5 Steps in Decision Making

5 Steps in Decision Making

5 Steps in Decision MakingDecision making process can be divided into many steps and processes but there are mainly five steps that are common or which include other steps.

  1. Step one includes obtaining information. This can be done while reviewing the past, present and expected future information. Each and every little detail is important and relevant in decision making that can have a financial affect on the business.
  2. In step two, careful predictions are made regarding the future usefulness of the decision or alternative while considering all the information obtained from the previous steps.
  3. In step three, the management takes a decision of choosing the best possible alternative among all other alternative which is presenting a more profitable opportunity. This step is taken on the basis of all the relevant information obtained from the previous steps.
  4. In step four, the management implements the decision, this step is very crucial as implementation phase requires careful attitude and commitment to the every little detail by all the departments of the organization, as implementation of the decision is a coordinated and team effort.
  5. The last step of the decision making process is evaluating the performance after the implementation of the decision. Every step is very important in the decision making cycle but this step is very important as this steps reveals the mistakes or shortcomings in the decision. If the decision is working successfully then this process ends otherwise this again presents the opportunity of another decision making cycle basing on the shortcomings of the past decision or poor implementation.

At every step, communication among all the departments is very important and feed back is always given to the management involved in the decision making process.

Budgeting Activity

Budgeting Activity

Budgeting ActivityAn organization budget can be broken down in to two main parts, one being the operating budget and the other being the financial budget. The operating budget mainly directs or we can say revolves around the revenue budget as everything is connected with the expected sales an organization is likely to have. Now the revenue budget leads the organization to further dig down on digits and help prepare production budget using the help of inventory budget. It also helps in preparation of cost of goods sold budget with the help of direct material cost budget, direct manufacturing labor costs budget and manufacturing overhead costs budget. All of this activity related to costs lead to the operating expense budget, which further help the managers in preparation of budgeted income statement. The operating budget most important part is revenues budget which may be prepared using the figures given by the marketing department depending on the economic conditions of the market and the demand raised for the company’s products.

The other part of budgeting activity is preparation of financial budget. This budget is derived with the help of operating budget and with the help of capital expenditures budget. The capital expenditure budget is related to the expected costs in expansion of the organizations operating activity, which provides an input for the cash budget. The operating budget also provides the input for the cash budget and all of this budgeting activity leads us to develop the budgeted balance sheet and the budgeted statement of cash flow, which provides us an opportunity in making advance plans for financing activity if needed.

ABC costing system

Warning Signs That Suggest That ABC could help a Firm:

ABC costing systemA firm needs to have a refined costing system which can reduce broad averages for cost assigning purposes to cost objects and provide management with better and accurate information for decision making or cost controlling techniques. The firms need to observe the signs where ABC costing system can help in presenting accurate figures. ABC costing system identifies the association between costs, activities and products. The common signs are:

Firms need to be vigilant when there are two or more cost pools as when these cost pools share common costs then the allocation of costs needs to be exact to determine the true cost of a product or cost object.

When most or all of the costs are identified as output unit-level costs as some indirect costs contribute to different levels like batch-level, product sustaining or facility sustaining.

When the products have different requirement in volume, processes, batch sizes or complexity then ABC costing system should be adopted to get a more accurate picture of the costs.

When there is an opportunity for business to grow with a product which is well-suited for the firm and provides an opportunity for making profits. But the firm is also producing other products which are not raising much revenue and creating a burden on the firm.

When the operational staff has disagreement over the costs of marketing and manufacturing allocation and it is making their department to take burden of those products which are not generating much profit, then for the satisfaction and motivation of the staff they need to be made assured that the cost allocation is being managed properly.

Costing Approach

Costing Approaches

costing approachIn costing for the direct and indirect expenses we need to assign the overall indirect costs to a specific job, so that the management can have a close estimate of the costs spent on various jobs throughout the year. The major purpose for this allocation of costs to specific jobs focuses pricing of jobs, monitoring and managing costs, evaluating the profitability of an operation and making estimates about future jobs feasibility. There are two main approaches followed by the industries’ management in preparation of their internal reports, that is, normal costing and actual costing.

Now Normal costing helps management by allocating the direct costs to a cost object by multiplying the available actual data of direct cost per unit with the actual input quantities. While in the case of indirect costs the normal costing approach uses the budgeted indirect rates and actual input quantity figures to calculate an estimate of total costs of the whole job which gives a very reliable estimate about the actual costs incurred. Normal costing approach is generally followed by the management of manufacturing, merchandising or service industry.

In actual costing approach the main purpose of the management is the same of getting the reliable estimated costs of the cost object but actual costing estimates cannot be availed throughout the year like normal costing, as actual indirect cost rates are to be determined annually at the end of the year. The major difference between the normal and actual costing approach revolves around the calculation of indirect costs, because in actual costing the indirect costs are obtained by multiplying the actual indirect rates with actual input quantity.

Contribution Margin vs. Gross Profit Comparative Statements

Contribution Margin vs. Gross Profit Comparative Statements

Contribution MarginThere are two ways to present the operations of the company in to statement forms. Both are these methods have their separate usage. Contribution margin approach is usually meant for interpretations of results and future planning by the internal management of the company, while the gross profit statement or profit and loss statement is required by regulatory authorities to present the operating activity of the company in accordance with the presentation allowed by generally accepted accounting principles (GAAP).

In matter of presentation, the contribution margin approach helps the internal management to access the relevant and irrelevant costs in decision making process. This statement helps in determining and distinguishing all the variable costs and fixed cost so that the management can be helped in their decision making. While the gross profit approach or Profit and loss statement is required by GAAP for presentation of company’s operations. This is a generally accepted format and it is helpful to the external users of the financial statements to properly understand the operations of the company and deducted conclusions about the company on the basis of these reports.

In contribution margin approach, all the variable costs like mainly variable, manufacturing expenses, variable administration expenses and variable marketing expenses are summed up and deducted from the total revenue to calculate the contribution margin and after that all the fixed costs are summed up in the similar manner to calculate the operating income. While in gross profit approach the statement follows the departmental method in which costs are presented both variable and fixed with relevance to their departments, for example variable manufacturing costs and fixed manufacturing costs then administrative costs and then marketing costs in a similar fashion.

What is Leadership


LeadershipThere is huge difference between management and leadership. The managers has a responsibility to deal with the day to day task complexities but a leader deals with change and motivates his followers in such manner that all of them work as a unit in striving for organizational goals. In order to be successful in one’s profession, a set of rules needed to be followed like taking charge of one’s career and avoid misconceptions; always try learning new concepts and developing new capacities; always be aware of the change coming in the work environment; try to master the art of communicating with people; and develop people skills.

Human resource management is the most important part of an organization, because it is the people who matter the most when it comes to creating a positive environment for work. There are main three challenges which are faced by organizations:

Change Management has become one of the major challenges that are faced by organizations today. To overcome this challenge organizations plan intensified trainings for the employees to adjust to the change.

Leadership Development is another major challenge for the organization because the organizations are under continuous pressure of achieving high efficiency and effectiveness. This challenge falls on human resource management to provide such structure and people to organization who can achieve the desired affects.

HR Effectiveness Measurement is a challenge which organization needs to be constantly evaluating because it has different type of metrics from which organization evaluates effectiveness like on terms of transaction or overall positive influence on the business.

The organizations are in constant process of innovation, which can be processes, product or techniques. The innovation can be spontaneous or follow a more systematic approach of stepwise development. The world is moving at a faster pace and for organizations to be successful they need to develop and create an environment of innovation throughout the organization and should provide incentive to employees for bringing in healthier change.

The change issue has really made organization to indulge comprehensive training programs for their employees so that they can adjust to the changes incorporated due to innovation or environmental change.


Importance of communication

Importance of communication in Organization

The importance of communication process cannot be ignored in the success of an organization. The right use of medium in the communicationThe importance of communication process cannot be ignored in the success of an organization. The right use of medium in the communication along with the skills of the communicator is must for successful communication cycle. In organizations employees are constantly engaged in the different types of communications like horizontal, parallel and with outside world. This is the formal mode of communications which are used officially in organization. The modern technology has made the communication cycle very fast and now the traditional methods are getting outdated. Similarly, the modern communication methods have made it easy for employees to stay connected with office from anywhere in the world and even work from home.

Interpersonal and Organizational Communication

Interpersonal and Organizational Communication: Mastering the Exchange of Information

 The Communication Process: What It Is, How It Works

communicationThe communication is a process which involves a sender, a message and the receiver; encoding and decoding; the medium; feedback; and dealing with noise. Effective communication requires the sender to adopt an adequate medium for sending the message to the receiver. For communication to be effective the medium should be opted by considering the audience because appropriate medium can deliver the message to receiver with no complexities.

Barriers to Communication

The breakdowns which hinder the process of communication are known as barriers. There are three kinds of barriers which stop or dysfunction the process of communication and these are physical barriers, semantic barriers and personal barriers. The personal barriers are the behavioral attributes of individuals like  variable skills in communicating effectively, variations in frames of reference and experiences that affect how information is interpreted, variations in trustworthiness and credibility, oversized egos, faulty listening skills, tendency to judge others’ messages, inability to listen with understanding, stereotypes (oversimplified beliefs about a certain group of people) and prejudices, and nonverbal communication (messages sent outside of the written or spoken word, including body language). The non verbal communication is also a very important part of communication which transfers or helps to transfer the full message to the receiver. Non verbal communication can be completed by eye contact, facial expressions, body movements and gestures, touch, setting and time.

How Managers Fit into the Communication Process

The communication is done at two channels which are formal and informal channel. Managers mostly follow formal communication channel in which they follow a specific chain of command. The formal communication includes three levels vertical, horizontal and external communication. The vertical communication moves upward or downward in an organization, the horizontal communication moves in parallel direction among colleague and external communication is done with other organizations like clients, lenders and debtors. On the other hand the informal communication follows a non formal structure and does not follow any chain of command. The informal communication includes grapevine and management by wandering around.

Communication in the Information Age

The modern age has changed the traditional ways of communication, now the people use computer and technology to stay connected and available all the time. The use of technology like teleconferencing, telecommuting has replaced old styles of face to face meetings and working from only office place. The usage of technology has reduced extra costs of travelling and time wastages but it also produced problems like data security and theft of valuable information.

Improving Communication Effectiveness

For improving communication effectiveness individuals can work on their listening, reading, writing and speaking skills. In developing better listening skills one need to give proper attention to the speaker use the technique of active listening for improving the listening skills. In developing better reading skills one can use the SQ3R system and take help from others. In improving the writing skills one can use the help of computer programs in correcting the tense and spelling of the message. For communicating the whole message the writer should compose the message in following three strategies, moving to an important topic to less important one, less controversial topic to controversial one and from negative to positive. In improving speaking skills three rules are to be followed which are letting the audience know what the topic is, deliver the message to them and then explain what you communicated to them.

Leadership: From Becoming a Manager to Becoming a Leader

Power, Influence, & Leadership: From Becoming a Manager to Becoming a Leader

The Nature of Leadership: Wielding Influence

LeadershipA leader is a person who inspires his followers in such manner that they voluntarily strive to make the organizational goals possible. There is a huge difference between managers and leaders. A management position has to deal with complexities however a leader discovers change. In an organization a leader possesses five powers which are legitimate power, reward power, coercive power, expert power and referent power and a manager only has three of the leader’s power which are legitimate power, reward power and coercive power. There are nine possible influence tactics which can be used to influence other and these tactics are rational persuasion, inspirational appeals, consultation, ingratiating tactics, personal appeals, exchange tactics, coalition tactics, pressure tactics, and legitimating tactics. There are four perspective of leadership which include trait, behavioral, contingency and emerging.

Trait Approaches: Do Leaders Have Distinctive Personality Characteristics?

The trait approach describes different characteristics of leadership. Kouzes and Posner approach described five traits necessary for leadership including honesty, competency, forward looking, inspiring and intelligence. In gender studies approach women are thought to be better leaders having abilities like higher efficiency, better goal setters, mentors, better team players, partners, collaborators, self motivated, stable and less turf conscious. The Project Globe study showed that the managers who were visionary, inspiring and charismatic turned out to be good team building.

Behavioral Approaches: Do Leaders Show Distinctive Patterns of Behavior?

The behavioral approach describes distinctive styles adopted by effective leaders. The styles of leaders include personal traits, skills and behaviors which they use while interacting with employees, customers and with other organizations. The Michigan research describes two styles including job centered behavior and employee centered behavior. The Ohio State leadership model describes two dimensions of leadership behaviors including initiating structure and consideration. After using these two studies another expert described that the best behavior would be a mixture of these two studies.

Contingency Approaches: Does Leadership Vary with the Situation?

The contingency approach describes that the behavior should be molded according to the situation. There are three main approaches. In Fielder contingency leadership model states that there are two styles a leader can pursue which are task oriented or relationship oriented and he should follow the one which is best suitable. The situation control has three dimensions which include leader-member relationship, the task structure and position power. The house path-goal leadership model suggest that the leader has to be a facilitator and helpful for them achieving their targets and also helping them to achieve organizational goals. House expanded his behavior characteristics to eight which were four earlier before considering the two variables of employee characteristics and environmental factors. In Hersay’s situational leadership theory it was suggested that the leader should be vigilant and act according to the follower’s best suitable style from the styles of telling, selling, participating and delegating.

The Full-Range Model: Uses of Transactional & Transformational Leadership

In full range model the leader selects among from a range of styles. The most effectual style would be transactional/ transformational. The transactional style pursues the leader to clarify the tasks and goals assigned to employee. The transformational style pursues the leader to follow a style in which he motivates the employees and followers to keep the organizational goals in priority; this style is affected by leader’s personality and organizational culture. The leaders who have achieved recognition have pursued both transactional and transformational styles. The transformational style has four key behaviors which are inspire motivation, inspire trust, encourage excellence and stimulate followers intellectually. The transformational style has the following three implications including improvement of results for individuals and group; training the employees and using this ethically and unethically.

Four Additional Perspectives

There are four additional perspective including leader-membership exchange model, shared leadership, and e-leadership. The leader-membership exchange model describes that a leader should differentiate his styles according to the nature of his employees. Shared leadership model describes that people should be sharing the responsibilities of leadership and be ready to work as a team. The servant leadership model describes that a leader should be able to align the goals of individuals with the goals of organization and facilitate the employees in their tasks. The e-leadership describes that the leader should be able to communicate with his followers, clients and customers through the modern technology.

Groups and Teams

Groups and Teams: Increasing Cooperation and Reducing Conflict

Groups versus Teams

Groups and TeamsWhen individuals come together they form a group, this group can be formal for doing something constructive or informal for pleasure like friendship. A formal group is usually seen in organizations where they are directed to achieve some common objective like organizational goals. However a team is a way ahead than groups because a team works like a unit and they put their combined efforts in achieving the targets which is more effective and efficient as compared to group because in group people give their individual efforts. This fact was proven by many organizations which let teams get developed to pursue common goals. Teams can be identified on the basis of their purpose like advice, production, project or action.

Stages of Group & Team Development

A group develops into a team after going through five development stages of forming, storming, norming, performing and adjourning. The first stage helps the group to get oriented and acquainted with all the members and at this time the leader should let the group socialize so that they can make a bond. In the second step the group’s personalities become clear, roles are defined and individual conflict becomes clear. In the third stage the group interacts and the conflicts are resolved, this stage helps the group to make bond with each other to create harmony and unity among the members. At this stage the group can be defined as a team because an association of members of the group has been developed which are motivated from within to achieve the set targets as a unit. In the fourth step, the group is in its performance era where it is expected to achieve the set targets or find solutions to the problem by working together. In the last stage of development the group is carefully disbanded considering the associations the team members have developed for each other while working together and they are given a chance to say goodbye to each other.

Building Effective Teams

When teams are built then the responsibility of their effectiveness relies on manager, which can be achieved by considering the performance goals and feedback, motivation through mutual accountability, size, roles, norms, cohesiveness and group thinking. These techniques help the manager to administer the motivation of the team so that when task is assigned to the team they can work efficiently and diligently to face the challenges like market changes, technological advancements, and social and political.

Managing Conflict

When people get together in a working environment then it is normal to expect some conflicts rising among them which are usually based on personality, group and cultural differences. It is manager’s responsibility to address these conflicts with care and do not let the conflict develop into a negative for and use different measure like spurring competition among employees, changing organization’s culture and procedures, bringing outsiders for new perspective and by using programmed conflict to create constructive conflict and better working environment.

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