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DECISION MAKING AND DECENTRALIZATION

Introduction

Decision making is also one of the functions of management. The management

executive takes a number of decisions every day. A decision may be a direction to
others to do or not to do. Thus a decision may be rational and irrational. There
are a number of alternative available to the management. The best one is
selected out of the available alternative.

Best decision making is necessary for effective functioning of management. The

success of management depends upon the quality of decisions. If the manager
fails to take correct decisions. If the manager fails to take correct decisions, he
may not extract any work from his sub-ordinates and may not find a way to finish
his work also. Some of the decisions are taken emotionally. This should be
avoided with great care. Emotionally it leads to a lot of confusion. So, the decision
making is an important work of the superiors.

Definition :

Decision making is a process involving information, choice of alternative actions,

implementations and evaluation that is directed to the achievement of certain
stated goals.- Andrew Smilagyi.

“Decision making is a conscious and human process, involving both individual and
social phenomenon based upon factual and value premises which concludes with
the choice of one behavioral activity from among one or more alternatives with
the intention of moving towards some desired state of affairs.”
shull-et-all.

“Decision making takes place in adopting the objectives and choosing the means
and again when a change in the situation creates a necessity for adjustments.”

Types of decision making:

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There are four types of decision making :

1. Mechanistic decision:

It is one that is routine and repitative in nature. It usually occurs in a situation

involving a limited number of decision variables where the outcome of each
alternative is known. Most mechanistic decision solve problems by habitual
responses, standard operating procedure or clerical routines. Tools used for this
type of decision include charts, lists, matrices, decision tree etc. this is usefuldaily
routine and scheduled activities.

2. analytical decision

It involves a problem with a large number of decision variables, where the

outcomes of each decisions alternative can be computed. The computational
techniques used to find optimal solutions include linear programming, network
analysis, and inventory recorder model, queering theory, statistical analysis and
so forth. This decision helps to solve complex problems.

3. Judgmental decision

It involves a problem with a limited number of decision variables where

outcomes of decision variables where outcomes are not predictable. Because of
the complexity and uncertainty of such problems, decision makers are able to
agree on their nature or on decision strategies. Such ill structured problems
usually require the contributions of many people with diverse technical
backgrounds.in such, situations strategies have to be frequency modified to
accommodate now development in technology and environment. eg. Research
findings

Another classification of managerial decisions suggest three types

1. Strategic

2. Administrative

3. Operational
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1. Strategic decisions are those made by top executives that commit valuable
agency resources to achieve the long term goals. The nurse executives who were
successful in making these decisions contacted members of an extensive support
network to obtain crucial problem information’s, used mixed scanning to analyze
problem causes and obtain support of the agencies dominant coalition in
shifting through alternatives for the best problem solution.

2. Administrative decisions are those made by mid-level managers to resolve

unusual problem and develop innovative methods for improving agency
function. Midlevel nurse mangers are primarily responsible for making this type
of decisions that determine patient care quality.

3. Operational decisions are routine decisions governing day to day events that
have been delegated to first level managers and are made according to the
prescribed rules and regulations instructions.

Characteristics of decision making.

1. Decision making is a selection process. The best alternative is selected out

of many available alternatives. If there is only one alternative, there is no
decision making.
2. Decision-making is the end process. It is preceded by detailed discussion
and selection of alternative.

3. Decision-making is the application of intellectual abilities to a great extent.

An intelligent man alone can take good decisions.

4. Decision-making is a dynamic process. An individual takes a number of

decisions each day.

5. decision gives happiness to an endeavor who takes various steps to collect

all information which is likely to effect a decision.

6. Decision making is situational. An individual takes decision according to the

situations prevailing. Different decisions may ne taken to solve the same
problem. The reason is that the situation is changed from time to time.
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7. Decision is taken to achieve the objectives of an organization.

8. Decision-making involves the evaluation of available alternatives through

critical appraisal methods.

9. Decision-maker has the freedom to take a decision which involves the using
resources in specifie ways.

10. A decision may be both negative and positive. A decision may be direct
others to do or not to do.

Elements of decision making

1. A problem is fully analyzed and the available alternative are considered

before taking the decisions.

2. The best decision making requires intelligence, experience and insight into
a problem.

3. A decision is taken according to the environment of business.

4. Centralization and decentralization of affect the authority affect the

decision indirectly. If authority is centralized, all important decision are taken
by the chief executive. If it is decentralized, key decision is taken by the top
executive and routine decisions are taken by the lower level management
people.

5. The psychology of the individual is involved in decision making.

6. A decision encloses the preferences, intellectual maturity, experience,

educational standard, social and religious attitude, optimism or pessimism,
designates and status of a decision maker.

7. Decision are taken when they are needed.

8. As soon as the decision is taken, they must communicate to the concerned

persons. Decision are communicated without ambiguity.

9. Employees are also involved in a decision making process.

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10. Political and social environment of business affect the decision- making. If
the management takes a decision after consulting the employees.

Principles of decision making.

A quality of decision making may be taken by the manager if he adopts certain

principles. These principles are discussed below.

1. Marginal theory of decision making.

Many economists have suggested marginal theory od decision making which

results in maximizing the profits. Therefore economist argues that the very
purpose of an organization is aimed that the very purpose of an organization
is aimed at maximizing the profits.

Decision making should be based on marginal analysis. Here the

manager adopts the principle of law of diminishing returns. If the
management appoints additional labor and uses additional capital, the
production may be increased proportionally at reduced rates. A time comes
when there is no increase in production with the appointment of additional
labor and using of additional capital will be stopped. In this way the
production of the last unit is marginal. Thus this marginal principle is applied
while taking decision relating to sales, advertisement, promotion, training and
the like.

2. Mathematical theory

Venture analysis, game theory, probability theory and awaiting theory are
some of the mathematical theories. A manager takes the decision on the basis
of mathematical theory gives scientific approach to the manager while taking
the decision.

3. Psychological theory

A manager takes a decision on the basis of his aspiration, technological skills,

personality, social status ad organization status. Though the manager is
expected to take the decision confined to the scope of his responsibility and
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authority, there is an impact of psychology over the decision. The reason is

that decision making is a mental process.

4. Principles of alternatives

If there is only one alternative to solve a problem, there is no need of taking a

decision. Decision is a selection process. All the alternatives are evaluated and
screened in the order of their usefulness. Finally, the best alternative is
selected according to the circumstances and purpose.

5. Principle of limiting factors

The fundamentals of a problem are studied. An influence or a conclusion is

drawn on the basis of study. The manager takes a decision with the help of
conclusion or inference. The decision may be based on a limiting factor. The
limiting factor is considered while taking a decision. The reason is that this
decision can be implemented in a particular situation.

6. Principle of participation

This principle is based on human behavior and human behavior and human
relationship. Each and every person wants to be treated as an important
person. So, the management may allow the employees to have a say in the
process of decision –making.

Subordinates should be consulted and due weightage should be given to the

opinion expressed by the subordinates, even though they are not concerned
with the matter. This will honor the presence of subordinates and result in
winning their confidence. The management can ascertain the reaction of the
employee to the proposed decision.

Characteristics of good decision making or effective decision.

The good decision has following characteristics.

1. Action orientation:
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Various steps are necessary in implementing the decision. For

implementing, decision should have utility. There is no use of taking a
decision if the management does not find it necessary to implement he
decision. Thus a good decision has the character of various stages.

2. Goal orientation

An organization is functioning to achieve certain goals. Each and every day,

the manager takes a number of decisions. These decisions are taken and
action is directed to achieve the goals. The value of decision depends upon
the quantum goals achieved. A decision which helps in achieving the goal is a
good decision.

3. Efficiency in implementation

An effective decision alone will have the scope for implementation. The
reason is that a good decision is taken only after considering all possible
internal and external factors. Studying these factors is necessary to
implement the decision effectively. A decision is implemented with full
cooperation of employees, which in turn produce good results.

Decentralization

Decentralization means wide distribution of authority throughout the

organization so that managers at various levels have adequate authority to
make their job-related decisions. It is opposite of centralization, which means
concentration of decision making authority with top echelons of
management. Decentralization and centralization are relative terms. No
organization is completely centralized or decentralizes. An organization is said
to be centralized if authority is more concentrated with top management and
decentralized, if authority is widely delegated to operating managers.

Principles of decentralization

Decentralization through the creation of semiautonomous division is gaining

popularity in India with the growth of giant and multiple product companies.
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The following principles have been found to be useful in the successful

functioning of divisionalized companies.

1. Role of top management should be defined.

The most important principle of decentralization through the creation of

semiautonomous division is that role of top management should be clearly
defined. Top management must concentrate on determining the objectives
for the entire company, developing strategies long term plans and broad
polices in various areas such as personnel, finance, accounting marketing etc.
it should not supervise or control the operations of its divisions. It should not
worry about operations and pay greatest attention for providing directions,
objectives, strategies, plans and key decisions of the future. It should decide
what decisions of the future. It should decide what decisions it wants to
reserve for itself. These may be approval. These may be the approval of
capital budgets, product diversification, appointment of key managerial
personnel etc.

Generally top management of divisionalized corporations reserve for

themselves six areas of decision making.

1. Products, markets and new investments.

2. Profit and other objectives of division

3. Key appointments

4. Bargaining with unions

5. Major personnel financial accounting and marketing policies.

6. Public relations. It demands responsibility and self discipline from its

division.

2. Centralized controls and measurements should be established.

Both the top management and each divisional manager should clearly know
what is expected from him in terms of verifiable objectives. It is on the basis
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on these objectives that centralized control and measurements can be

established. If this is not done, what happens is learnt when its profits all but
disappeared event when the sales increased for the $1.3 million to $6 billion.
It was only when the company introduced centralized controls, common
measurements and coordinated planning that it retrieved its position.

3. Authority of division should be clarified.

Often frictions and conflicts arise between top management and divisional
managers, and also among various divisional managers if boundaries of the
authority are not set out clearly. It will help healthy operating relationships of
authority of divisional mangers is clearly split out, particularly in the areas of
commitment of funds, interdivisional pricing, appointments, promotions,
merit increases, product line, product development, pricing policies. Etc. this
can be done by the means of chart of authority delegation showing what kind
of decision a divisional manger can make himself, what matters he has to
refer to headquarters and those approval at the company headquarters is
needed in various kind of decisions, in what matters he is required to consult
his line superior or staff specialist.

4. Balance should be maintained between centralization and

decentralization.

Decentralization has its own in terms of problems of coordinates, duplication

of staff specialists, repaid and maintenance facilities, loss of contol,etc. if the
decentralization is to be applied successfully it should be balanced by careful
centralization. It implies that while divisional units are to be given full
operating autonomy, their decisions should be guided through the centralized
planning policies, coordination and control. It needs careful consideration of
what is to be centralized and what is to be decentralized and maintaining
balance between two.

Advantages of decentralization

1. Free’s top management from operational responsibilities.

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Top management is freed from operational responsibilities which become the

domain of divisional managers. Top management is thus enabling to devote
its time management functions of determination long and short range of
goals, strategic and formulation of major policies.

2. Manager development

Decentralization enables a company not only to utilize its managerial

personnel more effectively but also forces the development of managerial
abilities by giving them full responsibility and corresponding authority to run
their divisions.

3. Better and speeder decisions.

Decentralization results to speedier and better decisions as decision making

authority is delegated nearest to the levels of operations. Man nearest the
scene of action is in a relatively better position to understand the
complexities of the problem and make a qualitatively better decision to meet
the situation. Decisions are also made speedily by cutting off bureaucratic
delays.

4. Permits management by objectives and self-control.

Divisions function on the basis of predetermined objectives set is mutual

consultation between the top management of their performance. Division
also has full operational authority and divisional managers have considerable
freedom to operate with in the broad framework of corporate objectives,
plans and policies. They are of course, subject to control and measurement by
the top management but it is the measurement of their overall performance.
Thus they manage more by self control than by external control.

Thus centralization couples with balanced centralization confer a

number of advantages leading to heightened levels of enterprise efficiency
effectiveness.