Chapter two

Decision Making
1
 Decision making: is defined as the process of
selecting or choosing the best course of action
from numbers of alternatives based on the
criteria.
 Because managers are continually confronted
with opportunities and threats/problem from
external environment.
 They must constantly analyze the effect of
different decisions on their organizations
 Then select the alternative that will move the
firm toward its stated objectives.
P
.
 Types of decision making
2

 Several authors believe that there are two

types of decisions: programmed & non-
programmed decisions.
 A. programmed decision making
 It is "programmable" because of a
specific procedure can be worked out to
resolve based on experience in similar
situations.
 A decision that is repetitive and routine
 Cont’d
3

 A definite method for its solution can be

established
 Does not have to be treated as new, each
time its occurrence
 It involves an organization's every day
operational and administrative activities

 They are primarily found at the middle

and lower levels of management.
 Cont’d
4

 Data used in making a programmed

decision usually are complete and well
defined.

 Participants know the details and agree

on how to resolve the problem.
 Examples: pricing standard,
customer orders & recording office
supplies etc.
 B. Non-programmed Decision
5

 It is used to solve non-recurring problems.

 No well-established procedure exists for handling
them.
 A decision that is unique (novel or new) and ill-
structured.
 Managers do not have experience to draw upon.
 In contrast to programmed decisions, available data
are usually incomplete.
 Cont’d
6

 Non programmable decisions are

commonly found at the middle and top
levels of management
 It is “tough” decisions that involve
risk and uncertainty and
 call for entrepreneurial abilities
 Such decisions draw heavily on the
analytical abilities of the manager
 Cont’d
7

 It is often related to an organization's policy-

making activities, such as:
 Add a product to the existing product line,
 Reorganize the company, or
 Acquire another firm.
 Examples: Moving into a new market,
investing in a new unproven technology,
changing strategic direction
 Types of Problems & Level of management

Ill-structured Top

Non-programmed
decision making Level in
Type of management
Problem

Programmed
Decisions

Well-structured Lower
 Decision-making Process
9

1. Identifying a problem
2. Identifying decision criteria
3. Allocating weights to criteria
4. Developing alternatives
5. Analyzing alternatives
6. Selecting an alternative
7. Implementing the alternative
8. Evaluation of decision effectiveness
 1. Identifying a problem

10

 Problem is a discrepancy (difference)

between an existing and a desired state.
 The decision making process begins by

determining a problem exists; that is,

unsatisfactory condition.
Example:
“The manager has resigned, and we need
another manager”
Here the phrase “manager has resigned”
reflects the current state while “need another
manager” represents a desired state.
 2. Identifying Decision Criteria
11

The word criteria, is defined as “a

standard by which something can be
judged”.
A decision criteria therefore, is the
basis of a decision, which outlines the
relevant and important factors for a
decision.
 Decision Criteria: Example
12

In the above-cited scenario, the

decision criteria may include the
following factors:
 Relevant qualifications
 Leadership skills
 Communication skills
 Planning and analytical skills
 Professional experience
 3. Allocating Weights to Criteria
13

 The next step in the decision making

process is prioritization.
 Prioritization is achieved by assigning
quantitative weights to each criteria
element.
 The weight defines the relative
significance of each element.
 4. Developing Alternatives
14

 This involves developing a list of the

alternative that may be viable in dealing
with the stated problem.
 Involves defining the possible
alternatives (or choices) that would
resolve the problem.
 In our case, the alternatives would be a
list of candidates or job applicants.
 5. Analyzing Alternatives
15

 Alternatives are rated and analyzed on the

basis of the criteria.
 The decision maker must critically evaluate
each one and identify the strong and weak
points
 The rating can be based on a specified scale,
say 1 – 5 etc.
 Rating may be subjective in nature and thus,
may depend on the judgment of the
individual(s)
 Cont’d
16

 we are not only consider things that can

be measured in numerical terms such as
time and various types of fixed &
operating costs.
 but also consider intangible or qualitative
factors such as:
 The quality of labor relations,
 The risk of technological change
 The international political climate.
 6. Selecting an alternative
17

 Involves choosing the best

alternative, based on the above
rating and analysis that suit to the
problem.
 In selecting the best alternative,
factors such as risk, economy of
efforts, timing and limiting factors
should be considered adequately.
 Generally implies selecting the
alternative with the highest score.
 7. Implementing the Alternative
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 Putting the decision into action

 This requires:
 Communication of decisions to
subordinates,
 Getting acceptance of the decisions,
and
 Getting support and cooperation for
converting the decision in to effective
action.
.
 8. Evaluation
19

 Evaluation forms an integral part of any

process
 Involves evaluation of the outcome based
on the desired goal and criteria
 Involves assessing the effectiveness and
efficiency of the outcome (or the entire
process)
 In case of any undesired results, each
step of the process is carefully reviewed
to trace the root causes
 Decision making under different
conditions/state of nature
20

Decision under certainty condition

● All required information are completed
● Decision has clear-cut goals
● Future outcomes associated with each
alternative are clear
● Decisions made in which the external
conditions are very predictable
 Cont’d
21

Decision under risk condition

● Decision has clear-cut goals
● Good information is available
● Future outcomes associated with each
alternative are subject to chance

.
 Cont’d
22

Decision under uncertainty condition

● Managers know which goals they wish to
achieve
● Future outcome about alternatives is
unknown

● Information about alternatives and future

events is incomplete

● Managers may have to come up with

creative approaches to alternatives
.
 Cont’d
23

Decision under ambiguity condition

● By far the most difficult decision situation
● Goals to be achieved or the problem to be
solved is unclear
● Alternatives are difficult to define
● Information about outcomes is unavailable
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