DECISION MAKING

DECISION MAKING
 DECISION MAKING

v Characteristics of Decision Making

v Types of Decisions

v Steps in Approaches to Decision Making

v Individual Decision Making and Group Decision Making

 DECISION MAKING
 The word "DECISION" is derived from the Latin word "DECIDRE", means "a
cutting away or a cutting off".

 A decision involves a cut of alternatives between those that are desirable.

 Decision making is a process to arrive at a decision, the process by which an

individual or organization selects  one action from several alternatives.

 In decision making there are Three aspects of human behavior are

 Cognition – activities of mind associated with knowledge
 Conation – the action of mind by such words as willing, desire and aversion
 Affectation – the aspect of mind associated with emotion, feeling, mood and temperament.
 DECISION MAKING
 Decision making is central and important part of Managing.

 Good decision making is vital element for good management.

 It must be done amid ever changing factors, unclear information and conflicting points
of view.

 Decision maker attempts to achieve results, usually are goal oriented.

 May not be completely rational but may be judgmental and emotional in which

personal preferences and values of the decision maker play a significant role.
 DECISION MAKING- Characteristics
Goal oriented-  is a goal-oriented process
Alternatives – it characterized by search and choice
Analytical- Intellectual – has both intuitive and deductive logic
Dynamic – is a process.
Pervasive  - permeates all management and covers every part of
the management.
DECISION MAKING- Characteristics
Continuous activity - decides things on a continual and regular basis.
Commitment of time, effort and money - implies commitment of these for short
term and long term.
Human and Social process-  involves intellectual abilities, intuition and
judgement.
Integral part of planning- Decision making  is the core of planning.
 Both are intellectual, demand discretion and judgement, aim at achieving goals, are
situational,  involves choice among alternative course of action, are based on forecasts and
assumptions about risk and uncertainty
 DECISION MAKING - Principles
 Principle of Subject Matter of Decision Making
 Principle of Organizational Structure
 Principle of Analysis of the Objectives and Policies 
 Principle of Analytical Study of the Alternatives 
 Principle of Proper Commnication
 Principle of Sufficient Time
 Principle of Study of the Impact of a Decision
 Principle of Participation of the Decision maker
 Principle of Flexibility of Mind
 Principle of Consideration of the Chain of Action
 DECISION MAKING - Types

 Basic and Routine Decision

 Personal and Organizational Decisions

 Programmed and Non- Programmed Decisions

 Rational and Irrational Decisions

 Individual and Group Decisions

 DECISION MAKING
Basic Decision Routine Decision

 Are also known as Strategic decisions.  Are known as operational or routine decisions. 

 Are based on original plans and relate to  Such decisions are taken for routine work therefore
formulate policy to implement the plans. they are at times, known as day- to-day

 Are mostly one- time decisions decisions. They are of repetitive nature.

 Takes a long period.   All the lower level managers have to work according
to the strategies and within the preview of
 Provide guidelines for attainment of
guidelines. 
organizational goals.
  These decisions are required to be altered according
to the prevailing situations.
 DECISION MAKING
 Personal Decision Organizational Decision

 Are personal in nature  Are made by the managers in their official or formal

capacity as controllers and allocators of the
 Hence are biased and may not always be rational.
organizational resources.
 There is no scope for delegation of such decisions
 Are based on rationality, judgement and experience.
in management.
 Affect the functioning of the organization as a
 They may affect the organization directly or
whole.
indirectly.
 Can be delegated to lower levels.
 Personal interests are kept in mind. 

 Any business-oriented decision is an organizational

 Such decisions are made by managers on their
own behalf. decision.
 Programmed Decision Non-Programmed Decision
 Are Routine and Repetitive   Are taken in unstructured situations which reflect novel,

ill-defined and complex problems.

 Involves  objective judgment (past experience forms the basis
for decision-making).    Non-recurring or exceptional in nature
 Made within the framework of  Policies and Rules.
 Involves Subjective judgment (based on assessment of the
 Consume little time and effort. situation).

 Decisions are made by the personnel at lower levels where 

Are taken in the context of changing, dynamic
the environment affecting decision making is static and well
environmental conditions.
structured. 

 Decision maker recognizes the problem to implement the pre-

 Decisions are taken by top-level managers.

determined solution.  Personal decisions,

 Organizational decisions   Strategic decisions,
 Operational decisions
  Crisis intuitive decisions, and
  Research decisions
  Problem-solving decisions.

 Rational Decision Irrational Decision

 The thinking process is based on  Thinking process completely

reason and logic. disregards reason and logic in favor
of emotion.
 Rational thinking allows the
person to succeed.  Based on intuition and not based on

 Has a logical basis. real facts and figures.

  Irrational thinking works as a

barrier which hinders the success of
the individual.
 Individual Decision  Group Decision

 Has potential of collecting more and full information

 Many views and many approaches aids in  better decision
 Makes prompt decisions.
making.
 They are accountable for their acts
 Discovers  hidden talent and core competency of employees
and performance.
of an organization.
 Do not escape responsibilities.
 Takes  into account interest of all members of an
 Individual decision-making saves time, money
organization.
and energy as individuals make prompt and
Ø Is dominated by various people. So decision-making is very
logical decisions generally. 
time consuming.
 Individual decisions are more focused and
Ø Assembling group members consumes lot of time.
rational as compared to group.
Ø It is not easy to hold any one person accountable for a
 Uses his own intuition and views. 
wrong decision.
 will not take into consideration
Ø Involves  lot of time, money and energy.
every member's interest.
Rational Decision –making Process

• Awareness of Problem

• Diagnose and State the Problem

• Develop the Alternatives

• Evaluate the Alternatives

• Select the best Alternative

• Implement and verify the decision

RATIONAL DECISION-MAKING PROCESS

EXTERNAL ENVIRONMENT

FEED BACK
DECISION MAKING CONDITIONS
 INDIVIDUAL DECISION
GROUP DECISION MAKING
MAKING

 Brain Stroming

 Rational  Synetics
Economic Model

 Administrative  NGT
Model

 Delphi Method
INDIVIDUAL DECISION MAKING Rational Economic Model
 Rationality implies a consistent had value maximizing choice within certain limits.

 Is Perspective and Normative.

 Decision maker tries to select the best alternative for achieving the optimum solution to

a problem.

 Decision making is based on the following assumptions:

 D.M is a Goal oriented process
 All choices are known
 Can rank order of preferences
 D.Maker has complete knowledge and is a logical, systematic maximiser in Economic – Technical
terms.
INDIVIDUAL DECISION MAKING Rational Economic Model
Factors that intervene in perfectly rational model

 Impossible to state problems accurately

 Not fully aware of the problems
 Imperfect knowledge
 Limited time and resources
 Cognitive limits
 Politics
INDIVIDUAL DECISION MAKING Administrative Model
 Is also known as Behavioral Theory proposed by Herbert Simon and refined by Richard Cyert and James March

 Is a Utopian Concept which focusses on "Satisficing Decisions".

 Explain the decision-making behavior of individual and organizations

 There are always "Boundaries to Rationality" in organizations.

 Human and organizational limitations make it impossible for the people to make perfectly rational decisions.

 Reasons for behavioral theory decision making

 Do not have full information about the problems
 Do not possess knowledge of all the possible alternative solutions to the problem and their consequences.
 Do not have ability to process competitive environmental and technical information.
 Do not have sufficient time and resources to conduct an exhaustive search for alternative solutions to the problem.
INDIVIDUAL DECISION MAKING Administrative Model
 Prefers Subjective Rationality than Objective Rationality.

 Real life Challenges, time and cost limitations, Political Pressures and others force the decision maker to
work under "Bounded Rationality".

 Tries to but cannot reach the optimum solution to the decision problem.

 Instead of searching and choosing best alternative, managers accept decisions ghat are only "good
enough" referred as Satisficing Decisions.

 Provides freedom and flexibility for the managers in important matters.

 Highlights the importance of behavioral aspects in decision making.

 Adequate market share, reasonable profits, fair price are some of the decisions that reflect Administrative
Model decisions.
INDIVIDUAL DECISION MAKING Administrative Model

Reasons for taking Satisficing Decisions:

 Time Pressure

 Desire to resolve through a problem quickly

 Dislike for a detailed analysis that demands more refined techniques

 To avoid failures and mistakes that could effect the market in a negative way
 Rational Economic Model VS Administrative Model
Rational Economic Model The Administrative Model
INDIVIDUAL DECISION MAKING
 Concentration of Behavioral aspects, the decision-
 Concentration on technical terms and Quantifiable
making process receives inputs both from
Variables.
Quantifiable and Non-Quantifiable variables.
 Perfect Rationality
 Bounded Rationality.
 Normative
 Descriptive.
 Exhaustive search for a number of alternatives.
 Search for a seemingly feasible alternative rather
 Imperfect knowledge of problems, consequences than an exhaustive list.

and solutions / outcomes .  Imperfect knowledge of problems, consequences and

 Optimal Decisions solutions / outcomes .

 Satisfying good enough for adequate decisions.

GROUP DECISION MAKING Group Decision making

Group Decision making is different from Individual decision making in following ways:

 Conformity

 Group Think

 Superiority

 Risky Shift
Methods of Group Decision Making

• Brain Stroming

• Synetics

• NGT (Nominal Group Technique)

• Delphi Technique
 Methods of Group Decision making
Brain Stroming
GROUP DECISION MAKING

 Is technique developed by Alex Osborn in 1983.

 Is a method of creativity as well as working on real problems.

 Is a group creativity technique by which efforts are made to find a conclusion for a specific problem by

gathering a list of ideas spontaneously contributed by its members.

 Is a situation where a group of people meet to generate new ideas and solutions around a specific domain of

interest by removing inhibitions.

 People are able to think more freely and they suggest as many spontaneous new ideas as possible.

  All the ideas are noted down without criticism and after the brainstorming session the ideas are evaluated.
 Methods of Group Decision making
Synetics
GROUP DECISION MAKING

 Is derived from Greek word "Synectikos" which means  to bring different things into unified

connection or fitting together of diverse elements.

 Concept is proposed by William.J.J. Gordon as a decision-making technique in 1961.

 A synectics session referred to by Gordon as an “excursion”

 Is a group problem-solving activity wherein persons are stimulated to think creatively under a loosely

structured system. 

 Problem will be introduced by a leader  through a series of steps which attempt to determine a

solution to the problem.

 Methods of Group Decision making
Synetics
GROUP DECISION MAKING

Ø This procedure deliberately stimulates creative thinking rather than leaving it to chance.

Ø Involves more of divergent thinking

Ø Methods such as role playing, analogies and paradoxes are used to deveop creative ideas.

Ø Ensures that  a novel idea is arrived before members leave the room.

Ø May be used to solve complex  and technical problems as this is a costly and time

consuming.
 Methods of Group Decision making
NGT (Nominal Group Technique)
GROUP DECISION MAKING
 Methods of Group Decision making
Delphi Technique
GROUP DECISION MAKING

 Is developed by Norman Dalkey and Olaf Helmer 1950's in Rand Corporation.

 It is a technique used to obtain information from physically dispersed experts through the use of the

questionnaires.

 It is a two-step process.

 The process of questionnaire is continued till clear solution is arrived.

 This method reduces the committee activity, eliminates the bandwagon effect of majority opinion,

minimizes the face to face pressures and provide each panel member with the time to deliberate and

carefully think over the responses.

GROUP DECISION MAKING Methods of Group Decision making
 Techniques of Decision making
 Marginal Analysis

 Cost Benefit Analysis

 Risk Analysis

 Management Information system (MIS)

 Operations Research Tools

 Probability Theory

 Game Theory

 Queueing Theory

 Decision Tree