| Managerial decision-making is the process of selecting a particular course of action from among a number of alternatives. Since the factors of production are limited and can be put to alternative uses. The objective of a firm is to achieve optimal result from use of available resources. If there were no alternatives, there would be no scarcity, and no choice as well as no decisions, so that the problem of choice arises. |
The choice is the most important role of management. Hence, best choice should be made whether the knowledge of future prospect, decision could be made and plans could be formulated without errors. However in many cases, there may not complete knowledge. New decisions have to be made and old plans may have to be repeated as new courses of action are adopted in order to obtain desired objectives. The following factors influence the managerial decision-making.
1. Objectives of a firm
Efficient or optimal decision-making requires a goal or objective to be established. That is, a management decision can only be evaluated against the goal that the firm is attempting to achieve. Traditionally, economists have assumed the objective of the firm is to maximize profit. That is, it is assumed that managers consistently make decisions in order to maximize profit. That should be clear either in current year or in next year.
2. Economic factors
According to traditional concept, a firm tries to maximize its profit. Many economists have challenged this concept; the firm may have other objectives such as sales maximization. Although it cannot be cleared that the preference for profitability is high. So that manager should consider if the set course of action is profitable or not, can be done with least cost or not. Demand forecasting, pricing condition, cost estimation will have to make for the purpose. It must consider the size of and direction of future changes in prices, demand, general level of economic activity, possible strikes, changes in fission, which affects the demand on the one side and on the supply side. Cost of machine, cost of borrowing, cost of renting space to store would be studied.
3. Technological Factors
There is significant role of technology in decision making in the economic theory. Technology also influences the business decisions. The manager must consider the factor such as assessment and emerging new technological alternatives, the technological moves of competitors and emerging new technological process in their planning and available resource allocation. The technological alternatives suitable to the situation should be taken as good for short run marketing or production decision. But the consideration of technological factor cannot be a basis for business decision with reaching at final decision, economic factor should also be considered well.
The economic consideration is important in decision-making. Although managers may not always give top most priority to economic consideration. It should be taken into account the factors such as the impact of decision on employee’s morale (determination) as in case of cutting of extra benefits of motivation. The small entrepreneurs may not be agreed to expand or diversify despite green signals ahead because they feel that expansion may strain their quiet life or may threaten their control over management. Manager must always consider constrain imposed upon him by forces at work within his own firm such as individual and collective interests and pressures within the firm. Hence, the manager should base his final decision on both economic, logic as well as human and personal thinking.
5. Environmental factors
The firm’s managers should be fully aware of the economic, social and political conditions curtailing the country while making business decisions. The environment existing in and out of the firm should be considered. The political and social consequences as to decision can’t be overlooked. The importance of environmental factors is growing each day due to the following causes.
The managers cannot ignore the environment within which they operate. They must understand and adjust to the external factors, such as government intervention in business, taxation, business cycle fluctuation etc. Modern business has to keep itself well informed of changes in its environment and adjust its decisions accordingly from time to time.
- Public awareness: The awareness of the impact of firm’s decision on society is growing. Many pressure groups like political parties, consumer’s forum, trade unions and other exist these days. The pressure groups watch secondly the nature and consequences of a decision whether decisions are harmful to their interest and they will protest the decision.
- Social costs: The decision of firm has social through their productive activities like pollution, congestion, development of slums and others. Hence, the manager may have to take into account the environmental factors while making decisions. It should be considered carefully while making decisions of all the factors. But economic factors still play a dominant role in decision making because the firms are commercial in nature.
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