimes face peoples’ resistance to it.

To make planning effective, it requires Extent of detail, Coordination, communication,

participation, proper climate.

Planning skills:
1. Ability to think ahead
2. Ability to define company objectives
3. Ability to forecast future environmental trends
4. Ability to monitor the implementation of strategies
5. Ability to provide an appropriately timed, intermeshed network of derivative and supporting
programmes.

******************************************************************************************************

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DECISION MAKING AND PROBLEM SOLVING:

Quite literally, organizations operate by people making decisions. A manager plans, organizes staffs,
leads, and controls her team by executing decisions. The effectiveness and quality of those decisions
determine how successful a manager will be.

The Decision-Making Process

Managers are constantly called upon to make decisions in order to solve problems. Decision making and
problem solving are ongoing processes of evaluating situations or problems, considering alternatives,
making choices, and following them up with the necessary actions. Sometimes the decision- making
process is extremely short, and mental reflection is essentially instantaneous. In other situations, the
process can drag on for weeks or even months. The entire decision-making process is dependent upon
the right information being available to the right people at the right times.

The decision-making process involves the following steps:

1. Define the problem.
2. Identify limiting factors.
3. Develop potential alternatives.
4. Analyze the alternatives.
5. Select the best alternative.
6. Implement the decision.
7. Establish a control and evaluation system.

STEP 1 - Define the problem

The decision-making process begins when a manager identifies the real problem. The accurate
definition of the problem affects all the steps that follow; if the problem is inaccurately defined,
every step in the decision making process will be based on an incorrect starting point. One way that
a manager can help determine the true problem in a situation is by identifying the problem
separately from its symptoms. The most obviously troubling situations found in an organization can
usually be identified as symptoms of underlying problems. Manager doesn’t just attack symptoms;
he works to uncover the factors that cause these symptoms.

Symptoms and Their Real Causes: Symptoms Underlying the Problem ‘Low profits and/or
declining sales’ are as follows - Poor market research, high costs, Poor design process, poorly
trained Employees, Low morale, Lack of communication between management and subordinates,
High employee turnover, Rate of pay too low, job design not suitable, High rate of absenteeism,
Employees believe that they are not valued and so on.

STEP 2 - Identify limiting factors

All managers want to make the best decisions. To do so, managers need to have the ideal resources
— information, time, personnel, equipment, and supplies — and identify any limiting factors.
Realistically, managers operate in an environment that normally doesn’t provide ideal resources.
For example, they may lack the proper budget or may not have the most accurate information or
any extra time. So, they must choose to satisfice — to make the best decision possible with the
information, resources, and time available.

STEP 3 - Develop potential alternatives

Time pressures frequently cause a manager to move forward after considering only the first or most
obvious answers. However, successful problem solving requires thorough examination of the
challenge, and a quick answer may not result in a permanent solution. Thus, a manager should think
through and investigate several alternative solutions to a single problem before making a quick
decision. One of the best known methods for developing alternatives is through

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brainstorming, where a group works together to generate ideas and alternative solutions. The
assumption behind brainstorming is that the group dynamic stimulates thinking — one person’s
ideas, no matter how outrageous, can generate ideas from the others in the group. Ideally, this
spawning of ideas is contagious, and before long, lots of suggestions and ideas flow. Brainstorming
usually requires 30 minutes to an hour.

The following specific rules should be followed during brainstorming sessions:

a. Concentrate on the problem at hand. This rule keeps the discussion very specific and
avoids the group’s tendency to address the events leading up to the current problem.
b. Entertain all ideas. In fact, the more ideas that come up, the better. In other words, there
are no bad ideas. Encouragement of the group to freely offer all thoughts on the subject is
important. Participants should be encouraged to present ideas no matter how ridiculous they
seem, because such ideas may spark a creative thought on the part of someone else.
c. Refrain from allowing members to evaluate others’ ideas on the spot. All judgments
should be deferred until all thoughts are presented, and the group concurs on the best ideas.
Although brainstorming is the most common technique to develop alternative solutions,
managers can use several other ways to help develop solutions.

STEP 4 - Analyze the alternatives

The purpose of this step is to decide the relative merits of each idea. Managers must identify the
advantages and disadvantages of each alternative solution before making a final decision.
Evaluating the alternatives can be done in numerous ways. Here are a few possibilities:
a. Determine the pros and cons of each alternative.
b. Perform a cost-benefit analysis for each alternative.
c. Weight each factor important in the decision, ranking each alternative relative to its ability to
meet each factor, and then multiply by a probability factor to provide a final value for each
alternative. Regardless of the method used, a manager needs to evaluate each alternative in
terms of its
Feasibility — Can it be done?
Effectiveness — How well does it resolve the problem situation?
Consequences — What will be its costs (financial and nonfinancial) to the organization?

STEP 5 - Select the best alternative

After a manager has analysed all the alternatives, she must decide on the best one. The best
alternative is the one that produces the most advantages and the fewest serious disadvantages.
Sometimes, the selection process can be fairly straightforward, such as the alternative with the most
pros and fewest cons. Other times, the optimal solution is a combination of several alternatives.
Sometimes, though, the best alternative may not be obvious. That’s when a manager must decide
which alternative is the most feasible and effective, coupled with which carries the lowest costs to
the organization. Probability estimates, where analysis of each alternative’s chances of success takes
place, often come into play at this point in the decision-making process. In those cases, a manager
simply selects the alternative with the highest probability of success.

STEP 6 - Implement the decision

Managers are paid to make decisions, but they are also paid to get results from these decisions.
Positive results must follow decisions. Everyone involved with the decision must know his or her
role in ensuring a successful outcome. To make certain that employees understand their roles,
managers must thoughtfully devise programs, procedures, rules, or policies to help aid them in the
problem-solving process.

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STEP 7 - Establish a control and evaluation system

On-going actions need to be monitored. An evaluation system should provide feedback on how well
the decision is being implemented, what the results are, and what adjustments are necessary to get
the results that were intended when the solution was chosen. In order for a manager to evaluate his
decision, he needs to gather information to determine its effectiveness.
 Was the original problem resolved? If not, is he closer to the desired situation than he was at
the beginning of the decision-making process? If a manager’s plan hasn’t resolved the problem,
he needs to figure out what went wrong. A manager may accomplish this by asking the following
questions:
 Was the wrong alternative selected? If so, one of the other alternatives generated in the
decision-making process may be a wiser choice.
 Was the correct alternative selected, but implemented improperly? If so, a manager should
focus attention solely on the implementation step to ensure that the chosen alternative is
implemented successfully.
 Was the original problem identified incorrectly? If so, the decision- making process needs to
begin again, starting with a revised identification step.
 Has the implemented alternative been given enough time to be successful? If not, a
manager should give the process more time and re-evaluate at a later date.

Conditions that influence Decision Making

Managers make problem-solving decisions under three different conditions: certainty, risk, and
uncertainty. All managers make decisions under each condition, but risk and uncertainty are common
to the more complex and unstructured problems faced by top managers.

1. Certainty:
Decisions are made under the condition of certainty when the manager has perfect knowledge
of all the information needed to make a decision. This condition is ideal for problem solving. The
challenge is simply to study the alternatives and choose the best solution. When problems tend
to arise on a regular basis, a manager may address them through standard or prepared
responses called programmed decisions.
These solutions are already available from past experiences and are appropriate for the problem
at hand. A good example is the decision to reorder inventory automatically when stock falls
below a determined level. Today, an increasing number of programmed decisions are being
assisted or handled by computers using decision-support software. Structured problems are
familiar, straightforward, and clear with respect to the information needed to resolve them. A
manager can often anticipate these problems and plan to prevent or solve them. For example,
personnel problems are common in regard to pay raises, promotions, vacation requests, and
committee assignments, as examples. Proactive managers can plan processes for handling these
complaints effectively before they even occur.

2. Risk:
In a risk environment, the manager lacks complete information. This condition is more difficult.
A manager may understand the problem and the alternatives, but has no guarantee how each
solution will work. Risk is a fairly common decision condition for managers. When new and
unfamiliar problems arise, non-programmed decisions are specifically tailored to the situations
at hand. The information requirements for defining and resolving non-routine problems are
typically high. Although computer support may assist in information processing, the decision
will most likely involve human judgment. Most problems faced by higher-level managers
demand non-programmed decisions. This fact explains why the demands on a manager’s
conceptual skills increase as he or she moves into higher levels of managerial responsibility.
A crisis problem is an unexpected problem that can lead to disaster if it’s not resolved quickly
and appropriately. No organization can avoid crises, and the public is well aware of the
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immensity of corporate crises in the modern world. The Chernobyl nuclear plant explosion in
the former Soviet Union and the Exxon Valdez spill of years past are a couple of sensational
examples. Managers in more progressive organizations now anticipate that crises,
unfortunately, will occur. These managers are installing early-warning crisis information
systems and developing crisis management plans to deal with these situations in the best
possible ways.

3. Uncertainty:
When information is so poor that managers can’t even assign probabilities to the likely outcomes
of alternatives, the manager is making a decision in an uncertain environment. This condition is
the most difficult for a manager. Decision making under conditions of uncertainty is like being a
pioneer entering unexplored territory. Uncertainty forces managers to rely heavily on creativity
in solving problems: It requires unique and often totally innovative alternatives to existing
processes. Groups are frequently used for problem solving in such situations. In all cases, the
responses to uncertainty depend greatly on intuition, educated guesses, and hunches — all of
which leave considerable room for error. These unstructured problems involve ambiguities and
information deficiencies and often occur as new or unexpected situations. These problems are
most often unanticipated and are addressed reactively as they occur. Unstructured problems
require novel solutions. Proactive managers are sometimes able to get a jump on unstructured
problems by realizing that a situation is susceptible to problems and then making contingency
plans. For example, at the Vanguard Group, executives are tireless in their preparations for a
variety of events that could disrupt their mutual fund business. Their biggest fear is an investor
panic that overloads their customer service system during a major plunge in the bond or stock
markets. In anticipation of this occurrence, the firm has trained accountants, lawyers, and fund
managers to staff the telephones if needed.

4. Personal Decision-Making Styles:

Managerial decision making depends on many factors, including the ability to set priorities and
time decisions correctly. However, the most important influence on managerial decision making
is a manager’s personal attributes or his or her own decision-making approach. The three most
common decision models are as follows:
 Rational/logical
 Intuitive
 Predisposed
Regardless of the model favoured by a manager, understanding personal tendencies and moving
toward a more rational model should be the manager’s goal. The best decisions are usually a
result of a blend of the decision maker’s intuition and the rational step-by-step approach.
These models are described in the next sections.

Decision Models
1. Rational/Logical decision model
This approach uses a step-by-step process, similar to the seven-step decision- making process
described earlier in this chapter. The rational/logical decision model focuses on facts and
reasoning. Reliance is on the steps and decision tools, such as payback analysis, decision tree,
and research — all are described later in this chapter. Through the use of quantitative
techniques, rationality, and logic, the manager evaluates the alternatives and selects the best
solution to the problem.

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2. Intuitive decision model

The managers who use this approach avoid statistical analysis and logical processes. These
managers are “gut” decision makers who rely on their feelings about a situation. This definition
could easily lead one to believe that intuitive decision making is irrational or arbitrary. Although
intuition refers to decision making without formal analysis or conscious reasoning, it is based on
years of managerial practice and experience. These experienced managers identify alternatives
quickly without conducting systematic analyses of alternatives and their consequences. When
making a decision using intuition, the manager recognizes cues in the situation that are the same
as or similar to those in previous situations that he or she has experienced; the cues help the
manager to rapidly conduct subconscious analysis. Then a decision is made.

3. Predisposed decision model

A manager who decides on a solution and then gathers material to support the decision uses the
predisposed decision model approach. Decision makers using this approach do not search out
all possible alternatives. Rather, they identify and evaluate alternatives only until an acceptable
decision is found. Having found a satisfactory alternative, the decision maker stops searching for
additional solutions. Other, and potentially better, alternatives may exist, but will not be
identified or considered because the first workable solution has been accepted. Therefore, only
a fraction of the available alternatives may be considered due to the decision maker’s
information- processing limitations. A manager with this tendency is likely to ignore critical
information and may face the same decision again later.

Quantitative Tools to Assist in Decision Making:

Quantitative techniques help a manager improve the overall quality of decision making. These
techniques are most commonly used in the rational/logical decision model, but they can apply in
any of the other models as well. Among the most common techniques are decision trees, payback
analysis, and simulations.

 Decision trees
A decision tree shows a complete picture of a potential decision and allows a manager to graph
alternative decision paths. Decision trees are a useful way to analyze hiring, marketing, investments,
equipment purchases, pricing, and similar decisions that involve a progression of smaller decisions.
Generally, decision trees are used to evaluate decisions under conditions of risk. The term decision
tree comes from the graphic appearance of the technique that starts with the initial decision shown
as the base. The various alternatives, based upon possible future environmental conditions, and the
payoffs associated with each of the decisions branch from the trunk. Decision trees force a manager
to be explicit in analyzing conditions associated with future decisions and in determining the
outcome of different alternatives. The decision tree is a flexible method. It can be used for many
situations in which emphasis can be placed on sequential decisions, the probability of various
conditions, or the highlighting of alternatives.

 Payback analysis
Payback analysis comes in handy if a manager needs to decide whether to purchase a piece of
equipment. Say, for example, that a manager is purchasing cars for a rental car company. Although
a less-expensive car may take less time to pay off, some clients may want more luxurious models. To
decide which cars to purchase, a manager should consider some factors, such as the expected useful
life of the car, its warranty and repair record, its cost of insurance, and, of course, the rental demand
for the car. Based on the information gathered, a manager can then rank alternatives based on the
cost of each car. A higher-priced car may be more appropriate because of its longer life and customer
rental demand. The strategy, of course, is for the manager to choose the alternative that has the
quickest payback of the initial cost. Many individuals use payback analysis

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when they decide whether they should continue their education. They determine how much courses
will cost, how much salary they will earn as a result of each course completed and perhaps, degree
earned, and how long it will take to recoup the investment. If the benefits outweigh the costs, the
payback is worthwhile.

 Simulations
Simulation is a broad term indicating any type of activity that attempts to imitate an existing system
or situation in a simplified manner. Simulation is basically model building, in which the simulator is
trying to gain understanding by replicating something and then manipulating it by adjusting the
variables used to build the model. Simulations have great potential in decision making. In the basic
decision making steps listed earlier in this chapter, Step 4 is the evaluation of alternatives. If a
manager could simulate alternatives and predict their outcomes at this point in the decision process,
he or she would eliminate much of the guesswork from decision making.

Types of decisions:
1. Programmed and non-programmed decisions:
 Programmed decisions are concerned with the problems of repetitive nature or routine type
matters. A standard procedure is followed for tackling such problems. These decisions are taken
generally by lower level managers. Decisions of this type may pertain to e.g. purchase of raw
material, granting leave to an employee and supply of goods and implements to the employees,
etc.
 Non-programmed decisions relate to difficult situations for which there is no easy solution.
These matters are very important for the organization. For example, opening of a new branch of
the organization or a large number of employees absenting from the organization or introducing
new product in the market, etc., are the decisions which are normally taken at the higher level.

2. Routine and strategic decisions:

 Routine decisions are related to the general functioning of the organization. They do not
require much evaluation and analysis and can be taken quickly. Ample powers are delegated to
lower ranks to take these decisions within the broad policy structure of the organization.
 Strategic decisions are important which affect objectives, organizational goals and other
important policy matters. These decisions usually involve huge investments or funds. These are
non-repetitive in nature and are taken after careful analysis and evaluation of many alternatives.
These decisions are taken at the higher level of management.

3. Tactical (Policy) and operational decisions:

 Decisions pertaining to various policy matters of the organization are policy decisions. These
are taken by the top management and have long term impact on the functioning of the concern.
For example, decisions regarding location of plant, volume of production and channels of
distribution (Tactical) policies, etc. are policy decisions.
 Operating decisions relate to day-to-day functioning or operations of business. Middle and
lower level managers take these decisions. An example may be taken to distinguish these
decisions. Decisions concerning payment of bonus to employees are a policy decision. On the
other hand if bonus is to be given to the employees, calculation of bonus in respect of each
employee is an operating decision.

4. Organizational and personal decisions:

 When an individual takes decision as an executive in the official capacity, it is known as
organizational decision. If decision is taken by the executive in the personal capacity (thereby
affecting his personal life), it is known as personal decision.

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 Personal decisions sometimes may affect functioning of the organization also. For example, if an
executive leaves the organization, it may affect the organization. The authority of taking
organizational decisions may be delegated, whereas personal decisions cannot be delegated.

5. Major and minor decisions:

 Another classification of decisions is major and minor.
 Decision pertaining to purchase of new factory premises is a major decision. Major decisions
are taken by top management.
 Purchase of office stationery is a minor decision which can be taken by office superintendent.

6. Individual and group decisions:

 When the decision is taken by a single individual, it is known as individual decision. Usually
routine type decisions are taken by individuals within the broad policy framework of the
organization.
 Group decisions are taken by group of individuals constituted in the form of a standing
committee. Generally very important and pertinent matters for the organization are referred to
this committee. The main aim in taking group decisions is the involvement of maximum number
of individuals in the process of decision- making.
 Dialectic group – It is a time-honoured group decision-making method which calls to foster
a structured debate of opposing view-points prior to making a decision.
 Devils Advocacy – Involves one of the group discussion members the role of a critic.
Consequently, the individual assigned the role of devil’s advocate will note & list all possible
objections to the other individual who presented his/her opinions.
 Nominal group technique – This method involves the use of a highly structured meeting,
complete with an agenda, and restricts discussion or interpersonal communication during
the decision-making process. This technique is useful because it ensures that every group
member has equal input in the decision-making process. It also avoids some of the pitfalls,
such as pressure to conform, group dominance, hostility, and conflict, that can plague a more
interactive, spontaneous, unstructured forum such as brainstorming.
 Delphi technique – With this technique, participants never meet, but a group leader uses
written questionnaires to conduct the decision making. No matter what technique is used,
group decision making has clear advantages and disadvantages when compared with
individual decision making.

The following are among the advantages of Group decisions:

a. Groups provide a broader perspective.
b. Employees are more likely to be satisfied and to support the final decision.
c. Opportunities for discussion help to answer questions and reduce uncertainties for the decision
makers.

These points are among the disadvantages of Group decisions:

a. This method can be more time-consuming than one individual making the decision on his own.
b. The decision reached could be a compromise rather than the optimal solution.
c. Individuals become guilty of groupthink — the tendency of members of a group to conform to the
prevailing opinions of the group.
d. Groups may have difficulty performing tasks because the group, rather than a single individual,
makes the decision, resulting in confusion when it comes time to implement and evaluate the
decision.

The results of dozens of individual-versus-group performance studies indicate that groups not only
tend to make better decisions than a person acting alone, but also that groups tend to inspire star
performers to even higher levels of productivity. So, are two (or more) heads better than one? The
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MANAGEMENT & ENTREPRENEURSHIP (15EE51) MODULE – 1

answer depends on several factors, such as the nature of the task, the abilities of the group members,
and the form of interaction. Because a manager often has a choice between making a decision
independently or including others in the decision making, therefore one needs to understand the
advantages and disadvantages of group decision making.

Difficulties in Decision making

1. Non-actionable information
2. Non-supportive environment
3. Non-acceptance by subordinates
4. Ineffective communication
5. Incorrect timing

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Steps in decision making (With example for easy remembrance)

Following are the important steps of the decision making process. Each step may be supported by
different tools and techniques.

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