ChapterFour

2. Decision Making
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2.1 Definition
 Decision making: is defined as the process of selecting or
choosing the best course of action from numbers of
alternatives based on the criteria.
 Because managers are continually confronted with
opportunities and threats/problem from external
environment.
 They must constantly analyze the effect of different
decisions on their organizations
 Then select the alternative that will move the firm
toward its stated objectives. prepared by: MB
 2.2 Types of decision making
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 Several authors believe that there are two

types of decisions: programmed & non-
programmed decisions.
 A. programmed decision making
 It is "programmable" because of a
specific procedure can be worked out to
resolve based on experience in similar
situations.
 A decision that is repetitive and routine

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 Cont’d
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 A definite method for its solution can be

established
 Does not have to be treated as new, each
time its occurrence
 It involves an organization's every day
operational and administrative activities
 They are primarily found at the middle
and lower levels of management.

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 Cont’d
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 Data used in making a programmed

decision usually are complete and well
defined.

 Participants know the details and agree

on how to resolve the problem.
 Examples: pricing standard customer
orders, determining billing dates,
recording office supplies
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etc.
 B. Non-programmed Decision
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 It is used to solve non-recurring problems.

 No well-established procedure exists for handling
them.
 A decision that is unique (novel or new) and ill-
structured.
 Managers do not have experience to draw upon.
 In contrast to programmed decisions, available data
are usually incomplete.
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 Cont’d
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 Non programmable decisions are

commonly found at the middle and top
levels of management
 It is “tough” decisions that involve
risk and uncertainty and
 call for entrepreneurial abilities
 Such decisions draw heavily on the
analytical abilities of the manager
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 Cont’d
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 It is often related to an organization's policy-

making activities, such as:
 Add a product to the existing product line,
 Reorganize the company, or
 Acquire another firm.
 Examples: Moving into a new market,
investing in a new unproven technology,
changing strategic direction
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 Types of Problems & Level of management
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Ill-structured To
p

Non-programmed
decision making Level in
Type of management
Problem

Programmed
Decisions

Well-structured Lower
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 2.3 Decision-making Process
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1. Identifying a problem
2. Identifying decision criteria
3. Allocating weights to criteria
4. Developing alternatives
5. Analyzing alternatives
6. Selecting an alternative
7. Implementing the alternative
8. Evaluation of decision effectiveness
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 1. Identifying a problem

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 Problem is a discrepancy (difference)

between an existing and a desired state.
 The decision making process begins by

determining a problem exists; that is,

unsatisfactory condition.
Example:
“The manager has resigned, and we need
another manager”
Here the phrase “manager has resigned”
reflects the current state while “need another
manager” represents a desired
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 2. Identifying Decision Criteria
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The word criteria, is defined as “a

standard by which something can be
judged”.
A decision criteria therefore, is the basis
of a decision, which outlines the relevant
and important factors for a decision.
And implicitly, it also defines what is not
important.

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 Decision Criteria: Example
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In the above-cited scenario, the

decision criteria may include the
following factors:
 Relevant qualifications
 Leadership skills
 Communication skills
 Planning and analytical skills
 Professional experience
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 3. Allocating Weights to Criteria
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 The next step in the decision making

process is prioritization.
 Prioritization is achieved by assigning
quantitative weights to each criteria
element.
 The weight defines the relative
significance of each element.

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 4. Developing Alternatives
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 This involves developing a list of the

alternative that may be viable in dealing
with the stated problem.
 Involves defining the possible
alternatives (or choices) that would
resolve the problem.
 In our case, the alternatives would be a
list of candidates or job applicants.

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 5. Analyzing Alternatives
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 Alternatives are rated and analyzed on the

basis of the criteria.
 The decision maker must critically evaluate
each one and identify the strong and weak
points
 The rating can be based on a specified scale,
say 1 – 5 etc.
 Rating may be subjective in nature and thus,
may depend on the judgment of the
individual(s)
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 Cont’d
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 we are not only consider things that can

be measured in numerical terms such as
time and various types of fixed &
operating costs.
 but also consider intangible or qualitative
factors such as:
 The quality of labor relations,
 The risk of technological change
 The international political climate.

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 6. Selecting an alternative
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 Involves choosing the best

alternative, based on the above rating
and analysis that suit to the problem.
 In selecting the best alternative,
factors such as risk, economy of
efforts, timing and limiting factors
should be considered adequately.
 Generally implies selecting the
alternative with the highest score.
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 7. Implementing the Alternative
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 Putting the decision into action

 This requires:
 Communication of decisions to
subordinates,
 Getting acceptance of the decisions,
and
 Getting support and cooperation for
converting the decision in to effective
action.
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 8. Evaluation
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 Evaluation forms an integral part of any

process
 Involves evaluation of the outcome based
on the desired goal and criteria
 Involves assessing the effectiveness and
efficiency of the outcome (or the entire
process)
 In case of any undesired results, each
step of the process is carefully reviewed
to trace the root causes
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 2.4 Decision making under different
conditions/state of nature
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Decision under certainty condition

● All required information are completed
● Decision has clear-cut goals
● Future outcomes associated with each
alternative are clear
● Decisions made in which the external
conditions are very predictable
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 Cont’d
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Decision under risk condition

● Decision has clear-cut goals
● Good information is available
● Future outcomes associated with each
alternative are subject to chance

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 Cont’d
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Decision under uncertainty condition

● Managers know which goals they wish to
achieve
● Future outcome about alternatives is
unknown

● Information about alternatives and future

events is incomplete

● Managers may have to come up with

creative approaches prepared
to alternatives
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 Cont’d
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Decision under ambiguity condition

● By far the most difficult decision situation
● Goals to be achieved or the problem to be
solved is unclear
● Alternatives are difficult to define
● Information about outcomes is unavailable

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