Chapter 8: Decision-Making

“Ang di magsapalaran,
Hindi makatatawid ng karagatan.”

“He who doesn’t dare,

Never gets to cross the ocean.”

Decision-Making – is the process whereby a course of action is selected on the basis of two or more possible
alternatives.
- Is a process and is pervasive in all the basic management functions of planning, organizing, staffing,
controlling, directing and motivating.
- 1) premising; 2) identifying alternatives; 3) the evaluation of alternatives in terms of the goal sought;
and 4) choosing of an alternative.

In Formal Decision Process may summarize as follows:

1. Recognition and definition of the problem.
2. Development of an explanation of the relationship between the factors relevant to the problem.
3. Construction of hypothesis of building a model.
4. Testing the hypothesis or model.
5. Manipulation and stipulation and application of the model.

NON-QUANTITATIVE BASES FOR DECISION-MAKING, four (4) non-quantitative bases of managerial

decision-making.
A. Intuition – characterized by hunches, feelings and other psychological factors and commonly referred to
as “gut feel”.
Following are suggested to those who may wish to sharpen their intuitive decision-making skill:
1. Becoming more involved by filling theirs with facts and experiences in the areas where their future
decisions will be made.
2. Practicing intuitive decision-making and keeping a score on how well such decisions turned out.
3. Developing an awareness that hunches can help in the decision-making.

B. Facts – may carefully analyzed, classified, and interpreted. “Imagination, experience, and beliefs are
usually required to interpret the facts in their proper perspective and to use them advantageously”.

C. Experience – may spell the difference between success and failure in decision-making.

D. Opinions – other who may have similar experience, or experts and consultants serve as some of the
bases in nonquantitative decision-making. Opinions may be structure and unstructured (informal
opinion).

QUANTITATIVE BASES FOR DECESION-MAKING, four (4) commonly used quantitative technique:
A. Linear Programming – helps determine the optimal combination of limited resources to solve problems
and to achieve organizational objectives.

1
 1. An objective is to be optimized.
2. The variables affecting the outcome have linear or straight line relationships
3. Restrictions or limitations on the variables exist.

B. Monte Carlo – this technique is a form of simulation and uses probability factors. It is guided by random
sampling to take into account the probability of an event happening.

C. Probability Theory – technique may be viewed as a manner of dealing systematically data which are
believed to be representative of phenomenon being studied.

D. Gaming – a type of simulation generally used for teaching. The objective is to improve decision making
and to develop general decision capabilities.

THE DECISION-MAKING FRAMEWORK

The process of decision-making or arriving at a decision is a complex process, Peter Drucker suggested
the following steps in decision making:
1. Define the problem
2. Define expectation
3. Develop alternative solutions
4. Know what to do with the decision after it is reached

The Decision-Making Systems Framework

Input Process Out
Information about the environment Scanning and monitoring the Set of environmental conditions
environment
Decision problem or situation Defining the decision problem or Definition of the problem requiring
situation decision
Specifications and requirements for Formulating the objectives of the Objectives of the decision
objective setting decision
Tools and techniques for evaluating Stating the various tools or Set of techniques and tools
the various decision alternatives techniques for tools evaluation of
decision alternatives
Information and data for various Formulating and setting up decision Decision alternatives
decision alternatives alternatives
Objectives and tools for decision Evaluating various decision Selected decision
choice alternatives
Feedback of implementation of the Monitoring the process and Validation of the decision taken
decision outcome of the decision taken