Chapter 3

The Nature of
Decision Making

FUNDAMENTALS OF
MANAGEMENT
(MGT162)
 Topic Outlines

 Definition of decision making

 Types of decision making
i. Programmed decision
ii. Non-programmed decision
 Characteristics of decision making
 Decision making process
 Group decision making
 Definition of Decision Making

 “The process through which managers identify and

resolve problems and capitalize on opportunities”

 The process by which a course of action is selected

as the way to deal with a specific problem
 Types of decision making
Types of
Decision
Making

Non-
Program
Program

 It is structured. Decisions that have  It is unstructured and requires

been made so many times in the past higher level management. Deals
that managers have developed rules with unique, unusual or exceptional
or guideline to be applied when problem.
certain situation are expected to
occur.  Non-routine decision making that
occurs in response to unusual,
 A repetitive decision that can unpredictable opportunities and
be handled by a routine approach. treat

 Example: Rules & regulations.  Example: Government’s decision

to prevent H1N1 by stopped all the
travelling outside country
Types of condition under decision making
•The manager has enough information to know the
outcome of the decision before it is made and able to
predict it precisely.

•When the decision maker knows with reasonable

Certainty certainty what the alternatives are and what conditions
are associated with each alternative, a state of
certainty exists.

•The information is available and considered to be

reliable, and the cause and effect relationship is known.

•A condition under which there is not full knowledge of

the problem and reasonable probabilities for alternative
outcomes cannot be determined.

Uncertainty •The manager feels unable to assign estimates to any of

the alternatives.

•A situation in which a decision maker has neither

certainty nor reasonable probability about the
outcome.
 Cont…

•Refer to future conditions that are not always known in

advance.

•Decision maker is able to estimate the likelihood of

Risk certain outcome based on personal experience or
secondary information.

•Some information is available, but it is not enough to

answer all questions about the outcomes.

•Means the goals to be achieved or problem to be

solved is unclear, alternatives are difficult to define and
information about outcomes is not available.
Ambiguity •People to subjectively add probability of the outcome in
decision making, and it is difficult to be described by the
theoretical models accurately.
 Decision making process
• Managers regularly review data related to their areas of responsibility,
including both outside information and reports and information from
within the organization.
Identifying &
• Recognize that a problem exist and must be solved.
diagnosing
problems

• Reflect the results the organization want to attain. Both the quantity &
quality of the desired results should be specified because these
objectives will ultimately guide the decision maker in selecting the
appropriate course of action.
Identifying
objectives • Objectives can be short range or long range.

• Alternatives – Strategies that might be implemented in the decision-

making situation.
• Creativity and imagination are often required in this step.
Generating • May follow the advice of others who have faced similar problems.
alternatives
 Cont…

• Assess the value or relative advantages or disadvantages of each

alternative under consideration.
• Predict the consequences that will occur if the various options are
put into effect.
Evaluating
alternatives

• Making a final choice.

• The best decisions are often based on careful judgments, making
a good decision involves carefully examining all the facts,
determining whether sufficient information is available, and finally
Reaching selecting the best alternatives.
decisions
 Cont…

• When decisions involve taking action or making changes,

choosing ways to put these actions or changes into effect
become an essential managerial task
• The key to effective implementation are:
Choosing • a) Sensitivity to those who will be affected by the decision
implementation • b) Proper planning and consideration of the resources necessary
strategies to carry out the decision

• Collecting information on how well the decision is working.

• Managers must observe the impact of the decision & take further
action if it becomes necessary.
• No decision-making process is complete until the impact has been
Monitoring &
evaluated.
evaluating
feedback • If the decision appears inappropriate, the process cycles back to
the first stage.
 Group decision making techniques
1) Brainstorming
 This technique involves a group of people, usually between five and ten, sitting
around a table, generating ideas in the form of free association.

 The primary focus is on generating ideas rather than on evaluating or choosing an

idea.

 A technique used to enhance creativity that encourages group members to

generate as many novel ideas as possible on a given topic without evaluating
them.

 Can enhance creativity by overcoming pressures for conformity that can retard
the development of creative decision-making.

 Brainstorming technique is very effective when the problem is comparatively

specific and can be simply defined.

 A complex problem can be broken up into parts and each part can be taken
separately at a time.
 Cont…
2) Nominal group technique (NGT)
 A structured process designed to stimulate creative group decision-making in
which agreement is lacking or the members have incomplete knowledge
concerning the nature of the problem.

 It's helpful when decisions need to be rendered in a timely manner, yet the
company wants all of the opinions of the individuals in a group to factor within the
decision in a bigger way than a simple "majority rules" voter pool.

 Individual members list their ideas on the specific problem and present the ideas
at one time, without discussion.

 Members’ ideas are recorded so that everyone can see them.

 After all members’ ideas are presented, the group discusses the ideas to clarify
and evaluate them.

 Duplicate solutions are then eliminated from the pool, leaving only original
solutions behind.
 Cont…
3) Delphi technique
 An approach that uses the experts to make predictions and forecasts about future
events without meeting face-to-face.

 Using survey instruments or questionnaires, a group leader collects written expert

opinions on a topic.

 It uses the opinions of a limited group of experts or people who have knowledge of
the subject from their experience.

 The subjects that an organisation wants to understand through the Delphi method
are obtained by subjective means; the opinions of the group of experts are
therefore very important.

 The group of experts works towards a consensus, through step-by-step feedback of

information, by repeating the question and providing feedback on each other’s
answers.
 Group Decision Making
Advantages & Disadvantages

Advantages Disadvantages
 More information and  The process takes longer than
knowledge are available. individual decision making, so
it is costlier.
 More alternatives are likely
to be generated.  Compromise decisions
resulting from indecisiveness
 More acceptance of the may emerge.
final decision is likely.
 One person may dominate the
 Enhanced communication group.
of the decision may result.
 Groupthink* may occur.
 Better decisions generally
emerge.

* a process in which bad decisions are made because the different members of a
group do not express their individual opinions about a plan, proposal, etc. but only
say what they think the rest of the group would agree with
“Inability to make decisions is one of the principal reasons
executives fail. Deficiency in decision-making ranks much
higher than lack of specific knowledge or technical know-
how as an indicator of leadership failure.”
~ John C. Maxwell ~