Wednesday, May 18, 2011

Business decision-making is an economic process.

“Business decision-making is an economic process.” Analyze this statement with the help of examples.

Answer. Decision-making is a crucial part of good business. Decision-making increasingly happens at all levels of a business. The Board of Directors may make the grand strategic decisions about investment and direction of future growth, and managers may make the more tactical decisions about how their own department may contribute most effectively to the overall business objectives. But quite ordinary employees are increasingly expected to make decisions about the conduct of their own tasks, responses to customers and improvements to business practice. This needs careful recruitment and selection, good training, and enlightened management.

Business can be expressed in three terms.

1) Business is an economic activity

2) Business firm is an economic unit

3) Business decision making is an economic process

Business decision making is an economic process. Making any decision involves undertaking a choice among a set of alternative course of action.

Business is a micro-economic unit and it functions in the macroeconomic context. The macroeconomic environment is external to the firm. The internal business decisions should adjust itself to external business environment -both economic and non-economic. The firm should demonstrate adaptability and adoptability.

Decision-making involves making a choice from a set of alternative courses of action. Choice is at the root of all economic activity. The question of choice and evaluation arises because of the relative scarcity of resources. If the resources had not been scarce, an unlimited amount of ends could have been met. But the situation of resources constraint is very real. A business firm thinks seriously about the optimum allocation of resources because resources are limited in supply and most resources have alternative uses. The firm, therefore, intends to get the best out of given resources or to minimise the use of resources for achieving a specific target. In other words, when “input” is the constraining factor, the firm’s decision variable is the “output”. And when “output” is the constraining factor, the firm’s decision variable is the “input”. Whatever may be the decision variable, procurement or production, distribution or sale, input or output, decision-making is invariably the process of selecting the best available alternative. That is what makes it an economic pursuit. Since business is an economic activity, a business firm an economic unit, and business decision-making an economic process, it is the economics environment of business which is the primary consideration in evaluating the business policies, business strategies and business tactics of a corporate entity in any national economy.

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