MANAGEMENT CONCEPT AND PRACTICE

CHAPTER FOUR
DECISION MAKING
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Decision-making
 Decision Theory
 Decision making can be defined as the process of
choosing between alternatives to achieve a goal.
 Decision making is a conscious human process involving
both individual and social phenomenon based upon
factual and value premises which concludes with a choice
of one behavioral activity from among one or more
alternatives with the intention of moving toward some
desired state of affairs.
 Decision making is the process of identifying problems
and opportunities, develop alternative solution, select
best alternatives and implement it.
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 It is part of all managers’ job and common core to other

functions.
 For instance, top level management makes decision on
dealing with mission of organization and its strategies.
 Middle level management, focus on implementing
strategies, budgets and resource allocation.
 First level management deals with repetitive day to day
operations
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 Decision making has three elements

 when manager make decisions; they are choosing or
selecting from among alternatives
 when manager make decisions; when there are no
alternatives, there is no decision-making , rather it
become mandatory
 When managers make decisions, they have purpose
in mind. The purpose in mind is organizational
objectives.
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Decision making process
1. Awareness of the problem (Define the problem)
 The manager needs to become aware that a
problem exists and that is important enough for
managerial action
2. Identifying the limiting or critical factors
 Time, personnel, money, facilities…….
3. Developing Potential Alternatives
 Developing alternative solutions to the problem
guarantees adequate focus and attention on the
problem.
 It helps managers to fully test the soundness of every
proposal before it is finally translated into action.
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4. Analyze / Evaluate the Alternatives
 The consequences of each alternative would also be
considered.
5. Select the Best Alternative
 The following four criteria are commonly used for
making the right choice among available alternatives:
The risk
Economy of effort
Timing
Limitation of resources
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6. Implement the Decision
 The manager must seek feed-back regarding the
effectiveness.
7. Evaluate and Control
 The system should provide feedback.
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Types of Decisions
 Managers are evaluated by the decisions they make
and, more often, by the results obtained from their
decisions.
 Managers are usually involved in making two types of
decisions as indicated below.
1. Programmed Decisions
 A programmed decision is one that is routine and
repetitive.
 Rules and polices are established well in advance to
solve recurring problems quickly.
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Types of Decision (Cont’d…)

2. Non-programmed Decisions
 usually deal with unstructured problems
 Deciding how to restructure an organization, to
improve efficiency
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 DECISION MAKING CONDITIONS

 A decision-maker may not have complete

knowledge about decision alternatives (i.e., High
Problem, Complexity) or about the outcome of a
chosen, alternative (i.e., High Outcome
Uncertainty).
 These conditions of knowledge are often referred
to as states of nature and have been labeled:
 Decisions under Certainty.
 Decisions Under Risk
 Decisions under Uncertainty
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 Decision making under certainty:
 A decision is made under conditions of certainty when a
manager knows the precise outcome associated with each
possible alternative or course of action.
 In such situations, there is perfect knowledge about
alternatives and their consequences.
 Exact results are known in advance with complete (100 per
cent) certainty. The probability of specific outcomes is assumed
to be equal to one.
 A manager is simply faced with identifying the consequences of
available alternatives and selecting the outcome with the
highest benefit or payoff.
 In practice, managers rarely operate under conditions of
certainty. The future is only barely known.
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Decision making under risk:
 A decision is made under conditions of risk when a single action
may result in more than one potential outcome, but the relative
probability of each outcome is known.
 Decisions under conditions of risk are perhaps the most common.
 In such situations, alternatives are recognized, but their resulting
consequences are probabilistic and doubtful.
 While the alternatives are clear, the consequence is probabilistic
and doubtful. Thus, a condition of risk may be said to exist.
 In practice, managers assess the likelihood of various outcomes
occurring based on past experience, research, and other
information.
 A quality control inspector, for example, might determine the
probability of number of `rejects' per production run.
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 Decision making under uncertainty:
 A decision is made under conditions of uncertainty when a
single action may result in more than one potential outcome,
but the relative probability of each outcome is unknown.
 Decisions under conditions of uncertainty are unquestionably
the most difficult.
 In such situations a manager has no knowledge whatsoever on
which to estimate the likely occurrence of various alternatives.
 Decisions under uncertainty generally occur in cases where no
historical data are available from which to infer probabilities or
in instances which are so novel and complex that it is impossible
to make comparative judgments.
 Selection of a new advertising program from among several
alternatives might be one such example.
Summarize the lesson