 Process of choosing from among

alternatives
 Process of identifying problems
and opportunities then resolving
them
According to Drucker

Decision making is a judgement.

It is a choice between right and
wrong. It is at best a choice between
‘almost right’ and ‘probably wrong’.
 CHARACTERISTICS

1. GOAL DIRECTED ACTIVITY

2. INTEGRAL PART OF MANAGEMENT
3. INTELLECTUAL ACTIVITY
4. INVOLVES CHOICE
Decision Making
 Cognitive process leading to the selection of a
course of action among alternative

 Every decision making process produces a final

choice. It can be an action or an opinion

 Fundamental process in organisation

 Decision maker chooses based on evaluation of
information
Problems faced by manager

◦ Choice and allocation of resources

TYPES OF DECISIONS
Based on frequency
◦ Programmed decision
◦ Non-programmed decision

Based on information conditions

◦ Complete certainty
◦ Risk
◦ Complete uncertainty
Based on frequency
 PROGRAMMED DECISION
A decision that recurs often enough for a decision rule
to be developed

DECISION RULE – Statement that tells decision

maker which alternative to choose once they have the
information about the decision situation
 Highly structured

 Clear and well known goals

 Decision making procedure already

established

 Sources and channels of information

clearly defined

 Minimum of uncertainty

 Recurs frequently
Based on frequency
 NONPROGRAMMED DECISION
A decision that recurs infrequently and for which there
is no previously established decision rule.

 Requires problem solving

Problem solving is a form of decision making in which
the issue is unique and alternatives must be developed
and evaluated without the aid of a programmed
decision rule.
 Poorly structured

 Information not available

 No clear procedure for making decision

 Goals are vague

 Non recurring type or non routine

 Programmed and Nonprogrammed decisions
Programmed Nonprogrammed
Characteristics decision decisions

1. Type of decision Well structured Poorly structured

2. Frequency Repetitive and routine One-shot and unique
3. Goals Clear, specific Vague
4. Information Readily available Not available, unclear
channels
5. Consequences Major
Minor
6. Organisational level Lower levels Upper levels
7. Time for solution Short Relatively long
8. Basis for solution Decision Judgement & creativity
rules,procedures
 Certainty
Outcome of each alternative is known
 Risk
Outcome is uncertain but has
information to estimate probabilities of
outcomes
 Uncertainty
Lacks enough information to estimate
probability of outcomes
TYPES OF BUSINESS DECISION
 Location decision
Decision regarding location of plant or factory
Location determine profitability
Site selection depends on nature of business

 Operating decision
Decision regarding day to day operation of the
business
Types of business decision
 Growth decision
Decision regarding future expansion or
diversification
Determines future of the business

 Finance decision
Decision regarding required optimum finance
Excess – pay dividend to unutilised portion
Deficit – affect day to day operation
 Personal and Organisational decision
Personal decision is an attempt to achieve
personal goals. It cannot be delegated. It can
affect an organisation.

Organisational decision is taken to achieve

organisational objective. It can often be
delegated
 Basic and routine decisions
Basic decisions are on time decisions
involving long term commitments of relative
permanence involving large investments.
eg: Top management policy

Routine decisions are everyday, highly

repetitive having little impact on overall
organisation.
eg: accountants decision on new entry
TYPES OF DECISION BASED ON LEVELS OF
MANAGEMENT
 Strategic Decisions Tactical Decisions Operational Decisions

Decisions are taken Decisions are not Decisions are taken

where future planning frequently taken. daily.
is concerned. So less
frequent

Long-term decisions Medium -term Short-term decisions

decisions

Decisions are taken in Decisions are taken in Decisions are taken

accordance with accordance with according to tactical
organizational mission strategic decision. decisions.
and vision.

Related to overall Related to production

Related to working of
counter planning of
employees
Organization.
Related to production Deal with welfare of
Deal with organizational
and factory growth. employees working in
Growth.
an organization.
Integrative Decisive

Hierarchial Flexible
 Manager arrives one firm conclusion with
minimum amount of information
 Do not consider many alternatives
 Concerned action, results, speed and
efficiency
 Long, detailed report will be sent back,
ignored or given to someone else to
summarise
 Prefer simple and clear solution
 Manager who prefers concise report
consisting of wide variety of briefly stated
alternatives from which he have to choose

 Rather than planning highly structured

solutions manager prefers that solutions
evolve as he gains acceptance from others
 Carefully analyses large amount of
information to arrive at one best solution.

 Values perfection, precision and

thoroughness

 Solve problems creatively

 Manager uses mass amount of information to
generate many possible solutions
simultaneously
 Carefully analyse alternatives
 Manager constantly alters and improve his
plans
 Willing to use innovative models
AUTOCRATIC

ANALYTICAL

CONCEPTUAL

BEHAVIOURAL
 Autocratic or Directive styles
◦ Prefer simple and clear solution
◦ Make decision rapidly
◦ Do not consider many alternatives
◦ Rely on existing technology

 Analytical
◦ Prefer complex problems
◦ Carefully analyse alternatives
◦ Enjoys solving problems
◦ Willing to use innovative models
 Conceptual
◦ Socially oriented
◦ Humanistic and artistic approach
◦ Solve problems creatively
◦ Enjoy new ideas

 Behavioural
◦ Concern for their organisation
◦ Interest in helping others
◦ Open to suggestions
◦ Rely on meetings
1.Escalating commitment
Tendency to persist in an ineffective course
of action when evidence reveals that the
project cannot succeed
 Managers tend to misrepresent negative
information
 Society values perspectives and consistency

2. Risk-certainty-uncertainty
Range of information available from complete
certainty to complete uncertainty
3. Muddling through - incrementalism
Muddling through occurs when goals are in
broad terms, managers proceed to make
intuitive decisions that seem to be most
advantageous at the time.

Rapid changing environment leads to

insufficient time and information to take
formal analysis of possible alternatives.
Events are dealt with an incremental fashion.
Bits and pieces of strategies are formed
4. Optimising and sub optimising
 Alternative which achieves desired goal
have positive or negative impact on another
goal
 Two objectives cannot be fully achieved one
is optimised and other is sub optimised

5. Values
Values are beliefs that guide actions and
judgements across a variety of situations
6. Personality
Set of distinct traits and characters that can
be used to compare and contrast individuals

7. Propensity for risk

Risk on probability of obtaining a desired
outcome.
Probabilities are developed from
information.
Research indicates that decision makers
vary greatly in their propensity for taking risk
8. Availability of Finance
Certain decisions will be rejected
because they cost too much

9. Existing Business Policy

It is not always practical to re-write
business policy to accommodate one
decision.