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Decision Making

What is Decision Making?

 “A course of action which is chosen from among
a set of alternatives to achieve a desired result.“
 It implies choice
 Continuous activity
 Goal Oriented process
 Means and not the end
 Relates to specific problems
 Time consuming activity


Types of Decisions
 Programmed and Non-Programmed Decisions
 Major and Minor Decisions
 Routine and Strategic Decisions
 Individual and Group Decisions
a. Nominal Group Technique
b. Delphi Technique



 Simple and Complex Decisions
1. Simple problem, High degree of certainty-
Routine decision
2. Simple problem, Low degree of certainty –
Judge mental decision
3. Complex Problem, High degree of certainty-
Analytical Decision
4. Complex Problem, Low degree of certainty-
Adaptive decisions


Rational Decision Making
 A method for systematically selecting among
possible choices that is based on reason
and facts. In a rational decision making process,
a business manager will often employ a series
of analytical steps to review relevant facts,
observations and possible outcomes before
choosing a particular course of action



Intuitive Decision Making
 The second main category are
the intuitive models. These models do not depend
on reason and logic. The choice is reached
usually by an intuitive 'knowing' of what the
best answer is. People talk about 'feeling it in
their gut', 'listening to their heart' and receiving
visions or hearing voices.
 Other methods of decision making such as
astrology, crystals, tarot cards, a roll of the dice,
could also be considered to be intuitive models.
They are not based on reason and rationality,
rather they are tapping into some inner wisdom.

STEPS IN RATIONAL DECISION
MAKING
Identifying the problem
Analyzing the problem
Developing alternative solutions
Selecting the best solution
Converting into Action
Follow up of action
Rational Decision Making Model.
 The Problem is clear and unambiguous.
 A single well defined goal is to be achieved.
 All alternatives and consequences are known.
 Preferences are clear.
 Preferences are constant and stable.
 No( time or cost) constraints exist.
 Final choice will maximise ( economic) payoff
BOUNDED RATIONALITY
 Herbert Simon recognized that decisions typically
do not follow the assumption of rationality. But
that wasn’t an outcome of the model itself.
Although environmental factors may act as
barriers to these assumptions, decision makers
can still act rationally but in a constrained way
which he called as BOUNDED RATIONALITY.

 Bounded Rationality is the behaviour that is
rational within the parameters of a simplified
model that captures the essential features of a
problem.
Certainty, Risk & Uncertainty
 Certainty implies that the manager can make
an accurate decision because the outcome of
every alternative is known.
 But that is not always the case, risk involves
assigning probabilities to outcomes that may
result.
 When decision makers have no full
knowledge of the problem nor the reasonable
probability of outcome they make decision
under a condition of Uncertainty.
Decisions & Organisational
Levels.
 Types of Problems Mgt Level
 Well Structured Middle/ Lower.
 Unstructured Top.
 ------------------------------------------------------
 Types of Decisions Mgt Level.
 Programmed Middle/ Lower.
 Non Programmed Top
Difficulties in Decision making
 Incomplete information
 Unsupporting Environment
 Non-Acceptance by Subordinates
 Ineffective Communication
 Incorrect timing