DECISION MAKING
Discuss the importance and applications of right
decision making.
Discuss the steps, categories, and models of
managerial decision making.
DECISION MAKING
1. Provide leadership in the quest for the attainment
of the organization’s objectives.
2. Learn the intricacies of decision making.
3. Good decisions will provide the right environment
for continuous growth and success.
DECISION-MAKING AS A MANAGEMENT RESPONSIBILITY
 Decisions must be made at various levels in the
workplace.
 Decision- making is a responsibility of the engineer
manager.
 The higher the management position is, the bigger
and more complicated the decision- making
becomes.
WHAT IS DECISION MAKING?
It is the process of identifying and choosing
alternative courses of action in a manner appropriate to
the demands of the situation.
THE RATIONAL DECISION-MAKING PROCESS
1. diagnose the problem - If a manager wants to
make an intelligent decision, his first move must be
to identify the problem. If the manager fails in this
aspect, it is almost impossible to succeed in the
subsequent steps.
A problem exists when there is a
difference between an actual situation and a
desired situation.
2. analyze environment - The objective of
environmental analysis is the identification of
constraints.
Internal limitations: ( 1 ) Limited funds available
for the purchase of equipment, ( 2 ) Limited
training on the part of employees, (3) Il l-designed
facilities
External limitations: (1) Patents are controlled by
other organizations, (2) A very limited market for
the company' s products and services exist, (3)
Strict enforcement of local zoning regulations.
Internal (left) and External (right) factors
3. articulate problem or opportunity - Recognize the
need to solve the problem or capture an
opportunity.
Collect some pertinent information before
you make your decision: what information is
needed, the best sources of information, and how
to get it.
4. develop viable alternatives - As you collect
information, you will probably identify several
possible paths of action, or alternatives.
1. Prepare a list of alternative solutions.
2. Determine the viability of each solution.
3. Revise the list by striking out those which are
not viable.
5. evaluate alternatives - After determining the
viability of the alternatives and a revised l ist has
been made, an evaluation of the remaining
alternatives is necessary.
How the alternatives will be evaluated will
depend on the nature of the problem, the
objectives of the firm, and the nature of
alternatives presented.
Each alternative must be analyzed and
evaluated in terms of its value, cost, and risk
characteristics.
6. make a choice - After the alternatives have been
evaluated, the decision- maker must now be ready
to make a choice. This is the point where he/she
must be convinced that all the previous steps were
correctly undertaken.
To make the selection process easier, the
alternatives can be ranked from best to worst on
the basis of some factors like benefit, cost, or risk.
7. implement decision - Implementation refers to
carrying out the decision so that the objectives
sought will be achieved. To make implementation
effective, a plan must be devised.
The resources must be made available so
that the decision may be properly implemented.
8. evaluate and adapt decision results- In
implementing the decision, the results expected
may or may not happen. I t is, therefore, important
for the manager to use control and feedback
mechanisms to ensure results and to provide
information for future decisions.
APPROACHES IN SOLVING PROBLEMS
Qualitative Evaluation - This term refers to evaluation of
alternatives using intuition and subjective judgment.
managers tend to use the qualitative approach when:
1. The problem is fairly simple.
2. The problem is familiar.
3. The costs involved are not great.
4. Immediate decisions are needed.
Quantitative Evaluation - This term refers to the
evaluation of alternatives using any technique in a group
classified as rational and analytical.
1. inventory models
2. queuing theory
3. network models
4. forecasting
5. regression analysis
 6. simulation 7  Decision maker operates to accomplish goals
7. linear programming that are known and agreed upon.
8. sampling theory  Decision maker strives for condition of certainty
9. statistical decision theory – gathers complete information
MANAGERIAL DECISION MAKING  Criteria for evaluating alternatives are known
Decision making is not easy. It must be done amid:  Decision maker is rational and uses logic
 Ever-changing factors Normative
 Unclear information  describes how a manager should make and
 Conflicting points of view provides guidelines for reaching an ideal
MANAGERIAL DECISION MAKING decision for the organization.
Programmed Decisions Administrative Model
 Situations occurred often enough to enable How nonprogrammed decisions are made -
decision rules to be developed and applied in the uncertainty/ambiguity
future. Two concepts are instrumental in shaping the
 Made in response to recurring organizational administrative model:
problems 1. Bounded rationality - people have limits or
Nonprogrammed Decisions boundaries on how rational they can be.
 In response to unique, poorly defined, and largely 2. Satisficing - means that decision makers choose
unstructured, but have important consequences the first solution alternative that satisfies minimal
to the organization. decision criteria.
DECISION SITUATIONS  Decision goals often are vague, conflicting and
CERTAINTY lack consensus among managers.
 all the information the decision maker needs is  Rational procedures are not always used
fully available.  Managers’ searches for alternatives are limited.
RISK  Managers settle for a satisficing rather than a
 decision has clear- cut goals good information is maximizing solution.
available future outcomes associated with each Descriptive - how managers actually make
alternative are subject to chance. decisions-- not how they should.
UNCERTAINTY Intuition - Immediate comprehension of a decision
 Managers know which goals they wish to achieve. situation based on past experience but without
 information about alternatives and future events conscious thought.
is incomplete. Political Model
 managers may have to come up with creative Closely resembles the real environment.
approaches to alternatives. Coalition - informal alliance among manages who
AMBIGUITY support a specific goal.
 by far the most difficult decision situation  Closely resembles the real environment in which
 goals to be achieved or the problem to be solved most managers and decision makers operate.
is unclear alternatives are difficult to define  Useful in making non- programmed decisions.
 information about outcomes is unavailable.  Decisions are complex.
MANAGERIAL DECISION MAKING  Disagreement and conflict over problems and
Conditions that Affect the Possibility of Decision solutions are normal.
Failure

DECISION MODELS
Classical Model
Logical decision in the organization’s best economic
interests
Assumptions: