QUALITAS SYSTEMS

DECISION MAKING
COURSE OBJECTIVE:
To:

Provide an introduction to the process of decision making.

Explain the meaning and nature of decision making.

Expound the importance of decision making as an integrated activity.

Asses the importance of psychological contact in the process of

decision making.

Recognize contrasting perspective of decision making.

DEFINITION OF TERMS:

THEORETICAL FRAMEWORK:
Making decision is clearly a fundamental task of managers. Indeed, some
experts have called decision making the activity, which distinguishes
management from some other functions in an organization.
Decision making is simply the choice of one alternative from among
several choices one of which is always to do nothing. That sounds
deceptively simple, but we all know that it can be terrifyingly difficult.
The purpose here is not to talk now about now to make decisions, but to
discuss our role as managers in making decisions. As managers we neither
work alone nor make decisions alone, though we do have to assure sole
responsibility. So it makes sense to think about decision-making in the
context of managing.

The Decision Making Process:

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The actual making of decision is really the final step in a series of steps.
Those steps include:

Defining the problem

Defining the criteria for making decisions

Defining the various alternatives available

Fore casting the out come under each alternative

Making the actual decision

You surely have seen those steps enumerated one place or another.
Aristotle probably had something to say about them. They are listed here
only to make the point that it is indeed a process, and not a single activity.
You may not go through that process formally every time you make a
decision; some situations are so familiar that the process is almost
unconscious.
It is easy to forget that decision making is a series of step and to think of
it in total as the manager is sole prerogative something you must do
alone.
Surely, the final step is indeed your responsibility, as it is your
responsibility to manager the process and task responsibility for the
outcome, but, there is noting you that says you must undertake all the
steps in the process alone. Infact, it is suspicious that manager who
consistently does them all by himself is probably a fool who makes poor
decisions.
The key point is: You can improve the quality of your decisions by
improving any one of the steps in the decision making process.
Problems in Decision Making:
Consider all the problems that can arise in the decision making process.
Usually a poor decision is not something that happens mysteriously it is
the result of something that went wrong with one of the steps prior to the
decision itself.

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First, there is a human tendency to define a problem too quickly. We may

assume that we know, what it is, that it is like some other problem we
already understand. Infact, we usually want to define a problem this way
because that makes the problem familiar. In addition, we often define
something as the problem which is actually a symptom of another, more
fundamental problem. The degree here is that treating the symptom will
not ultimately solve the problem.
The converse can also occur in defining a problem the defining can go an
forever, so that a decision is never made. Where the problem is unusually
difficult, the temptation is to keep on looking for more and more
information, for that ore due which will make the proper decision obvious.
Except in rare cases, such a due does not exist atleast you will probably
never find it. Gathering information, especially the right information, is
critical to good decision making; but after a certain point, the gathering of
more and more information does not help. It only delays getting to the
actual decision.
Defining the decision criteria and all the real alternatives, as well as
forecasting the possible out comes, are all different activities. What makes
decision particularly susceptible to error is bias, the individual point of
view that all of us bring to decision making (and everything else in life).
Bias not only affects what information we gather, it also affects the way
we interpret the information. The criteria, alternative, and outcomes
we define as part of decision making.
We always tend to make a no go decision, rather than a go decision
perhaps because a go decision perhaps because a no go decision is
safer. If it is wrong, it will seldom be obvious. In addition, research
indicates that decisions made under stress tend to be poorer then those
made in less tense circumstances. And, finally, an obvious problem, but
one worth nothing: it is easy to ever look conflict and other problems,
which can result from a decision. Where the consequences on people are
concerned, it is too easy to review possible consequences from the point
of view of how people should react, rather than how they will actually
react. Better to deal with reality, unpleasant as it may be sometimes, than
to fool ourselves.
Implication for Decision Making:
The primary implication of what has been said so far is that you are
probably better off involving those who work for you in the process of
making decisions that affect them.

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There are obvious disadvantages of such participation it may generate

conflict, cause people to put pressure on you, the decision maker, and it
will certainly take more time than if you shut your office door and do it all
yourself.
In most cases, however, the positive effects of involving people will
ultimately outweigh the bad. If the decision must be implemented by
those people, involving them is move likely to insure their willing help. But
most important of all, involving people in the steps prior to the actual
decision will usually lead to better decisions.
Why is that so?
Gathering enough of the right information concerning a problem, and
being able to view it as clearly as possible, are necessary preliminaries to
make effective decisions. By involving others (assuming they have
something relevant to say about the topic) you can increase the chances
that the right information will be gathered, and you will insure enough
different points of view that individual biases including your own will be
cancelled out. This approach to decision making has been called to
problem solving approach.
The problem solving approach:
Think about the way you usually make a decision (or solve a problem) and
then about the way you implement what have you decided. It you are like
most other managers, as revealed by research, you probably decide what
you want to do, then call all those involved together and sell your
decision. That is, you try to persuade the people, by reviewing whatever
data seems relevant to you, that your decision was the right one. If the
decision was a controversial one, you probably will get some argument
and, finally, grudging acceptance.
With this setting approach, you may have problems getting people to
implement your solution with any enthusiasm. Do not underestimate the
importance of that enthusiasm; in many cases, the decision finally made is
most irrelevant, in that many different decisions can work, so long as they
are implemented with energy, enthusiasm and intelligence.
Infact, the sales; approach to decision making is bound to aggravate all
the problems enumerated a moment ago that can occur in decision
making. The manager who undertakes the decision process along, and
then tries to persuade others that (he or she) made the right decision
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faces two problems: he is limited only to the information be possess or can

find himself, and he has no way of countering whatever biases he holds.
In my experience, whether there is conflict over the proper decision, the
best decision is often integration, a creative combining of different points
of view. It is not the same as simple compromise where all sides win a little
and loose a little. An integrated solution is the one which combines the
best elements of the conflicting sides, but in a new, innovative way that
none of the sides would have found by themselves.
The way to improve your chances of finding such a solution is through the
problem solving approach, as opposed to the sales approach.
The way to use this approach is: instead of gathering the people involved
and explaining why your solution is best, gather them, present the
problem (not your solution) and share any (and all) data you have; then
discuss alternatives, what you will often get from the resulting discussions
are alternatives which you had never thought of and which will infact,
work better than what you, or any of the other people involved, might
have produced alone.
None of it reduces your ultimate accountability for the quality of the
decision, but that is precisely the reason you should consider the problem
solving approach. Not only does this approach often produce better
alternatives and therefore better decisions but it also tends to lead to
decisions which are better accepted and more willingly implemented by
the people involved.
Rationality in Decision Making:
It is frequently said that effective decision making must be rational, but
what is rationality. When a person is thinking or deciding rationally? People
acting or deciding rationally are attempting to reach some goal that
cannot be attained without action. They must have a clear understanding
of alternative courses by which a goal can be reached under existing
circumstances and limitations. They must also have the information and
ability to analyze and evaluate alternatives in light of the goal sought.
Finally, they must have a desire to come to the best solution by selecting
the alternatives that most effectively satisfies goal achievement.
People seldom achieve complete rationality, particularly in managing. In
the first place, since no one can make the decisions affecting past,
decisions must operate for the future, and the future almost invariably
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involves uncertainties. In the second place, it is difficult to recognize all

the alternative that may be followed to reach the goals, it is particularly
true when decision making involves opportunities to do something that
has not been done before, moreover, in most instances, not all
alternatives can be analyzed, even with the newest available analytical
techniques and computers.
The Search for Alternatives:
Assuming that we know what out goals are and agree on clear planning
premises, the first step of decision making is to develop alternatives.
There are almost always alternatives to any course of action, indeed, if
there seems to be only one way of doing a thing, that way is probably
wrong. If we can think of only one course of action, clearly we have not
thought hard enough.
The ability to develop alternatives is often important as being able to
select correctly from among them. On the other hard, ingenuity,
research and common sense will often unearth so many choices that all
of them cannot be adequately evaluated. The manager needs help in this
situation, and this help, as well as assistance in choosing the best
alternative, is found in the concept of the limiting or strategic factor.
A limiting factor is something that stands in the way of accomplishing a
desired objectives. Recognizing the limiting factors in a given situation
makes it possible to narrow the search for alternatives to those that will
overcome the limiting factors. The principle of limiting factors is as follows:
by recognizing and overcoming those factors that stands critically in the
way of a goal, the best alternative course of action can be selected.
Evaluation of Alternatives:
Once appropriate alternatives have been found, the next step in planning
is to evaluate them and select the one that will best contribute to the goal.
It is the point of ultimate decision making, although decisions must also be
made in the other steps of planning in selecting goals, in choosing
critical premises and even in selecting alternatives.
Selecting an Alternative: Three Approaches:
When selecting some alternatives, managers can use three basic
approaches.

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1. Experience
2. Experimentation
3. Research and Analysis

Experimentation

Reliance
on the
past

How to select
among
alternatives

Choices
made

Research and
Analysis

Base for selecting among alternative course of action

1. Experience:
Reliance on past experience probably plays a larger part than it
deserves in decision making. Experienced managers usually believe,
often without realizing it that the thing they have successfully
accomplished and the mistakes they have made furnish almost is
fallible guides to the future. This attitude is likely to be more
pronounced the more experience a manager has had and the higher in
an organization he or she has risen.
2. Experimentation:
An obvious way to decide among alternatives is to try one of them and
see what happens. Experimentation is often used in scientific inquiry.
People often argue that it should be employed more often in managing
and that the only way a manager can make sure plans are right
especially in view of the intangible factors is to any the various
alternatives and see which is best.
3. Research and Analysis:
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One of the most effective techniques for selecting from alternatives

when major decisions are involved in research and analysis. This
approach means solving a problem be first comprehending. It thus
involves a search for relationship among the more critical of the
variables. Constraints and premises that bear upon the goal sought. It
is the pencil-and-paper approach to decision making.
Programmed and Non-Programmed Decisions:
A distinction can be made between programmed and non-programmed
decisions. A programmed decision is applied to structured or routine
problems. Lathe operators have specification and rules that all them
whether the part they made is acceptable, has to be discarded or should
be reworked . Another example of programmed decision is the reordering
of standard inventory items. This kind of decision is used in routine and
repetitive work. It relies primarily on previously established criteria. It is, in
effect, decision making by precedent.
Non-programmed Decisions:
They are used for unstructured, novel and ill-defined situations of a
nonrecurring nature. Examples are the introduction of Macintosh
computers by apply computers Inc, the four wheel drive passenger car by
Audi, infact, strategic decision, in general, are non-programmed decisions,
since they require subjective judgements.

Organizational Hierarchy

Most decisions are neither completely programmed nor completely nonprogrammed; they are combination of both, most non-programmed
decisions are made by upper level management; it is because upper level
managers have to deal with unstructured problems. Problems at lower
levels of organization are often routine and well structured, requiring less
decision discretion by managers and non-managers.
Weston H. Agor, How Top Executive use their in tution to make
important
Decision. Business Horizons (Jan-Feb 1986) PP 49-53
Nature of
Problems

Highest
Decision making
Level

Unstructured

Nature of

Non
Programmed

Decision

DECISION MAKING

Programmed

Lowest

Structured

Decision

Level
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Decision making under certainty, uncertainty and risk:

Infact, and decisions are made in an environment of at least some
uncertainty. However, the degree will vary from relative certainty to great
uncertainty. There are certain risk involved in decision making.
In a situation involving certainty, people are reasonably sure about what
will happen when they make a decision. The information is available and is
considered to be reliable, and the cause and effect relationships are
known.
In a situation of uncertainty, on the other hand, people have only a
meager database, they do not know whether or not the data are reliable,
and they are very unsure about whether or nor the situation may change.
Moreover, they cannot evaluates the interactions of the different variables.
In a risk situation, factual information may exist, but it may be incomplete.
To improve decision making, one may estimate the objective probabilities
of an outcome by using, for example, mathematical models. On the other
hand, subjective probability, based on judgement and experience, may be
used, fortunately, there are numbers of tools available that help managers
make more effective decisions.
John S. Hanely, Market-Forces in Managerial decision making, JMS.Vol.4
(1986)

Decision Trees:
One of the best way to analyze a decision is to use a so-called decision
tree. Decision trees depict, in the form of a tree, the decision points,
chance events, and probabilities involved in various courses that may be
undertaken. A common problem occurs in business when a new product is
introduced. Managers must decide whether to install expensive permanent
equipment to ensure production at the lowest possible cost or undertake
cheaper, temporary tooling that will involve a higher manufacturing cost
but lower capital investments and will result in a smaller losses if the
product does not sell as well as estimated.

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Product Succeed as
estimated (gain)
Permanent tooling
Investment

Product Sales slow

(gain)
Product fails
(loss)

Product Succeed as estimated

(gain)
Temporary tooling
Investment

Product Sales Slow

(gain)
Product fails
(loss)

Chance Event
Decision Point

Preference Theory:
Preference or utility theory is based on the notion that individual attitudes
towards risk will vary: some individuals are willing to take only smaller
risks than those indicated by probabilities and others are willing to take
greater risks. While referred to here as preference theory, this technique is
classically called, utility theory. Purely statistical probabilities, as applied
to decision making, rest on the assumption that decision makes will follow
them. In other words, it may seem reasonable that if there were a 60
percent chance of decisions being the right one, a person would take it, it
is not necessarily true, however: since the risk of being wrong is 660
percent, the individual may not wish to take this risk. Managers avoid risk,

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particularly if the penalty of being wrong is severe, whether to be in terms

of monetary loss, reputation or job security.

Attitude towards Risk:

In order to give probabilities practical meaning in decision making, it is
necessary to understand the individual decision makers aversion to or
acceptance of, risk. It varies not only with the individual but also with the
size of risk the level of the manager in an organization, and the source of
the fund involved (are they personal ? or do they belong to the company).
Higher level managers are accustomed to take larger risk then are lower
level managers, and their decision areas tend to involve larger elements of
risk. A company president may have to take great risk in launching a new
product, selecting an advertising programme, or choosing a vice
president, while a first level supervisors risk taking may be limited to hire
or promote semiskilled workers or approve vacation schedule for
subordinates.
Personal Risk or Preference Curve:
While not much is known about personal attitude towards risk, too things
are certain: some people are risk averters and gamble in others, and some
people may have by nature a greater aversion to risk while others have a
low one.
Must managers (understandably influenced by the danger of failure) tend
to be risk averters to some extent and do not play the averages. Therefore
statistical possibilities are not good enough for practical decision making.
Decision Support System:
It uses computers to facilitate the decision making process of
semistructured tasks. These systems are designed not to replace
managerial judgements but to support it and to make the decision process
more effective. Decision support system also helps managers react quickly
to change needs. It is clear then, that the design of an effective system
requires a thorough knowledge of how managers make decisions.

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Although there are similarities between management information system

(MIS) and decision support system (DSS), there are also differences.
Traditionally, the designer of MIS were technical experts, and managers
(who had to make the decision) had only minor inputs. In contrast, DSS
focuses on the decision making process and on managers, who, in
cooperation with the technical professionals, design the system, suitable
for a particular position. Managers, having access to databases in DSSs,
Can manipulate data and explore the effectiveness of alternative course of
action. The working hierarchy of both the system as:

MIS
Focus on structured tasks androutine
decisions
(use
of
procedure, use of decision rules). Emphasis as data storage.
Reliance on computer expert.
Access to data possibly requiring a
wait for managers turn.
MIS manager not completely
understands the nature of thedecision.
Emphasis on efficiency.

DIS
Focus on semistructured tasks,
requiring managerial judgement.
Emphasis on data manipulation.
Reliance on manager judgment.
Direct access to computer and
data
Manager
knowing
decision
environment.
Emphasis on effectiveness.

Steven Alter, Decision Support System; Addison-Wesley-1980

P.X.I
Creativity and innovation:
An important factor in managing people is creativity. A distinction can be
made between creativity and innovation. The term creativity usually refers
to the ability and power to develop new ideas. Innovation, on the other
hand, usually means the use of these ideas. In an organization, it can
means a new product, a new service, or a new way of doing things.
Although this discussion centers on the creative process, it is implied that
organizations not only generate new ideas but also translate them into
practical applications.
The Creative Process:
The creative process is seldom simple and linear. Instead, it generally
consists of four overlapping and interacting phases: (1) unconscious
scanning, (2) intuition, (3)Insight and (4) logical formulation.
The first phase, unconscious, is difficult to explain because it is beyond
consciousness. This scanning usually requires an absorption in the

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problem, which may be vague in the mind. Yet managers working under
time constraints often make decisions prematurely rather than dealing
thoroughly will ambiguous, ill-defined problem.
The second phase, intuition, connects the unconscious with the conscious.
This stage may involve a combination of factors that may seem
contradictory at first.
The third phase, insight, is mostly the result of hard work, what is
interesting that insight may come at time when the thoughts are not
directly focussed on the problem at hard. Moreover, new insight may lasts
only for a few minutes, and effective managers may benefits from having
paper and pencil ready to make notes of their creative ideas.
The last phase is logical formulation or verification, insight needs to be
tested through logic or experiment. It may be accomplished by continuing
to work on an idea or by inviting critique from others.
The System Approach and Decision Making:
Decisions cannot usually be made, of course in a closed system
environment. As already emphasized, may elements of the environmental
planning lie outside the enterprises, managers of these organizational
units must be responsive to the policies and programmes of other
organizational units and of the total enterprise. Moreover, people with in
the enterprise are a part of the social system, and their thinking and
attitudes must be taken into account wherever a manager makes a
decision.
Furthermore, even when managers construct a closed system model, as
they may do with operations research decision models, they do so simply
to have a workable program to solve. But in so doing they make certain
assumptions as to environmental forces, that heavily influence their
decisions, they enter inputs into their calculations as they are or appear to
be at given time, and they change the construction of their model when
forces and developments beyond its boundaries so require.

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Computer Operator Proposes Purchase of

New Computers

Need
analysis
(DESIRED
)

No

Request is held up

Proposal goes to the Finance Manager

No

Economically
Justified

Fund Allocation Committee Reviews Proposal

No

Recommended
Purchase

Budget Allocated to Computer Department

Head

Quotatio
n
Finalize

DECISION MAKING

No

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Computer Purchased

Conclusion:
Decision making is the selecting of a course of action from among
alternatives; it is the core of planning managers must make choices on the
basis of limited, or bounded rationality, that is, they must make decisions
in the light of everything they learn about a situation, which may not be
everything they should know.
Because there are almost always alternatives usually many to course of
action, managers need to narrow them down to those few that deal with
the limiting factors. There are the factors that stand in the way of
achieving desired objectives. Alternatives are then evaluated in terms of
many factors. Other techniques for evaluating alternatives include
marginal analysis and cost effectiveness analysis. Experience,
experimentation, and research and analysis come into play in making
decisions.
Programmed and non-programmed decisions are different. The former are
suited for structured or routine problems. These kinds of decisions are
made especially by lower-level managers and non-managers. Nonprogrammed decisions, on the other hand, are used for unstructured and
non-routine problems and are made especially by upper-level managers.
Finally, decision must be made with the recognition that organizations are
upon system, interacting with the environment.

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