PMG1123 – FUNDAMENTALS OF MANAGEMENT CHAPTER 2

2.0 Decision Making

2.1 Definition of problem

Problem can be describes as;

1. Problem is a discrepancy between an existing and desired state of affairs.

2. A perceived gap between the existing state and a desired state, or a deviation from
a norm, standard, or status quo.

2.1.1 Types of problem

1. Structured Problems

 Involve goals that are clear.

 Are familiar (have occurred before).
 Are easily and completely defined—information about the problem is
available and complete.
Example: Suppliers late delivery, customer’s wanting return an online purchase or
handling customer’s complaint.

2. Unstructured Problems

 Problems that are new or unusual.

 Information is ambiguous or incomplete.
 Problems that will require custom-made solutions.
Example: Economic crisis or technology changing.

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2.2 Definition of decision making

Decision:
1. Decision is a choice from two or more alternative course of action.
2. Selection made between two or more alternatives.

Decision Making:

1. Decision making is a process which begins with identification of a problem and

ends with evaluation of implemented solutions.
2. Decision making involves the process of identifying problems and finding
alternatives to solve the problem.

2.2.1 Types of decisions

Can be classified into programmed and non-programmed decisions.

2.3.1 Programmed Decision

1. Repetitive decisions that can be handled by a routine approach.

2. Decisions that tends to rely heavily on previous solutions.
3. Suitable for structured problems.
 Example: Employee leave’s application, purchase requisition or students drop
and add subjects.

2.3.2 Non Programmed Decision

1. Decision that is unique and nonrecurring.

2. Decisions that generate a unique response.
3. Suitable for unstructured problem.
 Example: Introducing new product, opening new branch or to merge two
organization.

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2.2.1.1 Types of programmed decision

Three types of programmed decision are:

1. Policy
A general guideline for making a decision about a structured problem.
 Example: Company accept all customers return goods.
 Example: Company’s policy that requires employees to work for at least 5
years in the organization before they are eligible to apply for senior
positions.

2. Procedure
A series of interrelated steps that a manager can use to responding to a well –
structured problem.
 Example: Follow all steps for completing goods return documentation.
 Example: In the procedures of applying for a credit card, it is the bank’s
policy that customers must fill up a specific form and wait for the bank’s
approval of the application.

3. Rule
An explicit statement that limits what a manager or employee can or cannot do.
 Example: Manager must approve all refunds over RM50, no credit
purchase are refund for cash.
 Example: No smoking in the public area, no talking or eating in the library,
or customer to pay monthly instalments on a specified date.

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2.3 The Decision- Making Process

Step 1: Identification of a problem

The decision making process begins with the identification of a problem.

What is a problem??
 Problem is a discrepancy between an existing and desired state of affairs.

For example: My sales representative needs new computers.

How do managers become aware they have a discrepancy? They have make comparison
between the current state of affairs and some standard, which can be past performance,
previous set goals, or the performance of some other unit within organization or in other
organizations.

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Step 2: Identification of Decision Criteria

Once a manager has identified a problem that needs attention, the decision criteria that
will be important in solving the problem must be identified.

What are decision criteria??

 Decision criteria is a factor that is important and relevant to resolve the
problem.

For example: memory and storage, warranty, carrying weight, battery life.

Every decision maker has criteria – whether explicitly stated or not – that guide his or her
decision making.

Step 3: Allocation of weight to criteria

After identify a decision criteria, a weight is allocate to each of them in order to give them
their relative priority.
For example: Memory and storage weighted as 10 marks
Warranty 8 marks
Battery life 6

Step 4: Development of alternatives

In this stage all alternative that can help to solve the problem will be listed.
For example: Toshiba protégé
Acer
HP Compaq

Step 5: Analysis of all Alternatives

Under this step, each available alternatives will be analyzed its strength’s and weakness.
Each will be analysis based on the ability to solve the issue in step 2 and 3.

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Step 6: Selection of an alternative

In this step the best alternative will be selected. Choosing the best alternative from among
those assessed.
For example: Toshiba protégé
Acer
HP Compaq

Step 7: Implementation of the alternative

Under this step the chosen alternative are put into action.
For example: HP Compaq

Step 8: Evaluation the decisions effectiveness.

In this last step the chosen alternative will be evaluate its effectiveness in resolving the
problem. Managers appraise the result of the decision to see whether it has corrected
the problem.

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THE DECISION MAKING PROCESS

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2.4 Condition in Making Decision

Managers make decision today as it will influence actions that are taken and goals that
are achieved in the future.

All decision making conditions have several aspects which are unknown and are hard to
predict such as competitors reaction, inflation rate in the next there years and the ability
of suppliers to use technology, although its effectiveness has not been proven.

In general, there are there different decision making conditions: Certainty conditions,
Risk conditions and Uncertainty conditions.

2.4.1 Certainty
1. A situation in which a manager can make an accurate decision because the
outcome of every alternative choice is known.
2. Information fully available.
Example: When we decide to deposit excess funds, we know exactly the interest
rate being offered by each bank.

2.4.2 Risk
1. A situation in which the manager is able to estimate the likelihood (probability) of
outcomes that result from the choice of particular alternatives.
2. Information not fully available.
Example: When hiring new employee, HR manager have historical data from past
experiences information in resume and during interview session.

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2.4.3 Uncertainty
1. A situation in which manager do not know the probabilities and maybe not even
the possible outcomes. May force managers to rely on intuition, hunches, and “gut
feelings”.
2. Very limited or no information available.
Example: The effectiveness of marketing strategy which was planned to introduce
new products will not be known until the strategy is implemented
.