DECISION

MAKING
Decision

A choice from two or more alternatives

Decision Making
Administrative process based on decision making ,
Decision making is based on choice whereas choice is
based on alternatives.

Administrative
process

Decision Making

Choice

Best Alternatives
DECISION MAKING

“The selection of preferred course of action

from two or more. so selection with the best
alternatives is called decision making”
 DECISION-MAKING
CONDITIONS
There may be three types of Conditions
faced by a decision maker

A. Certainty
B. Risk
C. Uncertainty
 (A) CERTAINTY
A condition in which the decision maker knows the
outcome of every possible alternative

(B) RISK
The probability that a particular outcome will result
from a given decision.

(C) UNCERTAINTY
A condition in which manager do not have full
knowledge of the problem they face and cannot
determine even a reasonable probability of
alternative outcomes.
 Approaches/Models of
Decision Making

 The Classical model

 The Administrative model
 Classical Model
 An approach of decision making based on the
assumption that the decision maker can
identify and evaluate all possible alternatives
and their consequence & rationally choose the
most appropriate course of action.
 •Identification of a Problem
Decision Making Process
•Identification of a decision criteria

•Allocation of weights to criteria

•Development of Alternatives

•Analysis of Alternatives

•Selection of an Alternative

•Implementation of the Alternative

•Evaluation of Decision Effectiveness

1-Identification of a Problem
The decision making process begins by determining that
a problem exists: that is, there is an unsatisfactory
condition. This is frequently expressed as a disparity
between what is and what should be.
Whether a decision is necessary depends on the
administrator’s perception. What one person sees as a
“problem” another may see as perfectly acceptable state
of affairs. So, the decision process begins with
administrator’s recognition that there is a gap between
what is desired and what actually is.
e.g. Taking a Job
2-Identification of Decision Criteria

This requires identifying those characteristics that are

important in making decision.
e.g. In case of new job the important characters in his
eye may be
 
(a) Starting Salary
(b) Growth
(c) Goodwill of Organization
(d) Security
(e) Geographical Location

and unimportant factors may be

i. Organizational sense of social responsibility

ii. Availability of Urban Transport
iii. Overtime Requirement
3-Allocate weights to criteria

The list of criteria must now be prioritized.

Since some are obviously more important
than others, you need to weight each
criterion to reflect its importance in the
decision. e.g.(weights 1-5)
a) Starting Salary 5

b) Growth 4

c) Security 3

d) Good will of Organization 2

e) Geographical Location 1
4-Develop Alternatives
Now, we proceed to develop a list of the
alternatives that may be viable in dealing with
the stated problem.

e.g. you have four job opportunities which

you find from different resources e.g.
a) Reference of your uncle,

b) News paper add,

c) College notice board.

 DEVELOP ALTERNATIVES
Title Organization Location About the job

1 Store Manager Nestle Karachi Rs.10000 Look

after store

2 Administrator Human Rights Lahore Look after office

(Defense) Rs. 5000

3 Marketing Pepsi Lahore Rs.9000 Look

Manager (Gulberg) after department

4 Plant Manager Descon Karachi Rs. Look after

Contract 2 years plant
6000
5-Analyzing Alternatives

Once the alternatives have been enumerated,

the administrator must critically evaluate each
one. The strengths and weaknesses of each will
become evident as they are compared against
the criteria and weights established in step 2
and 3.
 EVALUATE ALTERNATIVES

Title Organizati Location About Nestle Human Pepsi Descon

on the job Rights

1 Store Nestle Karachi Rs.10000 Starting 4 1 3 2

Manager Look after Salary
store

2 Administrat Human Rights Lahore Look after Growth 2 3 4 1

or office Rs.
(Defense) 5000

3 Marketing Pepsi Lahore Rs.9000 Security 4 4 4 1

Manager Look after
(Gulberg) department

Goodwill 4 2 3 1
4 Plant Descon Karachi Rs. Look
Manager after plant Geograph 1 3 4 2
Contract 2 6000 ical
years location
Selection of best Alternative

The final step in decision making process

takes place when all the alternatives have
been listed and evaluated against the decision
criteria. This final step is the selection of the
best alternative which has quantitatively been
determined.
SELECTION OF BEST ALTERNATIVES

Nestle Human Rights Pepsi Descon

Starting Salary 5 x 4 = 20 5x1=5 5 x 3 = 15 5 x 2 = 10

Growth 4x2=8 4 x 3 = 12 4 x 4 = 16 4x1=4

Security 3 x 4 = 12 3 x 4 = 12 3 x 4 = 12 3 x 1 =3

Goodwill 2x4=8 2x2=8 2 x 3 =6 2x1=2

Geographical 1 x 1= 1 1x3=3 1x4=4 1x2=2

location

49 40 53 21
Implementation of Alternatives

Although the choice process is completed in

the previous step, the decision may still fail if
it isn’t implemented properly. Therefore, this
step is concerned with putting decision into
action.
Implementation involves conveying decision
to those affected by it and getting their
commitment.
Evaluate the Effectiveness

the last step in the decision making process involves

appraising the outcome of the decision to see if
problem has been resolved. Did the alternative
chosen step 6 and step 7 accomplish the desired
result?

What would happen if, as a result of this, evaluation,

the problem still existed? Answers to questions such
as these might send the manager back to one of the
earlier steps. It might even require starting the whole
decision process over.
RATIONAL DECISION MAKING

“A rational decision-making process is one

that is logical and follows an orderly path
from problem identification through to a
solution”.
 Administrative Model
 An approach to decision making that explains
why decision making is essentially uncertain
and risky and why managers usually make
satisfactory rather than optimum decisions.
 BOUNDED RATIONALITY

limitation of information, time and certainty limit

rationality, which results in to satisfying decisions rather
than maximizing one –

Satisficing: a decision in which “Good Enough”

solutions are selected. As a result, instead of optimizing a
choice, decision makers select alternatives that satisfy a
problem

Here we have Incomplete Information about the

situation or decision to be made.
Uncertainty Ambiguous
and risk information

Incomplete
information

Time constraint
and
Information costs
INTUITIONAL DECISION MAKING

A sub conscious process of making

decisions on the basis of experience and
accumulated judgment. Managers
sometimes decided to do something
because it “Feels Right” without going into
the complete decisional making steps. This
is called Intuitional Decision Making.
 TYPES OF
DECISION
MAKING
PROBLEMS
TYPES OF DECISION MAKING
PROBLEM
 Routine or Structured problems:
If a problem or situation occurs
regularly, organization will usually develop
a routine or programmed approach for
solving it.
 Unusual and Unstructured
problems:
If a problem or situation is different or
not of routine in nature then a organization
have a non programmed approach for
solving it.
TYPES OF DECISION
MAKING ON THE BASIS OF
THESE PROBLEMS

 Programmed decisions
 Non programmed decisions
 PROGRAMMED
DECISIONS

Programmed decisions are standardized

responses that are applicable in structured,
repetitive and routine situations.
Job training and case studies are techniques
to improve or build programmed decision
making skill.
 Example
 Procedures
 Methods
 Rules
 Policies
PROCEDURES

A procedure is a series of inter related

sequential step established for the
accomplishment of task e.g.:-

Admission procedures
METHODS

A method is one step of a procedure e.g.

filling of Admission form or preparation of

vouchers.
RULES

Definite statement that tell a person what he

or she should or should not do are rules e.g
“No Smoking”, “we sell only for cash” and
“we promote from within”
POLICIES
A general guide that establish
parameters for decision making.
Policies are vague guides to decision
making allowing the administrator to
utilize judgement within specific
constraints. e.g.
 NON PROGRAMMED
DECISIONS
Non programmed decisions are unique
response to problems that are novel, vague,
ambiguous or complex or important enough
to deserve special custom-tailored
treatment.
 EXAMPLE

 Strategies
 Budgets
STRATEGIES
Strategies are plans in reaction to, or taking into
consideration, the actions of others. Strategies are
usually made for marketing, finance, research and
development, personnel and personnel areas.
e.g Strategy of a purchase officer in case of
shortage of papers of college i.e. order to different
supplier, increase capacity, encourage lower usage
of papers.
BUDGETS

Numerical Budgets are the most familiar non

programmed decisions guide.

Budgets are typically prepared for revenues,

expenses, and capital expenditure
 RELATIONSHIP
BETWEEN

Levels in
Organization, Types of
Problem
and
Types of Decision
 Types of Problems, Types of Decisions and
Level in the Organization

Poorly Structured Top

Nonprogrammed
Types of Decision Level in
Problem Organization
Programmed
Decision

Well Structured Lower

Importance of Decision Making

Everyone in an organization makes

decisions, but decision making is particularly
important in manager’s job. Decision making
is a part of four managerial functions. That is
why managers – when they plan, organize,
lead and control – are frequently called
decision makers. In fact, we can say that
decision making is synonymous with
managing.
Decision in the Management Functions

• Planning
• Organizing
• Leading
• Controlling
 Planning

 What are the organizations long-term

objectives?
 What strategies will best achieve those
objectives?
 What should the organization’s short-
term Objective be?
 How difficult should individual goals be?
 Organizing

 How many employees should I have

report directly to me?
 How much centralization should there be
in the organization?
 How should jobs be designed?
 When should the organization implement
a different structure?
 Leading

 How do I handle employees who appear

to be low in motivation?
 What is the most effective leadership
style in a given situation?
 How will specific changes affect worker
productivity?
 When is the right time to stimulate
conflict?
 Controlling

 What activities in the organization need

to be controlled?
 How should those activities be
controlled?
 When is the performance deviation
significant?
 What type of management information
system should organization have?
COMMON ERRORS

Common errors committed in

Decision-Making are: -
1. Heuristics
2. Escalation of Commitment
 (1) HEURISTICS

In order to avoid information

overhead, we rely on judgmental
shortcuts called heuristics.

(2) ESCALATION OF COMMITMENT

An increased commitment to a previous

decision despite negative information
 DECISION-MAKING STYLE

Every decision maker brings unique set of

personal characteristics to his or her
problem–solving effects e.g. who is creative
and comfortable with uncertainty is likely
to develop alternative differently from
some one who is more conservative and
less likely to accept risk.
With the research it is found that there are
four types of decision making style based
on two dimension (i.e.) tolerance of
ambiguity and way of thinking.
TYPES OF DECISION-MAKING STYLE

There are four types based on two

dimensions tolerance of ambiguity and
way of thinking .
i. Directive Style
ii. Analytic Style
iii. Conceptual Style
iv. Behavioral Style
 Directive style
 A decision making style characterized by low tolerance for
ambiguity and a rational way of thinking
 Analytical style
 A Decision making style characterized by a high tolerance for
ambiguity and a rational of thinking.
 Conceptual style
 A decision making style characterized by a tolerance for ambiguity
and an intuitive way of thinking.
 Behavioral style
 A decision-making style characterized by a low tolerance for
ambiguity and an intuitive way of thinking.
Personal qualities
for effective
decision making
Important Qualities

 Experience
 Judgment
 Creativity
Experience
"Experience leads to specific responses which are
demonstrated by habit without hesitation in particular
situation.”
 Past success and failures form a basis for future
action.
 Experience plays a very important role in
programmed decision making.
e.g
“Students who work hard will pass”
Judgment
“By judgment we means ability to evaluate
information wisely.it is made up of one’s common
sense, maturity, ability to reason and experience”
 Judgment improves with age and experience, but one
can gain experience with out improving his judgment.
e.g.
BBIT students are more sharp then B.Com
Creativity
“Creativity is the conceiving of original and
unique ideas and these ideas must not only be
novel but useful too.”
 Creativity plays very important in
development of alternatives.”
 Creativity is key factor in solving a non
routine or unique problems.