Chapter 3

The Nature of Decision

Making

FUNDAMENTALS OF
MANAGEMENT
(MGT162)
 Topic Outlines

 Definition of decision making

 Types of decision making
i. Programmed decision
ii. Non-programmed decision
 Characteristics of decision making
 Decision making process
 Group decision making
 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
 Types of decision making
Types of
Decision
Making
Program
 It is structured. Decisions that have been made
so many times in the past that managers have
developed rules or guideline to be applied
when certain situation are expected to occur.
 A repetitive decision that can
be handled by a routine approach.
 Example: Rules & regulations.
Non-
Program
 It is unstructured and requires higher level
management. Deals with unique, unusual
or exceptional problem.
 Non-routine decision making that occurs
in response to unusual, unpredictable
opportunities and treat
 Example: Government’s decision to
prevent H1N1 by stopped all the travelling
outside country
Types of condition under decision making
• The manager has enough information to know the outcome of the
decision before it is made and able to predict it precisely.

• When the decision maker knows with reasonable certainty what the
Certainty alternatives are and what conditions are associated with each
alternative, a state of certainty exists.

• The information is available and considered to be reliable, and the

cause and effect relationship is known.

• A condition under which there is not full knowledge of the problem

and reasonable probabilities for alternative outcomes cannot be
determined.

Uncertainty • The manager feels unable to assign estimates to any of the

alternatives.

• A situation in which a decision maker has neither certainty nor

reasonable probability about the outcome.
 Cont…

• Refer to future conditions that are not always known in advance.

• Decision maker is able to estimate the likelihood of certain outcome

Risk based on personal experience or secondary information.

• Some information is available, but it is not enough to answer all

questions about the outcomes.

• Means the goals to be achieved or problem to be solved is unclear,

alternatives are difficult to define and information about outcomes
is not available.
Ambiguity • People to subjectively add probability of the outcome in decision
making, and it is difficult to be described by the theoretical models
accurately.
 Decision making process
• Managers regularly review data related to their areas of responsibility, including both
outside information and reports and information from within the organization.
Identifying & • Recognize that a problem exist and must be solved.
diagnosing
problems

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

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

• Creativity and imagination are often required in this step.
• May follow the advice of others who have faced similar problems.
Generating
alternatives
 Cont…

• Assess the value or relative advantages or disadvantages of each alternative

under consideration.
• Predict the consequences that will occur if the various options are put into effect.
Evaluating
alternatives

• Making a final choice.

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

• When decisions involve taking action or making changes, choosing ways to put
these actions or changes into effect become an essential managerial task
• The key to effective implementation are:
• a) Sensitivity to those who will be affected by the decision
Choosing
implementation • b) Proper planning and consideration of the resources necessary to carry out
strategies the decision

• Collecting information on how well the decision is working.

• Managers must observe the impact of the decision & take further action if it
becomes necessary.
Monitoring & • No decision-making process is complete until the impact has been evaluated.
evaluating
• If the decision appears inappropriate, the process cycles back to the first stage.
feedback
 Group decision making techniques
1) Brainstorming
 This technique involves a group of people, usually between five and ten, sitting around a table,
generating ideas in the form of free association.

 The primary focus is on generating ideas rather than on evaluating or choosing an idea.

 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.

 Brainstorming technique is very effective when the problem is comparatively specific and can be
simply defined.

 A complex problem can be broken up into parts and each part can be taken separately at a time.
 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.

 It's helpful when decisions need to be rendered in a timely manner, yet the company wants all of
the opinions of the individuals in a group to factor within the decision in a bigger way than a
simple "majority rules" voter pool.

 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.

 Duplicate solutions are then eliminated from the pool, leaving only original solutions behind.
 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.

 It uses the opinions of a limited group of experts or people who have knowledge of the subject from
their experience.

 The subjects that an organisation wants to understand through the Delphi method are obtained by
subjective means; the opinions of the group of experts are therefore very important.

 The group of experts works towards a consensus, through step-by-step feedback of information, by
repeating the question and providing feedback on each other’s answers.
 Group Decision Making
Advantages & Disadvantages

Advantages Disadvantages
 More information and knowledge  The process takes longer than
are available. individual decision making, so it is
 More alternatives are likely to be costlier.
generated.  Compromise decisions resulting
 More acceptance of the final from indecisiveness may emerge.
decision is likely.  One person may dominate the
 Enhanced communication of the group.
decision may result.  Groupthink* may occur.
 Better decisions generally emerge.

* 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
“Inability to make decisions is one of the
principal reasons executives fail. Deficiency
in decision-making ranks much higher than
lack of specific knowledge or technical
know-how as an indicator of leadership
failure.”
~ John C. Maxwell ~