Unit 2: Decision-making, organizing and control

Decision-making is selecting the best course of action among alternatives.

• Types: programmed vs non-programmed; strategic vs tactical vs operational; individual vs group; under certainty, risk and uncertainty.
• Bounded rationality (Herbert Simon): managers "satisfice" — choose a satisfactory rather than the optimal solution due to limited information and time.
• Techniques: cost-benefit analysis, decision trees, brainstorming, Delphi, operations research models.

Approaches to decision-making

• Rational (classical) model: complete information, all alternatives, optimal choice.
• Bounded rationality (Simon): satisficing under limited information and time.
• Intuitive approach: experience-based judgement in uncertain, fast-moving situations.
• Group decision-making: brainstorming, nominal group technique, Delphi; risk of groupthink.

A decision tree shows decisions (squares), chance events (circles) and outcomes in sequence; solved by roll-back — compute EMV at chance nodes and choose the best branch at decision nodes.

• Useful for multi-stage decisions (test market first, then launch).

Organising is the process of identifying and grouping the work to be performed, defining and delegating responsibility and authority, and establishing relationships so that people work together effectively (Louis Allen).

• Importance: benefits of specialisation, clarity of working relationships, optimum use of resources, adaptation to change, effective administration, development of personnel, expansion and growth.

Organisation structure is the framework within which managerial and operating tasks are performed — the pattern of relationships among positions.

• Span of management (control): number of subordinates a manager can supervise effectively. Narrow span → tall structure; wide span → flat structure. Graicunas' formula shows relationships grow rapidly with each added subordinate.

Departmentalisation is grouping activities and people into departments.

Other bases: process (spinning, weaving, dyeing in a textile mill), time (shifts), number (army platoons).

• Authority: the right to give orders and expect obedience.
• Responsibility: the obligation to perform the assigned duties.
• Accountability: answerability for results to the superior.
• Parity principle: authority must be commensurate with responsibility.

Delegation

Delegation is the entrustment of responsibility and authority to a subordinate and the creation of accountability for performance.

• Principles: delegation by results expected, parity of authority and responsibility, absoluteness of accountability (cannot be delegated), unity of command, authority level principle, scalar principle.
• Barriers: fear of losing control, lack of confidence in subordinates, subordinates' fear of criticism, lack of incentives.

• Delegation vs decentralisation: delegation is a process between a superior and a subordinate; decentralisation is the systematic delegation throughout the organisation — a philosophy.

Controlling is measuring and correcting the performance of subordinates to make sure that enterprise objectives and plans are accomplished (Koontz).

Nature and importance

• Goal-oriented, continuous, pervasive, forward-looking and backward-looking.
• Accomplishes goals, judges accuracy of standards, makes efficient use of resources, improves motivation, ensures order and discipline, facilitates coordination.

• Critical point control: focus on key result areas.
• Management by exception: only significant deviations are reported to top management.
• Types: feed-forward (preventive), concurrent, feedback (post-action).
• Techniques: budgetary control, standard costing, ratio analysis, break-even analysis, PERT/CPM, management audit, MIS.
• Relationship between planning and controlling: planning sets standards; controlling checks performance against them — "planning without control is meaningless and control without planning is blind".