Decision Making

A Decision making is the act of choosing one alternative from among

a set of alternatives. Decision making is a part o the planning process
that invloves selecting a coure of action form a set of alternatives.
Effective decision making requires that the decision maker understant
the situation driving the decision.
An effective decision may be one the optimizes loss, expenses or
employee turnover. It may even mean selecting the best method for
going out of business, laying off employees or termination a contract.
Decision Making Process:
ecognizing and defining the nature of a decision situation,
identifying alternatives, choosing the !best" alternatives and putting it
into practice.
Types of Decisions:
Programmed Decision: A programmed decision is one that is faily
structered or recurs #ith some frequency or both. $tarbucks uses
programmed decisions to purchase ne# supplies of coffee beans, cups
and napkins and $tarbucks employees are trained in exact procecudres
for bre#ing coffee. %any decisions regarding basic operating systems
and procedures and standard organizational transactions are of this
variey and can therefore be programmed.
Nonprogrammed Decision: A decision that is relatively unstructured
and occurs much less than a programmed decision. &ike#ise, 'ord(s
decision to buy &and over #as also a nonprogrammed decision.
%anagers faced #ith such decisions must treat each one as unique,
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investing enormous amounts of time, emergy and resources into
exploring the situation from all perspectives. Intuition and experience
are ma,or factors in nonprogrammed decision. %ost of the decision
makde by top managers involving strategy -including mergers,
acqusitions and takeovers. and organization design are
nonprogrammed. $o the decisions about ne# facilities, ne# products,
labor contract and legal issues.
Decision Making Conditions:
/here are also different conditions in #hich decision must be made. In
general the circumastances that exist for the decision making are
condition of Certainty, Risk and ncertainty!
Decisions Making nder Certainty:
0hen the decision maker kno#s #ith reasonable certainty #hat the
alternatives are and #hat conitions are associated #ith each
alternative, a state of certainty, exits. 'or example, $ingapore Airlines
needs to buy five ne# ,umbo ,ets./he decision is from #hom to buy
them. $ingapore has only three choices1 *oeing, %cDonnell Douglas
and Airbus. Each has a proven product and #ill sepcify prices and
delivery dates. /he airline thus kno#s the alternative conditions
associated #ith each. /here is a little ambituity and relatively lo#
chance of making a bad decision.
Decisions Making nder Risk:
A more common decision2making condition is a state of risk. 3nder a
state of risk, the avaiability of each alternative and its potential
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payoffs and costs are all associated #ith probabitily estimates. 'or
example, a labor unior.
Decisions Making nder ncertainty:
%ost of the ma,or decsion making in contemporary organization is
done under a state of uncertainty. /he decision maker does not kno#
all the alternatives, the risk associated #ith each or the likey
consequences of each alternative. /his uncertainty stems from the
complexity and dynamism of contemporary organizations and their
environments. 5onsider, for exemple, the decision that 6ike(s
founders made regarding foot#ear. /hey could have decided to use
existing sneaker technology to reduce risk and avoid uncertainty.
*ut they also sa# that they #ould then have fe#er competitive
advantages over Adidas. /hus they based their shoes on a ne# #afflc2
type design that gave another unique feature to highligh. *ut his
choice carried #ith it considerable uncertainty because they had no
idea ho# it #ould be received in the market place.
Institution, ,udgement and experience al#ays play ma,or roles in the
decisions making process under conditions of uncertainty. 3ncertainty
in the most ambiguous condition for managers and the one most prone
to error.
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Steps of Decision Making Process:
"! Define the prob#em: Defining the problem is the critical step.
/he accurate definition of a problem affects all the affects all the
stpes that follo#. If a problem is defined inaccurately, every
other step in the decision making process #ill be based on that
incorrect point.
$! %dentifying #imiting or citica# factors: &imiting factors are
those constraints that rule out certain alternative solutions. 8ne
common limitation is time. If a ne# product has to be on the
dealer(s shelves in one month, any alternative that takes more
than one month #ill be eliminated. esouces, personnel,
money, facilities, and equipment are the other common limiting
or cirtical factors that narro# do#n the range of possible
alternatives.
&! De'e#op potentia# a#ternati'es: It is accessary to look for and
list as many possible 9 solutions to the problem2 as you can.
/hese alternative should eliminate, correct or neutralize the
problem. Doing nothing about a problem sometimes is the
proper alternative at least untill the situation has been analyzed
thoroughly. 8ccasionally ,ust the passing of time provides a
cure.
(! )na#y*e the a#ternati'es: /he purpose of this step I to decide
the relative merits of each of the alternatives. 0hat are the
positives and negatives of each alternative: Do you alternatives
conflict #ith the critical factors that you identified earlier:
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+! Se#ect the best a#ternati'es: /he alternatives have been listed
along #ith their corresponding advantages and disadvantages.
,! %mp#ement the so#ution: Everyone involved indecision making
process must kno# #hat he or she must do, ho# to do it, #hy
and #hen. In addition, a good alternative applied by
uncommitted persons in a half2hearted #ay oftern #ill create
problems not solve them. &ike plans, solutions need effective
implementation to yield the desied results. <rograms, procudre,
rules or policies must be put into effect thoughtfully.
-! .stab#ish a contro# and e'a#uation system: /he final step in
decision making process is to create a control and evalution
system. 8ngoing actions need to be monitored. /his system
should provide feedback on ho# #ell the decision #as
implemented. 0hat the results are2 positive or negative and
#hat ad,ustments are necessary to get the expected results.
)dministrati'e mode#:
A decision making model sho#ing that managers
=ave incomplete and imperfect informaton
Are constrained by bounded rationality and
/end to satisfice #hen making decision
/here are t#o part of administrative model2
Bounded Rationa#ity: A concept suggesting that decision makers
are limited by their values and unconscious, reflexes, skills and habits.
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Satisficing: /he tendency to search for alternatives only untill one
is fouond that meets some minimum standard of sufficiency.
/orms of group and team decision making:
"! %nteracting group or teams: A decision making group or team
in #hich members openly discuss, argue about and agreee on
the best alternatives.
$! De#phi group: A form of group making in #hich a group
solicits input from a panel of experts #ho contribute
individually? their opinions are combined and in effect averaged.
&! Nomina# group: A structured technique used most often to
generate creative and innovative alternatives or ideas.
)d'antages of group and team decision making:
%ore information and kno#ledge are available
%ore alternatives are likely to be generated
%ore acceptance of the final decision is likely
Enhanced communication of the decision may result
*etter decisions generally emerge.
Disad'antages of group and team decision making:
/he process takes longer than individual decision making, so it
is costlier
5ompromise decisions resulting from indecisiveness may
emerge
8ne person may dominate the group
@roup think may occur
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