CHAPTER 4

MANAGING
DECISION MAKING
1 THE NATURE OF DECISION MAKING
Define decision making and discuss types of decisions and decision-
making conditions.

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DEFINITION
Decision making
Is the act of choosing one
alternative from among a set
of alternatives.
Decision-making process
1. Recognizing and defining
the nature of a decision
situation,
2. identifying alternatives,
3. choosing the BEST
alternative, and
4. putting it into practice.
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 Non
Programmed
programmed
Decisions
Decisions

Usual situations that

routine, almost
have not been often
automatic process
addressed

Types of Decisions
Managers have No rules to follow
made decision since the decision is
many times before new

These decisions are

made based on
There are rules or
information and a
guidelines to follow
manager's intuition
and judgement
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Types of Decision

Programmed Non-programmed
Decision Decisions
Decisions that are made in Decisions that are made in
response to recurring response to novel, poorly
organizational problems that defined, or unstructured
require individuals to follow situations that require
established rules and managers to use their best
procedures. judgements

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Decision-Making Conditions

Decision Making Under Certainty

Decision Making Under Risk

Decision Making Under Uncertainty

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Decision-Making Conditions

Decision Making Under Certainty

Decision maker knows with reasonable certainty what the alternatives are and
what conditions are associated with each alternatives

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 The decision
maker faces
conditions of…

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decisions

Lower Moderate Higher

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Decision-Making Conditions

Decision Making Under Risk

The availability of each alternative and its potential payoffs and costs are all
associated with probability estimates.

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 The decision
maker faces
conditions of…

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decisions

Lower Moderate Higher

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Decision-Making Conditions

Decision Making Under Uncertainty

Decision maker does not know all the alternatives, the risks associated with
each, or the likely consequences of each alternative.

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 The decision
maker faces
conditions of…

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decisions

Lower Moderate Higher

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Decision-Making Conditions

Decision Making Under Certainty

Probabilities and expected outcomes are known

Decision Making Under Risk

Some knowledge of probabilities and expected outcomes

Decision Making Under Uncertainty

Probabilities and expected outcomes are unknown

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Discussion

Most business decisions are made under

conditions of either risk or uncertainty. In
your opinion, is it easier to make a decision
under a condition of risk or a condition of
uncertainty? Why?

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 RATIONAL PERSPECTIVES ON
2
DECISION MAKING
Discuss rational perspectives on decision making, including the steps
involved.

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Definition

The Classical Decision Model

A perspective approach to decision making that tells
managers how they should make decisions.

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 When faced with a
decision situation,
managers
should…

Obtain complete
and perfect
information

Classical Decision Eliminate

Model uncertainty

Evaluate
everything
rationally and
logically

End up with a
decision that best
serves the interest
of the organization

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Steps in Rational
Decision Making

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Steps in Rational
Decision Making

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Steps in Rational
Decision Making

Recognizing and
defining the decision

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Steps in Rational
Decision Making

Identifying
alternatives

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Steps in Rational
Decision Making

Evaluating
alternatives

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Evaluating Alternatives in the Decision-Making
Process
Are the
Is the Is the Retain for
yes yes alternative’s
alternative alternative yes further
consequences
feasible? satisfactory? consideration.
affordable?

no no no

Eliminate from Eliminate from Eliminate from

consideration consideration consideration

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Steps in Rational
Selecting the best
Decision Making alternatives

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 Implementing the
chosen alternative
Steps in Rational
Decision Making

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 Following up and
evaluating the results

Steps in Rational
Decision Making

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 Following up and
evaluating the results

Implementing the
chosen alternative

Selecting the best

alternatives

Evaluating
alternatives

Identifying
alternatives

Recognizing and
defining the decision
Steps in Rational
Decision Making

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Summary of Learning Outcomes and Key Points

1. Definedecision making, and discuss types of decisions and decision-making

conditions.
• Decision making is the act of choosing one alternative from among a set of
alternatives.
• The decision-making process includes recognizing and defining the nature of a
decision situation, identifying alternatives, choosing the “best” alternative, and putting
it into practice.
• Two common types of decisions are programmed and nonprogrammed.
• Decisions may be made under states of certainty, risk, or uncertainty.

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Summary of Learning Outcomes and Key Points

2. Discuss rational perspectives on decision making, including the steps involved.

• Rational perspectives on decision making rest on the classical model.
• This model assumes that managers have complete information and that they will
behave rationally. The primary steps in rational decision making are the following:
◦ Recognizing and defining the situation
◦ Identifying alternatives
◦ Evaluating alternatives
◦ Selecting the best alternative
◦ Implementing the chosen alternative
◦ Following up and evaluating the effectiveness of the alternative after it is
implemented

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Thank you.
Angelo S. Medrano
21-51007

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