FUNDAMENTAL OF MANAGEMENT (PMG1123)

CHAPTER 2

DECISION MAKING

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 Learning Objectives :
After reading this chapter, students should be able to:
1. Explain the decision making process
2. Describe how manager can be a decision maker
3. List and explain three types of programmed decisions
4. Explain the differences between non programmed
and programmed decisions

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 TOPIC CONTENT
2. Decision Making

2.1. Definition of problem

2.1.1. Types of problem
2.2. Definition of decision making
2.2.1. Types of decisions
2.2.1.1 Types of programmed decision
2.3. The Decision- Making Process
2.4. Condition in making decision
2.4.1. Certainty
2.4.2. Risk
2.4.3. Uncertainty
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 2.1 What is Decision Making ?

2.1. Definition of problem

A discrepancy between an existing and desired
state of affairs.

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 2.1.1 Types of Problems
❖Structured
⚫Involve goals that clear,
⚫Are familiar (have occurred before),
⚫Are easily and completely defined
(information about the problem is available
and complete)

❖Unstructured
⚫Problems that are new or unusual and for
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which information is incomplete.
 2.2. Definition of decision making

⚫ Making a choice from two or more

alternatives.

Copyright © 2005 Prentice Hall, Inc. All rights

6–6 reserved.
 2.2.1 Types of Decisions
⚫ Programmed Decisions
A repetitive decision that can
be handled by a routine approach.

⚫ Non - Programmed Decisions

Decisions that are unique and
nonrecurring.
Decisions that generate unique
responses.
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 2.2.1.1 There are 3 types of Programmed Decisions:

1. Policy
A general guideline for making a decision about a
structured problem.

2. Procedure
A series of interrelated steps that a manager can use to
respond (applying a policy) to a structured problem.

3. Rule
An explicit statement that limits what a manager or
employee can or cannot do in carrying out the steps
involved in a procedure.
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 Contd:Examples of Policy, Procedure, and
Rules

⚫ Policy
◦ Accept all customer-returned merchandise.
⚫ Procedure
◦ Follow all steps for completing merchandise
return documentation.
⚫ Rules
◦ Managers must approve all refunds over
RM50.00.
◦ No credit purchases are refunded for cash.
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 2.3 The Decision-making Process
Step 1: Identifying the problem
• Problem
❖ A discrepancy between an existing and desired
state of affairs.
• Characteristics of Problems
❖ A problem becomes a problem when a manager
becomes aware of it.
❖ There is pressure to solve the problem.
❖ The manager must have the authority, information,
or resources needed to solve the problem.
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 Step 2: Identifying decision criteria

❖Decision criteria are factors that are important

(relevant) to resolving the problem.

❖Important relevant consist of:-

1. Costs that will be incurred (investments required)
2. Risks likely to be encountered (chance of failure)
3. Outcomes that are desired (growth of the firm)

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 Step 3: Allocating weights to the criteria

❖ Decision criteria are not of equal

importance.

❖ Assigning a weight to each item places

the items in the correct priority order of
their importance in the decision
making process.

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 Step 4: Developing Alternatives

❖Identifying viable alternatives.

❖Alternatives are listed (without evaluation)

that can resolve the problem.

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 Step 5: Analyzing Alternatives

❖Appraising each alternative’s strengths

and weaknesses.

❖An alternative’s appraisal is based on its

ability to resolve the issues identified in
steps 2 and 3.

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 Step 6: Selecting an Alternative

❖ Choosing the best alternative.

❖ The alternative with the highest total

weight is chosen.

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 Step 7: Implementing the Decision

❖ Putting the chosen alternative into action.

❖ Conveying the decision to and gaining
commitment from those who will carry out
the decision.

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 Step 8: Evaluating the decision’s
effectiveness

⚫ The decision is judge by its outcomes.

⚫ The effectiveness of the problem was resolved

by outcomes resulting from the chosen
alternatives.

⚫ The mistakes if the problem was not resolved

(factors of negative outcomes).
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 2.4 Three Conditions in Making Decision
2.4.1 Certainty
A ideal situation in which a manager can make an
accurate decision because the outcome of every alternative
choice is known.
2.4.2 Risk
A situation in which the manager is able to estimate
the likelihood (probability) of outcomes that result
from the choice of particular alternatives.
2.4.3 Uncertainty
Limited or information prevents estimation of outcome
probabilities for alternatives associated with the
problem and may force managers to rely on intuition,
hunches, and “gut feelings”.
-Maximax
-Maximin
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-Minimax
 Learning Outcomes :
After reading this chapter, students should be able to:
1. Explain the decision making process
2. Describe how manager can be a decision maker
3. List and explain three types of programmed decisions
4. Explain the differences between non programmed
and programmed decisions

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