AOM

Advance Organization &

Management

LESSON 1
Decision Making (Week 7)

Topics in the Lesson

I. Decision Making in Management
II. Steps in Decision Making
III. Approaches in Decision Making

Lesson’s Intended Learning Outcomes

At the end of the lesson, you will be able to:

1. recognize decision making as responsibility of management;

2. discuss the nature of decision making;
3. examine the steps in decision making process;
4. identify various approaches in decision making; and
determine the quantitative models for decision - making.

Let’s Get Started

I. Decision Making in Management

The basic view of organization is that, it is an economic entity, it is a set of

physical processes, and a network of decisions. Management needs to come up with
strategic decisions as influenced by the changes in the firm’s environment and issues
that arise which could affect operation. In the business world, decision-making is done
in groups because of its multifunctional consequences and effects. This function is
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usually found in the higher levels because of their authority in the organization.
However, decision-making is applied differently in the different levels of management. If
the decision will affect the entire firm, do you think it would be proper to leave it to the
verdict of the supervisor? Of course, not! If the decision needs immediate attention and
a policy addressing the issue at hand is in place, would you bring the matter to the
attention of the CEO for his decision? You bet not!
Decision making is defined as “The process of defining the problem and
identifying and choosing alternative courses of action in a manner appropriate to the
demands of the situation.”

II. Steps in Decision-Making

The decision-making process according to Dr. Medina (2015) are as follows:

Step 1: Diagnosing the problem.
Step 2: Analyzing the environment.
Step 3: Articulating the problem or opportunity.
Step 4: Developing viable alternatives.
Step 5: Evaluating the alternatives.
Step 6: Making a choice.
Step 7: Implementing the decision.
Step 8: Evaluating and adopting results.

DIAGNOSING THE PROBLEM

Problems in organizations are inevitable. Every organization encounters

problems from dealing with employees, dealing with customers, earning profit,
competition and more. However, not all organizations are able to recognize a problem
and solve it. When is there a problem? A problem exists if there is a difference between
the actual situation and a desired situation. There could also be problem if there is an
issue that needs to be settled or a situation that needs to be improved or a difficulty that
needs to be eliminated. In management, problems are usually detected if one examines
the goals or objectives of the organization or unit, and this is against its performance.
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ANALYZING THE ENVIRONMENT

The environment of the firm is composed of its internal and external environment.
Analysis of both the internal environment and external environment gives the
organization the chance to make strategic decisions in its operation. The SWOT
Analysis is a famous tool used in acquiring familiarity with all the factors in the
environment of the firm that are essential in decision making.
 Financial resources (funding,
sources of income and investment
I Positive resource or opportunities)
N STRENGTHS capacity of the  Physical resources (location,
T organization facilities and equipment)
E  Human resources (employees,
R volunteers and target audiences)
N  Access to natural resources,
A trademarks, patents and copyrights
These are negative  Current processes (employee
L WEAKNESSES elements or flaws in programs, department hierarchies and
the company. software systems)

 Market trends (new products,

technology advancements and shifts
E Favorable factors in audience needs)
OPPORTUNITIES  Economic trends (local, national and
X that give an
T organization an international financial trends)
E advantage.  Funding (donations, legislature and
R other sources)
N  Demographics
A Factors that can  Relationships with suppliers and
L THREATS potentially harm the partners
company.  Political, environmental and
economic regulations
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DEVELOP VIABLE ALTERNATIVES
You have on hand Php 500,000 to make an investment. Would you open a small
restaurant? An online shop? Of course it would depend on your interest and expertise
plus the fact that you only have a limited capital.
Alternatives are choices with limited possibilities.
Analysis of best alternatives are based on
 Values
 Cost
 Risk characteristics

CHOICE MAKING
Refers to the process of selecting among alternatives representing potential
solutions to a problem

IMPLEMENT AND EVALUATE DECISION

After making a choice, it must then be implemented. However, to make the
choice effective and efficient, a plan has to be devised for the implementation. What are
the objectives, how are you able to achieve them? Who will be responsible? What
should be done if there are deviations to the plan? Is the decision implemented the best
decision? To help management with these questions, the plan should include feedback
and control.
Feedback refers to the process which requires checking at each stage of the
process to assure that the alternatives generated, the criteria used in evaluation, and
the solution selected for implementation are in keeping with the goals and objectives
originally specified.
Control refers to action made to ensure that activities performed match the
desired activities, or goals, that have been set.

The illustration below reflects feedback as control mechanism in the

decision-making process as suggested by our textbook.
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III. APPROACHES IN DECISION MAKING

QUALITATIVE AND QUANTITATIVE APPROCHES

Managers in dealing with problems use two approaches to help them decide. These
approaches could either be qualitative or quantitative.

Qualitative approaches require experiential knowledge of the different factors involve

in the decision. The manager, in this approach, must have an intuitive feel for how
decisions will play out given his familiarity of the nature of that organization, which can
only come from direct, hands-on experience (Mack, 2020)
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Quantitative approaches are precise but does not work on all the time. The
quantitative tools help managers decide based on data gathered and not mainly on
experience. Thus, the process using this approach is rational and analytical. The
quantitative approaches are plentiful and requires your mathematical skills and are
usually taken as a course in at least a semester. For your awareness, you can orient
yourself with the following tools:

Quantitative Models for Decision-Making

Inventory Models – consist of several types and are all designed to help the
manager make decisions regarding inventory
Examples:
1. Economic order quantity model
2. Production order quantity model
3. Bank order inventory model
4. Quantity discount model

Queuing Theory – is one that describes how to determine the number of service
units that will minimize both customer waiting time and cost service

Network Models – models where large complex tasks are broken into smaller
segments that can be managed independently
e.g.
1. Program Evaluation Review Technique (PERT)
2. Critical Path Method (CPM)

Forecasting – collecting past and current information to make predictions about the
future.

Regression Model - is a forecasting method that examines the association between

two or more variables.
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Simulation – a model constructed to represent reality, on which conclusions are
about real-life problems can be based

Linear Programming – is a quantitative technique that is used to produce an

optimum solution within the bounds imposed by constraints upon the decision.

Sampling Theory – a quantitative technique where sample populations are

statistically determined for a number of processes, such as quality control and
marketing processes.

Statistical Decision Theory – the rational way to conceptualize, analyze and solve
problems in situations involving limited or partial information about the decision
environment.

DISCUSSION QUESTIONS /ASSIGNMENT

1. Which is a more effective approach in decision making, qualitative or
quantitative? Why?

2. The higher the management level is, the more complicated decision making
becomes. Explain.