2. UNIT 1: FUNDAMENTALS OF MANAGEMENT
OUTLINE OF THE CHAPTER
1.1 Definition of Management
1.2. Significance of Management
1.3. Managerial Functions an Overview
1.4. Levels of Management and Types of
1.5. Managerial Roles and Skills
1.6. Universality of Management
1.7. Is Management an art, Science, or
Management is a vital aspect of the economic life of man,
which is an organized group activity (directing and
The productive resources – material, labor, capital etc.
are entrusted to the organizing skill, administrative
ability and enterprising initiative of the management.
Thus, management provides leadership to a business
Without able managers and effective managerial
leadership the resources of production remain merely
resources and never become production.
Management occupies such an important place in the
modern world that the welfare of the people and the
destiny of the country are very much influenced by it.
4. Management - as how the mind controls the human body
and its function similar management (mind) controls the
various activities ( human body) in the Organization.
Organization - Collection of physical equipments, 4 M’s in
Organization – Men, Machine, Materials, Money, and
leads to nothing with out mgt.
To put another way, it is a group of two or more people
brought together to achieve common stated objectives.
For efficient and profitable functioning it is necessary that
all these factors are put to work in a coordinated manner.
5. 1 Definition of Management
There are several definitions of Management; but they all
are fundamentally the same. Some of these prominent
definitions are reproduced below:
"To manage is to forecast and to plan, to organize, to
command, to co-ordinate and to control". Henry Fayol
"Management is a multi-purpose organ that manages a
business and manages managers and manages worker and
work". Peter F Drucker
"Management is defined as the creation and maintenance of
an internal environment in an enterprise where individuals
working together in groups can perform efficiently and
effectively towards the attainment of group goals". Koontz
6. More Comprehensively
1. Management is the
the five major.
That is, it is the
process of achieving
through engaging in
the five major
there are three key concepts in the
Coordination of all
can be classified into: human
and non-human, and
management is the force that
unifies these resources.
The five managerial
Objectives – are the reason
for the establishment of
2. Management is the art
of getting things done
through other people
by making the
→ an effective manager
focuses on both work and
3. This definition recognizes
Management is an ongoing
Entails reaching important
Involves knowing how to
perform the five major
functions of management.
4. Management is the utilization of
scientifically derived principles
to examine and improve
collective efforts or production.
Management applies to any kind
of organization, to managers at
all organizational levels.
Management is a universal process in all organized
social and economic activities. It is not merely restricted to
factory, shop or office.
Management is necessary for a business firm,
government enterprises, education and health services,
military organizations, trade associations and so on.
*In other words everybody is the manager of his/her time,
finance energy and talents.
Managers – are those persons in the position of authority
who make decisions to commit (use) their resources and
the resources of others
9. 2. Significance of Management
According to Peter Drucker, "Management is what the
modern world is all about." This statement means that
all the development that has taken place in the world is
due to efficient management.
1. Encourages Initiative -. Initiative means to do the right thing at
the right time without being told or influenced by the superior.
2. Encourages Innovation - Innovation brings new ideas, new
technology, new methods, new products, new services, etc.
10. 3. Facilitates growth and expansion - Management makes
optimum utilization of available resources.
4. Improves life of workers - Management shares some of
its profits with the workers. It provides the workers with
good working environment and conditions. It also
gives the workers many financial and non-financial
5. Improves corporate image - If the management is good,
then the organization will produce good quality goods
6. Motivates employees - by providing financial and non-
financial incentives.. This results in boosting
productivity and profitability of the organization.
7. Optimum use of resources - Management brings
together the available resources
11. 8. Reduces wastage - of human, material and financial
resources. Wastage is reduced by proper production
planning and control.
9. Increases efficiency - Efficiency is the relationship between
returns and cost. Management uses many techniques to
increase returns and to reduce costs.
10. Improves relations - between individuals, groups,
departments and between levels of management. Better
relations lead to better team work. Better team work brings
success to the organization.
11. Reduces absenteeism and labor turnover - Labor
absenteeism and turnover increases the cost and causes
many problems in the smooth functioning of the organization.
12. Encourages Team Work - to work as a team. It develops a
team spirit in the organization. This unity bring success to the
12. 3. Managerial Functions an Overview
☻ Regardless of the type of firm and the
organizational level, all managers perform
certain basic functions.
☻ These managerial functions are:
o Directing/leading/ and
is making decisions today about future actions. It
involves selecting missions and objectives and the actions
to achieve them; it requires decision making that is,
choosing future courses of action
bridges the gap between where we are to where we
want to be in a desired future.
identifies goals and alternatives. It maps out courses of
action that will commit individuals, departments and the
is the first managerial function that all managers
engaged in because it lays the groundwork for other
is concerned with assembling the resources necessary to achieve
organizations’ objectives and establishing the activity authority
focuses on allocating and arranging human and non-human
It is through organizing function that managers determine
- which tasks are to be done,
- how tasks can best be combined into specific jobs, and
- how jobs can be grouped into various units that make up the
structure of the organization.
It involves creating job positions with assigned
duties and responsibilities, arranging positions
into hierarchy by establishing authority–
reporting relationship, determining the number
of subordinates each manger should supervise
Its filling and keeping filled the positions in the
It is concerned with locating prospective employees to fill
the jobs created
It basically deals with inventorying the people available,
announcing vacancies, accepting, identifying the
potential candidates for the job, recruiting, selecting,
placing, orienting, training and promoting both
candidates and existing employees.
Remember: Many aspects of staffing function are the
responsibility of personnel department.
has been termed as motivating, influencing,
guiding, stimulating, actuating or directing.
It is aimed at getting the members of an organization
move in the direction that will achieve its
is the heart and soul of management.
the most complex managerial function
It includes communicating with others, helping to
outline a vision of what can be accomplished,.
is the measuring and correcting of activities of
subordinates to ensure that events conform to
It deals with establishing standards, measuring
performances against established standards
and dealing with deviations.
It is checking current performances against
predetermined standards contained in the plan.
19. Organizational Performance
Measures how efficiently and effectively managers use resources to
satisfy customers and achieve goals.
Efficiency: A measure of how well resources are used
Usually, managers must try to minimize the input of resources
“doing things right” that is, not wasting resources.
Effectiveness: A measure of the appropriateness of the goals chosen
(are these the right goals?), and the degree to which they are
Organizations are more effective when managers choose the
correct goals and then achieve them.
Effectiveness is often described as “doing the right things.
20. 1.4. Levels of Management and Types of Managers
Yes: because all managers perform the five managerial
No: because despite the fact that they perform all managerial
functions, they perform it with different emphasis and scope.
Managers can be divided based on two criteria. These are:
1) Levels of management (vertical
2)Scope of responsibilities (horizontal
Is management the same
throughout an organization?
Yes and No?
21. A. Types of Managers based on levels of management
1. Top Level Managers
who are at the top of the organizational hierarchy and
are responsible for the entire organization.
few in number and include the organization’s most
important managers - the CEO or the president
his/her immediate subordinates usually called vice-
They deal with the company wide big picture.
23. Responsibilities of top management:
Develop overall structure of the organization.
Direct the organization in accordance with the environment.
Develop policy in areas of Equal Employment Opportunity & employee
Represent the organization in community affairs, business deals, and
Spent much of their time in planning and dealing with middle level
managers and other subordinates.
Work long hours and spend much of their time in meetings and on
responsible for making decisions and formulating policies
Provide overall leadership
take the credit or blame for organizational
24. 2. Middle Level Managers
occupy a position that is above first-line management and
below top management.
They interpret and implement top management directives
and forward messages to and from first-line management.
Regardless of their title, their subordinates are managers.
Often coordinate and supervise the activities of lower level
Receive broad/overall strategies and translate it into
specific objectives and plans
Are responsible for the proper implementation of
policies and strategies.
25. 3. First Level Managers/Supervisory Level managers
- Are those at the operating level or at the last level of management
- Their subordinates are non-managers.
- They are responsible for overseeing and coordinating the work of
- their job is to deal with employees who actually produce the
organization’s goods and services to fulfill the plan.
are called “People in the Middle” as they serve as a bridge between
managers and non-managers.
- Spent much of their time in leading and little in planning.
- Motivate subordinates to change or improve their performance.
- E.g. Department Heads, supervisory personnel, Sales managers, Loan
26. All managers carry out managerial functions. However, the time
spent for each function varies according to their managerial
Top-level managers spend more time on planning and organizing
than lower-level managers.
Leading, on the other hand, takes a great deal of time for first-line
The difference in time spent on staffing and controlling varies only
slightly for managers at various levels.
The relative importance of the managerial functions at different
27. B. Types of Managers based on Scope of
1 . Functional Managers
are responsible for a department that performs a single functional task
and has employees with similar training and skills.
Supervise employees (managers + workers) with specialized skills in
specific areas of operations such as accounting, payroll, finance,
marketing, production, or sales etc.
responsible for only one organizational activity
2. General Managers
who are responsible for several departments that perform different
functions. responsible for the entire operations
Oversee a complex unit, such as a company, a subsidiary, or an
independent operating division.
28. 1.5. Managerial Roles and Skills
Role is an organized set of behaviors that is associated with a
particular office or position.
It is a pattern of behavior expected by others
represent specific tasks that managers undertake to ultimately
accomplish the five managerial functions.
Factors which affect managerial roles are:
- manager’s formal job description, and
- the values & expectations of other managers, subordinates and peers.
Henry Mintzberg identified 10 managerial roles which are grouped into
29. I. Interpersonal Roles
It involves developing and maintaining positive relationships with
significant others in the organization. It is communication
oriented. It includes:
1. Figurehead Role
managers perform symbolic duties of a legal or social nature.
the manager represents his work unit at ceremonial
2. Leadership Role
s/he makes the environment conducive for work by improving
working conditions, reducing conflicts, providing feedback for
performance and encouraging growth.
motivates & coaches them. hiring, training, motivating and
→ is evident in the interpersonal relationship between manager
and his/her subordinates.
30. 3. Liaison Role/Coordinator role
The liaison maintains a network of contacts outside
the work unit to obtain information.
The manager serves as a link between the
organization and the informants who provide favors
S/he fulfills this role through community service,
conferences, social events, etc
II. Informational Roles
focuses on the transmission of important information
to and from internal and external sources. It involves the
following activities: [
1 . Monitor role: is also called information gathering role.
This role refers to seeking, receiving, screening and
31. 2. Disseminator Role: what does the manager do with the
it has to be disseminated to superiors, subordinates, peers
and other concerned clients.
3. Spokesperson/representative Role: the spokesperson
transmits information about the organization to outsiders.
Although the roles of spokesperson and figurehead are
similar, there is one basic difference between them.
When a manager acts as a figurehead, the manager’s
presence is as a symbol of the organization, whereas, in
the spokesman role, the manager carries information and
communicates it to others in a formal sense.
32. III. Decisional Roles
involve making significant decisions that affect the
1. Entrepreneur Role: (initiator of change) the manager
acting as an entrepreneur recognizes problems and
opportunities and initiates actions
the manager tries to improve the unit
often s/he creates new projects, change organizational
structure, and institutes other important programs for
improving the company’s performance.
2. Disturbance Handler Role: solution seeking role.
is responsible for taking corrective action when the
organization faces important, unexpected difficulties.
33. 3. Resource Allocator Role: deciding on the allocation of
the organization’s physical, financial and human
involves assigning work to subordinates, scheduling meetings,
approving budgets, deciding on pay increases, making
purchasing decisions and other matters related to the firm’s
human, financial, and material resources.
4. The Negotiator Role: refers to representing the
organization in all important/major negotiations.
Managers spend a great deal of their time as negotiators,
because only they have the information and authority that
34. Managerial Skills
Modern businesses are dynamic and complex, and competition in the
market place is fierce. Consequently, managers must be highly skilled
Management success depends both on: a fundamental
understanding of the principles of management and the
application of skills.
Skills are specific abilities that result from knowledge, information,
practice, and aptitude.
Managerial Skills include:
Human Relations skill
There are also skills required in
35. 1. Technical Skills
Involve process or technique, knowledge and proficiency.
It is the ability to use the tools, procedures, or techniques of a
It includes mastery of the methods, techniques, and equipment
involved in specific functions, such as engineering,
manufacturing, or finance.
It also includes specialized knowledge, analytical ability
are most important at the lower levels of management.
E.g. A surgeon, an engineer, a musician, a quality controller or
an accountant all have technical skill in their respective areas.
36. 2. Human Relations /Interpersonal Skill
The ability to interact effectively with people.
A manager with human skills allows subordinates to
express themselves without fear of ridicule and
A manager with human skills likes other people and is
liked by them.
It is a reflection of the manager’s leadership ability.
Managers who lack human skills often are abrupt,
critical, and unsympathetic toward others..
are equally important at all levels of management.
37. 3. Conceptual skills
It is visualizing the different parts of an organization as one
big whole and involves the formulation of ideas.
It refers to the ability to see the big picture
It also involves the manager’s ability to understand how a
change in any given part can affect the whole
ability to understand abstract relationships, solve
problems creatively, and develop ideas.
more important in strategic (long range) planning
38. Technical skill deals with things,
human skill concerns people and
conceptual skill has to do with ideas.
Figure: Skills Needed at Different Levels of Management
39. 1.6 Universality of Management
Regardless of title, position, or management level, all
managers do the same job. They execute the five
Managers are the same whether the organization is private
or public, profit making or non-profit making, manufacturing
or service giving, and industrial or small firms.
Management theories and principles have universal
application in all kinds of organized
40. 1.7 Is Management an art, Science, or profession?
As a Science Management is:
Its principles are systematized body of knowledge-
helps the practicing manager to make decisions rationally
and objectively rather than rule of thumb,
Its principles are universally applicable-
It is based on scientific inquiry, observation, test,
It explains the cause and effect relationships
among/between various variables.
Its validity can be verifiable and can serve as a
reliable basis for predicting future events.
41. Management as an Art:
The essential elements of arts are:
Result oriented approach
Improvement through continuous practice
Let us judge how far management fulfils these
Thus, “management is both a science as well as
However, art and science are complementary to
each other. They are not mutually exclusive.
42. Management as a profession
According to Louis Allen definition a profession is "a specialized kind of
work practiced through and by use of classified knowledge, a common
vocabulary, and requiring standards of practice and code of ethics
established by a recognized body.“
And Management fulfills the features of profession:
Formalized method of acquiring knowledge;
Code of ethics;
Dedication and commitment;
44. UNIT 2: THE DEVELOPMENT OF
OUTLINE OF THE CHAPTER
Pre-Classical Movements to Management Theory
Classical Management Theory
Scientific Management of Frederic W. Taylor
Classical Administrative Management
Neoclassical Management Theory/Behavioral
Behavioral management theory
Modern Management Theories
The Systems Approach
The Contingency Approach
45. Chapter -2
The Development of Management Thought
A theory is a conceptual framework for organizing
knowledge that provides a blueprint for various courses
The origin of management in the organized way can
be traced as back as the origin of human beings.
The major approaches to development of
management are as follows:
1) Early approaches to management
2) Classical management theories
3) Behavioral theories
4) Modern theories to management(Quantitative
approaches: systems perspective: contingency approach)
46. 2.1 Early Management approaches
This stage of management covers the time
the beginnings of man's co-operative effort to
the start of his attempt to approach the study of
management scientifically was in about 1880
with the advent of Industrial Revolution.
But management functions have existed for
thousands of years since people began to work
in a group for the achievement of group goals.
There are enough indications to show that the
importance of management was well recognized
even those days. 46
47. Let’s look at some of the most common examples:
The Egyptian pyramids,
the Great Wall of China,
the monument in Axum,
the temple in Lalibela, and
the castle of Gonder
These are proof that projects of tremendous scope,
employing tens of thousands of people, were
completed in ancient times.
It took more than 100,000 workers some 20 years
to construct a single Egyptian pyramid.
Who told each worker what to do?
Who ensured that there would be enough stones at the
site to keep workers busy?
48. The answer is managers.
Someone had to plan what was to be done,
organize people and materials to do it,
make sure those workers got the work done,
and impose some controls to ensure that everything was
done as planned
During that period the contribution given by
religious and military groups to management
thought were significant & undeniable. E.g.
Roman Catholic Church was one of the most effective
formal organizations in the history of western civilization.
Military organizations also contributed in their own
simplistic way to the development of managerial practices
though there was little use of theory in it.
49. Starting in the middle of eighteenth century when
machine power was substituted for human
power, a point in history known as the industrial
It brought massive technological changes:
it revolutionized the economic system,
it initiated mass production and the factory system of
it brought the need of huge collection of capital.
These large efficient factories needed someone:
To forecast demand,
Ensure that enough material was on hand to make
Assign tasks to people,
Direct daily activities, and so forth.
50. That “someone” was a manager:
These factors brought the need of more
thoughtful, resourceful, and dynamic
Management on traditional lines became
Rule of thumb could no longer exist.
It had to be replaced by logical and rational
principles, scientific approach, and
psychological handling of employees.
51. A few of the contributor of early influences are:
1. Robert Owen (1771-1858):
He was a successful textile factory manager in Scotland from
He recognized that human resources were as valuable as
financial & material resources to the production of goods.
He believed that factory workers would be more productive if
they were motivated through rewards rather than punishments.
He experienced with several motivating techniques. Some of
He improved working conditions within the factory, i.e., providing
meals, bath facilities, housing & marketing facilities
Reducing the workday to 10 ½ hours with no night work for
Refused to hire children under the age of 10
Because of his emphasis on the workers, he is regarded as
the father of modern personnel management.
52. 2. Charles Babbage /1792-1871/
He is a British professor of mathematics, Charles
Babbage become convinced that the application of
scientific principles to work processes would
both increase productivity and lower expenses.
He was an early advocator of division of labor.
He had also a strong understanding of the
importance of human resources as related to
He advocated profit-sharing plans & bonus
systems as ways to achieve better relations
between management & labor.
53. Despite the long history of management, it walked as a
tortoise. Because of:
low esteem to business in society
Indifferent approaches of economists, political scientists’ psychologists,
sociologists, etc towards business organizations.
Treatment of management as an art not as a science and
The attitudes that successful managers are born but not made
These factors made management not develop and studied
systematically and scientifically
In the 20 century, the situation had changed rapidly, some of
the factors that contributed to the need of a systematic
The development of capitalism, the emergence of industries and mass
production forced organizations to be efficient or to find out ways for
The complexities of organizations, society became more complex.
54. Despite the suggestions given by the early
theorists; owners & managers did not begin
to raise the concern of the problem of
material & human efficiency.
They raised the issue when:
markets were becoming saturated,
demands for greater profits and
competition was becoming keen.
This emphasis on cutting costs and increasing
efficiency led to the emergence of the classical
school of management theory.
55. 2.2 Classical Management Theory
is the oldest formal school of thought which
began around 1900 and continued into the
arise because of the need to increase
productivity and efficiency.
mainly looks for the universal principles of
operation in the striving for economic
56. consists three streams of thought
1. Scientific management focuses on the “one
best way” to do a job.
2. Administrative management focuses on
discussing universally applicable principles
3. Bureaucratic management focuses on the
guidelines for structuring with formalization of
rules, procedures and a clear division of labor.
57. 1. Scientific management
was a theory of management that analyzed workflows,
with the objective of improving labor productivity.
Taylor was a mechanical engineer who wanted
to improve industrial efficiency.
His major concern was to increase efficiency in
production, not only to cover costs, raise profits
but also to make possible increase in pay for
workers through their higher productivity,
through one best of doing a job.
He believed that there was one best way of
performing every process and task in
58. After finding the one best way of doing a job,
managers should then teach it to the
He thought that : -
an incentive system rewarding fast workers
and penalizing slow workers.
scientific methods would eventually replace
intuition and rule-of thumb,
people were lazy by nature, although training
could improve performance.
The term ‘Scientific Management’ evolved.
Time & Motion Studies
To scientifically determine the optimal way to
perform a job, Taylor performed experiments that he
called time studies, (also known as time and
He used stop watches to measure the workers
efficiency in his time and motion studies.
Taylor's 4 Principles of Scientific Management
can be summarized as follows.
1) Develop a science for each element of an
individual’s work to replace rule-of-thumb work
2) Scientifically select, train, and develop each
3) Heartily cooperate with the workers
4) Divide work nearly equally between
managers and workers,
61. Other proponents of Scientific Management
The Frank Gilbreths
The husband and wife Gilbreth team used
motion picture technology to study the motions
of the workers in some of their experiments.
His work had great impact on medical surgery
by drastically reducing the time patients spent
on operating table.
He invented a device – ‘MICRO-
CHRONOMETER’ in order to record workers
movement and the amount of time spend to
done a job.
62. Henry Gantt (1861-1919)
He was a contemporary of Frederick Taylor.
Gantt is best known for his graphic system of
planning and control system that is still used
His charts know as "Gantt Chart" enables
managers to visualize the completion stage of
various projects, such as procurement, of
materials, manufacturing and shipping.
It contributed towards efficiency, standardization,
specialization and simplification of work.
improved the living standard of the workers
Initiated the careful study of tasks and jobs.
Demonstrated the importance of personal
selection and training.
Did not appreciate the social context of work and
higher needs of workers.
Did not acknowledge variance among individuals.
not people oriented; Man was literally equated
with machine; Man was considered a rational being
and not the emotional being.
Highly repetitive jobs often produce boredom and
alienate employees from their job.
64. 2. Classical administrative Theory
Henri Fayol (1841-1925) was considered father
of modern operational management theory and;
65. Scientific management theory provided little
guidance for managers above the
However, realizing the importance of efficiency
operations at all levels was critical;
thus, theorists began to focus on organizations
as a whole.
As a result, classical administrative theory
focuses on the total organization and attempts
to develop rules and principles that will direct
managers to more efficient activities.
66. He identified /classified
business activities into six.
1.Technical activities: -These include activities of production
2.Commercial activities: - activities of buying, selling or
3.Financial activities: - searching for & optimum use of
4.Security activities: - protection of property and persons.
5.Accounting activities: - recording and taking stock of
costs, profits & liabilities, keeping balance sheets, and
compiling statistics; and
6.Managerial activities: -the five managerial functions
67. Fayol divided his approach of studying
management into three parts.
A. Managerial qualities
B. Elements of management
C. General principles of management.
A. Managerial Qualities
Physical – state of health
Mental – ability to understand, appreciates, learn, judge,
Moral – Loyal, true to his words,
General- solid educational background & Technical
Experience – helps a person to discharge his function
efficiently & confidently. 67
68. B. Fayol described management as a scientific
process built up of five elements:
1. Planning –process of activities required to meet a
2. Organizing–making orderly determination &
arrangement of a task.
3. Commanding (Directing) – involves guiding,
supervising, motivating & leading people
4. Coordinating- bringing together the elements.
5. Controlling- having control over all of the aspects
that contribute to meeting the goal.
69. C. Fayol’s Principles
Henri Fayol, developed a set of 14 principles:
1. Division of Labour: Specialization increases output by making
employees more efficient.
2. Authority Managers must be able to give orders, and
authority gives them this right.
3. Discipline: Employees must obey and respect the rules
4. Scalar Chain/The hierarchy) - The line of authority runs in
order of rank from top management to the lowest level.
5. Centralization and decenteralization : refers to the degree to
which subordinates are involved in decision making.
70. 6. Unity of Direction: The organization should have a
single plan of action
7. Unity of Command: Employees should have only one
8. Order: People and materials should be order at the
right place at the right time.
9. Initiative: Encourage innovation. Subordinates should
be given the freedom to conceive and carry out their
plans, even though some mistakes may result.
10. Equity: Treat all employees fairly in justice and
71. 11. Remuneration of Personnel: Workers must be paid a
fair wage for their services.
12. Stability of Tenure of personnel: Long-term
employment is important.
13. General interest over individual
interest(Subordination of individual interest to the
14. Esprit de corps: promoting team spirit will build
harmony and unity within the organization.
72. 3.Theory of Bureaucracy
☻ German theorist and sociologist.
☻ Follower of General Administrative Theory proposed by
☻ During 1800’s, European Org. were managed on a
personal, family-like basis.
☻ Thus, Weber proposed Org. would be managed on
an impersonal, rational basis. This form of Org. is
known as Bureaucracy in his word.
73. He believed in one best organizational
structure, which is highly formal, and goal
oriented structure, human emotions and personal
bias are subordinated by rational thinking and
impersonal decision making.
The theory is based on rigid rules and
regulations having no consideration for
interpersonal relationship based on emotions and
75. Features of Weber's ideal bureaucracy:
Division of labor: - Jobs are broken down into simple,
routine, and well-defined tasks.
Authority Hierarchy : Positions in an Org. are
organized in a hierarchy.
Formal selection /technical competency: All
organizational members are to be selected on the basis
of technical qualifications
Formal Rules & Regulations: - To ensure uniformity
and to regulate the action of employees there is a heavy
dependence on formal organizational rules.
Impersonality: - Rules & controls are applied uniformly
avoiding involvement with personalities and personal
preference of employees
Career Orientation /Separation from ownership
76. Contribution of Classical Management Theories
To efficiency & Productivity
Provision of guide lines and general principles of
Contribution of Classical Management Theories
To efficiency & Productivity
Provision of guide lines and general principles of
Reliance on experience
Failure to consider informal organizations
77. 2.3 Behavioral Management Theory/
Neoclassical Management Theory
consists of both the human relation and
behavioral science movements.
is often called the human relations movement
because it addresses the human dimension of
78. 2.3 Behavioral management theory:
- Emphasizes the interaction of people in the
organization in order to understand the practice
Points out the role of psychology and
sociology understanding the individual as well
as group behavior
Advocated the human values in an
Major contributors are
George Elton Mayo
79. George Elton Mayo (1880-1949)
One of the prominent contributor
He was known of conducting an experiment
at the Hawthorne plant at the Western
The experiment was divided into four:
2.The relay assembly test room
3.The massive interview program
4.Bank wining observation roof.
80. 1. illumination Experiment: was designed to prove the
effect/impact of physical surroundings such as noise/
sound and light on productivity.
The result of the experiment was that there was little
relationship/or physical surroundings did not have
an impact on productivity.
81. 2. Relay assembly test room
• conclude that changes in the social conditions and in the
method of supervision brought about the improved
attitude and increased output.
Informal Work Groups.
84. Elements of Neoclassical Theory
The Individual - behavioral theorists emphasize
individual differences and advice managers to
consider such differences.
The Work-Group - an individual in a group
develops social works. E.g.
Desire to belong,
Desire to be accepted by and stand well in his work group.
The existence of informal organization is natural it
cannot be denied.
Participative Management –
They advocated worker participation in management.
Allowing workers to participate in decision making as a
ways of increasing productivity was considered vital by
85. 2.4 Modern Management Theories
o Is extension of both classical and behavioral theories of
management. A few of the streams of this approach are:
1. Quantitative Approach/ Management Science
called management science or mathematical operations
It tries to offer systematic analysis and solutions to many
complex problems faced by management.
New mathematical models and statistical tools are applied.
Some of the quantitative models suggested are:
Linear Programming – Technique managers use for
resource allocation choices.
Critical path method – Technique used by manager for
Economic Order-Quantity Model –
Technique used to determine the optimum
inventory levels a firm should maintain.
Queuing (waiting line) theory
Quantitative approach helps to solve many
managerial problems: such as
Production /work scheduling
Inventory control etc.
87. 2. The Systems Approach
It is based on the concept that an organization is a
system, or an entity of interrelated parts.
If you adjust one part of the system, other parts will
be affected automatically.
A system is a set of inter-related and inter-
dependent parts, arranged in such a way that
produces a unified whole.
The systems approach to management attempts to view
the organization as a unified, purposeful system
composed of interrelated parts.
88. Systems Theory
Transformation process Outputs
89. SOME KEY CONCEPTS USED IN SYTEMS APPROACH
Synergy:- tells us that the whole is more than
the sum of its parts.
a system can be open or closed.
Open system:- a system interacting with the
Closed system:-a system that does not interact
with the environment.
90. 3. The Contingency/situational Approach
The basic idea of the contingency approach is
that there is no one best way of managing
planning, organizing, staffing, leading and
Rather, manages must find different ways to fit
The method that is highly effective in one
situation may not work in other situations.
92. UNIT 3: MANAGERIAL
OUTLINE OF THE CHAPTER
2.1. Concepts and Need for planning
2.2. Types of plans
2.3. Planning process
2.5. Planning Techniques
When management is reviewed as a process,
planning is the first function performed by a
manager. The work of a manager begins with the
setting of objectives of the organization and goals in
each area of the business. This is done through
planning. A plan is a predetermined course of
action to accomplish the set objectives. It is today's
projection for tomorrow's activity.
Planning includes objectives, strategies, policies,
procedures, programmes, etc. As it involves making
choices, decision-making is the heart of planning.
95. Planning is the process of setting objectives and determining how to best
Planning usually incorporates both;
Determining the organization’s goals and
defining the means for achieving them.
Plan is a blueprint for goal achievement and specifies the necessary resource
allocations, schedules, tasks, and other actions.
Plan is a statement of action steps to be taken in order to accomplish the
According to Henry Fayol - "purveyance, which is an essential element of
planning, covers not merely looking into the future but making provisions
for it. A plan is then a projected course of action".
According to Koontz O'Donnel - "Planning is an intellectual process, the
conscious determination of courses of action, the basing of decisions on
purpose, acts and considered estimates".
Planning is concerned with the determination of the objectives to be achieved
and course of action to be followed to achieve them.
Before any operative action takes place it is necessary to decide what, where,
when and who shall do the things.
96. Nature of Planning
1. Planning is goal-oriented: Planning has no meaning without being
related to goals. Plan must contribute in some positive way towards the
accomplishment of group objectives.
2. Primacy of Planning: Planning is the first of the managerial functions. It
precedes all other management functions.
3. Pervasiveness of Planning: Planning is found at all levels of
management. Top management looks after strategic planning. Middle
management is in charge of administrative planning. Lower
management has to concentrate on operational planning.
4. Efficiency, Economy and Accuracy: Efficiency of plan is measured by
its contribution to the objectives as economically as possible. Planning
also focuses on accurate forecasts.
5. Co-ordination: Planning co-ordinates the what, who, how, where and
why of planning. Without co-ordination of all activities, we cannot have
97. 6. Limiting Factors: A planner must recognize the limiting factors
(money, manpower etc) and formulate plans in the light of these
7. Flexibility: The process of planning should be adaptable to
changing environmental conditions.
8. Planning is an intellectual process: The quality of planning will
vary according to the quality of the mind of the manager.
9. Planning and information: Basically no plan exists without
10. Planning is a continuous process:, planning is subject to
11. Planning is a means to an end: Planning is not an end by
12. Plans are arranged in a hierarchy.
98. Purposes of Goals and Plans
Goals specify future ends; plans specify today’s means and
hence it provides organizations:
Legitimacy. An organization’s mission describes what
the organization stands for and its reason for
existence. It symbolizes legitimacy to external
audiences such as investors, customers, suppliers, and
the local community.
Source of motivation and commitment. Goals and
plans facilitate employees’ identification with the
organization and help motivate them by reducing
uncertainty and clarifying what they should
Resource allocation. Goals help managers decide where
they need to allocate resources, such as employees,
money, and equipment.
Guides to action. Goals and plans provide a sense of
direction. They focus attention on specific targets and
direct employee efforts toward important outcomes.
99. Rationale for decisions. Through goal setting and
planning, managers learn what the organization is
trying to accomplish. They can make decisions to
ensure that internal policies, roles, performance,
structure, products, and expenditures will be made
in accordance with desired outcomes. Decisions
throughout the organization will be in alignment
with the plan.
Standard of performance. Because goals define
desired outcomes for the organization, they also
serve as performance criteria. They provide a
standard of assessment.
The overall planning process prevents managers from
thinking merely in terms of day-to-day activities.
When organizations drift away from goals and plans,
they typically get into trouble.
100. Importance of Planning
As a managerial function planning is important due to the following reasons:-
1. To manage by objectives: organization are designed to achieve certain
specified objectives and planning makes the objectives more concrete by
focusing attention on them. It provides direction and a sense of purpose.
2. To offset uncertainty and change: future is always full of uncertainties
and changes. Planning foresees the future and makes the necessary
provisions for it.
3. To secure economy in operation: planning involves, the selection of
most profitable course of action that would lead to the best result at the
4. To help in co-ordination: co-ordination is, indeed, the essence of
management, the planning is the base of it. It forces managers to see the
organization as a system.
5. To make control effective: the controlling function of management
relates to the comparison of the planned performance with the actual
performance. In the absence of plans, a management will have no
standards for controlling other's performance.
6. To increase organizational effectiveness: mere efficiency in the
organization is not important; it should also lead to productivity and
effectiveness. Planning enables the manager to measure the
organizational effectiveness in the context of the stated objectives and
take further actions in this direction.
7. It provides guideline for decision making and developing managers .
101. Disadvantages of Planning
Planning cannot give perfect insurance against uncertainty.
Planning is many times very costly.
Tendency towards inflexibility to change is another limitation of
Planning delays action and time consuming.
Planning encourages a false sense of security against risk or
Planning is risky since environmental factors are uncontrollable
and unpredictable to a large extent.
It is a difficult and complicated task.
It is affected by external factors.
102. Types of Plans
Plans can be classified on different
bases or dimensions.
Scope/breadth dimension, and
103. 1. Based on Scope/Breadth Dimension
1. Strategic plans — set broad, comprehensive, and longer-term action
directions for the entire organization.
Apply to the entire organization.
Establish the organization’s overall goals.
Solving the long term problems associated with external environment
Cover extended periods of time.
2. Tactical Plans- an intermediate plan that helps to reduce long range planning
into intermediate one by increasing the amount of specificity and making the
actions goal oriented. Cover short time period
3. Operational plans — define what needs to be done in specific areas to
implement strategic plans.
Human resource plans
Operational plans are concerned with the day to day activities.
104. 2. Based on Time Horizons of Plans
Based on the period of time over which they are
intended to be implemented plans range from
short-range to long-range plans:
Short-range plans = 1 year or less
Intermediate-range plans = 1 to 5 years
Long-range plans = 5 or more years
People vary in their capability to deal effectively
with different time horizons. Higher
management levels focus on longer time
All strategic plans are long-range plans.
All tactical plans are medium-range plans.
All operational plans are short-range plans.
105. 3. Based on use/repetitiveness
1. Single-Use Plans
A one-time plan specifically designed to meet the need of a unique situation.
Developed for a one-time, non-programmed issue.
Only used once to meet the needs and objectives of a well-defined
situation in a timely manner.
Types Single-Use Plans
A. Programs: integrated plans achieving specific goals. A program is a complex
set of objectives and plans to achieve an important, one-time organizational
B. Project is similar to a program, but generally smaller in scope and complexity.
Project: specific action plans to complete programs.
Project management and project schedules.
One-time activities that have clear beginning and end points.
C. Budgets: are statements of expected results expressed in numerical terms.
Single-use plans that commit resources to activities, projects, or
Fixed, flexible, and zero-based budgets.
106. 2. Standing plans:
Ongoing plans that provide guidance for activities performed
Use in programmed decision situations.
Types Standing Plans
A. Policy is a general guide to action and provides direction for people
within the organization. Policies are general statements or
understandings which guide or channel thinking and actions in decision-
making to achieve organizational objectives.
- Broad guidelines for making decisions and taking action in specific
B. Rules describe how a specific action is to be performed. Plans that
describe exactly what actions are to be taken in specific situations.
- explain specific required action or non-actions, i.e., actions that must be or
must not be taken allowing no discretion, in a given situation.
C. Procedures define a precise series of steps to be used in achieving a
Strategies could be defined as the
pattern of objectives, purposes or
goals and major policies and plans
for achieving these goals, stated in
such a way as to define:
what business the company is in or is
to be and
the kind of company it is or is to be.
Strategies are plans made in the
light of the plans of the competitors
because a modern business
institution operates in a competitive
environment. They are a useful
framework for guiding enterprise
thinking and action.
It may also be shaped by the
general forces operating in an
industry and the economy.
Policies are directives providing
continuous framework for
executive actions on recurrent
A policy assists decision-making
but deviations may be needed, as
exceptions and under some
Policies exist at various levels of
Divisional level, and
Policies are valuable because
they allow lower levels of
management to handle problems
without going to top management
for a decision each time.
109. Characteristics of Strategy
1) It is the right combination of different factors.
2) It relates the business organization to the environment.
3) It is an action to meet a particular challenge, to solve
particular problems or to attain desired objectives.
4) Strategy is a means to an end and not an end in itself.
5) It is formulated at the top management level.
6) It involves assumption of certain calculated risks.
There are three phases in strategy formation:
Determination of objectives.
Ascertaining the specific areas of strengths and
weakness in the total environment.
Preparing the action plan to achieve the
objectives in the light of environmental forces.
110. The essentials of policy formulation may be
listed as below:
A policy should be definite, positive and clear. It should
be understood by everyone in the organization.
A policy should be translatable into the practices.
A policy should be flexible and at the same time have
a high degree of permanency.
A policy should be formulated to cover all reasonable
A policy should be founded upon facts and sound
A policy should conform to economic principles,
statutes and regulations.
A policy should be a general statement of the
111. Importance of Policies
Policies are useful for the following reasons:
1. They provide guides to thinking and action and provide
support to the subordinates;
2. They delimit the area within which a decision is to be
3. They save time and effort by pre-deciding problems; and
4. They permit delegation of authority to mangers at the
112. Planning Process
The planning process involves the following steps:
1. Analysis of External Environment: The external environment covers uncontrollable
and unpredictable factors such as technology, market, socio-economic climate,
political conditions etc., within which our plans will have to operate.
2. Analysis of Internal Environment: The internal environment covers relatively
controllable factors such as personnel resources, finance, facilities etc., at the
disposal of the firm. Such an analysis will give an exact idea about the strengths and
weakness of the enterprise.
3. Developing premises- Planning premises are assumptions about the
environment within which the plan is to be carried out.
Strengths are internal competencies possessed by the organization in
comparison with the competitors. Weaknesses are attributes of the
organization which tend to decrease its competence in comparison to its
Externally, Threat is reasonably probable events which if it were to occur,
would produce significant damage to the organization. Opportunity is a
combination of circumstances, time, and place which if accompanied by a
certain course of action on the part of the organization, is likely to produce
4. Determination of Mission: The "mission" should describe the fundamental reason
for the existence of an organization. It will give firm direction and make out activities
meaningful and interesting.
113. 5. Determination of Objectives: The organizational objectives must be spelled out
in key areas of operations and should be divided according to various
departments and sections. The objectives must be clearly specified and
measurable as far as possible. Every member of the organization should be
familiar with its objectives.
6. Forecasting: Forecasting is a systematic attempt to probe into the future by
inference from known facts relating to the past and the present. Intelligent
forecasting is essential for planning. The management should have no stone
unturned in reducing the element of guesswork in preparing forecasts by
collecting relevant data using the scientific techniques of analysis and inference.
7. Determining Alternative course of Action: It is a common experience of all
thinkers that an action can be performed in several ways, but there is a
particular way which is the most suitable for the organization. The management
should try to find out these alternatives and examine them carefully in the light of
8. Evaluating Alternative Courses: Having sought out alternative courses and
examined their strong and weak points, the next step is to evaluate them by
weighing the various factors.
114. 9. Selecting the Best: The next step - selecting the course of action is
the point at which the plan is adopted. It is the real point of decision-
10. Establishing the sequence of activities: After the best
programme is decided upon, the next task is to work out its details and
formulate the steps in full sequences.
11. Formulation of Action Programmers and Budgeting:
There are three important constituents of an action plan:
The time-limit of performance.
The allocation of tasks to individual employees.
The time-table or schedule of work so that the functional objectives are
achieved within the predetermined period.
Numberizing plans by budgeting.
12. Reviewing the planning process: through feedback
mechanism, an attempt is made to secure that which was originally
planned. To do this we have to compare the actual performance with the
plan and then we have to take necessary corrective action to ensure that
actual performance is as per the plan.
115. What are the useful planning tools and techniques?
1. Forecasting- tries to predict and making assumptions about what will
happen in the future.
Qualitative forecasting uses expert opinions- i.e., using expert judgments and
opinions to predict less than precise outcomes (e.g., direction of the economy).
Jury of opinion
Sales force composition
Quantitative forecasting uses mathematical and statistical analysis- i.e.,
applying a set of mathematical rules to a series of hard data to predict outcomes
(e.g., units to be produced).
Time series analysis
All forecasts rely on human judgment and planning involves deciding on how to
deal with the implications of a forecast.
116. 2. Contingency planning- identifies alternative courses of action when
things go wrong. Or
Identifying alternative courses of action that can be implemented to
meet the needs of changing circumstances.
Contingency plans anticipate changing conditions.
Contingency plans contain trigger points.
3. Scenario planning- one way managers cope with greater uncertainty is
with a forecasting technique known as scenario building.
o Scenario building involves looking at current trends and discontinuities and
visualizing future possibilities. Rather than looking only at history and thinking
about what has been, managers think about what could be.
A long-term version of contingency planning.
Identifying alternative future scenarios.
Plans made for each future scenario.
Increases organization’s flexibility and preparation for future shocks.
117. 4. Benchmarking
Benchmarking identifies best practices used by others and use external
comparisons to better evaluate current performance and identify possible
actions for the future.
Adopting best practices of other organizations that achieve superior
performance yields methods that provide superior performance.
External comparisons provide insight for planning.
5. Use of staff planners
Staff planners provide expertise in the planning process.
Coordinating the planning function for the total organization or one of its major
Possible communication gaps between staff planners and line management.
6. Participation and involvement
Participatory planning requires that the planning process include people who
will be affected by the plans and/or will help implement them.
Benefits of participation and involvement:
Promotes creativity in planning.
Increases available information.
Fosters understanding, acceptance, and commitment to the final plan.
118. Characteristics of a Good Plan
Plans are documents that outline how goals are
to be accomplished, describe how resources
are to be allocated and establish activity
schedules. Good plans show the following
Simplicity and clarity
A goal is a desired future state that the organization attempts to
realize. Goals are important because organizations exist for a
purpose and goals define and state that purpose.
Objectives may be defined as the goals which an organization tries
to achieve. Objectives are described as the end- points of planning.
According to Koontz and O'Donnell, "an objective is a term
commonly used to indicate the end point of a management
In other words “ objectives constitute the purpose of the enterprise
and without them no intelligent planning can take place.
Objectives are, therefore, the ends towards which the activities of
the enterprise are aimed. Objectives are desired outcomes
They represent not only the end-point of planning but also the end
towards which organizing, directing and controlling are aimed.
Objectives provide direction to various activities.
They also serve as the benchmark of measuring the efficiency and
effectiveness of the enterprise. Objectives make every human
activity purposeful. Planning has no meaning if it is not related to
120. Though the term objectives
serve as a common name, it has
its own hierarchies like: mission
or purpose, goals and objectives.
Objectives are the ends that
state specifically how the goals
shall be achieved.
Objectives are concrete and
specific in contrast to goals
which are generalized.
Goals denote what an
organization hopes to
accomplish in a future period of
Goals often exist at company
level and are often qualitative.
Goals are details of the mission
statement and are wider than
Goals may be qualitative,
objectives tend to be mainly
quantitative in specification.
121. Goal Hierarchy
Mission: at the top of the goal hierarchy is the mission and it is the
organization’s reason for existence.
The mission describes the organization’s values, aspirations, and reason for
A well-defined mission is the basis for development of all subsequent goals and
plans. Without a clear mission, goals and plans may be developed haphazardly
and not take the organization in the direction it needs to go.
The formal mission statement is a broadly stated definition of purpose
that distinguishes the organization from others of a similar type. A well-
designed mission statement can enhance employee motivation and
The content of a mission statement often focuses on the market and
customers and identifies desired fields of endeavor. Some mission
statements describe company characteristics such as:
location of facilities, and
attitude toward employees.
122. Mission statements often reveal the company’s
philosophy as well as purpose.
Strategic goals are broad statements of where the
organization wants to be in the future; pertain to the
organization as a whole rather than to specific divisions
Tactical goals are goals that define the outcomes that
major divisions and departments must achieve in order
for the organization to reach its overall goals.
Operational goals are specific, measurable results
expected from departments, work groups, and
individuals within the organization.
124. Process of Setting Objectives
Objectives are the keystone of management planning. It is the most
important task of management.
In the setting of objectives, the following points should be borne in mind:
1. Objectives are required to be set by management in every area which directly
and vitally affects the survival and prosperity of the business.
2. The objectives to be set in various areas have to be identified.
3. While setting the objectives, the past performance must be reviewed, since
past performance indicates what the organization will be able to accomplish in
4. The objectives should be set in realistic terms i.e., the objectives to be set
should be reasonable and capable of attainment.
5. Objectives must be consistent with one and other.
6. Objectives must be set in clear-cut terms.
7. For the successful accomplishment of the objectives, there should be effective
125. Features of Objectives
The objectives must be predetermined or stated in advance and specific.
A clearly defined objective provides the clear direction for managerial effort.
Objectives describe future desired results toward which present efforts are
Objectives should be continually adjusted in light of environmental changes.
Objectives should be challenging but realistic.
Objectives must be measurable.
Objectives must have social sanction.
All objectives are interconnected and mutually supportive.
Objectives may be short-range, medium-range and long-range.
Objectives may be constructed into a hierarchy.
Objectives should have defined time period.
Multiplicity of objectives;
126. Criteria for Effective Goals
1. Specific and measurable; when possible, goals should be expressed in
quantitative terms, such as increasing profits by 2 percent or having zero
incomplete sales order forms.
Not all goals can be expressed in numerical terms, but vague goals have little
motivating power for employees.
By necessity, goals are qualitative as well as quantitative, especially at the top
of the organization. The important point is that the goals be precisely defined
and allow for measurable progress.
2. Cover key result areas; goals cannot be set for every aspect of employee
behavior or organizational performance; if they were, their sheer number would
render them meaningless.
Instead, managers establish goals based on the idea of choice and clarity. A few
carefully chosen, clear, and direct goals can more powerfully focus
organizational attention, energy, and resources.
Managers should identify a few key result areas—perhaps up to four or five for
any organizational department or job.
Key result areas are those activities that contribute most to company
performance and competitiveness. Most companies use a balanced approach to
3. Challenging but realistic; goals should be challenging but not unreasonably
difficult. When goals are unrealistic, they set employees up for failure and lead to
a decrease in employee morale.
127. If it was recognized as an impossible goal to reach, members of the high-
performing team were so discouraged that most of them began looking for
However, if goals are too easy, employees may not feel motivated. Stretch
goals are extremely ambitious but realistic goals that challenge employees
to meet high standards.
The key to effective stretch goals is ensuring that goals are set within the
existing resource base, not beyond departments’ time, equipment, or
4. Defined time period; goals should specify the time period over which they will
A time period is a deadline stating the date on which goal attainment will be
If a strategic goal involves a two- to three-year time horizon, specific dates
for achieving parts of it can be set up.
5. Linked to rewards; the ultimate impact of goals depends on the extent to which
salary increases, promotions, and awards are based on goal achievement.
Employees pay attention to what gets noticed and rewarded in the
organization, and people who attain goals should be rewarded for doing so.
Rewards give meaning and significance to goals and help commit
employees to achieving goals. Managers should also remember that failure
to attain goals often is due to factors outside employees’ control.
128. Management By Objectives (MBO)
Management by objectives (MBO)is a method whereby
managers and employees collaboratively define goals for
every department, project, and person and use them to
monitor subsequent performance.
Specific performance goals are jointly determined by employees and
A process of setting mutually agreed-upon goals and using those
goals to evaluate employee performance.
Rewards are allocated on the basis of progress towards the goals.
Key elements of MBO:
Develop action plans,
Participative decision making, and
Clear performance/evaluation period, feedback
130. MBO Benefits and Problems
Manager and employee efforts are
focused on activities that will lead
to goal attainment.
Performance can be improved at
all company levels.
Employees are motivated.
Departmental and individual goals
are aligned with company goals.
Constant change prevents MBO
from taking hold.
An environment of poor employer-
employee relations reduces MBO
Strategic goals may be displaced
by operational goals.
Mechanistic organizations and
values that discourage
participation can harm the MBO
Too much paperwork saps MBO
131. Classification of Objectives
The classifications are made based on the levels of
decision making authority and time the objectives
1. Hierarchy of Objectives
Strategic Objectives: to improve market share 15-20%
over next three years.
Tactical Objectives: a company may have a tactical
objective of "communicating in writing with clients and
customers via, newsletter once a month.
Operational Objectives: Setting daily, weekly and monthly
sales targets for each product category,
2. Time Frame Objectives
Long-term Objectives: These objectives extend up to 5 and
above 5 years.
Intermediate Objectives :1- 5 years probably 1-3
Short-term Objectives: less than 1
132. Benefits of Objectives
Objectives provide basis for the performance of all managerial
Clear definition of objectives encourages unified planning,
Objectives act as a sound basis for developing administrative
Objectives contribute to the management process: they influence
the purpose of the organization, policies, personnel, leadership as
well as managerial control.
Objectives provide guidelines for action and limit employee
activities meaning when the work is goal-oriented, unproductive
tasks can be avoided.
Objectives provide a unique identity for organizations that
objectives serve to identify the organization and to link it to the
groups upon which its existence depends.
An organization’s objectives can serve as a source of employee
Objectives provide performance standards and bases for control
i.e., objectives provide standards which aid in the control of
human efforts in an organization.
134. UNIT 4: DECISION MAKING
OUTLINE OF THE CHAPTER
3.1. Meaning of decision making
3.2. Rational decision making process
3.3.Types (programmed and non-programmed
The word decision has been derived from the Latin
word "decidere" which means "cutting off".
Thus, decision involves cutting off of
alternatives between those that are desirable
and those that are not desirable.
A few definitions of decision making are given
below. In the words of;
Ray A Killian, "A decision in its simplest form is a selection
Dr. T. G Glover “Decision is a choice of calculated
alternatives based on judgment".
George R. Terry, "Decision-making is the selection based
on some criteria from two or more possible alternatives".
136. Felix M. Lopez, "A decision represents a judgment; a final
resolution of a conflict of needs, means or goals; and a
commitment to action made in face of uncertainty,
complexity and even irrationally".
Rustom S. Davar, "Decision-making may be defined as the
selection based on some criteria of one behavior
alternative from two or more possible alternatives. To
decide means to cut off or in practical content to come to
Fremont A. Shull, Andrew L Delbecq and Larry L Cummings
“decision making is a conscious human process involving
both individual and social phenomenon based upon
factual and value premises which concludes with a choice
of one behavioral activity from among one or more
alternatives with the intention of moving toward some
desired state of affairs".
137. From the above definitions, we can conclude that, Decision
Making involves the process of establishing goals, tasks and
searching for alternatives for a decision problem. And;
Decision is a kind of choice of a desirable alternative. There have to
be options to choose from; if there are not, there is no choice
possible and no decision.
Decision-making is part of every aspect of the manager’s duties,
which include planning, organizing, staffing, leading and
controlling, i.e. decision-making is universal.
Decision-making is a conscious choice among the given
alternatives, followed by action to implement a choice. Decision-
making is defined as a rational choice among alternatives.
Decision making is the process by which managers respond to
opportunities and threats by analyzing options, and making
decisions about goals and courses of action.
Decision making is not easy, b/c it must be done in ever-changing
factors , unclear information, conflicting points of view.
138. Decision-Making Models
The approach managers use to make decisions usually falls into one of
the classical model - considered to be normative, which means it
defines how a decision maker should make decisions. It does not
describe how managers actually make decisions so much as it
provides guidelines on how to reach an ideal outcome for the
the administrative model - considered to be descriptive, meaning
that it describes how managers actually make decisions in complex
situations rather than dictating how they should make decisions
according to a theoretical ideal.
the political model - most organizational decisions involve many
managers who are pursuing different goals, and they have to talk
with one another to share information and reach an agreement.
Managers often engage in coalition building for making complex
A coalition is an informal alliance among managers who support a specific
goal. Coalition building is the process of forming alliances among
139. The choice of model depends on:
the manager’s personal preference,
whether the decision is programmed or non-programmed, and
the extent to which the decision is characterized by risk, uncertainty,
• All of the information the decision maker needs is fully available.
• A decision has clear goals and good information is available, but the
future outcomes associated with each alternative are subject to
Managers know which goals they wish to achieve.
Information about alternatives and future events is incomplete.
Managers may have to come up with creative approaches to alternatives.
Ambiguity is by far the most difficult decision situation. Ambiguity means:
that the goals to be achieved or the problem to be solved is unclear,
alternatives are difficult to define, and
information about outcomes is unavailable.
140. 1. The classical model of decision making:
It is based on economic assumptions;
The model has arisen within the
management literature because:
managers are expected to make decisions
that are economically sensible and
in the organization’s best economic interests.
The value of the classical model has been
its ability to help decision makers be more
141. The four assumptions underlying this model
are as follows:
1. The decision maker operates to accomplish goals that are
known and agreed upon. Problems are precisely formulated
2. The decision maker strives for conditions of certainty, gathering
complete information. All alternatives and the potential results
of each are calculated.
3. Criteria for evaluating alternatives are known. The decision
maker selects the alternative that will maximize the economic
return to the organization.
4. The decision maker is rational and uses logic to assign values,
order preferences, evaluate alternatives, and make the decision
that will maximize the attainment of organizational goals.
142. 2. The administrative model: many management decisions are not
sufficiently programmable to lend themselves to any degree of
quantification. Managers are unable to make economically rational
decisions even if they want to.
Administrative model is a decision-making model that describes how
managers actually make decisions in situations characterized by non-
programmed decisions, uncertainty, and ambiguity.
A. Bounded rationality: means that people have limits, or boundaries, on
how rational they can be. The organization is incredibly complex, and
managers have the time and ability to process only a limited amount
of information with which to make decisions.
B. Satisficing: because managers do not have the time or cognitive ability
to process complete information about complex decisions, they must
Satisficing means that decision makers choose the first solution
alternative that satisfies minimal decision criteria.
Rather than pursuing all alternatives to identify the single solution that
will maximize economic returns, managers will opt for the first solution
that appears to solve the problem, even if better solutions are
presumed to exist.
143. The administrative model relies on assumptions different from
those of the classical model and focuses on organizational
factors that influence individual decisions. It is more realistic
than the classical model for complex, non-programmed decisions.
According to the administrative model:
1. Decision goals often are vague, conflicting, and lack consensus
among managers. Managers often are unaware of problems or
opportunities that exist in the organization.
2. Rational procedures are not always used, and, when they are, they are
confined to a simplistic view of the problem that does not capture the
complexity of real organizational events.
3. Managers’ searches for alternatives are limited because of human,
information, and resource constraints.
4. Most managers settle for a satisficing rather than a maximizing
solution, partly because they have limited information and partly
because they have only vague criteria for what constitutes a
144. The administrative model recognizes the human and
environmental limitations that affect the degree to which
managers can pursue a rational decision-making process.
Another aspect of administrative decision making is
Intuition represents a quick apprehension of a
decision situation based on past experience but
without conscious thought.
Intuitive decision making is not arbitrary or irrational,
because it is based on years of practice and hands-
on experience that enable managers to quickly
identify solutions without going through painstaking
145. 3. Political Model
The third model of decision making is useful for making non-
programmed decisions when conditions are uncertain,
information is limited, and managers may disagree about what
goals to pursue or what course of action to take.
The political model closely resembles the real environment in
which most managers and decision makers operate.
Decisions are complex and involve many people, information
is often ambiguous, and disagreement and conflict over
problems and solutions are normal.
When the outcomes are not predictable, managers gain support
through discussion, negotiation, and bargaining.
Without a coalition, a powerful individual or group could derail the
decision-making process. Coalition building gives several managers
an opportunity to contribute to decision making, enhancing their
commitment to the alternative that is ultimately adopted.
146. The political model begins with four basic assumptions:
1. Organizations are made up of groups with diverse interests, goals, and
values. Managers disagree about problem priorities and may not
understand or share the goals and interests of other managers.
2. Information is ambiguous and incomplete. The attempt to be rational is
limited by the complexity of many problems as well as personal and
3. Managers do not have the time, resources, or mental capacity to
identify all dimensions of the problem and process all relevant
information. Managers talk to each other and exchange viewpoints to
gather information and reduce ambiguity.
4. Managers engage in the push and pull of debate to decide goals and
discuss alternatives. Decisions are the result of bargaining and
discussion among coalition members.
147. Characteristics of Classical, Administrative, and
Political Decision-Making Models
Classical Model Administrative Model Political Model
Clear-cut problem and
Condition of certainty.
Full information about
alternatives and their
Rational choice by
individual for maximizing
Vague problem and goals.
Condition of uncertainty.
Limited information about
alternatives and their
Satisficing choice for
resolving problem using
149. Whether a decision is programmed or non-programmed and
regardless of managers’ choice of the classical, administrative, or
political model of decision making, six steps typically are
associated with effective decision processes.
1. Recognition of Decision Requirement
Managers confront a decision requirement in the form of either a
problem or an opportunity.
A problem occurs when organizational accomplishment is less
than established goals. Some aspect of performance is
An opportunity exists when managers see potential
accomplishment that exceeds specified current goals. Managers
see the possibility of enhancing performance beyond current
Awareness of a problem or opportunity is the first step in the
decision sequence and requires surveillance of the internal and
external environment for issues that merit executive attention.
This process resembles the military concept of gathering
150. Managers scan the world around them to determine whether the
organization is satisfactorily progressing toward its goals. Some
information comes from periodic financial reports, performance reports,
and other sources that are designed to discover problems before they
become too serious.
Diagnosis is the step in the decision-making process in which managers
analyze underlying causal factors associated with the decision situation.
2. Development of Alternatives
Once the problem or opportunity has been recognized and analyzed,
decision makers begin to consider taking action. The next stage is to
generate possible alternative solutions that will respond to the needs of
the situation and correct the underlying causes. Studies find that limiting
the search for alternatives is a primary cause of decision failure in
For a programmed decision, feasible alternatives are easy to identify and
in fact usually are already available within the organization’s rules and
procedures. Non-programmed decisions, however, require developing new
courses of action that will meet the company’s needs.
151. For decisions made under conditions of high
uncertainty, managers may develop only one or two
custom solutions that will satisfice for handling the
Decision alternatives can be thought of as the tools for
reducing the difference between the organization’s
current and desired performance.
For example, to improve sales at fast-food giant
McDonald’s, executives considered alternatives such
using mystery shoppers,
unannounced inspections to improve quality and service,
motivating demoralized franchisees to get them to invest in new
equipment and programs,
taking R&D out of the test kitchen and encouraging franchisees to help
come up with successful new menu items, and
closing some stores to avoid cannibalizing its own sales.
152. 3. Evaluating Alternatives
Once managers have developed a set of alternatives, they
must evaluate them to see how effective each would be.
Each alternative must be judged in light of the goals and
resources of the organization and how well the alternative
will help solve the problem
Is it legal? Managers must first be sure that an alternative
is legal both in this country and abroad for exports.
Is it ethical? The alternative must be ethical and not hurt
Is it economically feasible? Can our organization’s
performance goals sustain this alternative?
Is it practical? Does the management have the capabilities
and resources to do it?
154. 4 . Selection of Desired Alternative
Once feasible alternatives are developed, one must be
selected. The decision choice is the selection of the most
promising of several alternative courses of action.
The best alternative is one in which the solution best fits
the overall goals and values of the organization and
achieves the desired results using the fewest resources.
The manager tries to select the choice with the least
amount of risk and uncertainty. Because some risk is
inherent for most non-programmed decisions, managers
try to gauge prospects for success.
Under conditions of uncertainty, they might rely on their
intuition and experience to estimate whether a given
course of action is likely to succeed.
Basing choices on overall goals and values can also
effectively guide selection of alternatives.
155. Choosing among alternatives also depends on managers’ personality
factors and willingness to accept risk and uncertainty. For example, risk
propensity is the willingness to undertake risk with the opportunity of
gaining an increased payoff. The level of risk a manager is willing to
accept will influence the analysis of cost and benefits to be derived from
5. Implementation of Chosen Alternative
The implementation stage involves the use of managerial,
administrative, and persuasive abilities to ensure that the chosen
alternative is carried out. This step is similar to the idea of strategic
implementation described in Chapter 8. The ultimate success of the
chosen alternative depends on whether it can be translated into action.
Sometimes an alternative never becomes reality because managers
lack the resources or energy needed to make things happen.
Implementation may require discussion with people affected by the
decision. Communication, motivation, and leadership skills must be
used to see that the decision is carried out. When employees see that
managers follow up on their decisions by tracking implementation
success, they are more committed to positive action
156. 6. Evaluation and Feedback
In the evaluation stage of the decision process, decision makers gather
information that tells them how well the decision was implemented and
whether it was effective in achieving its goals.
Feedback is important because decision making is a continuous, never-
ending process. Decision making is not completed when an executive or
board of directors votes yes or no.
Feedback provides decision makers with information that can precipitate a
new decision cycle. The decision may fail, thus generating a new analysis
of the problem, evaluation of alternatives, and selection of a new
Many big problems are solved by trying several alternatives in sequence,
each providing modest improvement. Feedback is the part of monitoring
that assesses whether a new decision needs to be made.
To illustrate the overall decision-making process, including evaluation and
feedback, we can look at the decision to introduce a new deodorant at
Tom’s of Maine.
157. Decision Making Steps
Recognize need for
Frame the problem
Generate & assess
Choose among alternatives
Learn from feedback
158. Characteristics of Decision Making
Decision making implies that there are various
alternatives and the most desirable alternative is
chosen to solve the problem or to arrive at expected
1. Decision making is rational. It is taken only after a thorough
analysis and reasoning and weighing the consequences of
the various alternatives
2. Decision-making may not be completely rational but may be
judgmental and emotional.
3. Decision-making is goal-oriented.
4. Decision-making is a mental or intellectual process because
the final decision is made by the decision-maker.
5. A decision may be expressed in words or may be implied
6. Choosing from among the alternative courses of operation
implies uncertainty about the final result of each possible
course of operation.
7. The decision-maker has freedom to choose an alternative.
159. Types of Decisions
Herbert Simon has grouped organizational decisions into two categories
based on the procedures followed. They are:
Programmed decisions: programmed decisions are routine and
repetitive and are made within the framework of organizational policies
These policies and rules are established well in advance to solve
recurring problems in the organization.
Programmed decisions have short-run impact. They are,
generally, taken at the lower level of management.
Managers have made similar decision many times before.
Example: Deciding to reorder office supplies.
Non-Programmed Decisions: non-programmed decisions are decisions
taken to meet non-repetitive problems.
Non-programmed decisions are relevant for solving unique/unusual
problems in which various alternatives cannot be decided in advance.
A common feature of non-programmed decisions is that they are novel and
non-recurring and therefore, readymade solutions are not available.
Since these decisions are of high importance and have long-term
consequences, they are made by top level management.
No rules to follow since the decision is new. These decisions are made
based on information, and a manger’s intuition, and judgment.
Example: Should the firm invest in a new technology?
160. Strategic and Tactical Decisions:
Organizational decisions may also be classified as strategic
Strategic Decisions: basic decisions or strategic
decisions are decisions which are of crucial importance.
Strategic decisions a major choice of actions concerning
allocation of resources and contribution to the achievement of
organizational objectives. Decisions like:
entering into new markets,
selection of channels of distribution,
capital expenditure etc are examples of basic or strategic
Tactical Decisions: routine decisions or tactical
decisions are decisions which are routine and repetitive.
They are derived out of strategic decisions.
161. The various features of a tactical decision are
Tactical decision relates to day-to-day operation of
the organization and has to be taken very frequently.
Tactical decision is mostly a programmed one.
Therefore, the decision can be made within the
context of these variables.
The outcome of tactical decision is of short-term
nature and affects a narrow part of the organization.
The authority for making tactical decisions can be
delegated to lower level managers because:
the impact of tactical decision is narrow and of short-term
by delegating authority for such decisions to lower-level
managers, higher level managers are free to devote more
time on strategic decisions.
162. Characteristics of Effective Decisions
An effective decision is one which should contain
three aspects. These aspects are given below:
1. Action Orientation: Decisions are action-oriented
and are directed towards relevant and controllable
aspects of the environment. Decisions should
ultimately find their utility in implementation.
2. Goal Direction: Decision making should be goal-
directed to enable the organization to meet its
3 Effective in Implementation: Decision making
should take into account all the possible factors not
only in terms of external context but also in internal
context so that a decision can be implemented
163. Why Do Managers Make Poor Decisions?
All managers recognize the importance of making sound
Yet most managers readily admit having made poor decisions
that hurt their company or their own effectiveness.
So why do managers make mistakes? Making the wrong
decision can result from any one of these decision-making
1. Lack of adequate time: Waiting until the last minute to make a
decision often prevents considering all alternatives. It also
hampers thorough analyses of the alternatives
2. Failure to define goals: Objectives cannot be attained unless
they are clearly defined. They should be explicitly stated so that
the manager can see the relationship between a decision and a
3. Using unreliable sources of information: A decision is only
as good as the information on which it is based. Poor sources of
information always result in poor decisions.