The Decision-Making Process

A decision is a choice made from two or more alternatives. The decision-making process is
defined as a set of different steps that begins with identifying a problem and decision criteria and
allocating weights to those criteria; moves to developing, analyzing, and selecting an alternative
that can resolve the problem; implements the alternative; and concludes with evaluating the
decisions effectiveness.
The nature of managerial decision making:

Decision making is the process through which managers identify organizational problems and
attempt to resolve them. Decision makers face three types of problems.
1. A crisis problem is a serious difficulty requiring immediate action.
2. A non-crisis problem is an issue that requires resolution, but does not simultaneously have the
importance and immediacy characteristics of crises.
3. An opportunity problem is a situation that offers a strong potential for significant
organizational gain if appropriate actions are taken. Opportunities involve ideas that could be
sued, rather than difficulties that must be resolved. Non-innovative managers tend to focus on
problems rather than upon opportunities.

Steps in an Effective Decision-Making Process

a) The first step is to identify the organizational problem, i.e., discrepancies between a
current state or condition and what is desired.
i.
The scanning state involves monitoring the work situation for changing
ii.

circumstances that may signal the emergence of a problem.

The categorization stage entails attempting to understand and verify signs that

iii.

there is some type of discrepancy between a current state and what is desired.
The diagnosis stage involves gathering additional information and specifying both
the nature and the causes of the problem.

b) The generation of alternative solutions step is facilitated by using the four principles
associated with brainstorming. Dont criticize ideas while generating possible solutions.
Freewheel, i.e., offer even seemingly wild and outrageous ideas in an effort to trigger more
usable ideas from others. Offer as many ideas as possible to increase the probability of coming
up with an effective solution. Combine and improve on ideas that have been offered.
c) The choice of an alternative step comes only after the alternatives are evaluated
systematically according to six general criteria:
. Feasibility is the extent to which an alternative can be accomplished within related
organizational constraints, such as time, budgets, technology, and policies.
2. Quality is the extent to which an alternative effectively solves the problem under
consideration.
3. Acceptability is the degree to which the decision makers and others who will be affected by
the implementation of the alternative are willing to support it.
4. Costs are the resource levels required and the extent to which the alternative is likely to have
undesirable side effects.
5. Reversibility is the extent to which the alternative can be reversed, if at all.
6. The ethics criterion refers to the extent to which an alternative is compatible with the social
responsibilities of the organization and with ethical standards.
Finally, the implementing and monitoring the chosen solution step must be planned to avoid
failure of the entire effort.

Implementation requires careful planning. The amount of planning depends upon whether
the projected changes are minor or major. Irreversible changes require a great deal of

planning.
Implementation requires sensitivity to those involved in or affected by the
implementation. Affected individuals are more likely to support a decision when they are

able to participate in its implementation. If Participation is not feasible, individuals

should be kept informed of the changes.

Monitoring is necessary to ensure that things are progressing as planned and that the
problem that triggered the planning process has been resolved.

Models of decision making can be either descriptive or normative.

1. Descriptive decision-making models attempt to prescribe how managers actually do make

decisions.
2. Normative decision-making models attempt to prescribe how managers should process.
Following the prescription should lead to a more effective decision-making process.
Models of Decision Making:
Rational Model:
According to the rational model of decision making, managers engage in completely rational
decision processes, ultimately make optimal decisions, and possess and understand all
information relevant to their decisions at the time they make them (including all possible
alternatives and all potential outcomes and ramifications).

Rational Model Step by Step:

Defining Problem by gathering relevant information:
Step 1 is identifying a problem. A problem is defined as a discrepancy between an existing and a
desired state of affairs. Some cautions about problem identification include the following:
1. Make sure its a problem and not just a symptom of a problem.
2. Problem identification is subjective.
3. Before a problem can be determined, a manager must be aware of any discrepancies.

4. Discrepancies can be found by comparing current results with some standard.

5. Pressure must be exerted on the manager to correct the discrepancy.
6. Managers arent likely to characterize some discrepancy as a problem if they perceive that
they dont have the authority, money, information, or other resources needed to act on it.
Step 2 is identifying the decision criteria. Decision criteria are criteria that define what is
relevant and important in making a decision.
Step 3 is allocating weights to the criteria. The criteria identified in Step 2 of the decisionmaking process arent all equally important, so the decision maker must weight the items in
order to give them correct priority in the decision.
Step 4 involves developing alternatives. The decision maker now needs to identify viable
alternatives for resolving the problem.
Step 5 is analyzing alternatives. Each of the alternatives must now be critically analyzed. Each
alternative is evaluated by appraising it against the criteria.
Step 6 involves selecting an alternative. The act of selecting the best alternative from among
those identified and assessed is critical. If criteria weights have been used, the decision maker
simply selects the alternative with the highest score from Step 5.
Step 7 is choosing a course of action and implementing the alternative. The chosen alternative
must be implemented. Implementation is conveying a decision to those affected by it and getting
their commitment to it.
Step 8 involves evaluating the decision effectiveness. This last step in the decision-making
process assesses the result of the decision to see whether or not the problem has been resolved.
The rational model is flawed in that it does not apply to actual decision aiming for two reasons.
a. Perfect information is not available.
b. Managers values and personality factors enter into their decisions.

The rational model presents an ideal against which actual decision-making patterns can be
measured
NON RATIONAL DECISION MAKING
Non Rational Model:
The non-rational models of managerial decision making suggests that information-gathering and
processing limitations make it difficult for managers to make optimal decisions. May take the
following forms:
1. The Satisficing Model, developed in the 1950s by Nobel Prize winner economist Herbert
Simon, holds that managers seek alternatives only until they find one that looks satisfactory,
rather than seeking the optimal decision.
Bounded rationality means that the ability of managers to be perfectly rational in making
decisions is limited by such factors as cognitive capacity and time constraints. Actual decision
making is not perfectly rational because of
1) Inadequate information
2) Time and cost factors
3) The decision makers own misperceptions or prejudices
4) Limited human memory
5) Limited human data-processing abilities.
Satisficing can be appropriate when the cost of delaying a decision or searching for a better
alternative outweighs the likely payoff from such a course.
2. The Incremental Model holds that managers make the smallest response possible that will
reduce the problem to at least a tolerable level. Managers can make decisions without processing
a great deal of information. Incremental strategies are usually more effective in the short run than
in the long run.

3. The Garbage-Can Model of decision making holds that managers behave in virtually a
random pattern in making non-programmed decisions. Factors that determine decisions include
the particular individuals involved in the decisions, their interests and favorite solutions to
problems, as well as any opportunities they stumble upon. The garbage-can approach is often
used in the absence of solid strategic management and can lead to severe problems.
Financial management
Financial Management can be defined as: The management of the finances of an organization in
order to achieve financial objectives
Financial Forecasting describes the process by which organizations think about and prepare for
the future.
A budget, according to Ozigi (1977), is the expected total revenue and expenditure for each year
based on estimates of the income accruing to the unit in an organization. It is a formal written
statement of managements plan for the future, expressed in financial terms.
The library's budget determines the services that will be offered and the resources devoted to
each program. A carefully planned budget will ensure that funds are utilized to fulfill library
objectives. The budget development process involves looking at the library's long-range plan
which should itemize service needs and the library activities necessary to meet those needs. A
determination of the total cost of what the library wants to accomplish should be evaluated for
the coming year
Budgets can fulfil one or more of the following functions:
To present a statement of estimated revenues and expenditures for a given period
To serve as a plan for the effective coordination of resources and expenditure
To present details regarding the services that is to be given at a future
To serve as a basic financial control mechanism
To serve as a device for evaluating results
To serve as a tool for the financial management
To form the basis for the formation of future policy
Different budgeting methodologies allow the budget to perform these roles in different ways and
to differing extents.

Factors to be considered in Budgeting

The types of library

The size of library
The types of users and numbers of users
Document collection
Programs and performance of different sections of library.

A. Incremental budgeting This is a system of budgeting where the budget of the current
year depends on the previous years estimates. The previous years budget for a
department or division is carried forward for the next annual budget. It is adjusted for
known factors such as new legislative requirements, additional resources, service
developments, anticipated price and wage inflation and so on. It is known as incremental

budgeting because the process is mainly concerned with the incremental (or marginal)
adjustments to the current budgeted allowance.
Advantages of incremental budgeting
easily understood (as it is retrospective), makes marginal changes and secures agreement
through negotiation;
administratively straightforward (and therefore cheap);
allows policy makers to concentrate of the key areas of change. Ministers, elected
representatives and senior officials are not required to study long and detailed budgetary
documents;
particularly useful where outputs are difficult to define/quantify; and,
stable and, therefore, changes are gradual.
Disadvantages of incremental budgeting
backward looking focus more on previous budget than future operational requirements
and objectives;
does not allow for overall performance overview;
does not help managers identify budgetary slack;
often underpinned by data or service provision which is no longer relevant or is
inconsistent with new priorities;
encourages systemic inertia and empire building;
tends to be reactive rather than proactive; and,
assumes existing budget lines are relevant and satisfactory.

B. Zero-base budgeting (ZBB) is a budgeting process that asks managers to build a budget
from the ground up, starting from zero. Zero-based budgeting unlike the incremental
approach starts from the basis that no budget lines should be carried forward from one
period to the next simply because they occurred previously. Instead, everything that is
included in the budget must be considered and justified.
Advantages of zero-based budgeting

allows questioning of the inherited position and challenge to the status quo;
focuses the budget closely on objectives and outcomes;
actively involves operational managers rather than handing them down a budget from
above;
can be adaptive to changes in circumstances and priorities; and,
can lead to better resource allocation.

Disadvantages of zero-based budgeting

more time consuming than incremental budgeting (i.e. it may become overly bureaucratic
and produce excessive paperwork);
need for specialized skills/training;
difficulties can arise in the identification of suitable performance measures and
decision/prioritization criteria (if there is insufficient information in some areas ranking
them could also be problematic);
the specification of a minimum level of service provision (if below the current level) may
demotivate managers;
questioning of the inherited position can be seen as threatening to organizations and their
people (so careful management of the people element is essential); and,
may be difficult to cost and estimate resource requirements for options different from the
current practice (giving rise to greater uncertainty).

Performance budgeting. Performance budgets are similar to program budgets, but here
the emphasis is on costing out functions. How much should it cost to process a book ...
from ordering the title to putting it on the shelf? All fixed costs are added in. Emphasis is
on quantity not quality.
inputs (measured in monetary terms);
outputs (units of output);
efficiency/productivity data (cost per activity);
Effectiveness information (level of goal achievement).
The benefits of performance budgeting are that it
provides information to managers on the activities of a given unit
enables managers to assess the efficiency of a given department/agency or
office/branch over different years
enables managers to compare the efficiency of different bureaucratic units and
apportion funding accordingly.
The main weaknesses of performance budgeting are that
efficiency ratings are rudimentary because they measure bureaucratic activity
quantitatively rather than qualitatively
not all bureaucratic activities are easily quantifiable.

C. Planning Programming budgeting system. PPBS is a form of planning a combination of

program budgeting and performance budgeting. First, goals and measurable objectives
are established. Then develop costs of achieving each of the objectives including alternate
ways to achieve the objectives with cost benefit rations presented for each.
PPBS have three parts: a systematic process of long-range planning, the creation of programs to
meet the goals of the plan, and a budget that supports these plans and programs. For this system
one must not only determine the costs and benefits of the various program options, but also their
comparative importance. Consequently, those who make the budget must be in agreement on the
institutions priorities.
The steps in PPBS are:
Identifying the objectives of the library.
Presenting alternatives ways to achieve those objectives with cost benefit ratios
presented for each.
Identifying the activities that are necessary for each program.
Evaluating the result so that correctives actions can be taken.
Advantages of PPBS
This method combines the functions of planning activities, programmes and services, translating
them into tangible projects and finally presents the requirements in budgetary terms.
Disadvantages of PPBS
Great disparities do exist in practice and lack of standards for measuring programme
effectiveness/performance are the difficulties of implementing PPBS. It also suffers from other
implementation problems and some critical gaps like (i) focusing on what will be done rather
than how to do it, (ii) failing to provide an operating tool, (iii) lack of a mechanism to evaluate
the impact of various funding levels, (iv) focuses on new programmes or major increases on
ongoing programmes rather than forcing continuous evaluation of existing programmes, and (v)
cost calculation is based on the decisions made in the planning and programming steps."
D. Line budgeting. It is an old technique of budgeting, which lists items in a budget
document on a purely object basis. It shows cost by type of output but does not indicate
the costs on a programme-by-programme or project-by-project basis. It is important to
note that line-item budget has very little informative value.

Advantages of line item budgets

Easy to Make
From a technical standpoint, it's easy to create a line-item budget. With a piece of lined paper and
a pencil, you can list all expenses, giving each item its own line and specific dollar amount. This
is why many organizations, especially very small businesses, choose line-item budgeting. It is
straightforward and does not require linking budgeting to advanced accounting, such as activitybased costing, or management practices, such as performance-based budgeting.
Micro-Level Expense Control
Line-item budgets offer advantages for managers seeking to control expenses at the operational
level. For example, the executive in a human resources department might want to trim expenses
on applicant drug testing. So he can give employees in HR a reduced line item for testing for the
next year to reinforce a new policy that only an applicant who has accepted a job offer and
agreed to a start date can take a drug test at the employer's expense.
Flexible Control
Line-item budgeting can give a large organization flexible use of budgetary control, giving
flexibility to some programs and not others based on defined criteria. For example, if line items
are broad in scope, such as facility operations, salaries and benefits, and administrative costs, an
administrator could write her own line items under each broad item. A school principal could use
a broad line item for salaries to choose the number of teachers, professional staff and support
staff to hire each school year according to the school's needs as long as this staffing plan fits the
total salary funding level and applicable laws.
Reliance of Past Data
Line-item budgeting is easy to model after past budgets and other historical data. When writing a
line-item budget, the budget maker can consider whether program sites, business activities and
departments should receive the same level of funding as the previous year or an increase or
decrease by line item. Historical data might include sample budgets from other organizations.
For example, the principal of a new elementary school could begin with the budget of another
elementary school in the same district with the same enrollment and curriculum offerings.

Disadvantages of line budgets

 line-item budgets say nothing about how much service a human service agency provides,
the cost of that service, the number of outcomes the agency accomplished, or their
attendant costs
resource allocation discussions and decisions tend to be framed by the line-items
themselves because no other information is available.