DECISION MAKING

The selection of a course of action from amongst alternatives.

Rationality in Decision Making

Limitation of information, time and certainty limit rationality, even
though a manager tries earnestly to be completely rational.
This leads to limited or bounded rationality in decision making.
Satisficing: Picking a course of action that is satisfactory under the
circumstances
 Decision Making Process
• Development of Alternatives
Limiting factor- something that stands in the way of accomplishing a
desired objective
• Evaluation of Alternatives
Quantitative factors: Factors that can be measured in numerical terms such
as time or various fixed and operating costs.
Qualitative factors: Intangible factors that are difficult to measure
Techniques used to evaluate alternatives:
Marginal analysis: Comparing additional revenues from additional costs.
Cost effective analysis: Seeking the best ratio of cost and benefits.
• Selecting an Alternative
Basic approaches
Experience
Experimentation- most expensive
Research and analysis
 Types of Decisions
• Programmed decisions- Gets applied to structured or routine
problems eg. Reordering of standard inventory items.

• Non Programmed decisions – Used for unstructured, novel and ill-

defined situations.
• The decision maker faces conditions of

Certainty: Decision making condition in which managers have accurate , measurable and
reliable information about the outcome of various alternatives under consideration

Uncertainty: decision making condition in which managers face unpredictable external

condition or lack the information needed to establish the probability of certain events.

Risk: decision making condition in which managers know the probability a given alternative will
lead to a desired goal or outcome.
 Decision Making Styles
• Different people take decisions differently with respect to how they perceive problems they face.

• Not all managers make decisions the same way :

• Directive style

• Analytical style

• Conceptual style

• Behavioral style
 Directive style

• People who prefer simple, clear-cut solutions to problems

• Make decisions quickly

• May consider only one or two alternatives

• Efficient and rational

• Prefer rules or procedures

 Analytical Style

• Complex solutions based on as much data as they can gather

• Carefully consider alternatives

• Base decision on objective, rational data from management

control systems and other sources

• Search for best possible decision based on information

available
 Conceptual Style
• Consider a broad amount of information

• More socially oriented than analytical style

• Like to talk to others about the problem and possible solutions

• Consider many broad alternatives

• Rely on information from people and systems

• Solve problems creatively

 Behavioral Style

• Have a deep concern for others as individuals

• Like to talk to people one-on-one

• Understand their feelings about the problem and the effect of a given
decision upon them

• Concerned with the personal development of others

• May make decisions to help others achieve their goals

 Characteristics of an Effective Decision-Making
• It focuses on what is important
• It is logical and consistent.
• It acknowledges both subjective and objective thinking and blends analytical
with intuitive thinking.
• It requires only as much information and analysis as is necessary to resolve a
particular dilemma.
• It encourages and guides the gathering of relevant information and informed
opinion.
• It is straight forward, reliable, easy to use, and flexible.