Chapter-5

Decision – making

Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

 LEARNING OBJECTIVES

 Gain ability to make better choices (personal and

professional front)

 Define the meaning of a decision

 Describe various types of decisions

 Examine different models of decision-making

 Present the steps in a rational decision-making process

 Identify the different types of environment of decision-

making

 Relate common difficulties in decision-making

Introduction to decision-making
 Decision-making is key part of manager’s activities
 Everyday manager takes conscious and subconscious
decisions
 Sub-Conscious: Minor decisions are taken subconsciously by
referring rules
 Conscious: Major decisions are taken consciously and carefully.
Such decisions depend upon experience and judgment of the decision
taker.

 Decisions are taken while planning, organizing, directing

and controlling
 Planning: What, why, when, how to produce & sell

 Organizing: Org. structure, delegation of authority, etc

 Directing: Flow of instructions and orders

 Controlling: performance standard, Strategic control

 MEANING OF A DECISION
 A decision is a choice between two or more
alternatives. This implies three things:

 When managers make decisions they are choosing—

they are deciding what to do on the basis of some
conscious and deliberate logic or judgement.
 Managers have alternatives available when they are
making a decision.
 Managers have a purpose in mind when they make a
decision.
 TYPES OF DECISIONS

1. Programmed and Non-Programmed Decisions

2. Major and Minor Decisions

3. Routine and Strategic Decisions

4. Individual and Group Decisions

5. Simple and Complex Decisions

1. PROGRAMMED & NON-PROGRAMMED
DECISIONS
Programmed Decisions:
 These decisions are repetitive
 In the case of programmed decisions, each manager
is guided by the same set of rules and policies.
 Eg: salary after medical holidays

Non-Programmed Decisions:
 These decisions are novel & non-repetitive
 Each manager may bring his own personal beliefs,
attitudes and value judgements to bear on the
decision process.
 Eg: failing product line
1. PROGRAMMED & NON-PROGRAMMED
DECISIONS

 In case of PD, all managers arrive at the same decisions.

While in case of NPD, managers may arrive at different
solutions.

 Thus, NPD helps to distinguish effective managers from

ineffective managers.

 Gresham’s Law of decision making: More time for routine

unimportant D; less for non-routine important D
2. MAJOR AND MINOR DECISIONS

 Degree of Futurity of Decision

 Impact of the Decision on Other Functional
Areas
 Qualitative Factors that Enter the Decision
 Recurrence of Decisions
3. ROUTINE AND STRATEGIC DECISIONS
Routine Decisions
Routine decisions require little deliberation and money and
are taken by managers at lower levels
The purpose is to increase the degree of efficiency
Eg: Parking facilities, Cafeteria services, better lighting
etc.

Strategic Decisions
Strategic decisions require lengthy deliberation and large
funds and are taken by managers at higher levels
Eg: Lowering price of the product, Changing product line,
installation of automation plant
4. INDIVIDUAL AND GROUP DECISIONS
Group Decision making methods:
1) Dialectic method & 2) Devils Advocacy
4. INDIVIDUAL AND GROUP DECISIONS

• Two approaches to group decision-making have recently been

proposed as alternatives to the conventional interacting or discussion
group.

Nominal Group Technique Delphi Technique

–Write ideas silently
–Present ideas one by one
–Ideas are summarised on
black board
–Recorded ideas are then
discussed for clarification
–Each member votes for best
idea
–Group consists of persons who
are physically dispersed
–Ideas are taken through
questionnaire
–Second questionnaire is sent
after summarization of 1st one
for better understanding
–Decision is taken on the basis
of second opinion
5. SIMPLE AND COMPLEX DECISIONS

– Mechanistic or routine decisions (Simple prob & High

Certainty)
– Judgemental decisions (Simple prob & Low certainty) Eg:
Marketing dept.
– Analytical decisions (Complex prob & High certainty) Eg:
Production dept
– Adaptive decisions (Complex prob & Low certainty) Eg:
Changing environment
 Task
1) Dysfunctional organizational structure.
2) Poor financial control.
3) Interpersonal conflict.
4) Lack of quality checks.
5) Lack of management and leadership skills.
6) Safety risks.
7) Marketing inefficiency.
8) Poor communication.
9) Tactical mistakes.
10) Poor vision.
11) Lack of competitiveness among
employees.
12) Slow response to customer demands.
13) Failure to adapt to new technology.
14) Resistance to change.

Source: Carol Harris - The NLP Guide to Being

a Management Consultant, 2001
RATIONAL DECISION MAKING

A decision is rational if appropriate

means are chosen to reach the desired
ends.
STEPS IN RATIONAL DECISION-
MAKING
STEPS IN RATIONAL DECISION-
MAKING
1. Recognise the Problem:
- When there is a deviation from past experience
- When there is a deviation from a plan
- When other people bring problems to the manager
- When competitors outperform the manager’s
organization

2. Deciding Priorities among Problems:

- Very few problems require manager’s attention

3. Diagnosing the problem

STEPS IN RATIONAL DECISION-
MAKING
4. Developing alternative solutions or
course of actions:

Don't Panic... Keep

your EQ high!!!
Stay Calm...
Find out solutions!!!!
STEPS IN RATIONAL DECISION-
MAKING
4. Developing alternative solutions or
course of actions:
-Eg: Raise Production

Nemawashi:
The process of discussing problems and potential
solutions with all of those who might be effected by the
decision helps broaden the search for solutions and
builds consensus.
 STEPS IN RATIONAL DECISION-
MAKING
4. Developing Alternatives solutions or course of
actions:
- Creativity & Innovation:
Innovation is successfully bringing into use ‘an invention.’
Divergent and Convergent Thinking
Creative thinking Process:
• Saturation (gets familiar with problem)
• Deliberation (sees it from different viewpoints)
• Incubation (Relaxes)
• Illumination (gets idea)
• Accommodation (Refines idea)
STEPS IN RATIONAL DECISION-MAKING

4. Developing Alternatives solutions or

course of actions:
-Techniques of stimulating creative thinking:
educational & operational
-Group Techniques: Brain Storming & Brain Stilling

5. Measuring & Comparing

Consequences:
- Quality & Acceptability
- Judgement & Intuition
-Pilot testing when small info is available
STEPS IN RATIONAL DECISION-MAKING

6. Converting decisions into effective

actions:
-Delegation of responsibility for implementation of
decisions
-Proper communication

7. Follow-up of Action
COMMON DIFFICULTIES IN
DECISION-MAKING

 Non-actionable Information
 Un-supporting Environment
 Non-Acceptance by Subordinates
 Ineffective Communication
 Incorrect Timing
Sometimes org. may face multiple problems at the
same time, and end up without any rational
decision. Such org. may end up being a sick unit
or may ask for help through merger.
RATIONALITY IN DECISION-MAKING
(MODELS OF DECISION-MAKING
BEHAVIOUR)
RATIONALITY IN DECISION-MAKING

2. Administrative Man model/ Bounded Rationality

Model:
(Herbert Simon)
-Limited rationality bcoz human skills are limited - more
realistic
- Satisfice rather than maximise
- Search for alternatives is sequential (Exception R & D
dept.)
- Guided by experience