Chapter 3

The Nature of
Decision Making
 Learning objective
3.1 Definition of decision making
3.2 Types of decision making
3.2.1 Programmed decision
3.2.2 Non-programmed decision
3.3 Types of condition under decision
making
3.4 The rationale of decision making
3.5 Decision making process
3.6 Group decision making techniques
LO 3.1 Definition of decision making

• “The process through which managers identify and resolve problems

and capitalize on opportunities”

• The process by which a course of action is selected as the way to deal

with a specific problem
LO 3.2 Types of decision making
Types of
Decision
Making

Non-
Programmed
Programmed

 It is structured.  Deals with unique, unusual or

exceptional problem. It is unstructured
 A repetitive decision that can and requires higher level management
be handled by a routine approach
Non-routine decision making that
 Example: Rules & regulations occurs in response to unusual,
unpredictable opportunities and treat

Example: Government’s decision to

prevent H1N1 by stopped all the travelling
outside country
LO 3.3 Types of condition under decision making

• Decision maker know exactly what will happen and

able to predict the outcome precisely

Certainty • E.g.: If you put RM1000 in bank under fixed deposit

or a year at 5% interest, then interest earned will be
RM50 after 1 year

• A condition under which there is no full knowledge

of the problem and reasonable probabilities for
alternative outcomes cannot be determined.
Uncertainty
• e.g open a new branch in inexperiences location or
industry.
Cont..

• Refer to future conditions that are not always

known in advance
• Decision maker is able to estimate the likelihood of
certain outcome based on personal experience or
Risk secondary information
• Some information is available, but it is not enough
to answer all questions about the outcomes
• e.G making investment at Bursa Saham Malaysia
LO 3.4 The rationale of decision making

– Investigate the situation

• Define problem
• Diagnose causes
• Identify decision objectives

– Develop alternatives
• Seek creative alternatives
• Do not evaluate yet
LO 3.4 The rationale of decision making

– Evaluate alternative & select the best one

• Evaluate alternative: Time required, costs involved, risk
involved, benefits or advantages & limitation
• Select the best alternative

– Implement & monitor

• Plan implementation- review the plan periodically
• Monitor implementation & make necessary adjustment
LO 3.5 Decision making process

• Managers regularly review data related to their areas of responsibility,

including both outside information and reports and information
Identifying from within the organization
opportunities
and diagnosing
problems

• Reflect the results the organization wants to attain. Both the quantity and
quality of the desired results should be specified because these aspects of
the objectives will ultimately guide the decision maker in selecting the
Identifying appropriate course of action
objectives • Objectives can be short range or long range

• Alternatives – Strategies that might be implemented in the decision-

making situation
Generating • Creativity and imagination are often required in this step
alternatives
 Cont…
• Assess the value or relative advantages or disadvantages of each
alternative under consideration
Evaluating
alternatives

• Making a final choice

• The best decisions are often based on careful judgments, making a
Reaching good decision involves carefully examining all the facts, determining
decisions whether sufficient information is available, and finally selecting the
best alternatives

• When decisions involve taking action or making changes, choosing

ways to put these actions or changes into effect become an essential
managerial task
Choosing
• The key to effective implementation are:
implementatio
n strategies • a) Sensitivity to those who will be affected by the decision
• b) Proper planning and consideration of the resources necessary to
carry out the decision
 Cont…

• No decision-making process is complete until the impact of the

decision has been evaluated
• Managers must observe the impact of the decision and take
Monitoring and further action if it becomes necessary
evaluating
feedback
 LO3.6 Group decision making techniques

1) Brainstorming – A technique used to enhance creativity that

encourages group members to generate as many novel ideas
as possible on a given topic without evaluating them

• Can enhance creativity by overcoming pressures for conformity that

can retard the development of creative decision-making
• Focuses on generating ideas rather than on choosing an alternative
 Cont…

2) Nominal group technique (NGT) – A structured

process designed to stimulate creative group decision-
making in which agreement is lacking or the members have
incomplete knowledge concerning the nature of the
problem

• Individual members list their ideas on the specific problem and

present the ideas at one time, without discussion
• Members’ ideas are recorded so that everyone can see them
• After all members’ ideas are presented, the group discusses the
ideas to clarify and evaluate them
 Cont…

3) Delphi technique – An approach that uses the experts to

make predictions and forecasts about future events without
meeting face-to-face

• Using survey instruments or questionnaires, a group leader

collects written expert opinions on a topic
 Group Decision Making
Advantages & Disadvantages
Advantages Disadvantages

1. More information and knowledge
are available.
2. More alternatives are likely to be
generated.
3. More acceptance of the final
decision is likely.
4. Enhanced communication of the
decision may result.
5. Better decisions generally emerge.
1. The process takes longer than individ-
ual decision making, so it is costlier.
2. Compromise decisions resulting from
indecisiveness may emerge.
3. One person may dominate the group.
4. Groupthink* may occur.

* a process in which bad decisions are made because the different members of a group
do not express their individual opinions about a plan, proposal, etc. but only say what
they think the rest of the group would agree with 15