The primary function of management executive in a business
organisation is decision making and forward planning.
Decision making and forward planning go hand in hand with each
other. Decision making means the process of selecting one action from two or more
alternative courses of action. Forward planning means establishing plans for
the future to carry out the decision so taken.
The problem of choice arises because resources at the disposal
of a business unit (land, labour, capital, and managerial capacity) are limited
and the firm has to make the most profitable use of these resources.
The decision making function is that of the business
executive, he takes the decision which will ensure the most efficient means of
attaining a desired objective, say profit maximisation. After taking the
decision about the particular output, pricing, capital, raw-materials and power
etc., are prepared. Forward planning and decision-making thus go on at the same
A business manager's task is
made difficult by the uncertainty which surrounds business decision-making.
Nobody can predict the future course of business conditions. He prepares the
best possible plans for the future depending on past experience and future
outlook and yet he has to go on revising his plans in the light of new
experience to minimise the failure. Managers are thus engaged in a continuous
process of decision-making through an uncertain future and the overall problem
confronting them is one of adjusting to uncertainty.
In fulfilling the function of decision-making in an
uncertainty framework, economic theory can be, pressed into service with
considerable advantage as it deals with a number of concepts and principles
which can be used to solve or at least throw some light upon the problems of
business management. E.g are profit, demand, cost, pricing, production,
competition, business cycles, national income etc. The way economic analysis
can be used towards solving business problems, constitutes the subject-matter of
brief we can say that Managerial Economics is both a science and an art.