Decision Making

“A decision represents a course of

action chosen from a number of
possible alternatives”
 Types of Decisions
• Organizational vs. personal decision
• Strategic vs. Operational decisions
• Programmed and non programmed
• Individual vs. group decision
 Process of Decision making

Identify the problem----Analysis of

problem---search of alternatives---
Evaluation of alternatives---Selection of
best----implementation of decision
 Evaluation of Alternatives
• Quantitative and qualititative factors:

• Marginal Analysis: to compare additional revenue arising from

additional cost.
• If when additional revenue=additional cost
• If when additional cost<additional revenue = producing more for profit
• If additional revenue <additional cost= producing less for more profit.

• Cost effective Analysis: best ration between cost and benefits,

 Selecting an alternatives
• Experience : Reliance on past data

• Experimentation: A firm may test a new product in a certain market before

expanding its sale nation wide.

• Research and analysis: research on variables, constraints and premises

that bear upon the goals.
 Decision Making models
Normative model (rational Economic Man)
: Consistent and value maximizing choice, Acco. To Simon, a business
decision with effective and efficiency and assures the attainment
of goals.
Based on the assumptions:
1. Decision maker is systematic, logical, and reasoned in thinking.
2. Emotional stability, knowledgeable, able to analyze information
intelligently.
3. Scientific in nature spirit of enquiry, tries to discover reality,
accepts thing after verification.
 Administrative and behavioural
model:
• Decision based on intuition and value system.
• “ principle of bounded rationality”
• Decisions are based on intuition, value system, way of thinking.
Assumptions:
1. The individual does not want to study and analyze the problem
because of the perception.
2. doesn’t have full knowledge of the alternative and their
consequences
3. Interprets the organizational goals in his own way.
4. Lazy and care less in thinking.