TECHNOLOGICAL INNOVATION MANAGEMENT AND ENTREPRENEURSHIP 18ES51

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

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• *Presentation Contents based on the Text Books

• Module 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

IMPORTANCE OF MANAGEMENT

• Management is a critical element in the economic growth of the country.
• Management is essential in all organised sections, be it a business activity or any other activity.
• Principles of management is not only used in managing business organisations but also applied in other organisation like educational, social, military and government.
• It is the dynamic, life giving element in every organisation.
• In the words of Claude S George, management is the central core of our national as well as personal activities, and the way we manage ourselves and our institutions reflects with alarming clarity what we and our society will become.

Definition of management

• 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.

Field of study having

• Management is a discipline -

well defined concepts and principles.

Refers to the

• Management is a human activity -

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

Management Functions or the Process of management

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• Koontz and O’Donnell divide these functions into planning, organising, staffing, directing and controlling.
• Further Innovation and representation are the 2 managerial functions considered by Ernest Dale.

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Functions of management

• Well accepted functions of management are
• Planning
• Organizing
• Staffing
• Directing
• Controlling
• Innovating
• Representing

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.

Organizing

• 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.

Staffing

• 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

Innovating

• It is not necessary for the organisation to grow bigger. But it is necessary that it constantly grows better.
• Innovation is important function of manager.
• Innovation means creating new ideas which may improve a product, process or practice.

Representing

• A manager is also required to spend a part of his time in representing his organisation before various outside groups which have some stake in the organisation.
• These stake-holders can be government officials, labour unions, financial institutions, suppliers, customers etc.

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 Manager

Interpersonal Roles

1. 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.

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1. 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.

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1. 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

1. Monitor: As monitor, the manager has to scan his environment for information, interrogate his liaison contact and his employs.
2. 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

1. Entrepreneur: In this role, manager proactively looks out for innovation to improve his organization.
2. 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.
3. Resource allocator: in this role, the manager must divide work and delegate authority among his subordinates. he must decide who will get what.
4. 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.
• Conceptual Skills
• Human Relations Skills
• 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 in administrative activity and as one moves down in

the organisation more time is spent in

management activity.

Management and administration

• According second view management is a comprehensive 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.

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• 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.

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• 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
• Existence of an organised and systematic knowledge.
• Formalised methods of acquiring training and experience.
• Existence of an association with professionalization as its goal.
• Existence of an ethical code to regulate the behavioral of the members of the profession.
• Charging of fees based on service, but with due regard for priority of service over the desire for monetary rewards.

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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.

Planning

MODULE 1

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”.

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• 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 :

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• 1. What will be done – what are the objectives of business in the short and in the long run.

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• 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 :
1. 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.

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• 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 continuous process.
• The nature of planning may be understood in terms of it being a rational approach, open system, flexibility and pervasiveness.

NATURE OF PLANNING

1. Planning is an intellectual process:

• 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

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• 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 risk and uncertainity
• Leads to success
• focus attention on organization goals
• facilitate control
• Trains executives

TYPES OF PLANNING

• Vision
• Mission
• Objectives

Chracteristics Of Objectives:

• Objectives are multiple in number
• 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 acceptable
• Objectives must support one another
• objectives Must be Precise and measurable
• objectives should always remain value

Advantages of Objectives:

• Provide basis for planing
• 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:

• Components of External Environment
• Political and legal components
• Economic Component
• Competitive components
• Social and cultural components
• Attributes of External environment
• Turbulance
• Hostile
• Diverse
• Restrictive
• Technically complex

Strategies: Corporate Appraisal

• Involves an analysis of the company's strength and weakness.
• Core competency

Modes of Strategy formulation

• The planning mode
• Entrepreneurial 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

(1) The decision making implies that there are various alternatives and the most desirable alternative is chosen to solve the problem.

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(2) Existence of alternatives suggests that the decision-maker has freedom to choose an alternative of his liking.

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(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:

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1. Major and minor decisions:

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1. Simple and complex decisions

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1. Strategic and tactical decisions:

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1. 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.

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• 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.

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• 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.

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• 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.
• It has some drawback like delay in arriving at decision,

group may be indicisive, group may compromise

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.

Individual and group decisions:

Nominal group technique

• The members independently generate their idea and give in writing.
• The idea are summarized 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

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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 summarized into feedback report and sent back to them with second questionnaire.
• A final summary is developed on the basis of replies received second time.

Steps in Rational Decision Making

• Recognizing the problem.
• Deciding priorities among the problems.
• Diagnosing the problem.
• Developing alternative solutions or courses of activities.
• Evaluating alternatives.
• Converting the decision into effective action and follow up of action.

Steps in Rational Decision Making

1. 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;

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• (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.,

�Steps in Rational Decision Making

1. Recognizing the problem:

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• (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.

Steps in Rational Decision Making

2. Deciding priorities among problems:
• 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.

Steps in Rational Decision Making

3. 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 with the sub-part in which the problem seems

^{to be located.}

Steps in Rational Decision Making

4. Developing alternative solutions or courses of action:
• 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 raising finance, it cannot consider projects involving high investment.

Steps in Rational Decision Making

4. Developing alternative solutions or courses of action:
• 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.

Steps in Rational Decision Making

4. Developing alternative solutions or courses of action:
• 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.

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.

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.

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• 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.

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.

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• 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.

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.

ENVIRONMENT OF DECISION- MAKING

ENVIRONMENT OF DECISION-MAKING

1) Decision-making under certainty:

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• 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.

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

ENVIRONMENT OF DECISION-MAKING

2) Decision-making under risk:

ENVIRONMENT OF DECISION-MAKING

3) Decision making under uncertainty:

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• 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.

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• 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.

ENVIRONMENT OF DECISION-MAKING

3. Decision making under uncertainty:
• MaxiMax : If a manufacturer is optimistic he may choose that decision act which maximizes the maximum pay-off. This is called as max-max criterion.

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• 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.

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

Hierarchy of plans

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