THE INSTITUTE OF FINANCE

MANAGEMENT

MSD 06202: FUNDAMENTALS OF MANAGEMENT

Lecture 6
Decision Making

By
Mr. Lema, F
Office No: 608- Block A
Mobile: 0783-229535 or 0673-944224
Email: [email protected]
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Topic Coverage
Meaning of decision making
Features of decision making
Decision making process
The decision making situations
Decision making styles
Types of managerial decisions
Importance of decision making
Limitation/barriers of decision
making
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Meaning of decision
making
 Decision making is the process of choosing a
course of action from among alternatives to
achieve a desired goal
 According to James Stoner, "Decision making is
the process of identifying and selecting a course
of action to solve a specific problem."
 According to Trewartha and Newport, "Decision
making involves the selection of a course of
action from among two or more possible
 When trying to make a good decision, a person
must weigh the +ve and –ve of each option and
should consider all the alternatives.
 For effective decision making, a person must be
able to forecast the outcome of each option as
well as determining which option is the best for
that particular situation
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Decision making…….
?
?
?

? Decision
Maker
?

?
?

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 Nature of decision Making
(Features)
A goal oriented process, means decisions are made to
achieve some goal or objective.
 Implies a set of alternatives. A decision problem arises
only when there are two or more alternatives.
 a dynamic process - it involves time dimensions and time
lag meaning the technique to be used will depend on the
type of the problem and the time available for its solution
 Always related to the environment - every decision will
depend on the situation we are in with at that time.
 implies freedom to the decision maker, specifically to the
final choice which may involves commitment of resources
 It is continuous and or ongoing process, managers must
have to take series of decisions for smooth running of
everyday operations
 It is an intellectual or rational process as it involves
deliberations, reasoning and evaluation
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Decision Making Process
Decision making is a systematic process, hence
it consist of the following process/elements
1. Identify/recognize a problem
2. Diagnose the real problem
3. Identify decision criteria
4. Allocate weights to the criteria
5. Develop possible alternatives
6. Evaluate or analyse alternatives
7. Choose/select the best alternative course of
action
8. Implement the decision
9. Establish a control system and evaluate decision
effectiveness

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 D.M processes……
1. Identify a problem
◦ Decision making begins with the recognition of the
real problem that requires decision.
◦ At this stage, a manager must identify and define
the real problem, where by imagination; experience
and judgement are required for detection of problem
that requires managerial decision.
NB: a problem well defined is half solved

2. Diagnose the real problem

◦ This implies the analysis of the problem in term of its
elements, its magnitude, its urgency, its
course/source and its relation with other problems.
◦ The major aim is to find the real courses or sources
of the problem, its impact, time frame available, etc.
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 Steps cont….
3. Identify decision criteria
◦ Based on the problem description such as magnitude,
urgency- a manager must identify important criteria
relevant for resolving a problem
4. Allocate weights to the criteria
◦ The criteria's aren’t equally important, thus the
decision maker must weigh the items in order to give
the correct priority in the decision
5. Develop possible alternatives
◦ A manager must not jump into the first feasible
alternative to solve the problem quickly.
◦ There are several ways for developing alternatives
including;-
 Brainstorming – 30min to 1hr deep thinking
 Nominal group technique – highly structured meeting
 Delphi technique – participant never meet (questionnaire)
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Steps cont…..
6. Evaluate or analyse alternatives
◦ The purpose of this step is to decide the relative
merits of each idea/alternative.
◦ Use criteria set in step 3 &4 above
◦ Below are some ways that can be used;-
 Determine the pros and cons of each alternative.
 Perform a cost-benefit analysis for each alternative.
 Weight each factor important in the decision, ranking each
alternative relative to its ability to solve the problem
◦ Regardless of the method used, a manager needs to
evaluate each alternative in terms of its
 Feasibility — can it be done?
 Effectiveness — how well does it resolve the problem
situation?
 Consequences — what will be its costs (financial and
nonfinancial) to the organization?

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 Steps cont…..
7. Choose/select the best alternative
course of action
◦ The best alternative is the one that has
scored high in step 6 – above
◦ Simply we can say;-
 The best alternative is the one that produces the
most advantages and the fewest serious
disadvantages.
 Sometimes, the selection process can be fairly
straightforward, such as the alternative with the
most pros and fewest cons
 That's when a manager must decide which
alternative is the most feasible and effective,
coupled with which carries the lowest costs to the
organization
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 Step cont….
8. Implement the decision
◦ Put the decision into action – convey it to those affected
and get their commitment to it
◦ Managers must make sure that employees understand
their roles and thoroughly create programs, procedures,
rules, or policies to help aid them in the decision
implementation
◦ NB: “Managers are paid to make decisions, but they are
also paid to get results from these decisions, then Positive
results must follow decisions and everyone involved with
the decision must know his or her role in ensuring a
successful outcome”

9. Establish a control system and evaluate decision

effectiveness
◦ An evaluation system should provide feedback on how well
the decision is being implemented, what the results are,
and what adjustments are necessary to get the results that
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were intended when the solution was chosen.
Decision making situations
Upon making a decision, managers find
themselves in either of the following situation
i. Certainty situation – a situation where manager
can make accurate decision because all outcomes
are known
ii. Risk situation – a situation where decision maker
is able to estimate the likelihood (the possibility or
chance) of certain outcomes.
Basically here managers use secondary data available
and past experience to develop/assign probabilities to
different alternative
iii.Uncertainty situation – a situation where the
decision maker has neither certainty nor
reasonable probability estimate available.
A manger is not certain about outcome and he cannot
make any probability estimate
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Decision making styles
There are two basic style for making
decision;- as follows..
1. Linear thinking style – is characterized
by a person’s preference for using external
information (data & facts) and processing
this information through rational and logical
thinking to guide decision and action
2. Non Linear thinking style - is
characterized by a person’s preference for
using internal sources of information
(feelings and intuitions) and processing this
information through internal insights,
feelings and hunches to guide decision and
action
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Types of Managerial
decisions
The managerial decisions are
classified into the following
groups
1. Programmed and non-
Programmed decisions
2. Routine and strategic decisions
3. Organizational and personal
decisions
4. Individual and group decisions
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 Programmed and non-
Programmed decisions
Programmed decisions are concerned with relative
routine and repetitive problems.
◦ Such decisions have short-term impact to organization
◦ Are relatively simple based on established decision rules
and regulations to save time and effort.
◦ These decisions requires the little thought and judgement,
and therefore made at lower levels of management.
◦ Example, a habitually late comer employee can easily be
dealt with under established procedure
Non- Programmed decisions concerned with unique
or unusual problems or non -repetitive problems that
cannot be tackled by predetermined manner.
◦ These decisions are highly made by higher levels such as
location of the plant, opening a new branch, development
of new product etc.

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Summary – the difference between
Programmed and un-programmed
decision
NON-
S/ PROGRAMMED
X’TICS PROGRAMMED
N DECISIONS
DECISIONS
1 Type of problem Structured Unstructured

2 Goals Clear and specific Vague

Ambiguous or
3 Information Complete
incomplete
Frequency of Routine and
4 New and unusual
occurrence repetitive
Level of Made at lower
5 Upper levels
Management levels
Time frame for
6 Short-term impact Long term
solution
Policies, Judgement,
7 Basis of solution procedures & creativity &
rules experience
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 Routine and strategic decisions
Routine or operating decisions are of
repetitive in nature.
◦ They involves short-term commitments and
have minor impact on the future of the
organization.
◦ Are generally made at lower level of
Management relating to day to day
operations of the organization by the help of
established standard procedures
Strategic or policy decisions involve long-
term commitments of business resources and
have large impact on the future of the
business as the whole.
◦ These decision are made at high levels of
management including location of the plant, 17
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Organizational and personal
decisions
A manager as a decision maker, can make decision
in two areas-
i. For organization and
ii.For him/her self.
 Organizational decisions are made by
managers based on rationality, judgement and
experience in their official capacity as resource
allocators for the interest of the organization.
These decisions affect the functioning of the
business and can be delegated to lower levels
 Personal decisions are made by managers as
individual on their own behalf. These decisions
cannot be delegated, they affects the personal
life of a manager but also may affects the
organization indirectly or directly. Eg. Decision to
marry, to retire, to buy a house e.t.c
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Individual and group decisions

Individual decisions are made by

single individual mainly concerned with
routine problems for which broad
policies are available. In such
decisions, the analysis of various
variables to support decisions is simple
Group decisions are those taken by a
group of persons constituted for that
purpose. In most cases group decisions
are important for the organizations. Eg.
Decisions by b.o.d, committee etc
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 Decision making is the vehicle for carrying managerial
work load and discharging managerial responsibilities.
 It is through decision making that managers strive to
achieve organizational goals.
 They attempt to bridge the gap between the existing
and the desired situation by taking and executing
decision.

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Problems/ limitation of decision
making
 Time Consuming – A lot of precious time is consumed
because the manager has to study the merits and
demerits of all the alternatives.
 Limited resources – Gathering information is
sometimes expensive as in most cases managers need
to make decision within limited time or quickly.
 Biased Decisions – That is, the manager makes
decisions, which only benefit himself and his group.
 Limited Analysis of the all the alternatives before
making a decision
 Human Limitations – most of decision makers do not
have the ability to process information intelligently,
when they are invaded by so many details they become
overloaded hence choose only those details which they
think relates to the problem
 Uncontrollable Environmental Factors – force
managers to make wrong05/09/2025
decision 21
 Revision Questions
i. What do you understand by the term decision
making?
ii. Briefly explain the steps involved in decision making
iii. Describe different decision making styles you have
learned in class
iv. Explain if there a relationship between planning and
decision making?
v. Discuss the merits and demerits of Group decision
making
vi. What are deferent types of decisions that managers
do?
vii. What situations do face managers when making
decisions?
viii. Decision making is vital for achieving organizational
goals? Discuss
ix. Differentiate programmed from non-programmed
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TEST ONE- STATISTICAL
RECORDS
Class Interval Frequency Comm .Fq Percentage

45-50 1 1 0.18%

40-44 10 11 1.81%

35-39 28 39 5.06%

30-34 42 81 7.59%

25-29 86 167 15.55%

20-24 105 272 18.99%

15-19 116 388 20.98%

10-14 104 492 18.81%

5-9 40 532 7.23%

0-4 21 553 3.80%

TOTAL Students 553

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THANK YOU
FOR
LISTENING

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