Chapter Four

Decision Making and Problem Solving

4.1 Introduction
▪ Decision making is the process of identifying problems and opportunities, develop
alternative solution, select best alternatives and implement it.
▪ It is defined as a rational choice among alternatives. And also it is a process, not a
lightning bolt occurrence.
▪ In making decision, a manger is making a judgment-reaching a conclusion from a list
of known alternatives.
▪ Managers starting from supervisory up to the ultimate authority are always called
upon to make decisions on matters related to themselves and their organizations.
▪ It is part of all managers’ job and common core to other functions. For instance:
✓Top level management makes decision on dealing with mission of organization
and its strategies.
✓Middle level management, focus on implementing strategies, budgets and
resource allocation.
✓First level management deals with repetitive day to day operations.
4.2. Rational Decision making process
• It is believed that major decision-making situations should be an explicit rational
process in which managers (decision makers) chose the best alternatives that can
maximize the desired objectives. Accordingly, this process embodies seven steps.
These are:
A. Define the problems
• A problem is the difference between the current and desired performance and
situation. Opportunity is a chance, event or occasions that requires a decision to be
made. The criteria mangers use to locate problems:
❑ Deviations from past performance
❑ Deviation from the plan
❑ Outside criticism
B. Identify the limiting or critical factors
• Once the problem is defined, the manager needs to develop the limiting or critical
factors of the problem. Limiting factors are those constraints that rule out certain
alternative solutions. These are:
• Time, resource/ personnel, money, facilities and equipment.
• These are most common limiting or critical factors that narrow down the range of possible alternatives.
C. Develop potential alternatives or solutions to the problem
• This is the stage in which potential solutions that might resolve the problem or lead to
objective attainment are generated. That means develop and list many possible
alternative solutions to the problems. Doing nothing about a problem is the proper
alternative.
• Sources of alternatives are: experience, personal opinions and judgments, group
opinions, committees and the use of outside sources including mangers in other
organizations.
D. Analyze the alternatives
• The purpose of this step is to decide the relative merits of each of alternatives. This
means advantages and disadvantages, comparing the potential pay off and possible
consequences of each alternative solution.
E. Select the best alternatives
• It is the real point of decision making a manger selects a strategy to solve a problem and
to achieve predetermined objectives. It is to find a solution that appears to offer the fewest
serious disadvantages and most advantages.
F. Implement the solution
• The alternatives solution should put in to effect and implemented so as to achieve
objectives for which it is made. Any decision must be effectively implemented because
good decision may be harmed by poor implementation.
 G. Evaluate and control
• The final step in decision-making process is to create a control and evaluate
system. Ongoing action need to be monitored. This system should provide
feedback on how decision was implemented what the result are positive and
negatives and what adjustments are necessary to get the results that were
wanted when the solution was chosen. Manger should have to continue periodic
measurement. That means compare the results with the established standards
.When there is deviation we have to take correction.
4.3 Types of Decisions
• The most common types of decisions are:
✓Programmed and
✓Non-programmed decision-making is.
• Programmed decision are the decision managers make in response to routine and
repetition situation and are labeled as programmed because they are amendable to
organizational established policies, procedures and rules.
• If a particular situation occurs often managers will develop a routine procedure for
handling it.
▪ The management of most organization faces great number of programmed
decisions in their daily operation. Such decision should be made without expending
unnecessary time and effort.
▪ Non programmed decision are those made by manager in a novel, complex or/
and extremely important problems situations. They are non programmed because
established policies, rules and procedures can’t be employed and it is decision
maker insight, judgment and creativity which have paramount importance. Making
such decisions is clearly a creative process. Reaching non-programmer decision is
more complicated and requires the expenditure of lots of money worth of
resources every year. Government organizations make non-programmer decisions
that influence the lives of every citizen.
4.3.1. The decision-making condition
▪ There are three basic decision-making conditions. These are: certainty, risk and
uncertainty.
A. Decision under certainty
▪ Manger has perfect knowledge; external conditions are identified and predictable.
Alternatives are known with their consequences. Also, a manager can rely on a
policy or standing plan. The decision will be made routinely.
 B. Decision Under Risk
• In which probability can be assigned to the expected outcomes of each
alternatives. Manager knows alternatives but do not know how will work so he/she
faced with dilemma of choosing best alternatives.
C. Decisions under uncertainty
• In a situation to manger is not able to determine the exact odds or probabilities
of potential alternatives available and deal with two many unknown facts.
Probabilities cannot be assigned to surrounding conditions.
D. Decision under Ambiguity is by far the most difficult decision situation. Ambiguity
means that the goals to be achieved or the problem to be solved is unclear,
alternatives are difficult to define, and information about outcomes is unavailable.
4.4. Decision Making Models
• Classical Model,
• Administrative Model
• Political Model
4.4.1.Classical Model
• Classical model managers are expected to make decisions that are economically
sensible and, in the organization’s, best economic interests.
• The classical model of decision making is considered to be normative, which
means it defines how a decision maker should make decisions.
• It does not describe how managers actually make decisions so much as it
provides guidelines on how to reach an ideal outcome for the organization.
• its ability to help decision makers be more rational.
• Many managers rely solely on intuition and personal preferences for making
decisions.
• The decision maker operates to accomplish goals that are known and agreed
upon. Problems are precisely formulated and defined.
• The decision maker strives for conditions of certainty, gathering complete
information. All alternatives and the potential results of each are calculated.
• Criteria for evaluating alternatives are known. The decision maker selects the
alternative that will maximize the economic return to the organization.
• The decision maker is rational and uses logic to assign values, order
preferences, evaluate alternatives, and make the decision that will maximize the
attainment of organizational goals.
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4.4.2. Administrative Model
• The administrative model of decision making describes how managers actually make
decisions in difficult situations, such as those characterized by non-programmed
decisions, uncertainty, and ambiguity.
• Managers are unable to make economically rational decisions even if they want to.
Because of the following
• Bounded rationality means that people have limits, or boundaries, on how rational they can
be.
• Satisficing means that decision makers choose the first solution alternative that satisfies
minimal decision criteria.
• Intuition represents a quick apprehension of a decision situation based on past experience
but without conscious thought.
• Decision goals often are vague, conflicting, and lack consensus among managers.
• Managers often are unaware of problems or opportunities that exist in the organization.
• Rational procedures are not always used, and, when they are, they are confined to a
simplistic view of the problem that does not capture the complexity of real organizational
events.
• Managers’ searches for alternatives are limited because of human, information, and
resource constraints.
• Most managers settle for a satisficing rather than a maximizing solution( due to limited
information and partly due to vague criteria)
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4.4.5. Political Model
• Political Model of decision making is useful for making non-programmed decisions when
conditions are uncertain, information is limited, and managers may disagree about
what goals to pursue or what course of action to take.
• Most organizational decisions involve many managers who are pursuing different goals,
and they have to talk with one another to share information and reach an agreement.
Managers often engage in coalition building for making complex organizational
decisions.
• A coalition is an informal alliance among managers who support a specific goal.
• Political Model Assumptions
• Organizations are made up of groups with diverse interests, goals, and values.
• Disagreement problem priorities; different goals and interests
• Information is ambiguous and incomplete.
• rationality limited by problem complexity and resource constraints.
• Managers do not have the time, resources, or mental capacity to identify all dimensions
of the problem and process all relevant information.
• Managers talk to each other and exchange viewpoints to gather information and
reduce ambiguity.
• Managers engage in the push and pull of debate to decide goals and discuss alternatives.
• Decisions are the result of bargaining and discussion among coalition members.
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4.5. Decision Making tools
• Decision-making tools are instruments, methods, or frameworks used to facilitate
the process of making choices or solving problems. These tools aim to provide
structure, reduce bias, and improve the quality of decisions. Here are some
commonly used decision-making tools:
1.Decision Matrix: A decision matrix is a table that allows you to compare and evaluate
multiple options based on multiple criteria.
• Each option is scored against each criterion, and the scores are weighted according
to their importance. This tool helps in systematically evaluating alternatives.
2. Decision Trees: Decision trees are graphical representations of decisions and their
possible consequences, including chance event outcomes, resource costs, and utility.
• They help visualize the potential outcomes of different choices and are particularly
useful in complex decision-making scenarios.
3. Pareto Analysis: Pareto analysis, also known as the 80/20 rule, is a technique for
identifying the most important factors among many.
• It helps prioritize issues by focusing on the most significant contributors to a problem
or opportunity. 10
4. SWOT Analysis: SWOT stands for Strengths, Weaknesses, Opportunities, and Threats.
It is a strategic planning tool used to identify and understand the internal and external
factors that can affect the success of a project, business, or decision.
5. Cost-Benefit Analysis (CBA): CBA is a systematic approach for evaluating the pros and
cons of a decision by comparing the costs and benefits associated with different alternatives.
It helps in determining whether the benefits of a decision outweigh its costs.
6. Decision Support Systems (DSS): Decision support systems are computer-based tools or
software that assist decision-makers in complex and unstructured decision-making tasks. DSS
typically integrate data, models, and analytical techniques to provide insights and
recommendations.
• Decision support software provides interactive tools and models to help decision-makers
analyze data, simulate scenarios, and evaluate alternatives. These software applications
range from simple spreadsheet-based tools to complex analytics platforms.
7. Brainstorming: Brainstorming is a group creativity technique used to generate a large
number of ideas or solutions to a problem. It encourages free thinking and idea generation
without criticism, which can then be evaluated using other decision-making tools.
8. Scenario Analysis: Scenario analysis involves considering multiple possible future
scenarios and assessing how different decisions would perform under each scenario. It helps
in understanding the potential risks and uncertainties associated with a decision.
9. Multi-Criteria Decision Analysis (MCDA): MCDA is a decision-making approach that
considers multiple criteria or objectives simultaneously.
• It helps decision-makers evaluate alternatives based on various dimensions and preferences,
often using mathematical models or scoring systems.
• These tools can be used individually or in combination, depending on the nature and
complexity of the decision at hand. Choosing the appropriate tool often depends on factors
such as the available data, the decision-maker's preferences, and the desired level of
analysis.
4.6. Problem solving techniques
• Problem-solving is a crucial skill in both personal and professional contexts. Here's a
breakdown of problem-solving techniques across the stages of problem identification,
analysis, solution development, and implementation:
1.Problem Identification:
1. Define the Problem: Clearly articulate the problem by identifying symptoms, root causes, and
the desired outcome.
2. Ask Questions: Use techniques like the "Five Whys" to delve deeper into the problem's
underlying causes.
3. Gather Information: Collect relevant data, facts, and perspectives to gain a comprehensive
understanding of the problem.
4. Brainstorm: Encourage creative thinking to generate potential problem statements and
explore different angles.
2. Problem Analysis:
1. Root Cause Analysis: Identify the fundamental reasons behind the problem rather
than just addressing its symptoms. Techniques like Ishikawa (fishbone) diagrams can
help visualize causes.
2. SWOT Analysis: Evaluate the strengths, weaknesses, opportunities, and threats
associated with the problem and its potential solutions.
3. Prioritize Issues: Use techniques such as Pareto Analysis to prioritize the most
critical factors contributing to the problem.
4. Systems Thinking: Consider the broader context and interconnectedness of factors
influencing the problem.
3. Solution Development:
1. Generate Options: Brainstorm potential solutions without judgment, encouraging
creativity and diversity of thought.
2. Evaluate Alternatives: Assess each solution against criteria such as feasibility,
effectiveness, cost, and impact.
3. Decision Matrix: Use a decision matrix to compare and rank alternatives based on
predefined criteria.
4. Seek Input: Consult with stakeholders, subject matter experts, or relevant parties
to gather insights and perspectives.
4. Implementation:
1. Action Planning: Develop a detailed plan outlining specific steps, responsibilities,
timelines, and resources required for implementation.
2. Risk Assessment: Anticipate potential obstacles or risks to implementation and
develop contingency plans.
3. Communication: Communicate the solution, its rationale, and implementation plans
clearly to stakeholders to gain buy-in and support.
4. Monitor and Adapt: Continuously monitor progress, evaluate outcomes, and
adjust implementation strategies as needed to ensure effectiveness and address
any emerging issues.