Chapter Three

Decision Making

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 Meaning of decision making
 Decision - choice made from available alternatives.
 Decision making the process of choosing a solution from
available alternatives.
 Decision-making is the process of defining problems, generating
alternative solutions, choosing one alternative, and implementing it.

 Rational choice among alternatives

 There have to be options to choose ; if there is no choice, there is no
decision.
 Decision making is a process, not a lightning flash occurrence.
 In making the decision, a manger is making a judgment reaching a
conclusion from a list of known alternatives.

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 Decision Making Is Universal

 Decision making is a part of all mangers’ jobs

 A manger makes decisions constantly while
performing the functions of planning,
organizing, staffing, directing and controlling
 Decision making is not a separate, isolated
function of management but a common core
to the other functions.

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 Cont’d

 Mangers at all levels of the organization are

engaged in decision making.
 Managers make big decisions and small ones daily.
Whether they realize it or not, they go through a
process to make those decisions.

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 Types of Decisions

 Programmed Decisions
 Non Programmed Decisions

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 Programmed Decisions

 Are the decisions mangers make in response to

repetitive/ recurring and routine problems.
 If a particular situation occurs often, managers will
develop a routine procedure for handling it.
 Such decisions should be made without expending
unnecessary time and effort.
 In most organizations, programmed decisions are
handled through policies.
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 Non Programmed Decisions

 When a problem has not arisen in exactly the same

manner before, it requires non-programmed
decision.
 Complex or extremely important, it may require a
non-programmed decision.
 Decisions are termed non-programmed when they
are made for novel and unstructured problems.
 Making such decisions is clearly a creative process
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 Cont’d

 It is more complicated and requires the expenditure

of lots of money worth of resources every year.
 Non programmed decisions are usually handled by
general problem – solving processes, judgment,
intuition, and creativity.

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Programmed Vs Non-programmed Decisions
Types of Programmed Non-programmed
decision decisions decisions
Types of Frequent, repetitive, routine ,much Novel, unstructured, much uncertainty
problem certainty regarding regarding cause and effect relationships
cause and effect relationship
Procedure Dependence on policies, rules and Necessity for creativity, intuition,
definite procedures tolerance for ambiguity, creative problem
solving
Examples Business firm: periodic reorders of Business firm: introducing new products
materials and entering new markets
University: registration of students, University: construction of new
computation of grade point classrooms, launching new programs
average(GPA) Hospital: purchase of new laboratory
Hospital: procedure for admitting equipment
patients

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Decision-Making Conditions
Depending on the availability of information and the possibility of failure, there
are three decision making situations: certainty, Risk, and uncertainty.

The decision
maker faces
conditions of...

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lower Moderate Higher

Figure 4.1
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 Decision-Making Conditions (cont’d)

1. Decision making under conditions of certainty

 The decision maker has perfect knowledge about the
outcome.
  

 In this situation, we are reasonably sure about what

will happen when we make the decision.

 The information is available & is considered to be

reliable & we know the cause & effect relationships.
 Example: If you decide to invest your money in saving
account in the Commercial Bank of Ethiopia, You are certain
that you will earn 7% interest.
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 Decision-Making Conditions (cont’d)
2. Decision making under condition of risk
 Usually, decision makers cannot have a precise
knowledge about the outcome of a decision.
  

 Decision makers may only be able to attach a

probability to the expected outcomes of each
alternative.
  

 Under this situation, one may have factual information,

but it may be incomplete.
  

 Example: If we gamble by tossing a fair coin, the

probability that a tail will turn up is 50%.
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Decision-Making Conditions (cont’d)
3. Decision making under conditions of uncertainty
 It is a case where neither there is complete data nor probabilities
can be assigned to the surrounding condition.

 Some conditions that are uncontrollable by management include

competition, government regulations, technological advances, the
overall economy, & the social & cultural tendencies of society.

 Example: A corporation that decides to expand its operation,

launching a new product, or developing of a new technology in a
strong country may know little about its culture, laws, economic
environment, or politics.

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 The Decision Making Process
 Decision-making is an affair of the mind, an intellectual
process.

 It consists of a sequence of steps starting with an

input (a problem) and ending with an output
(action).
 A problem is the difference between what is and what
should be.

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Cont’d…
 We need to discover anything that can improve the
quality of decision making.
 One of the most effective measures is to follow a
conscious, rational decision – making process.
 The decision – making process has six steps. They are
logical and simple in themselves, but they are all
essential to the process;

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 Cont’d……
1. Define the problem
2. Develop potential alternatives
3. Analyze the alternatives
4. Select the best alternative or
combination of best alternatives
5. Implement the solution
6. Establish a control and evaluation
system
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 Define the problem
What is the particular problem you have to resolve?
 State the underlying problem that has to be solved.
 State the outcome that you desire after you have made the
decision.
 Recording the kind and nature of the problem that exists
within an organization.
 The most obviously troubling situations found in an
organization can usually be identified as symptoms of
underlying problems.
 These symptoms all indicate that something is wrong with an
organization, but they don't identify root causes.
 A successful manager doesn't just attack symptoms; he works
to uncover the factors that cause these symptoms. 
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 Cont’d….
Symptoms and Their Real Causes
Symptoms Underlying Problem
Low profits and/or declining Poor market research
sales
High costs Poor design process; poorly trained
employees
Low morale Lack of communication between
management and subordinates
High employee turnover Rate of pay too low; job design not
suitable
High rate of absenteeism Employees believe that they are not
valued
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 Develop Potential Alternatives
• It is necessary to look for, develop, and list as many
possible alternative solutions to the problem-as you can
• These alternatives should eliminate, correct, or neutralize
the problem
• Sources for alternatives include;
• experience
• other persons whose opinions and judgments are expected
• the practice of successful managers
• group opinions through the use of task forces and committees
• the use of outside sources including mangers in other
organizations

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 Analyze the Alternatives
 The purpose of this step is to decide the relative
merits of each of the alternatives
 What are the positives and negatives (the
advantages and disadvantages) of each
alternative?
 Depending on the type of problem and the
potential solutions developed, the manager might
need to make a more thorough analysis by
applying specific decision making aids.
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 Select the Best Alternative
Which alternative (s) should be selected?
 Sometimes the optimal solution is a
combination of several alternatives.
 The optimal choice will be one that
generates that greatest possible benefits
with the fewest negative consequences.
 Select the alternative that offers the fewest
disadvantage and the most advantages.

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 Implement the Solution
 Develop action plan
 Consider the resource involved in decision making
 Assign specific responsibilities for decision
implementation.
 Anticipating problems that may occur during
implementation.
 Like plans, solutions need effective implementation
to yield the desired results
 People must know their roles and must understand
exactly what they must do and why.

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Establish Monitoring, Control and Evaluation System

 The final step in the decision – making process is to

create a control and evaluation system
 Ongoing actions need to be monitored
 It should provide feedback on how well the decision
was implemented, what the results are
 What adjustments are necessary to get the results
that were wanted when the solution was selected.

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Class Discussion questions

1. We make decisions daily. Describe in detail

one programmed decisions you make each
day. Explain why you consider them to be
programmed?

2. Describe what you believe is a non-

programmed decision that you recently made.
State why you believe it was non-
programmed?

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 The End!

04/27/23 9–25