Scientific approach in Decision Making and their Limitations

In order to evaluate the alternatives, certain quantitative techniques have been developed which facilitate in making objective decisions.

Important decision-making techniques are four and they have been discussed as under:

(1) Marginal Analysis:

This technique is also known as ‘marginal costing’. In this technique the additional revenues from additional costs are compared. The profits are considered maximum at the point where marginal revenues and marginal costs are equal.” This technique can also be used in comparing factors other than costs and revenues.

For Example – If we try to find out the optimum output of a machine, we have to vary inputs against output until the additional inputs equal the additional output. This will be the point of maximum efficiency of the machine. Modern analysis is the ‘Break-Even Point’ (BEP) which tells the management the point of production where there is no profit and no loss.

(2) Co-Effectiveness Analysis:

This analysis may be used for choosing among alternatives to identify a preferred choice when objectives are far less specific than those expressed by such clear quantities as sales, costs or profits. Koontz, O’Donnell and Weihrich have written that “Cost models may be developed do show cost estimates for each alternative and its effectiveness. Social objective may be to reduce pollution of air and water which lacks precision. Further, he has emphasised for synthesizing model i.e., combining these results, may be made to show the relationships of costs and effectiveness for each alternative.”

(3) Operations Research:

This is a scientific method of analysis of decision problems to provide the executive the needed quantitative information in making these decisions. The important purpose of this is to provide the managers with scientific basis for solving organisational problems involving the interaction of components of the organisation. This seeks to replace the process by an analytic, objective and quantitative basis based on information supplied by the system in operation and possibly without disturbing the operation.

This is widely used in modern business organisations. For Example – (a) Inventory models are used to control the level of inventory, (b) Linear Programming for allocation of work among individuals in the organisation.

Further, some theories have also been propounded by eminent writers of management to analyse the problems and to take decisions. Sequencing theory helps the management to determine the sequence of particular operations. Queuing theory, Games theory, Reliability theory and Marketing theory are also important tools of operations research which can be used by the management to analyse the problems and take decisions.

(4) Linear Programming:

It is a technique applicable in areas like production planning, transportation, warehouse location and utilisation of production and warehousing facilities at an overall minimum cost. It is based on the assumption that there exists a linear relationship between variables and that the limits of variations can be ascertained.

It is a method used for determining the optimum combination of limited resources to achieve a given objective. It involves maximisation or maximisation of a linear function of various primary variables known as objective function subject to a set of some real or assumed restrictions known as constraints.

Models represent the behaviour and perception of decision-makers in the decision-making environment. There are two models that guide the decision-making behaviour of managers.

These are:

1. Rational/Normative Model-Economic Man
2. Non-Rational/Administrative Model
3. Rational/Normative Model:

These models believe that decision-maker is an economic man as defined in the classical theory of management. He is guided by economic motives and self-interest. He aims to maximise organisational profits. Behavioural or social aspects are ignored in making business decisions.

These models presume that decision-makers are perfect information assimilators and handlers. They can collect complete and reliable information about the problem area, generate all possible alternatives, know the outcome of each alternative, rank them in the best order of priority and choose the best solution. They follow a rational decision-­making process and, therefore, make optimum decisions.

This model is based on the following assumptions:

1. Managers have clearly defined goals. They know what they want to achieve.
2. They can collect complete and reliable information from the environment to achieve the objectives.
3. They are creative, systematic and reasoned in their thinking. They can identify all alternatives and outcome of each alternative related to the problem area.
4. They can analyse all the alternatives and rank them in the order of priority.
5. They are not constrained by time, cost and information in making decisions.
6. They can choose the best alternative to make maximum returns at minimum cost.

Group decision-making suffers from the following limitations:

(a) It is costly and more time consuming than individual decision-making.

(b) Some members accept group decisions even when they do not agree with them to avoid conflicts.

(c) Sometimes, groups do not arrive at any decision. Disagreement and disharmony amongst group members leads to interpersonal conflicts.

(d) Some group members dominate others to agree to their viewpoint. Social pressures lead to acceptance of alternatives which all group members do not unanimously agree to.

(e) If there is conflict between group goals and organisational goals, group decisions generally promote group goals even if they are against the interest of the organisation.

Though cost of group decision-making is more than individual decision-making, its benefits far outweigh the costs and enable the managers to make better decisions.