POLYTECHNIC UNIVERSITY OF THE PHILIPPINES

COLLEGE OF BUSINESS ADMINISTRATION

Sta. Mesa, Manila

DECISION-
MAKING
MANA 4033

SUBMITTED BY

GROUP 1
Jabagat, Elgine Joy
Balodong, Joanna Reca
Basilio, April
Aquino, Fatima
Cabrera, Ronalene
Barela, Vincent
Bautista, Mark Paul
Bon, Camille
Beronia, Clarita

SUBMITTED TO:
PROF. MARIFEL I. JAVIER
 EFFECTIVE MANAGEMENT DECISION MAKING

Decision-making is an indispensable part of life. Making Decisions is one of the

common aspects in everyones life because we are all making decisions every day.
Decision making is defined as the act of making a choice between two or more options.
So it is like selecting the best alternative out of the available alternatives. It begins
when we need to do something but we do not know what.

DUALITY IN DECISION MAKING

All managerial functions like planning, organizing, staffing, directing,

co-ordinating and controlling are carried through decisions. Decision-making is thus the
core of managerial activities in an organization. Decision Making has two distinctive
foundations, the quantitative and qualitative focus.

Quantitative decisions are mostly based on statistical analysis of collected data

whereas the Qualitative decisions are based on many algorithms like type and quality of
data, factors that influence data, employee morale etc.

The manager can based his decisions on these two foundations of decision
making. The results of this analysis can help the decision makers in the management,
which are their superiors or the top management in selecting the best decisions for their
company to achieve their organizational goals and also for their company to succeed.

TYPES OF BUSINESS AND MANAGEMENT DECISIONS

Structured Decisions are decisions where the aim is clear. It is generally made for
routine task.
Unstructured Decisions are decisions which are unclear and poorly understood.
Programmed Decisions are types of structured decisions which follow clear steps
and procedures.
Non-programmed Decisions are non-standard and non-routine decisions.
Strategic Decisions affects the long-term direction of the business firm. These occur
at the top level management
Tactical Decisions are medium-term decisions about how to implement strategy.
Operational Decisions are short-term decisions about how to implement tactics.
WHO IS INVOLVED IN DECISION MAKING? THE DECISION BODY

It is a common belief, when trying to understand decision making, to view it as

equivalent to problem solving. (Harrison,1999). However it must be remembered that
decisions are often taken without a clear problem being resolved or driving the decision
making process. The decision making and problem solving are related but they are not
interchangeable terms. Decision making occurs when a judgment must be made
between the merits and demerits of different choice processes, whereas problem
solving generates the choice processes in the first place.

Now, who is involved in decision making? We must understand that the decision
body is the one who involved in decision making. For that, let us know what the
decision body means is. Decision body describes the decision makers those who have
influence upon the exercise of judgment between completing the solutions to a problem.
Teale et al (2003) propose that decisions, of the type discussed, are made by a decision
body in organizations. These are the individuals, collective groupings and other
stakeholder entities that actively shape the decision making process.
In an organization, Whilst Freeman (1984) originally identified organizational
stakeholders as all those who are affected by an organizational decision, this latterly
has come to be viewed as too large to be useful (or a managerially practical) definition.

Mitchell et al (1997) then propose that stakeholders can be identified through

three interdependent features of influence.

1. Their level of power and authorityit address the how easy is it for a
stakeholder to influence a firms decisions.

2. Their level of legitimacy what is the social and moral authority of the
stakeholder when using its influence to shape a firms decision

3. Their level of urgency what is the stakeholders level of immediate implication

in the firms activities

A stakeholder which combines all three attributes can be said to have a high
level of saliency for the decision body.
MODELS OF DECISION MAKING

Rational Decision Model

The rational decision making is when individuals use analysis, facts and a step-
by-step process to come to a decision. Rational decision making is a precise, analytical
process that companies use to come up with a fact-based decision.

Steps to follow in Rational Model:

1. Define the problem.
2. Identify the decision criteria.
3. Allocate weights to the criteria.
4. Develop the alternatives.
5. Evaluate the alternatives.
6. Select the best alternative.

Administrative Decision Model

In the foundation of the administrative model of decision making lies the belief
that decision makers often settle for a less than ideal solution because of time and
motivation shortages. Instead of seeking the best solution that maximizes the value of
the decision, the decision maker accepts the first available 'good enough' alternative
producing a value above the minimally acceptable. The concept of settling for a less
than perfect solution is called satisficing.
Because of the limited rationality of the decision maker, the model is also known as the
bounded rationality model . This model is based on ideas first expressed by Herbert
Simon . He called the decision maker with limited rationality an Administrative Man and
opposed him to a perfect Economic Man , who is takes into consideration all possible
criteria and evaluates all possible alternatives.

Retrospective Decision

This decision-making model focuses on how decision-makers attempt to

rationalise their choices after they have been made and try to justify their decisions.
This model has been developed by Per Soelberg.
THE THREE PHASED MODEL

Herbert Alexander Simon was an American political scientist, economist, sociologist,

psychologist and he is unified by studies of decision making.
Herbert Simon describes the model in three phases as shown in this figure:

The Intelligence Phase

Identifying issues that require improvement and decisions to be made.
The intelligence phase consists of finding, identifying, and formulating the
problem or situation that calls for a decision.
The Design Phase
Inventing, developing and analyzing possible courses of action
The design phase is where we develop alternatives.
The Choice Phase
Selecting from the available and presented solutions
In the choice phase, we evaluate the alternatives that we developed in the
design phase and choose one of them.

DEVELOPING RATIONAL MODELS WITH QUALITATIVE METHODS AND

ANALYSIS: DATA ANALYSIS
Forecasting- prediction, projection, or estimate of some future activity, event or
occurrence.

Types of Forecast

Economic Forecast predict variety of economic indicators like money supply,

inflation rates, interest rates, etc.
Technological Forecast predict rates of technological progress and innovation.
 Demand Forecast predicts the future demand for a companys products and
services.

Types of Forecasting Methods

Qualitative Methods These are forecasting methods that are based on

judgments, opinions, intuition, emotions or personal experiences and are
subjective in nature.
Quantitative Methods These are forecasting methods that are based on
mathematical models and are objective in nature.

Qualitative Forecasting Method

Executive Opinion Approach in which a group of managers meet and

collectively develop a forecast.
Market Survey - Approach that uses interviews and surveys to judge preferences
of customers and to assess demand.
Sales Force Composite Approach in which each salesperson estimates sales
in his or her region.
Delphi Method Approach in which consensus agreement is reach among a
group of experts.

Quantitative Forecasting Methods

Time-series Model look at pass patterns of data and attempt to predict the
future based upon the underlying patterns contained within those data.
Associative Models Also called Causal Models assumed that the variable being
forecasted is related to other variables in the environment. They try to project
base upon those associations.

SIMPLE AVERAGING FORECASTING

Simple Averaging Forecasting a simple average of demands occurring in all previous

time periods are taken as the demand forecast for the next time period.

A XYZ television supplier found a demand of 200 sets in July, 225 in August and 245 in
September.

Find the demand forecast for the month of October.

n = number of data used

MOVING AVERAGES

Moving Average = Probably the Most Widely Used Technical Indicator

Moving Average is a widely used indicator in technical analysis that helps smooth
out price action by filtering out the noise from random price fluctuations. It is one of the
easiest, most common time series forecasting techniques.

What Is the Main Goal of a Moving Average?

The main reason why people use moving averages is that the markets price action
often gives us too much information more than we want or are able to process at a
moment.

The simplest form of a moving average, appropriately known as a simple moving

average (SMA), is calculated by taking the arithmetic mean of a given set of values.

Figure 1

Perhaps you're wondering why technical traders call this tool a "moving" average and
not just a regular mean? The answer is that as new values become available, the oldest
data points must be dropped from the set and new data points must come in to replace
them.

Figure 2
What Do Moving Averages Look Like?
Once the values of the MA have been calculated, they are plotted onto a chart and then
connected to create a moving average line.

Figure 3

The two basic and commonly used MAs are the simple moving average
(SMA), which is the simple average of a security over a defined number of time periods,
and the weighted moving average (WMA) attaches greater weight to the most recent
data. The weighting is calculated from the sum of days.

Moving Average Doesnt Predict the Future

You never know for sure what will actually happen next, but at least a moving
average can simplify the information you are getting from the market and help you with
fast and clear decision making.

EXPONENTIAL SMOOTHING

Exponential Smoothing is an averaging technique that reduces these difficulties. Data

storage requirements are minimal, even though the forecast is based on many of the
values in the series.

The method is relatively easy to use and understand. Each new forecast is based
on the previous forecast plus a percentage of the difference between that forecast and
the actual value of the series at that point.
That is:
New Forecast = Old forecast + (Actual Old forecast)
Where is a percentage and (Actual Old Forecast) represents the forecast error.
More concisely,
Ft = Ft-1 + (At-1 - Ft-1)
Where
Ft = Forecast for period t
Ft-1 = Forecast for period t 1
= Smoothing constant
At-1 = Actual demand or sales for period t-1

Exponential Smoothing Example

Using a smoothing constant of .5 prepares a forecast for period 6 based on the
information given below:

PERIOD NUMBER OF COMPLAINTS

1 60
2 65
3 55
4 58
5 64

SOLUTION:
Initial Forecast (Period 4)
60+65+55 =60
3

F5= F4+ (A4-F4)

=60+.5+ (58-60) =59

F6= F5+ (A5-F5)

=59+.5 (64-59) = 61.5