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Chapter No: 06: Decision Making

Decision making involves identifying problems, establishing criteria for solutions, developing alternatives, analyzing them, choosing an optimal alternative, implementing it, and evaluating the results. The process can involve rational approaches, bounded rationality, intuition, structured versus unstructured problems, and certainty, risk or uncertainty. Managerial decision styles vary in ways of thinking, tolerance for ambiguity, and level of analysis, concepts, behaviors considered. Effective decision making requires properly defining problems and tailoring the approach to decision conditions.

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58 views17 pages

Chapter No: 06: Decision Making

Decision making involves identifying problems, establishing criteria for solutions, developing alternatives, analyzing them, choosing an optimal alternative, implementing it, and evaluating the results. The process can involve rational approaches, bounded rationality, intuition, structured versus unstructured problems, and certainty, risk or uncertainty. Managerial decision styles vary in ways of thinking, tolerance for ambiguity, and level of analysis, concepts, behaviors considered. Effective decision making requires properly defining problems and tailoring the approach to decision conditions.

Uploaded by

armughan05
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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CHAPTER NO: 06

DECISION MAKING
Decision Making
Decision
Making a choice from two or more alternatives.
The Decision-Making Process
Identifying a problem and decision criteria and
allocating weights to the criteria.
Developing, analyzing, and selecting an
alternative that can resolve the problem.
Implementing the selected alternative.
Evaluating the decision’s effectiveness.
Step 1: Identifying the
Problem
What is a Problem??

A discrepancy between an existing and desired


state of affairs.
Step 2: Identifying Decision
Criteria
Decision criteria are factors that are important
(relevant) to resolving the problem.

Step 3: Allocating Weights to the Criteria


Decision criteria are not of equal importance,
assign a weight to each item according to
their priorities.
Step 4: Developing
Alternatives
Identifying possible alternatives
Alternatives are listed (without evaluation)
that can resolve the problem.

Step 5: Analyzing Alternatives


Appraising (analyzing) each alternative’s
strengths and weaknesses.
Step 6: Selecting an
Alternative
Choosing the best alternative
The alternative with the highest total weight
is chosen.
Step 7: Implementing the Decision
Putting the chosen alternative into action.
Step 8: Evaluating the
Decision’s Effectiveness
The soundness or effectiveness of the
decision is judged by its outcomes.
Approaches of Decision
Making
Rationality
 Managers make consistent, value-maximizing
choices .
Assumptions are that decision makers:
 Are perfectly rational, fully objective, and logical.
 Have carefully defined the problem and identified all
possible alternatives.
 Have a clear and specific goal
 Will select the alternative that maximizes outcomes in
the organization’s interests rather than in their personal
interests.
Continued
Bounded Rationality
Managers make decisions rationally, but are
limited (bounded) by their ability to process
information.
Assumptions are that decision makers:
 Accept those alternatives which are satisfactory and
good enough but not perfect.
Influences on Decision
Making

The Role of Intuition


Intuitive decision making
 Making decisions on the basis of experience,
feelings, and accumulated judgment.
Problems and Decisions
Structured Problems
Are familiar (have occurred before),
Are easily and completely defined—information
about the problem is available and complete,
Programmed Decision
A repetitive decision that can be handled by a
routine approach.
Types of Programmed
Decisions
A Policy
A general guideline for making a decision.
A Procedure
A series of interrelated steps that a manager
can use to respond to a structured problem.
A Rule
An explicit statement that limits what a
manager or employee can or cannot do.
Problems and Decisions
(cont’d)
Unstructured Problems
Problems that are new or unusual and for which
information is ambiguous or incomplete.
Problems that will require custom-made
solutions.
Nonprogrammed Decisions
Decisions that are unique.
Decision-Making
Conditions
Certainty
An ideal situation in which a manager can make
an accurate decision because the outcome of
every alternative choice is known.
Risk
A situation in which the manager is able to
estimate the likelihood (probability) of
outcomes that result from the choice of
particular alternatives.
Decision-Making
Conditions
Uncertainty
Limited or information prevents estimation of
outcome probabilities for alternatives
associated with the problem and may force
managers to rely on intuition, hunches, and
“gut feelings”.
Decision-Making Styles
Dimensions of Decision-Making Styles
Ways of thinking
 Rational, orderly, and consistent
 Intuitive, creative, and unique

Tolerance for ambiguity


 Low tolerance: require consistency and order to
minimize ambiguity.
 High tolerance: process 0r work on multiple thoughts
& data simultaneously
Decision-Making Styles
(cont’d)
Types of Decision Makers
 Directive
 Use minimal information and consider few alternatives.
 Analytic
 Make careful decisions by considering many
alternatives.
 Conceptual
 Maintain a broad outlook and consider many alternatives
in making long-term decisions.
 Behavioral
 Avoid conflict by working well with others and being
receptive to suggestions.

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