MANAGEMENT AND

ENTREPRENEURSHIP 21ETT601

1
● Management: Nature and Functions of Management –
Importance, Definition, Management Functions, Levels of
Management, Roles of Manager, Managerial Skills,
Management & Administration, Management as a Science, Art
&Profession Planning: Planning-Nature, Importance, Types,
Steps and Limitations of Planning; Decision Making –
Meaning, Types and Steps in Decision Making
Text
Books
● Principles of Management – P.C Tripathi, P.N Reddy, McGraw
Hill Education, 6th Edition, 2017.ISBN-13:978-93-5260-535-4.
● Entrepreneurship Development Small Business Enterprises-
Poornima M Charantimath, PearsonEducation 2008, ISBN
978-81-7758-260-4.
● Dynamics of Entrepreneurial Development and Management by
Vasant Desai. HPH 2007, ISBN: 978-81-8488-801-2.
● Robert D. Hisrich, Mathew J. Manimala, Michael P Peters and
Dean A. Shepherd, “Entrepreneurship”,8th Edition, Tata Mc-
graw Hill Publishing Co.ltd.-new Delhi, 2012

● *Presentation Contents based on the Text Books

 Introduction
● Management is ‘the art of getting things done through people”.

● A manager is one who contributes to organizations goals indirectly

by directing effort of other-not by performing the task himself.
Definition of management
● George r terry: “consisting of planning, organizing, actuating
and controlling, performed to determine and accomplish the
objective by the use of people and resources”
● Planning means that managers think of there actions in
advance.
● Organization means that Managers coordinate the human and
material resources of organization.
● Actuating means that motivate and direct subordinates.
● Controlling means manager attempt to no deviation from
norm plan.
 Meaning of Management
● Management is a process - Systematic method of handling
activities.

● Management is a discipline - Field of study having

well defined concepts and principles.

● Management is a human activity - Refers to the

people who engage in the process of management.
● Management is a career - Ca ree r f oc u s e d on
Specialization.
Nature and characteristics of
management
● Production process involves land, labour, capital, organization and
entrepreneurship.
● If these factors remain separated, there is no possibility for
production.
● Success of production depends on their effective combination and
cooperation.
● This calls for a special skill, knowledge and characteristic to seek
their fullest cooperation to achieve the objectives set by an
enterprise.

● Such skills and knowledge is the management.

 Nature of Management
Ø Nature Of Management
1. Multidisciplinary

2. Dynamic nature of principles.

3. Relative not absolute principles.

4. Management – science or art.

5. Universality of management.
Functions of management
● Well accepted functions of management are
1) Planning
2) Organizing
3) Staffing
4) Directing
5) Controlling
Planning
● Planning is the function that determines in advances what
should be done.
● It is a process of deciding the business objectives and charting
out the methods of attaining objectives.
● Planning is done for every division, department or sub-unit of
the organization.
● Performed by managers at all levels-top, middle and
supervisory.
● Plans made by top management may cover periods as long as
five or ten year.
● Plans made by middle or first line manger, cover much shorter
period.
Organizin
g● To organize a business is to provide it with everything
useful to its functioning: Personnel, raw materials, tools,
capital.

● Divided into two main sections 1)Human Organization

2)Material Organization

● Once Managers have established objectives and developed

plans to achieve them, they must design and develop a
human organization that will be able to carry out those plans
successfully.
Staffin
g● Function involved in building the human organization.
● In staffing, the manager attempts to find right person for each
job.

● Staffing fixes a manager’s responsibility to recruit and make

certain that there is enough manpower available to fill all
positions of organization.

● It involves training of future manager and suitable system of

compensation.
Directing
● Manager explains to his people what they have to do and helps
them do it to the best of their ability.
● Three sub functions- Communication, leadership and
motivation.
● Communication is the process of passing information and
understanding from one person to another.
● Leadership is the process by which a manger guides and
influences the work of his subordinates.
● Motivation is the act of stimulating or inspiring workers.
● Two types of motivation-Financial and non financial.
Controlling
● The manager must ensure that everything in conformity with
plans adopted, the instructions issued and the principles
established.

● Controlling function of management involves three elements

1) Establishing standards of performance.
2)Measuring current performance and comparing it against the
established standards.
3)Taking action to correct any performance that does not meet
those standard
Levels of Management
 Levels of
● management
The levels of management consisting of various managerial positions in the
structure of an organization, differ from one organization to another,
depending on the size of business activity.
● Levels of management are 1)Top management
2)Middle management
3)First line or supervisors.
● The top management consists of chairman, Directors, Company
president, vice president, CEO’s. These are the people who make
policies for the organization, set goals and targets.
● The Middle management includes finance manager, sales manger,
marketing manager, personnel manager, department heads etc.
● The lower level managers are the supervisors and foremen. They are
basically one step above the workers.
Roles of Management
Interpersonal
Roles
a) Figurehead: In this role every manager has to perform
duties of a ceremonial nature, such as greeting visiting
dignitaries, attending the wedding of an employee, taking an
important customer to lunch and so on.

b) Leader: As a leader, every manger motivate and encourage

his employees. He must also try to reconcile their
individual needs with the goals of the organization.

c) Liaison: In this role of liaison, every manager must

cultivate contacts outside his vertical chain of command to
collect information useful for his organization
Informational
Roles
a) Monitor: As monitor, the manager has to scan his
environment for information, interrogate his liaison contact
and his employs.
b) Disseminator: In the role of disseminator, the manager passes
some of his privileged information directly to his key
subordinates who would otherwise have no access to it.
c) spokesman: As a spokesman, he communicates the
information/goals of organization to his staff, and progress of
work to his superiors.
He also communicates performance of company to
shareholder and the rules and responsibilities to his subordinates.
Decisional Roles
a) Entrepreneur: In this role, manager proactively looks
out for innovation to improve his organization.
b) Disturbance Handler: In this role, manager must seek
solutions for various unanticipated problems like a strike may
loom large, a major customer may go bankrupt, a supplier may
renege on his contract, and so on.
c) Resource allocator: in this role, the manager must divide
work and delegate authority among his subordinates. he must
decide who will get what.
d) Negotiator: The manager at all levels has to spend
considerable time in negotiation. Manager negotiates with the
employees and tries to resolve any internal problems like trade
agreements, strikes and grievances of employees.
Managerial Skills
● Management is a challenging job.
● It requires certain skills to accomplish such a challenge.
● Thus, essential skills which every manager needs for doing a
better management are called as Managerial Skills.
1. Conceptual Skills
2. Human Relations Skills
3. Technical Skills
● All managers require above three managerial skills.
However, the degree (amount) of these skills required varies
(changes) from levels of management and from an
organization to organization.
1. Conceptual Skills
● Conceptual skill is the ability to visualize (see) the
organization as a whole.
● It includes Analytical, Creative and Initiative skills.
● It helps the manager to identify the causes of the problems and
not the symptoms.
● It helps him to solve the problems for the benefit of the entire
organization.
● It helps the manager to fix goals for the whole organization
and to plan for every situation.
● Conceptual skills are mostly required by the top-level
management because they spend more time in planning,
organizing and problem solving .
2. Human Relations
Skills
● Human relations skills are also called Interpersonal skills.
● It is an ability to work with people.
● It helps the managers to understand, communicate and work
with others.
● It also helps the managers to lead, motivate and develop team
spirit. Human relations skills are required by all managers at
all levels of management.
● All managers have to interact and work with people.
3.Technical
Skills
● Technical skill is knowledge and ability in a specialized area
of business, e.g. electrical engineering or accountancy.
● These skills require specialized knowledge and proficiency in
the mechanics of particular job.
● Technical skills help the managers to use different machines
and tools.
● It also helps them to use various procedures and techniques.
● The low-level managers require more technical skills. This is
because they are incharge of the actual operations.
Managerial Skills

● The above diagram shows the managerial skills which are required by
managers working at different levels of management.
● The top-level managers require more conceptual skills and less technical
skills.
● The lower-level managers require more technical skills and fewer
conceptual skills.
● Human relations skills are required equally by all three levels of
management.
Management and
administration
● It is a top level function which centers around determination
of plans, policies and objectives of business enterprise.
● Management involves “doing". It is a lower level function
which is concerned with execution and direction of policies
and operation.
● No two separate sets of personnel are required to discharge
administrative and managerial functions.
● Each manager performs both activities and spends part of
time administering and part of his time managing.
Management and
administration
● At the top level more time is spent inadministrative
activity and as one moves down in the organization more
time is spent in management activity.
Management and
● According second view management is a comprehensive
administration
generic term which includes administration.
● E.F.L. Brech regards management as a comprehensive generic
function embracing the entire process of planning, organising,
directing and controlling.
● According to him administration is only a branch of
management which encompasses two of its functions-planning
and control.
● According to this view, the functions of management can be
divided into two categories: a) administrative management b)
operative management.
● Upper level of management is usually called administrative
management.
● Lower level is known as operative management.
Management and
administration
 Management as a Science, Art or
Profession
● It is an art in the sense of possessing of managing skill by a person. It is a
science also because of developing principles or laws which are applicable in
a place where a group of activities are coordinated.

● Management as science : Science is a systematized body of knowledge.

● Management is an art : Management is the art of getting things done through
others in dynamic situations.
Management as Art and Science
● The stream of management reveal characteristics of art and
science.
● Every discipline of science is complete only when it is applied
for solving various kinds of problems faced by human beings
in an organisation or in other fields.
● Management is the art of making people work more effectively
to maximize their output.
● By the use of effective management skills people in an
organisation work more efficiently as they are guided by the
scientific principles and practices laid down by various
researchers of management.
Management as a science
● We can call discipline as science if its
● 1)methods of inquiry are systematic and empirical
● 2)information can be ordered and analysed.
● 3) results are cumulative and communicable.

● All scientific information collected first as raw data is finally ordered and
analysed with help of statistical tools.
● Communication of result also permits repetition of study.
● When study is replicated and second try provides results similar to the
original, one derives much for confidence in result.
 Management as an art.
● Under science one normally learns the “ why” of a
phenomenon, under art one learns the “how” of it.
● Art is thus concerned with the understanding of how a
particular work can be accomplished.
● It is art of getting things done through others in dynamic and
non repetitive situation.
● The manager has to constantly analyze the existing situation,
determine the objectives, seek alternatives, implement,
coordinate, control and evaluate information and make
decisions.
Management as an art.
● Knowledge of management theory and principles is
indeed a valuable aid and kit of manager but it can not
replace his other managerial skills and qualities.
● This knowledge has to be applied and practiced by
manger.
● In this sense management is an art.
● It is like the art of musician or the art of painter who seeks
to achieve the desired effect with color or instruments,
mainly with his own skill.
Management –A
profession?
● Characteristic of profession
1. Existence of an organised and systematic knowledge.
2. Formalised methods of acquiring training and experience.
3. Existence of an association with professionalization as its goal.
4. Existence of an ethical code to regulate the behavioral of the
members of the profession.
5. Charging of fees based on service, but with due regard for priority
of service over the desire for monetary rewards.

Management does not possess all above characteristic of a

profession.
Management –A
profession?
● There is no uniform code of conduct or licencing of mangers.
● The entry to managerial jobs is not restricted to individual with
a special academic degree only.
● In the light of this we can conclude that management can not
be called a profession.
● However , the present trend is towards professionalisation of
management.
Management –A
profession?
● Nowadays it is required to acquire management degree or
training in management to be called good manager.
● There is increased demand for qualified managers with
M.B.A degree.
● Peter drucker-”A degree in management does not by itself
make an individual a professional a manager any more than
does a degree in philosophy make an individual a
philosopher”.
● This leads to loosing of good and skilled managers who do not
have required degree.
 MODULE
1

Planning
 PLANNING
● Planning is the first and foremost function of management.
● According to Koontz and O’Donnel “Planning is deciding in
advance what to do, how to do it, when to do it and who is to
do it. It bridges the gap from where we are and to where we
want to go. It is in essence the exercise of foresight”.

● According to M.S. Hardly “Planning is deciding in advance

what is to be done. It involves the selection of objectives,
policies, procedures and programmes from among
alternatives.”
● Planning is thus deciding in advance the future state of
business of an enterprise, and the means of attaining it. Its
elements are :

● 1. What will be done – what are the objectives of business in

the short and in the long run.

● 2. What resources will be required – This involves

estimation of the available and potential resources,
estimation of resources required for the achievement of
objectives, and filling the gap between the two, if any.
● 3. How it will be done – This involves two things :
(i)determination of tasks, activities, projects, programmes, etc.,
required for the attainment of objectives, and (ii) formulation
of strategies, policies, procedures, methods, standard and
budgets for the above purpose.

● 4. Who will do it – It involves assignment of responsibilities to

various managers relating to contributions they are expected to
make for the attainment of enterprise objectives. This is
preceded by the breaking down of the total enterprise
objectives into segmental objectives, resulting into divisional,
departmental, sectional and individual objectives.
● 5. When it will be done – It involves determination of the
timing and sequence, if any, for the performance of various
activities and execution of various projects and their parts.
NATURE OF
PLANNING
● Planning is a continues process.
● The nature of planning may be understood in terms of it
being a rational approach, open system, flexibility and
pervasiveness.
NATURE OF
1. Planning is an intellectual process:
PLANNING
● It requires managers to think before acting.
● It is thinking in advance.
● It is by planning managers of organization decides what is to be
done,
● when it is to be done, how it is to be done and who is to do it
NATURE OF
PLANNING
NATURE OF
PLANNING
NATURE OF
PLANNING
NATURE OF
PLANNING
Planning at various
levels
IMPORTANCE OF
PLANNING
● Planning is of great importance in all types of
organization .
● Without planning, business decisions would become
random, ad hoc choices.
IMPORTANCE OF
PLANNING● To minimize risk and uncertainty:
● The organization continuously interacts with the external
dynamic environment where there is great amount of risk
and uncertainty.
● In this changing dynamic environment where social and
economic conditions alter rapidly, planning helps the
manager to cope up with and prepare for changing
environment.
● By using rational and fact based procedure for making
dec i s i o ns, ma na ge r c an redu ce t he r i s k an d
uncertainty.
IMPORTANCE OF
PLANNING ● To focus attention on objectives:
● Planning focuses on organizational objectives and
direction of action for achieving these objectives.
● It helps managers to apply and coordinate all resources of
the organization effectively in achieving the objectives.
● The whole organization is forced to embrace identical
goals and collaborate in achieving them and to avoid a
needless overlapping of activities.
IMPORTANCE OF
PLANNING ● To facilitate control:
● Planning sets the goals and develops plans to achieve
them.
● These goals and plans become the standards or
benchmarks against which the actual performance can be
measured.
● Control involves the measurement of actual performance,
comparing it with the standards and initiating corrective
action if there is deviation.
● Control ensures that the activity confirm to plans.
● Hence control can be exercised if there are plans.
IMPORTANCE OF
PLANNING
● Planning helps in the process of decision making:
● Planning specifies the actions and steps to be taken in
order to accomplish organizational objectives.
● It serves as a basis for decision-making about future
activities.
● It also helps managers to make routine decisions about
current activities.
IMPORTANCE OF
PLANNING
● Economic operation and leads to sucess:
● Planning does not ensure success, but planning leads to
success.
● If work is planned in advance, there will not be no
confusion arising and things will happen as per plan.
● This results in economical operation and reduces
uncoated expenditure.
IMPORTANCE OF
PLANNING
Planning affects performance

● A number of empirical studies provide evidence of

organizational success being a function of formal
planning, the success being measured by such factors as
return on investment, sales volume, growth in earnings
per share and so on.
● An investigation of f irms in various industrial products
as machinery, steel, oil, chemicals and drugs revealed that
companies that engaged in formal planning consistently
performed better than those with no formal planning.
IMPORTANCE OF
PLANNING
● Minimises the riskand uncertainity
● Leads to success
● focus attention on organization goals
● facilitate control
● Trains executives
TYPES OF
PLANNING
● Vision
● Mission
● Objectives
Chracteristics Of
● Objectives are multiple in number
Objectives:
● Objectives have change over time
● Objectives are either tangible or intangible
● Objectives have a priority
● Objectives are generally arranged in a hierarchy
● Objectives may clash with each other
Requirements of
sound Objectives:
● objectives Must be both clear and aceptable
● Objectives must support one another
● objectives Must be Precise and measurable
● objectives should always remain value
Advantages of
● Provide basis for planing
Objectives:
● Act as motivators
● Eleminate Haphazard action
● Fcilitate coordinated behaviour of various groups
● Basis for managerial control
● Facilitate better management
● Lessen misunderstatnding and conflicts
● Provide legitimacy to organization's activities.
Strategies
:

● Two Important Activities involved in strategy

formulation
● Environmental appraisal
● Corporate appraisal
 Strategies
E: n v ir o n m e n t a l
C o m po nen ts o f Ex te

A p pra isa l
rn al E n vir o n m ent
1. Political and legal components
2.Economic Component
3.Competitive components
4.Social and cultural components
● Attributes of External environment
1.Tarbulance
2.Hostile
3.Diverse
4.Restrictive
5.Technically complex
Strategies:
Corporate
Appraisal
● Involves an analysis of the company's strength and
weakness.
● Core competency
Modes of Strategy
formulation
● The planning mode
● Entreprenerial mode
● Adaptive mode
Strategic and Tactical
planning
Operational PLANS

Business Plans
Operational PLANS
● Plans are classified into standing plans and single use plans.
● Standing plans provide guidelines for further course of action
and are used over a period of time.
● Standing plans are designed for situations that recur often
enough to justify a standardize approach.
● Examples of such plans are organizational mission, long term
objective, strategies, policies, procedures and rules.
● single use plans are designed for specific end; when that end is
reached, the plan is dissolved or formulated again for next end.
● Examples of such plans are project, budgets, quotas, targets
etc.
Standing PLANS
● Policies
● Methods
● Rules
Single use PLANS
● Programmes
● Budgets
 DECISION-MAKING
● Decision-making is an essential part of modern management.
● Decisions are made by the managers and actions are taken by others.
● Major decisions are taken carefully and consciously by the application of
human judgment and experience where as minor decisions are made almost
subconsciously using rules.
● Decision-making permeates through all managerial functions namely
planning, organizing, staffing, directing and control.
● In planning it is through objectives and policies laid down and manager
decides many things such as what to produce, what to sell, where , when and
how so on.
● Decision making is commitment to something, a point of view, a principle or
course of action.
● It is selecting the best among alternative courses of action.
 The decision-making has the
f o l lo w i n g f a c t o r s :
(1 ) D eci sio n -m aki n g im p lie s th at
there are various alternatives and the most desirable
alternative is chosen to solve the problem.

(2)Existence of alternatives suggests that the decision-maker has

freedom to choose an alternative of his liking.

(3)Decision-making like any other managerial process is goal

oriented. It implies that the decision maker attempts to
achieve some results through decision making.
Types of
Decisions
1. Programmed and non-programmed decisions:

2. Major and minor decisions:

3. Simple and complex decisions

4. Strategic and tactical decisions:

5. Individual and group decisions:

 1)Programmed and
non- programmed
decisions:
● Programmed decisions are those that are made in accordance to policy,
procedure and rules.
● These decisions are routine and repetitive and programmed decision are
relatively easy to make.
● For example determining salary payment to the workers who have been ill,
offering discounts for regular customers etc. are programmed decision.

● Non-programmed decisions are novel and non-repetitive.

● If a problem has not arisen before or if there is no clear cut method for
handling it, it must be handled by non-programmed decision.
● For example what to do about a failing product line is a no programmed
decision because no definite procedure exists for it.
 1)Programmed and
non- programmed
decisions:
● For programmed decision clear cut rules exists and hence it is
not possible for two persons to reach different solutions to the
some problem.

● In case of non-programmed decision there are no clear cut

rules for handling the problem, each manager may bring his
own judgments to bear on the decision, it is possible for two
managers to arrive at distinctly different solutions to the same
problem.
2) Major and minor decisions:

● The decisions which have their impact for long-period or

which have impact on other departments are known as
major decision.
● On the other hand decisions which does not have long
term effect or affecting one department are known as
minor decisions.
● Major decisions are made at higher level and minor
decisions are taken at lower level in the organizational
hierarchy.
3) Simple and complex
decisions
● If very few variables are to be considered for solving a
problem the decision is simple.

● If the variables are many, then it is a complex decision.

4) Strategic and tactical/routine
decisions:
● Strategic decision is a major choice of actions concerning allocation of
resources and contribution to the achievement of organizational
objectives.
● Strategic decisions are major and non-programmed decisions having
long term impact.
● For example lowering product price, installation of automatic plant etc.
● Strategic decisions are made by the higher level managers.
● Tactical or routine decision is which are supportive of, rather than
central to the company’s operation.
● Decisions relating to provisions of air conditioning, parking facilities
are tactical decisions.
● These decisions are made at the lower level of the organization.
5) Individual and group
decisions:
● Decision may be taken either by an individual or group.
● Decisions which are routine in nature, with few variables and
definite procedures exists to deal with them are taken by
individuals.
● On the other hand decisions which have their impact on other
departments, which may result into some changes in the
organization, are generally taken by groups.
● Group decision making has advantages like increased a c ce p t
a n ce , B e t t e r co m m u n i c a t i o n a n d b e t t e r
coordination.
● It has some drawback like delay in arriving at decision,
g r oup may bEeCEi, MnITdE ecisive , group may compromise or79
4/28/2 02 1
Individual and group decisions:
● To utilize advantage of group decision and avoid its
disadvantage , two new techniques are proposed known
as Nominal group technique and Delphi technique.

81
 Individual and group decisions:
Nominal group technique
● The members independently generate their idea and give in writing.
● The idea are summerised and discussed for clarity and evaluation.
● Finally each members slightly gives his rating and opinion about each idea
through voting system.
● The one with maximum vote is selected as group decision

● Delphi technique.
● Persons who are physically dispersed and anonymous to one another are
asked to send their opinion on a through mail.
● A carefully designed questionnaire is circulated for this purpose.
● The response is summerised into feedback report and sent back to them
with second questionnaire.
● A final summery is developed on the basis of replies received second time.

82
 Steps in Rational
Decision Making
(1) Recognizing the problem.
(2) Deciding priorities among the problems.
(3) Diagnosing the problem.
(4)Developing alternative solutions or courses of activities.
(5) Evaluating alternatives.
(6)Converting the decision into effective action and follow up
of action.

83
 Steps in Rational Decision
(1)Making
Recognizing the problem:
● When a manager makes a decision it is in effect the
organization’s response to a problem.
● Hence it is necessary to search the environment for the
existence of a problem. A problem is said to exist;

● (a) When there is deviation from past experience. For example

the present year’s sales are lower than previous year, the
expenses are more than previous years etc.,
● (b) When there is deviation from plan. For example sales are
lower than anticipated, expenses are more than expected etc.,

84
 Steps in Rational
Decision Making
(1) Recognizing the problem:

● (c) When competitors outperform. For example other

companies manufacture the goods of same quality at lower
costs.
● (d) When people bring problems to the manager, For
example workers may complain about poor ventilation.

85
 Steps in Rational Decision
(2) Deciding priorities among problems:
Making
● A manager might have identified a number of problems.
● All these problems vary in their importance.
● He may find that some of the problems are such that they can
be solved by their subordinates because they are closest to
them.
● All such problems should be passed on to them.
● Some problems may need information available only at higher
level or affecting other departments.
● Such problems are referred to higher level managers.
● Those problems which can be best solved by him are to be
focused.
86
 Steps in Rational Decision
(3)Making
Diagnosing the problems:
● Symptoms of the problem that are observed by the manager may
some times mislead him.
● The symptom may lead manager to suspect one part when the
defect may lie hidden in another part.
● For example if there is decline in sales, the management may
think that the problem is one of poor selling procedure or the
saturation of the old market.
● But the real problem may be inability to move quickly to meet
changing needs of the customers.
● For diagnosing the problem a manager should follow the systems
approach.
● He should study all the sub-parts of his organization which are
connected
t o be with ECE,
theMITE
sub-part
86
in which the problem seems
4/28/2 0 21

located.
 Steps in Rational Decision
(4) Developing alternative solutions or courses of action:
Making
● A problem can be solved in several ways; however all the ways cannot be
equally satisfying.
● If there is only one way of solving a problem, then no question of decision
arises.
● Therefore decision maker must identify various alternatives available in
order to get most satisfactory result of a decision.
● while developing alternatives; the concept of limiting factor should be
applied.
● Limiting factor which can make the accomplishment of alternatives
difficult or impossible.
● For example, if an organization has limitation in raisin finance, it cannot
consider projects involving high investment.

88
 Steps in Rational Decision
(4) Developing alternative solutions or courses of action:
Making
● A decision maker can identify alternatives using his own
experience, practices followed by others and using creative
technique.

● A decision maker using past experience takes into account the

action taken by the decision maker in the past .
● The successful action of the past may become an alternative
for the future.
● The limitation of this is, what was successful in the past may
not be so in the present context because of change in context
under which decision was made.

89
 Steps in Rational Decision
(4) Developing alternative solutions or courses of action:
Making
● Copying from experience of others is another way of
generating alternatives.
● Alternatives used by successful decision makers can be
thought of alternatives of decision making.

● The third method of generating alternatives is through creative

process where various exercises are taken to generate entirely
new ideas.
● Creative ideas of individuals or groups help in developing
alternatives.

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Steps in Rational Decision Making
(5) Measuring and comparing consequences of the
alternative solution:
● Once various alternatives are developed, the next step is to measure and
compare their consequences of alternatives using quality and acceptability.
● The quality of a decision must be determined considering both tangible and
intangible consequences.
● Tangible consequences are those which can be quantitatively measured or
mathematically demonstrated.
● Intangible consequences cannot be measured quantitatively.
● A decision though good in quality may be poor in acceptability or decision
though acceptable may not be good in quality.
● In such cases managers must find the relative importance of these two.

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 Steps in Rational Decision Making
(5)Measuring and comparing consequences of the alternative
solution:

● In production, finance, purchase etc. the solution’s quality is

important than acceptability,
● where as in all human maters such as lighting condition, layout
of office etc., the acceptability is more important.

● If sufficient information about quality or acceptability of a

solution is not available, it is suggested to experiment it on a
small scale known as pilot testing.
● For example a company may test a new product in a certain
market before expanding its sale nationwide.

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Steps in Rational Decision Making
(6) Converting the decision into effective action and follow up
of action:
● This step involves communication of decisions to the employees.
● Decision must be communicated in clear and unambiguous terms.
● All necessary efforts should be made to secure employees acceptance in
decision.
● Association of employees in decision making not only enhance the
acceptability, but also improves the quality of decision.

● Sometimes due to non-availability of data, a manager may not take correct

decision.
● As a safeguard against incorrect decision, the manager while converting a
decision into effective action should institute a system of follow-up so that
he can modify or alter his decision at the earliest opportunity.

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ENVIRONMENT OF
DECISION- MAKING
●A decision- maker may not have the complete
knowledge about decision alternatives or about the
outcome of a chosen alternative.
● This problem may be highly complex and uncertain.
● These conditions of knowledge are referred to as the
‘environment of decision making’.
● The environment may be of three types; certainty
,risks and uncertainty.

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ENVIRONMENT OF
DECISION- MAKING

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ENVIRONMENT OF DECISION-MAKING
1) Decision-making under certainty:

● The term certainty refers to accurate knowledge of the outcome

of each alternative.
● All relevant data are available for making decision.
● For example a company wants to transport goods from five
warehouses to a number of customers.
● It is possible to obtain the relevant facts for the problem like
type of transport available, the cost of transporting a unit from
each warehouse to each customer.
● With this it is possible to design least cost distribution pattern.

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ENVIRONMENT OF DECISION-MAKING
2) Decision-making under risk:
● In decision making under risk, the consequences of a particular
decision cannot be specified with certainty but can be specified
with known probability values.
● The value of probability is a measure of likelihood of the
occurrence of that event.
● In such cases, alternatives are evaluated by computing the
expected value of the payoff associated with each alternative.
● For example, while estimating the demand of a product
for future where there is great amount of uncertainty, a
manager can make three estimates of demand associated
with the probability of occurrence as show in table

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ENVIRONMENT OF DECISION-MAKING
2) Decision-making under risk:

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ENVIRONMENT OF DECISION-MAKING
3) Decision making under uncertainty:

● Uncertainty is said to exist when the decision maker does not

know the probabilities associated with the possible outcomes..
● They can use MaxiMin criterion , MaxiMaxi criterion or
Minimax regret criterion.

● MaxiMin : If a manufacturer is pessimistic or cautions in his

approach, he can choose that decision act which maximizes the
minimum pay-off, which is called as MaxiMin criterion.

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 ENVIRONMENT OF DECISION-MAKING
3) Decision making under uncertainty:
● MaxiMaxi : If a manufacturer is optimistic he may choose
that decision act which maximizes the maximum pay-off.
This is called as max-max criterion.

● Minimax regret: A manager using minimax regrets

criterion look at the decision problem neither as
pessimistic nor as optimistic.
As the name implies the minimax regret criterion is the
one by which the decision maker minimizes the maximum
regret can occur, no matter what the outcome.

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Hierarchy of
plans
● The plans are generally arranged in a hierarchy within
any organization.
● Top level- Goals and objectives

● Second level-Strategies(Single use plans & Standing

plans)
● Third level-Action plan

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Hierarchy of
plans

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