Managerial Economics role in decision making: Making decisions is an important aspect of today’s corporate management. One of the most challenging jobs a professional manager faces is making a decision. In the management of a firm, a manager must make various judgments. A manager’s existence is occupied with making and changing decisions.
Decision making is a process and a decision is the product of such a process. Managerial decisions are based on the flow of information. Decision making is both a managerial function and an organizational process. Managerial function is exercised through decision making
The goal of decision-making and planning is to direct human behavior and effort toward a future goal or goal. It is organizational in the sense that many choices are made by groups, teams, committees, and so on, rather than by individual managers. Once a choice is made, it is carried out in the shortest possible period and at the lowest possible cost.
A study of business decision-making concepts can help managers gain a better understanding of business problems and improve their capacity to solve problems that arise in business management.
In the long run, application of principles of business decisions will result in successful outcomes. A good decision is one that is based on logic, considers all available data and possible alternatives and applies the quantitative approach.
Organizational decisions are those which the executive makes in his personal capacity as a manager. They include the adoption of the strategies, the framing of objectives and the approval of plans. These decisions can be delegated to the organizational members so that decisions could be implemented with their support.
These decisions aim at achieving the best interests of the organization. The basic decisions are those which are more important, they involve long range commitment and heavy expenditure of funds. A high degree of importance is attached to them. A serious mistake will endanger the company’s existence. The selection of a location, selection of a product line, and decision relating to managing the business are all basic decisions. They are considered basic because they affect the whole organization.
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IMPORTANT TYPES OF BUSINESS DECISIONS
I Production Decisions
Production is an economic activity that involves supplying goods and services for sale in a market in order to meet consumer demands and maximize profit. The corporate executive must make the most efficient use of the resources at his disposal. He might have issues with determining the optimal mix of components for greatest profit, or determining how to use different machine hours for maximum production advantage, and so on.
II Inventory Decision
Inventory refers to the quantity of goods, raw material or other resources that are idle at any given point of time held by the firm. The decision to hold inventories to meet demand is quite important for a firm and in certain situations the level of inventories serves as a guide to plan production and is therefore a strategic management variable. Large inventory of raw materials, intermediate goods and finished goods means blocking of capital.
III Cost Decisions
The firm’s competitiveness is determined by its capacity to produce the commodity at the lowest possible cost. As a result, cost structure, cost reduction, and cost control have become essential factors in company decisions. Profits would suffer if there was no cost management because costs would rise. Future business decisions necessitate the selection of options, and in order to do so, it is vital to understand the costs associated. Cost knowledge about resources is critical for making business decisions.
IV Marketing Decisions
The marketing executive must decide on the target market, market positioning, product development, price routes of distribution, physical distribution, communication, and promotion as part of market planning. In marketing, a businessperson must make primarily two separate but linked decisions. They are the decision to sell and the decision to buy. The question of how much to manufacture and sell in order to maximize profit is central to the sales decision. The goal of the purchasing choice is to obtain these resources at the lowest possible price in order to maximize profit. Here the executive’s basic skill lies in influencing the level, timing, and composition of demand for a product, service, organization, place, person or idea.
V Investment Decision
The problems of risks and imperfect foresight are very crucial for the investment decision. In real business situations, there is seldom an investment which does not involve uncertainties. Investment decisions cover issues like the decisions regarding the amount of money for capital investment, the source of financing this investment, allocation of this investment among different projects over time. These decisions are of immense significance for ensuring the growth of an enterprise on sound lines. Hence, decisions on investment are to be taken with utmost caution and care by the executive.
VI Personnel Decision
An organization requires the services of a large number of personnel. These personnel occupy various positions. Each position of the organization has certain specific contributions to achieve organizational objectives. Personnel decisions cover the areas of manpower planning, recruitment, selection, training and development, performance appraisal, promotion, transfer, etc. Business executives should take personnel decisions as an essential element.
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RESPONSIBILITIES OF A MANAGERIAL ECONOMIST
The managerial economist can play a critical role in supporting management in the application of the increasingly specialized skills and sophisticated approaches required to tackle the various difficulties of successful decision making and forward planning. A managerial economist’s responsibilities can be broadly characterized as the analysis and interpretation of economic data in light of management issues. The management economist should be able to devote more time and effort to economic issues than the company’s administration. His employment may entail a variety of mundane responsibilities that are intimately related to the firm’s day-to-day operations.
The managerial economist is employed primarily as a general adviser. The advisory service refers to the opportunities open to the managerial economist because of the growing role of government in business life. He is responsible for the working of the whole business concern. The most important obligations of a managerial economist is that his objective must coincide with that of the business. Traditionally, the basic objective of business has been defined in terms of profit maximization.
To make a profit as a managerial economist, he must do more than regular management. He won’t be able to succeed in serving management unless he has a strong conviction that will aid him in improving the firm’s capabilities. A managerial economist’s other major responsibility is to make the most accurate forecasts feasible. The management economist is responsible for forecasting not just the many components of the external business image, but also the various stages of the company’s activity, which is the company’s internal picture.
The managerial economist should recognise his responsibilities to make a successful forecast. By making the best possible forecasts, the management can follow a more closely course of business planning. Yet another responsibility of the managerial economist is to bring about a synthesis of policies pertaining to production, investment, inventories, price and cost.
Production is an organized activity of transforming inputs into output. The process of production adds to the values or creation of utilities. The money expenses incurred in the process of production constitute the cost of production. Cost of production provides the floor. The management economist is interested in a variety of topics, including profit maximization, stock reduction, sales forecasting, and so on.
Production is hampered when inventory levels are extremely low. As a result, a management economist’s first task is to reduce his stockpiles, as inventory is a major source of unprofitable capital. Only when the management economist is a full part of the company team will his contribution be adequate. In determining the character of action, the management economist should draw on his experience and facts. He should be prepared to take on special responsibilities seriously.
The managerial economist can put even the most sophisticated ideas in simple language and avoid hard technical terms. It is also the managerial economist’s responsibility to alert the management at the earliest possible moment in case he discovers an error in his forecast. By this way, he can assist the management in adopting appropriate adjustments in policies and programmes. He must be alert to new developments both economic and political in order to appraise their possible effects on business.
The managerial economist should establish and maintain many contacts and data sources which would not be immediately available to the other members of management. For this purpose, he should join professional and trade associations and take an active part in them.
To conclude, a managerial economist should enlarge the area of certainty. To discharge his role successfully, he must recognise his responsibilities and obligations. No one can deny that the managerial economist contributes significantly to the profitable growth of the firm through his realistic attitude.
