Decision Making

SITI AZIZAH
Introduction

 Decision making can be viewed as an integral part of planning in

that key decisions have to taken throughout the planning process.
 Decision making can be defined as ‘the selection of a course of
action from among alternatives’.
1. In this sense decision making is at the heart of planning: for plans to
be formulated and implemented, decisions on certain courses of
action have to be taken.
2. Decision making is discussed primarily within the context of
planning; but also fundamental element of the entire
management process.
 Organisations make literally hundreds of decisions each day as they
fulfil their operational requirements.
 Some of these decisions are small and minor and can be
completed quickly, for example the size and colour of envelopes
required by the organisation.
 Others are more complicated and far-reaching and require more
detailed analysis, such as whether to expand into foreign markets.
 is a central part of the manager’s role.
Characteristics of Decision Making
 Characteristics of Decision Making:
1. Decision making is an integral part of planning. Every planner has
to choose an appropriate solution or alternative among the
available options.
2. It involves the judgment and discretion (freedom) of the decision
maker.
3. It is not an entirely rational process because decisions are bound
to be affected and colored by the personal likes, dislikes and
whims of the manager who makes them.
4. Decisions made by managers involve the commitment of the
organization to adopt a specific recourse of action and utilize
resources in a particular manner.
5. Decision making like managing is a human and social process
implying the interference of an individual as well as social factors.
6. Decision making is a purposeful activity because it is directed
towards the achievement of a goal and objectives.
7. Decisions are made by managers to solve problems, resolve crises
and conflicts and tackle the situation.
8. Decisions made by managers may sometimes have a negative
effect for a short period of time.
9. Decision making requires enough liberty to be given to managers
so that they can also make use of their experience, skill and
judgment.
Types of decisions
Programmed and Non-programmed Decisions
 Programmed decisions are normally repetitive in nature.
 The easiest to make.
 For example: making purchase orders, sanctioning of different types of leave,
increments in salary, settlement of normal disputes, etc. Managers in dealing
with such issues of routine nature usually follow the established procedures.
 Non-programmed decisions
 non-routine in nature.
 related to some exceptional situations for which there are no established
methods of handling such things.
 For example: Issues related to handling a serious industrial relations problem,
declining market share, increasing competition, problems with the collaborator,
growing public hostility towards the organization fall in this category
Operational and Strategic Decisions
 Operational or tactical decisions
 relate to the present.
 The primary purpose is to achieve high degree of efficiency in the
company‘s ongoing operations. Better working conditions, effective
supervision, prudent use of existing resources, better maintenance of
the equipment, etc., fall in this category.
 Strategic Decisions
 For examples, expanding the scale of operations, entering new markets,
changing the product mix, shifting the manufacturing facility from one
place to the other, striking alliances with other companies, etc.,
 have far reaching impact on the organization.
Organizational and Personal Decisions
 Organizational Decisions
 Decisions taken by managers in the ordinary course of business in their
capacity as managers relating to the organizational issues are
organizational decisions.
 For example: decisions regarding introducing a new incentive system,
transferring an employee, reallocation or redeployment of employees etc.
are taken by managers to achieve certain objectives.
 Personal Decisions
 managers do take some decisions which are purely personal in nature.
However, their impact may n
 Not exactly confine to their selves and they may affect the organization
also. For example: the manager‘s decision to quit the organization, though
personal in nature, may impact for the organization
Individual and Group Decisions
 Individual Decisions
 It is quite common that some decisions are taken by a manager
individually while some decisions are taken collectively by a group of
managers.
 Individual decisions are taken where the problem is of routine nature,
whereas important and strategic decisions which have a bearing on
many aspects of the organization are generally taken by a group.
 Group decision making is preferred these days because it
contributes for better coordination among the people concerned
with the implementation of the decision.
Decision-making conditions

 The first condition is certainty, which means that the available

alternatives and their costs or benefits are certain.
 In other words, managers know with certainty that particular alternatives
will lead to definite outcomes and there is no element of doubt.
 Given the current turbulent business environment it is not surprising that
very few decisions can be made with certainty.
 Only the most minor of decisions can be taken under a condition of
complete certainty.
 The second condition is risk.
 Under the risk condition, all available choices and their potential costs and
benefits are known, but the outcomes are sometimes in doubt.
 So, while the alternatives are known, the outcomes are unknown.
 An example of a risk condition is the throw of a die: the alternatives (one to
six) are known, but the outcome is not known – there is a one-in-six chance
of each number coming up.
 The probability of certain events can be calculated by the organisation
using statistical techniques.
 Objective probability is the likelihood of an event occurring based on hard
quantitative data, normally statistical. In contrast, subjective probability is
a personal judgement of the likelihood of an event occurring. In today’s
business environment, risk taking has become critically important for
organisations.
 The final condition is uncertainty, under which the available
alternatives, the likelihood of their occurrence and the outcomes
are all unknown.
 Decisions made under uncertainty are the most difficult to take
because of this lack of concrete knowledge.
 Such decisions tend to be ambiguous, intangible and highly unusual.
 In the current business environment more and more decisions are taken
under uncertainty.
 When making decisions under uncertain conditions, managers require
intuition and judgement.
Decision Failure
 While decisions taken under conditions of certainty tend to be the
easiest to make and the most successful, decision failures can occur
in relation to any type of decision.
 Given the additional problems associated with risk and uncertainty
conditions it is not surprising that there are decision failures in these
conditions.
 Any decision can suffer from adverse conditions and bad luck, but
much decision failure can be attributed to decision-making
procedures, which are under the manager’s control
Conflicts
 When managers are faced with the choice of competing alternatives
they frequently experience conflict, both within themselves and also from
other individuals and groups in the organisation.
 In the first instance managers experience psychological conflict when
faced with a range of alternatives, none of which they find appealing. For
example, when faced with the need to reduce costs the manager can
reduce the hours of work or eliminate a bonus for all staff.
 Neither of these alternatives is appealing and the manager may
experience conflict over which choice to make.
 Alternatively, managers may also be faced with a range of extremely
appealing alternatives but experience conflict because they have to
choose only one. For example, a manager might have two very capable
internal candidates going for promotion, but can only choose one.
 In making decisions, managers also experience conflict with other
members of the organisation.
 Different groups will protect the interests of their own work groups
very carefully and will not want to see any reduction in status
through declining resources.
 Unless the decision is construed to be a win–win scenario it is
inevitable that some degree of conflict will emerge.
 Given that most managers face lack of structure and information,
and uncertainty and conflict as they make decisions, it is not
surprising that managerial decision making has become all the
more challenging, yet also critically important, in recent years.
The decision-making process

 Most models of decision making include six essential steps that it is

recommended managers should follow when making decisions.
1. Identify and diagnose the problem.
2. Identify alternative solutions.
3. Evaluate alternatives.
4. Choose an alternative.
5. Implement the decision.
6. Evaluate the decision.
Step 1: Problem identification and diagnosis
 recognising that a problem exists and that action has to be taken.
 A problem is a discrepancy between the current state of affairs and a desired state
of affairs.
 In seeking to identify a problem, managers can use a variety of sources of data,
including comparing organisational performance against historical performance,
against the current performance of other organisations/departments or against
future expected performance.
 Problem identification must be followed by a willingness to do something to rectify
the situation.
 Before taking action the problem needs accurate diagnosis. Diagnosis involves
assessing the true cause of the problem by carefully selecting all relevant material
and discarding information which is not relevant to the problem at hand.
 Sometimes decisions need to be made when a problem does not exist: for
example, a company might want to grow rapidly to capitalise on market
opportunities and will have to decide on what route to take.
Step 2: Identification of alternatives
 Managers should try to identify as many alternatives as possible in
order to broaden options for the organisation.
 In generating alternatives the organisation may look toward ready-
made solutions that have been tried before, or custom-made
solutions that have to be designed specifically for the problem at
hand. In today’s business environment more and more organisations
are applying custom-made solutions to enhance competitive
advantage.
 Returning to the previous example of an organisation seeking
growth opportunities, identifying all the alternatives is critically
important when making a choice about a certain course of action.
 Some of the alternatives open to the company are:
 growth through acquisition
 growth through establishing an overseas facility
 using an agent to market and distribute the product abroad
 growth through diversification of the existing product line.
 With such a decision the organisation has to design its own
individual custom-made solution.
 The organisation might be guided by previous decisions it has taken,
or by what competitors have done, this decision is unique and
therefore requires new solutions.
Step 3: Evaluation of alternatives
 A manager needs to evaluate each alternative in order to choose
the best one.
 Consideration should be given to the advantages and
disadvantages as well as the costs and benefits associated with
each option.
 Most alternatives will have positive and negative aspects and the
manager will have to try to balance anticipated outcomes.
 Depending on the situation, evaluation of alternatives may be
intuitive (based on gut feeling) or based on scientific analysis. Most
organisations try to use a combination of both.
 When evaluating alternatives, managers may consider the potential
consequences of alternatives under several different scenarios. In
doing so they can develop contingency/possibility plans which can
be implemented with possible future scenarios in mind.
Step 4: Choice of alternative
 the next step is to choose the most suitable one.
 If for some reason none of the options considered is suitable, the
manager should revert back to Step 2 of the process and begin
again (alternative identification).
 When there are suitable alternatives and Steps 2 and 3 have been
conducted skilfully, selecting alternatives may be relatively easy.
 In coming to a decision the manager will be confronted by many
conflicting requirements that will have to be taken into account. For
example, some trade-offs may involve quality versus acceptability
of the decision, and political and resource constraints.
 Returning to our example, using the evaluative criteria in Step 3 the
organisation will make a decision about which alternative to choose
for future growth. Based on an analysis of the market and the
organisation’s capabilities they decide to purchase a small
company with a strong market presence in a geographical region
presently unserved by the organisation.
Step 5: Implementation
 This stage of the process is critical to the success of the decision and is
the key to effective decision making. The best alternative is worth
nothing if it is not implemented properly.
 In order to successfully implement a decision, managers must ensure
that those who are implementing it fully understand why the choice was
made, why it is being implemented, and are fully committed to its
success.
 Decisions often fail at the implementation stage because managers do
not ensure that people understand the rationale behind the decision
and that they are fully committed to it. For this reason many
organisations are attempting to push decision making further down the
organisation to ensure that employees feel some sense of ownership in
the decisions that are made
Step 6: Evaluation
 needs to be evaluated to provide feedback.
 The process of evaluation should take place at all managerial levels.
 This step allows managers to see the results of the decision and to
identify any adjustments that need to be executed.
 Some form of adjustment will be made to ensure a more favourable
outcome.
 Evaluation and feedback are not one-off activities, however, and
they should form part of an ongoing process.
 As conditions change, decisions should be re-evaluated to ensure
that they are still the most appropriate for the organisation. This also
helps managers to learn about making sound decisions taking past
experience into account.