Decision Making Techniques in Organisation.

 Q. What is Decision Making? Throw light on various techniques used for making decisions in organisations these days.

Ans. MEANING OF DECISION-MAKING: Decision-making is an important function of every manager. When a manager chooses the best alternative out of many available ones, it is called decision and the process that has been adopted in order to reach the final decision is known as the decision-making. In other words, Decision-making is a process and decision is the outcome of such a process. 

Decision-making means analysing different alternatives and arriving at decision in the face of a particular situation about what to do and what not to do. In this way, decision-making means reaching a conclusion or final decision which can be implemented as a solution of a problem. 

According to Koontz and O’Donnel, “Decision-making is the actual selection from among alternatives of a course of action.”

According to George R. Terry, “Decision-making is the selection based on some criteria from two or more possible alternatives.”

According to Louis A. Allen, “Decision-making is the work which a manager performs to arrive at conclusion and judgement.”

Thus, decision-making involves the selection of the best available alternative as a solution of some problem. It is thus clear that a decision is needed when there are many alternatives to do a work. In other words, if there is only one method of doing a work there is no need to take a decision and in that case that method in itself is a decision. 

Decision-making Techniques: Following are the major techniques of decision-making:

1. Judgement Technique: This is the most ancient and simple technique of decision-making. According to this technique, the decisions are taken on the basis of past and present experience. This technique is the most useful for day-to-day small decisions but the use of this technique for taking important decisions is not free from risks.

2. Statistical Techniques: These days statistical technique is used as an important tool in taking important decisions. The various statistical techniques used in taking decisions are the following:

(i) Theory of Probability, 

(ii) Sampling Analysis,

(iii) Correlation/Regression,

(iv) Time Series Analysis,

(v) Ratio Analysis,

(vi) Variance Analysis,

(vii) Statistical Quality Control, etc. 

3. Operation Research Techniques: Apart from statistical techniques there are other modern techniques which are called Operations Research Techniques. They are used in very important decisions. Following are the Chief Operations Research Techniques:

(i) Linear Programming,

(ii) Game Theory,

(iii) Network Analysis,

(iv) Break-even Analysis,

(v) Waiting Line or Queuing Theory,

(vi) Cost-Benefit Analysis, etc.

4. Model Building Technique: This technique is employed in manufacturing concerns. Under this technique a model of an intended product is prepared and then it is estimated whether the product is according to the taste of the customers or not. Many models of a particular product are prepared and then the decision to produce a particular model which the approval of the taste of the customers is taken.

5. Behavioural Technique: The science of behaviour has also developed many techniques of decision-making. With the help of these techniques factors affecting a particular decision are evaluated. Group decisions are an important contribution of this science.

6. Principles of Management Technique: This technique lays down that while taking decision the principles of management should be kept in mind. In reality it can be observed that the principles of management are not a technique of decision-making, but prepare only an atmosphere for decision-making process.

7. Intuition Technique: Taking decision under this technique employs one’s intuitive feelings and knowledge. The decision maker thinks about a problem and his mind suggests the solution. Decisions by this technique are quick. The correctness of the decision depends on the experience, education, training, etc., of the decision-maker.

SWOT Analysis: Components, useful/uses in budiness

 Q. What is SWOT analysis ? What are its main components ? How is it useful in business?

Ans. Meaning of SWOT analysis: SWOT analysis is an analysis undertaken by business firms to understand their external and internal environment. The term SWOT consists of four words :

S — Strengths

W — Weaknesses 

O — Opportunities 

T — Threats

It is also known as WOTS–UP analysis. SWOT analysis is applied to formulate effective organisational strategies. The business firms can match through SWOT analysis, the strengths (S) and weaknesses (W) existing within an organisation with the opportunities (O) and threats (T) operating in the environment. An effective organisational strategy according to SWOT analysis is that strategy which capitalizes on the opportunities through the use of its strengths and neutralizes the threats by minimizing the impact of weaknesses. Thus, SWOT analysis enables a business firm to use its strengths to exploit the opportunities provided by the environment. On the other hand, threats of environment are neutralized by reducing its weaknesses to the minimum level. 

Components of SWOT Analysis: The SWOT analysis consists of following components:

1. Environment: The term business environment means the aggregate of all conditions, events and influences that surround and affect the business organisation. It may be of two types:

(a) External Environment: The external environment of a business firm is that environment which includes all the factors outside the organisation. These factors provide opportunities or pose (present or constitute (make) threats to the organisation. Thus, external environment provides opportunities as well as threats. 

(b) Internal Environment: Internal environment is that environment which includes all the factors within an organisation. These factors impart strengths or cause weaknesses of a strategic nature. 

In short, the environment in which an organisation exists can be described (i) in terms of opportunities and threats operating in the external environment and (ii) in terms of strengths and weaknesses existing in the internal environment. 

2. Strengths (S): The strength of a business organisation refers to an inherent capacity by which an organisation can gain important advantages over its competitors. For example, superior research facilities and presence of developmental skills are the strengths of a business organisation. These can be used as development of new products, enabling the business organisation to have competitive advantages over its competitors.

3. Weaknesses (W): The weakness of a firm refers to an inherent limitation of a business firm. It results in significant disadvantages for a firm in comparison to its competitors. For example, over-dependence of a firm on a single product line is its weakness. It can result in losses in times of crisis.

4. Opportunities (O): The availability of opportunity is a favourable condition in the organisation’s environment. It enables it to consolidate and strengthen its position in comparison to its competitors. For example, an increasing demand for the product, produced by the business organisation is an indication of an opportunity. 

5. Threats (T): The presence of a threat is an unfavorable condition in the environment of a business organisation. It causes damages to and creates a risk for the organisation. For example, the emergence of strong new competitors is a threat to the business organisations because of the possibility of a stiff competition. 

Uses of SWOT Analysis: Following are the uses of SWOT analysis: 

1. It helps to determine the strategy of the business.

2. It is used in the initial stage of decision-making.

3. Use of external and internal factors of this analysis, help in visualising a complete picture about the future of the business. 

4. It also helps in facing the competition successfully.

5. SWOT analysis is helpful in minimising the weaknesses and maximising the strengths of the business. 

We can conclude that SWOT analysis is a systematic approach to understand the environment and formulate strategic policies.

Define Accounting. Advantages and disadvantages.

 Q. Define Accounting. Explain its advantages and disadvantages.

Ans. MEANING OF ACCOUNTING: Accounting is the art of recording, classifying, summarising and communicating financial information to users for correct decision making. It gives information on:

(i) resources available

(ii) how the available resources have been employed

(iii) the results achieved by their use.

Since accounting is a medium of communication, it is called The language of business. 

DEFINITION OF ACCOUNTING: According to American Institute of Certified Public Accountants (A.I.C.P.A.), “Accounting is the art of recording, classifying and summarising in a significant manner and in terms of money, transactions and events which are, in part atleast, of a financial character, and interpreting the results thereof.”

ADVANTAGES OF ACCOUNTING: Accounting offers the following advantages:

i) Useful in Management of Business: Management needs a lot of information for the efficient running of the business. All such information is provided by the accounting which helps the management in planning, decision making and controlling. For example management would like to know whether the sales are increasing or decreasing and also the speed of increase in the cost of production. All such information is provided by the accounting, which helps the management in estimating the future sales and expenses. 

ii) Provides Complete and Systematic Record: Business transactions have grown in size and complexity and it is not possible to remember each and every transaction. Accounting keeps a prompt and systematic record of all the transactions and summarizes them in order to provide a true picture of the activities of the business entity.

iii) Information Regarding Profit or Loss: Accounting reports the net result of business activities of an accounting period. The Profit & Loss Account prepared at the end of each accounting period discloses the net profit earned or loss suffered during that period. The information regarding profit is of great use to the owners and various other interested parties.

iv) Information Regarding Financial Position: Accounting reports the financial position of the business by preparing a Balance Sheet at the end of each accounting period.

v) Evidence in Legal matters: Properly maintained accounts, supported by authenticated documents are accepted by the courts as a firm evidence.

vi) Facilitates Comparative Study: By keeping a systematic record, accounting helps the owners to compare one year's costs, expenses, sales and profit etc. with those of other years. Such a comparison provides the useful informations on the basis of which important decisions can be taken more judiciously.

vii) Facilitates in Assessment of Tax Liability: Properly maintained records will be of great help when the firm is assessed to income tax or sales tax. Such records when audited are trusted by the taxation authorities.

viii) Facilitates Sale of Business: If a business entity is being sold, the accounting information can be utilised to determine the proper purchase price.

ix) Helpful in Raising Loans: Accounting information is of great help while raising loans from banks or other financial institutions. Such institutions before sanctioning loan screen various financial statements of the firm such as final accounts, fund flow statement, cash flow statement etc.

x) Helpful in Prevention and Detection of Errors and Frauds.  

DISADVANTAGES OF ACCOUNTING: Accounting provides valuable information. However, it has certain limitations which must be kept in mind while using such information. These limitations are as follows:

i) Omission of Qualitative Informations: Accounts contain only those informations which can be expressed in terms of money. Qualitative aspects of business units are completely omitted from the books as these cannot be expressed in monetary terms. Thus, changes in management, reputation of the business, cordial management-labour relations, firm’s ability to develop new products, efficiency of the management, satisfaction of fim’s customers etc. which have a vital bearing on the profitability of the firm are all ignored and omitted from being recorded because all of these are qualitative in nature.

ii) Based on Historical Costs: Accounts are prepared on the basis of historical costs (i.e., the original costs) and as such the figures given in financial statements do not show the effect of changes in price level. The assets remain undervalued in many cases particularly land and building. The outcome this practice is that balance sheet values of assets are not helpful in estimating the true financial position of the business.

iii) Influenced by Personal Judgements: Accounting is as yet an exact science and accountant has to exercise his personal judgement in respect of various items. For example, it is extremely difficult to predict with any degree of accuracy the actual useful life of an asset which is needed for calculating depreciation. The same is true about method of valuation of stock and making provision for doubtful debts. Different persons are bound to have different opinions in respect of such things and hence it will result in ascertainment of different figure of profit or loss of a business by different persons. Hence the figure of profit cannot be taken as an exact figure.

iv) Based on Accounting Concepts and Conventions: Accounts are prepared on the basis of a number of accounting concepts and conventions. Hence, the profitability and the financial position disclosed by it may not be realistic. For example, fixed assets are shown in the balance sheet according to the ‘going concern concept’. This means that the fixed assets are shown at their cost and not at their market value. The values realised on their sale may be more or less than the values stated in the balance sheet.

v) Incomplete Information: Accounting statements provide only the incomplete information because the actual profit or loss of a business can be known only when the business is closed down. 

vi) Affected by Window Dressing: Window dressing refers to the practice of manipulating accounts, so that the financial statements may disclose a more favourable position than the actual position. For example, the purchases made at the end of the year may not be recorded or the closing stock may be over-valued. Hence, correct decisions cannot be taken on the basis of such financial statements.

vii) Unsuitable for Forecasting: Financial Accounts are only a record of past events. Continuous changes take place in the demand of the product, policies adopted by the firm, the position of the competition etc. As such, the financial analysis based on past events may not be of much use of forecasting.