MANAGERIAL

DECISION MAKING
MANAGERIAL DECISION MAKING

 Any decision regarding the operations

of a firm. These decisions include
setting target growth rates, hiring or
firing employees, and deciding what
products to sell.
DECISION MAKING

 Decision making is a cognitive

process that results in the selection
of a course of action among several
alternative scenarios.
IS IT IMPORTANT?
 MANAGERIAL (CORPORATE) DECISION MAKING is
the most critical process in any decision.
 Usually, decision making is hard. Because the majority of
corporate decisions involve some level of dissatisfaction
or conflict with another party.
 It has to be effective, because if it is successful, it results
in profits.
 if a certain decision wasn't thought through carefully, and
it doesn't succeed, it will result into what? It will result
into a loss. Yes, it will cause a loss or worst, losses.
MANAGERIAL
DECISIONS
In a business undertaking, the manager needs to take
different types of decisions to support their duties
and responsibilities. Decisions are taken at various
levels of management. There are a number of
decisions that need to be taken in an organization.
The nature of decisions differs according to its need
and nature. Some of the important types of
managerial decisions are as follows:
Individual and Group Decisions

 INDIVIDUAL DECISION/S

If an individual is involved in taking the decision, it is called

an individual decision. Generally, individual decisions are
taken in small business organizations. Similarly, it is also
taken when and where the problem is of a routine nature,
where the analysis of variables is simple and where definite
procedures to deal with the problem already exist.
Individual and Group Decisions

 GROUP DECISION/S

- Decisions taken in the consent of more than one person is

known as group decision. Various individuals in a group take
part in collaborative decision making.
- Decisions are taken by the board of directors, shareholders,
etc. They are some of the examples of people involved in a
group decision.
Routine (Tactical) and Basic (Strategic)
Decisions
 TACTICAL (ROUTINE) DECISIONS

- Decisions that are frequently taken to achieve a high degree of

effeciency in the ongoing activities are known as ROUTINE
DECISIONS.

For example:
Parking facilities, cafeteria services, deputing employees, etc.
Routine (Tactical) and Basic (Strategic)
Decisions
 TACTICAL (ROUTINE) DECISIONS

- concerned with routine and repetitive problems.

- neither require collection of new data nor conferring with the
people. Thus can be taken without much deliberation.
- has short term implications.
- may be complicated but are always one dimensional.
- more experience and judgement is needed.
Routine (Tactical) and Basic (Strategic)
Decisions
 STRATEGIC (BASIC) DECISIONS

- BASIC STRATEGIC DECISIONS are prepared by the top level of

management for the formulation of the organizational rules, programs,
etc. It has a long term impact on the management. Therefore much
analysis is needed. A small mistake in the basic decision may be the
cause of business failure.
Routine (Tactical) and Basic (Strategic)
Decisions
 STRATEGIC (BASIC) DECISIONS

- made on the problems which are important.

- require thorough fact finding analysis of the possible alternatives.
- finding the correct problem, such decisions assume more importance.
- has long term implications.
Programmed and Non - Programmed Decisions

 PROGRAMMED DECISIONS
The decisions that are usually repetitive in nature are known as programmed
decisions.
Normally these types of decisions are taken by the middle and lower level
managers. Programmed decisions have a very short term impact.
Granting leave to an employee, pricing ordinary customer's orders, recording
office supplies, purchase of materials required in the daily course of action,
etc. are some of the examples of programmed decisions. Therefore, we can
say that they are related to policy and the rules of the management.
Programmed and Non - Programmed Decisions

 PROGRAMMED DECISIONS

- managers have made decisions many times before.

- there are rules or guidelines to follow
Other example:
Deciding to reorder supplies.
.
Programmed and Non - Programmed Decisions

 NON - PROGRAMMED DECISIONS

NON - PROGRAMMED DECISIONS are the opposite of programmed decisions. Decisions,
which are non - repetitive in nature is known as non - programmed decisions. These kinds of
decisions are taken by top executives. Non - programmed decisions don't have a ready - made
course of actions. They have to collect data, analyze them and forecast or prepare strategic
plans.
In conclusion, taking non - programmed decisions is much tougher and challenging than
taking programmed decisions.
- no rules to follow since the decision is new.
- these decisions are made based on information, and managers intuition, and judgement.
Example:
"Should the firm invest in a new technology?"
Major and Minor Decisions

 MAJOR DECISIONS

The decisions, which are relatively more importan, are known as

MAJOR DECISIONS.
Major decisions have long term impacts, like the replacement of men
by machine, diversification of existing product line, change of basis of
over head allocation in preparing departmental profit and loss account
and so many others which are rare and have no precedents as guides.
Major and Minor Decisions

 MINOR DECISIONS
The decisions that are less important, are known as minor
decisions.
Minor decisions is just the opposite of major decisions.
Minor decisions are those decisions that do not have long
range term impact.
For example, minor decisions are related to storing raw
materials.
Organizational and Personal Decisions
 ORGANIZATIONAL DECISIONS
- Those which managers undertake under certain conditions relating to
organization is known as organizational decisions. Sometimes
delegated to other colleagues.
- Decisions which are related to the policy of the business and affect
the organizational functions directly is known as organizational
decisions.
- These types of decisions are taken by top level management.
- It has a long term impact on management.
- Needs further analysis.
Organizational and Personal Decisions
 PERSONAL DECISIONS

- Personal decisions are to be taken by managers

their own. Others need not to be involved.
- Personal decisions are taken by an individual for
personal benefits rather than an organizational
benefit. Therefore much analysis is not needed.
Policy and Operating Decisions
 POLICY DECISIONS
- Policy decisions are taken by the top level
management with the involvement of high ranking
officers and legal advisors to change the
organizational rules, regulations, events and
producers.
- Policy decisions are the most important decisions.
- Much analysis is needed.
Policy and Operating Decisions
 OPERATING DECISIONS
- Operating decisions are taken by the operating level
of management to perform the day to day activities
effeciently and effectively.
- These types of decisions is taken by a middle or a
lower level of management. It has a short term
impact, therefore much analysis is not needed.
Dynamic Decision Making
- Dynamic decision making (DDM) is synergetic decision making
involving independent systems, in an environment that changes over
time either due to previous actions of the decision maker or due to the
events that are outside the control of the decision maker.
- These decision makings are more complex and real time.
- Dynamic decision making involves observing how people use their
experience to control the systems dynamics and noting down the best
decisions taken thereon.
STEPS IN DECISION
MAKING
The following are the important steps of the decision making process.
Each step may be supported by different tools and techniques:
 IDENTIFICATION OF THE PURPOSE OF THE DECISION/S

In this step, the problem is thoroughly analyzed. There a couple of

questions one should ask when it comes to identifying the purpose of the
decision.
Questions like:
 What exactly is the problem?
 Why the problem should be solved?
 Who are the affected parties of the problem?
 Does the problem have a deadline or a specific timeline?
 INFORMATION GATHERING

A problem will have many stakeholders. In addition, there can be

dozens of factors involved in and affected by the problem.
In the process of solving the problem, you will have to gather as
much as information related to the factors and stakeholders
involved in the problem. For the process of information gathering,
tools such as 'Check Sheets' can be effectively used.
 PRINCIPLE FOR JUDGING THE ALTERNATIVES

In this step, the baseline criteria for judging the alternatives should
be set up. When it comes to defining the criteria, organizational
goals as well as the corporate culture should be taken into
consideration.
As an example, profit is one of the main concerns in every decision
making process. Companies usually do not make decisions that
reduce profits unless it is an exceptional case. Likewise, baseline
principles should be identified related to the problem in hand.
 BRAINSTORM AND ANALYZE THE DIFFERENT CHOICES

For this step, brainstorming to list down all the ideas is the best option. Before the
idea generation step, it is vital to understand the causes of the problem and the
prioritization of causes.
For this, you can make use of Cause and Effect Diagrams and Pareto Chart Tool.
Cause and Effect Diagrams - help you to identify all possible causes of the
problem.
Pareto Chart - helps you to prioritize and identify the causes with the highest
effect.
Then, you can move on generating all possible solutions (alternatives) for the
problem in hand.
EVALUATION OF THE ALTERNATIVES

Use your judgement principles and decision making

criteria to evaluate each alternative. In this step,
experience and effectiveness of the judgement
principles come into play. You need to compare each
alternative for their positives and negatives.
SELECT THE BEST ALTERNATIVES

Once you go through from Step 1 to Step 5,

this step is easy. In addition, the selection of
the best alternative is an informed decision
since you have already followed a
methodology to derive and select the best
alternative.
EXECUTE THE DECISION

Convert your decision into a plan

or a sequence of activities. Execute
your plan by yourself or with the
help of subordinates.
EVALUATE THE RESULTS

Evaluate the outcome of your decision.

See whether there is anything you should
learn and correct in future decision
making.
This is one of the best practices that will
improve your decision making skills.
PROCESS AND MODELING
IN DECISION MAKING
BASIC MODELS
RATIONAL DECISION MAKING
 The rational decision-making model describes a
series of steps that decision makers should
consider if their goal is to maximize the quality of
their outcomes. In other words, if you want to
make sure you make the best choice, going
through the formal steps of the rational decision-
making model may make sense.
RATIONAL DECISION MAKING

 The rational models are based on cognitive

judgements and helps in selecting the most
logical and sensible alternative. Example of
such models include: decision matrix
analysis, Pugh matrix, SWOT analysis and
decision trees.
RATIONAL DECISION MAKING
 1. Define the problem/Identifying the problem
 2. Identify the criteria you will use to judge possible
solutions/Identifying important criteria for the process and the
result.
 3. Decide how important each criterion is
 4. Generate a list of possible alternatives/Considering all possible
solutions.
 5. Evaluate those alternatives/Calculating the concequenses of all
solutions and comparing the probability of satisfying the criteria.
 6. Determine the best solution/Selecting the best option.
RATIONAL MODELS

DECISION MATRIX ANALYSIS

 Decision Matrix Analysis works by getting you to list your
options as rows on a table, and the factors you need
consider as columns. You then score each option/factor
combination, weight this score by the relative importance
of the factor, and add these scores up to give an overall
score for each option
DECISION MATRIX ANALYSIS
RATIONAL MODELS

PUGH MATRIX
 The Pugh Matrix (PM) is a type of Matrix Diagram that
allows for the comparison of a number of design
candidates leading ultimately to which best meets a set of
criteria. It also permits a degree of qualitative optimisation
of the alternative concepts through the generation of
hybrid candidates.
PUGH MATRIX
RATIONAL MODELS

SWOT ANALYSIS
 SWOT stands for Strengths, Weaknesses, Opportunities,
and Threats, and so a SWOT Analysis is a technique for
assessing these four aspects of your business. You can use
SWOT Analysis to make the most of what you've got, to
your organization's best advantage.
SWOT ANALYSIS
RATIONAL MODELS

PARETO ANALYSIS
 Pareto Analysis is a simple decision-making technique for
assessing competing problems and measuring the impact
of fixing them. This allows you to focus on solutions that
will provide the most benefit.
PARETO ANALYSIS
RATIONAL MODELS

DECISION TREES
 A decision tree is a graphical depiction of a decision and
every potential outcome or result of making that decision.
By displaying a sequence of steps, decision trees give
people an effective and easy way to visualize and
understand the potential effects of a decision and its range
of possible outcomes.
DECISION TREES
NORMATIVE MODEL
The normative model of decision making considers constraints that
may arise in making decisions, such as time, complexity, uncertainty,
and inadequacy of resources.
According to this model, decision making is characterized by —
 - limited information processing - a person can manage only a
limited amount of information.
 - judgmental heuristics - a person may use shortcuts to simplify the
decision making process.
 - satisfying - a person may choose a solution that is just good
enough.
NORMATIVE MODEL
NORMATIVE MODEL
THE BOUNDED RATIONALITY MODEL
 The bounded rationality model of decision making recognizes the limitations of
our decision-making processes. According to this model, individuals knowingly
limit their options to a manageable set and choose the best alternative without
conducting an exhaustive search for alternatives. An important part of the
bounded rationality approach is the tendency to satisfice, which refers to
accepting the first alternative that meets your minimum criteria. For example,
many college graduates do not conduct a national or international search for
potential job openings; instead, they focus their search on a limited geographic
area and tend to accept the first offer in their chosen area, even if it may not be
the ideal job situation. Satisficing is similar to rational decision making, but it
differs in that rather than choosing the best choice and maximizing the potential
outcome, the decision maker saves time and effort by accepting the first
alternative that meets the minimum threshold.
INTUITIVE MODEL
 The intuitive decision-making model has emerged as an important
decision-making model. It refers to arriving at decisions without
conscious reasoning. Eighty-nine percent of managers surveyed
admitted to using intuition to make decisions at least sometimes, and
59% said they used intuition often. When we recognize that managers
often need to make decisions under challenging circumstances with
time pressures, constraints, a great deal of uncertainty, highly visible
and high-stakes outcomes, and within changing conditions, it makes
sense that they would not have the time to formally work through all
the steps of the rational decision-making model.
 CREATIVE MODEL
 In addition to the rational decision making, bounded rationality
models, and intuitive decision making, creative decision making is a
vital part of being an effective decision maker. Creativity is the
generation of new, imaginative ideas. With the flattening of
organizations and intense competition among organizations,
individuals and organizations are driven to be creative in decisions
ranging from cutting costs to creating new ways of doing business.
Please note that, while creativity is the first step in the innovation
process, creativity and innovation are not the same thing. Innovation
begins with creative ideas, but it also involves realistic planning and
follow-through.
STATIC AND
DYNAMIC MODELS
STATIC MODELS
A static model describes the static structure of the system being modeled, which is
considered less likely to change than the functions of the system. In particular, a
static model defines the classes in the system, the attributes of the classes, the
relationships between classes, and the operations of each class.
 - show the value of various system attributes in a balanced system.
 - work best in static systems.
 - do not take into consideration the time based variances.
 - do not work well in real time systems, however, it may work Inca dynamic
system being in an equilibrium.
 - involve less data.
 - are easy to analyze.
 - produce faster results.
STATIC MODELS
DYNAMIC MODELS
Dynamic models are simplified representations of some real-world entity,
in equations or computer code. They are intended to mimic some essential
features of the study system while leaving out inessentials. The models are
called dynamic because they describe how system properties change
overtime.
 - consider the change in data values over time.
 - consider the effect of system behaviour over time.
 - re-calculate equations as time changes.
 - can be applied only in dynamic systems.
DYNAMIC MODELS
TOOLS AND TECHNIQUES
The GROUP DECISION SUPPORT SYSTEM (GDSS)

 It is a decision support system that provides support in

decision making by a group of people.
 It facilitates the free flow and exchange of ideas among
the group members. The decisions are made with a higher
degree of consensus and agreement, resulting in a
dramatically higher likelihood of implementation.
FF. are the available types of computers based
GDSS's —
 - Decision Network:
This type helps the participants to
communicate with each other through a
network or through a central database.
Application software may use commonly
shared models to provide support.
FF. are the available types of computers based
GDSS's —
 - Decision Room:
Participants are located at one place, i.e., the
decision room. The purpose of this is to
enhance participants interactions and decision
making within a fixed period using a facilitator.
FF. are the available types of computers based
GDSS's —
 - Teleconferencing:
Groups are composed of members or subgroups that
are geographically dispersed; teleconferencing
provides interactive connection between two or more
decision rooms. This interaction will involve
transmission of computerized and audio-visual
information.
SENSITIVITY ANALYSIS
Sensitivity analysis is a technique used for distributing the uncertainty in the
output of a mathematical model or a system to different sources of uncertainty in
its inputs.
From business decision perspective, the sensitivity analysis helps an analyst to
identify cost drivers as well as other quantities to make an informed decision. If a
particular quantity has no bearing on a decision or prediction, then the conditions
relating to quantity could be eliminated, thus simplifying the decision-making
process.
Sensitivity analysis also helps in some other situations, like −
 Resource optimization
 Future data collections
 Identifying critical assumptions
 To optimize the tolerance of manufactured parts
SIMULATION TECHNIQUE
Simulation is a technique that imitates the operation of a
real-world process or system over time. Simulation
techniques can be used to assist management decision
making, where analytical methods are either not available
or cannot be applied.
Some of the typical business problem areas where
simulation techniques are used are −
 Inventory control
 Queuing problem
 Production planning
OPERATIONAL RESEARCH
 Operational Research (OR) includes a wide range of problem-
solving techniques involving various advanced analytical models
and methods applied. It helps in efficient and improved decision-
making.
 It encompasses techniques such as simulation, mathematical
optimization, queuing theory, stochastic-process models,
econometric methods, data envelopment analysis, neural
networks, expert systems, decision analysis, and the analytic
hierarchy process.
 OR techniques describe a system by constructing its
mathematical models.
HEURISTIC PROGRAMMING
 Heuristic programming refers to a branch of artificial
intelligence. It consists of programs that are self-learning in
nature.
 However, these programs are not optimal in nature, as they are
experience-based techniques for problem solving.
 Most basic heuristic programs would be based on pure 'trial-error'
methods.
 Heuristics take a 'guess' approach to problem solving, yielding a
'good enough' answer, rather than finding a 'best possible'
solution.
CAUSE EFFECT DIAGRAM
 A cause-effect diagram is a visual tool used
to logically organize possible causes for a
specific problem or effect by graphically
displaying them in increasing detail,
suggesting causal relationships among
theories. A popular type is also referred to
as a fishbone or Ishikawa diagram.
CAUSE EFFECT DIAGRAM
PARETO CHART

 A Pareto chart is a type of chart that

contains both bars and a line graph,
where individual values are represented
in descending order by bars, and the
cumulative total is represented by the
line.
PARETO CHART
CHECK SHEET
 A check sheet is a structured, prepared
form for collecting and analyzing data.
This is a generic data collection and
analysis tool that can be adapted for a
wide variety of purposes and is
considered one of the seven basic quality
tools.
CHECK SHEET
DACI FRAMEWORK
 DACI is a project management framework used to clearly
define the roles of the various stakeholders on a project.
DACI stands for Driver, Approver, Contributor and
Informed. These roles, defined by DACI, make it clear
who has authority in certain areas and situations.
 The DACI decision-making framework is a model
designed to improve a team's effectiveness and velocity on
projects, by assigning team members specific roles and
responsibilities when it comes to group decisions.
THANK YOU!
PRESENTED BY: