DECISION MAKING

• The word decision has been derived from the Latin

word "decidere" which means "cutting off". Thus,
decision involves cutting off of alternatives
between those that are desirable and those that
are not desirable.

• According to Haynes and Massie, ’Decision-making

is a process of selection from a set of alternative
courses of action which is thought to fulfill the
objective of the decision-problem more
satisfactorily than others’.
 DECISION MAKING

Decision making is the

process of choosing a
solution from available
alternatives.
 PROCESS OF DM
• Identify the Problem
–Scanning Stage - monitor the situation
–Categorization Stage - perf gap
–Diagnosis Stage - info/cause
• Identify Resources & constraints
• Generate Alternative Solutions - brainstorming
• Evaluate Alternatives – feasibility, acceptability, cost,
quality & ethics
• Selection - experience, experimentation, research
• Implement
• Monitor
DECISION MAKING PROCESS
 TYPES OF DECISIONS
 Programmed and Non-programmed decisions.

 The programmed decisions are the routine and repetitive decisions for which the

organization has developed specific processes

 non-programmed decisions are the one-shot, ill structured, novel policy decisions that are

handled by general problem-solving processes. They are basically non-repetitive in nature.

 Routine and Strategic Decisions.

 Routine, tactical or house keeping decisions are of repetitive nature and

they involve the application of familiar principles to a situation

 Major and minor decisions

 Measure the relative significance of the decision based on degree of futurity of the decision, impact

of the decision on other functional areas , qualitative factors that affect the decision, recurrence of

the decision
 Organizational and Personal Decisions.

 Policy and Operating Decisions.

 Policy decisions are important decisions and they involve a change in the

procedure, planning or strategy of the organization.

 operating decisions are those which are taken by lower levels of management for

the purpose of executing policy decisions

 Individual and group decisions

 Rational Decision Making

•Decision making is the process of

choosing a solution from available
alternatives.
•Rational decision making is a systematic
process in which managers define
problems, evaluate alternatives, and
choose optimal solutions that provide
maximum benefits to their organizations
Rational Model of Decision Making
 Rational Model of Decision Making
Step 1: Identify the Problem
Clearly define the problem or context in which the decision needs to be
made.
• Being aware of a problem isn’t enough to begin the decision-making
process. Managers have to be motivated to reduce the gap between a
desired and an existing state.
For example, you have taken a new job and you may initially decide
you need to find a new car for commuting back and forth from work.
However, the central problem is that you need a reliable way to
commute to and from work.
Step 2: Establish Decision Criteria
the decision maker determines what is relevant in making the decision.
This step brings the decision maker’s interests, values, and similar
personal preferences into the process.
To continue our example, let’s assume you are married. Some of the
criteria identified might include budget, safety, functionality, and
reliability.
Step 3: Weigh Decision Criteria
 Weigh the criteria to create the correct priority in the decision.
 After identifying decision criteria, the next step is deciding which
criteria are more or less important
 For example, you may have weighted budget, safety, and reliability
as the most important criteria to consider, along with several other
slightly less critical criteria.

Step 4: Generate Alternatives

List potential options for how to decide what to do. Consult trusted
adults or experts in the area in which the decision needs to be
made. 
Alternatives generated could include the types of cars, as well as
using public transportation, car pooling and a ride-hailing service.
Step 5: Evaluate Alternatives
Are all of the options equally feasible, or are some unrealistic or
impossible? Now is the time to identify both the merits and the
challenges involved in each of the possible solutions.
Evaluate based on feasibility, assigned weights and score, risk,
cost and other factors

Step 6: Select the Best Alternative

The solution might be one of the particular options that was initially
listed, an adaptation of one of those options, or a combination of
different aspects from multiple suggestions. It is also possible that
an entirely new solution will arise during the evaluation process.
https://allmindtools.com/rational-deci
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 Merits of Decision Making

• Decision making helps to adopt best course of

action.

• Optimum use of resources

• It helps to find a solution

• It helps to promote efficiency.

• It helps to resolve conflicts.

 De-merits of Decision Making

• Decision maker is unaware of the alternatives

available.

• Indecisiveness.

• Quick decision.

• Resistance
 TOOLS /TECHNIQUES OF DECISION MAKING
(1) Qualitative Techniques
a) Brainstorming
b) Synectics
c) Nominal Grouping

(2) Quantitative Techniques:

a) Stochastic Methods
b) Payoff Table
c) Simulation Techniques
d) Breakeven Analysis
e) Decision Trees
 Qualitative Techniques
Brainstorming

This is carried out in a group where members are
presented with a problem and are asked to develop
as many as potential solutions as possible.

The member of the group may be experts, may be
from other organizations but the members should be
around six to eight.

The duration of the session may be around 30
minutes to 55 minutes.

The premise of brainstorming is that when people
interact in a free and exhibited atmosphere, they
will generate creative ideas.
 Synectics
• This technique was developed by William J.J. Gordon. It
is recently formalized tool of creative thinking. The word
Synectics is a Greek word, meaning the fitting together
of diverse elements. It is a problem-solving technique
which seeks to promote creative thinking, typically
among small groups of people of diverse expertise.

• The leader has to structure the problem and he/she can

use various methods to involve the preconscious mind,
like role-playing, use of analogies, paradoxes,
metaphors and other thought provoking exercises.
This helps in generation of alternatives.
 Nominal Grouping
Stage-I : Around seven to ten participants with
different background and training are selected,
familiarized with a selected problem like what
alternatives are available for achieving a set of
objective.

Stage-2: Each member is asked to prepare a list

of ideas in response to the identified problem,
individually for achieving a set of objective.

Stage -3: After ten minutes, the member shares

ideas, one at a time, in a round-robin manner.
The group facilitator records the ideas on a
blackboard or flip chart for all to see.
 Nominal Grouping

Stage-4: Each group member then openly

discusses and evaluates each recorded
ideas. At this point, it may be rewarded,
combined, added or deleted.

Stage-5: Each member votes ranking the

ideas privately. Following a brief
discussion of the vote, a final secret
ballot is conducted.
 Quantitative Techniques
Simulation Techniques
• Simulation technique is used to decide about
complex problems
• effectiveness of its new advertisement
• When a management problem is too complex to be
answered by series of mathematical equations, it is
possible to simulate the probable outcomes before
taking action.
• In this way, the manager may rapidly try to put on
paper (or with a computer) the results of proposed
actions before the actions are taken.
• By trying out several policies, it is possible to
determine which one has the best chance of providing
the optimum result.
 Stochastic Methods
• In many management decisions, the probability of
the occurrence of an event can be assumed to be
known, even when a particular outcome is
unpredictable.
• Under these conditions of risk, stochastic methods
will be useful.
• Stochastic modeling presents data and predicts
outcomes that account for certain levels of
unpredictability or randomness
• Stochastic methods merely systematize the thinking
about assumptions, facts and goals that is involved in
decisions under conditions of risk.
• Ex: investment decisions.
 Breakeven Analysis

Break-even analysis is useful in the determination of the
level of production or a targeted desired sales mix.

Determine at what stage your company, or a new service
or a product, will be profitable
determine what level of sales are necessary to cover the


company's total fixed costs.

Payoff Table :
• A payoff is the return or reward for selecting the best alternative
• A profit table (payoff table) can be a useful way to represent and
analyse a scenario where there is a range of possible outcomes and
a variety of possible responses.
• A payoff table simply illustrates all possible profits/losses and as
such is often used in decision making under uncertainty

Decision trees
• A decision tree shows a complete picture of a potential decision and
allows a manager to graph alternative decision paths.
• Decision trees are a useful way to analyze hiring, marketing,
investments, equipment purchases, pricing, and similar decisions
that involve a progression of smaller decisions.
• Generally, decision trees are used to evaluate decisions under
conditions of risk.
 Additional Techniques

•Operations Research Techniques

–Linear Programming
–Queing Theory
–Game Theory ramming
•Ratio Analysis
•Financial analysis