DECISION MAKING

CHAPTER II
 Decision Making
 Decision making: is defined as the process of selecting or
choosing the best course of action from numbers of
alternatives based on the criteria.
 Because managers are continually confronted with
opportunities and threats/problem from external
environment.
 They must constantly analyze the effect of different decisions
on their organizations
 Then select the alternative that will move the firm toward its
stated objectives.

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 Types of decision making

Several authors believe that there are two

types of decisions:
programmed &
non-programmed decisions.

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 A. programmed decision making
 It is "programmable" because of a specific procedure can be worked out to resolve
based on experience in similar situations.
 A decision that is repetitive and routine
 A definite method for its solution can be established
 Does not have to be treated as new, each time its occurrence
 It involves an organization's every day operational and administrative activities
 They are primarily found at the middle and lower levels of management.
 Data used in making a programmed decision usually are complete and well defined.
 Participants know the details and agree on how to resolve the problem.
 Examples: pricing standard customer orders, determining billing dates, recording
office supplies etc.

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 B. Non-programmed Decision

It is used to solve non-recurring problems.

No well-established procedure exists for handling

them.

A decision that is unique (novel or new) and ill-

structured.

 Managers do not have experience to draw upon.

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 Non-programmed Decision (Cont’d)

In contrast to programmed decisions, available data are

usually incomplete.

Non programmable decisions are commonly found at the

middle and top levels of management

It is “tough” decisions that involve risk and uncertainty and

call for entrepreneurial abilities

Such decisions draw heavily on the analytical abilities of the

manager
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 Non-programmed Decision (Cont’d)

 It is often related to an organization's policy-making

activities, such as:

 Add a product to the existing product line,

 Reorganize the company, or

 Acquire another firm.

Examples: Moving into a new market, investing in a new

unproven technology, changing
prepared by: MB
strategic direction 7
 Types of Problems & Level of management

Ill-structured Top

Non-programmed
decision making Level in
Type of management
Problem

Programmed
Decisions

Well-structured Lower
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 Decision-making Process
1. Identifying a problem
2. Identifying decision criteria
3. Allocating weights to criteria
4. Developing alternatives
5. Analyzing alternatives
6. Selecting an alternative
7. Implementing the alternative
8. Evaluation of decision effectiveness
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 1. Identifying a problem

 Problem is a discrepancy (difference) between an existing

and a desired state.
 The decision making process begins by determining a
problem exists; that is, unsatisfactory condition.
Example:

“The manager has resigned, and we need another manager”

Here the phrase “manager has resigned” reflects the current

state while “need another manager” represents a desired
state.
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2. Identifying Decision Criteria

The word criteria, is defined as “a standard by

which something can be judged”.
A decision criteria therefore, is the basis of a
decision, which outlines the relevant and
important factors for a decision.

And implicitly, it also defines what is not

important.

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Decision Criteria: Example

In the above-cited scenario, the decision criteria

may include the following factors:
 Relevant qualifications
 Leadership skills
 Communication skills
 Planning and analytical skills
 Professional experience
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3. Allocating Weights to Criteria

 The next step in the decision making process is

prioritization.

 Prioritization is achieved by assigning quantitative

weights to each criteria element.

 The weight defines the relative significance of each

element.

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4. Developing Alternatives
 This involves developing a list of the alternative that
may be viable in dealing with the stated problem.

 Involves defining the possible alternatives (or

choices) that would resolve the problem.

 In our case, the alternatives would be a list of

candidates or job applicants.

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 5. Analyzing Alternatives

 Alternatives are rated and analyzed on the basis of the

criteria.

 The decision maker must critically evaluate each one and

identify the strong and weak points

 The rating can be based on a specified scale, say 1 – 5

etc.

 Rating may be subjective in nature and thus, may depend

on the judgment of the individual(s)

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 Cont’d

 we are not only consider things that can be measured

in numerical terms such as time and various types of
fixed & operating costs.
 but also consider intangible or qualitative factors such
as:
 The quality of labor relations,
 The risk of technological change
 The international political climate.

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 6. Selecting an alternative

 Involves choosing the best alternative, based on

the above rating and analysis that suit to the
problem.

 In selecting the best alternative, factors such as

risk, economy of efforts, timing and limiting
factors should be considered adequately.
 Generally implies selecting the alternative with the
highest score.
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7. Implementing the Alternative

 Putting the decision into action

 This requires:
Communication of decisions to subordinates,
Getting acceptance of the decisions, and
Getting support and cooperation for converting
the decision in to effective action.

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8. Evaluation

 Evaluation forms an integral part of any process

 Involves evaluation of the outcome based on the

desired goal and criteria

 Involves assessing the effectiveness and efficiency

of the outcome (or the entire process)

 In case of any undesired results, each step of the

process is carefully reviewed to trace the root
causes

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 Decision making under different
conditions/state of nature

Decision under certainty condition

●All required information are completed
●Decision has clear-cut goals
●Future outcomes associated with each alternative are
clear
●Decisions made in which the external conditions are
very predictable

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 Cont’d

Decision under risk condition

●Decision has clear-cut goals
●Good information is available
●Future outcomes associated with each alternative are
subject to chance

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 Cont’d
Decision under uncertainty condition
●Managers know which goals they wish to achieve
●Future outcome about alternatives is unknown

●Information about alternatives and future events is

incomplete

●Managers may have to come up with creative approaches

to alternatives

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 Cont’d

Decision under ambiguity condition

●By far the most difficult decision situation
●Goals to be achieved or the problem to be solved is
unclear
●Alternatives are difficult to define
●Information about outcomes is unavailable

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End of chapter

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