Decision making for

managers 2022

DR.H.BIMHA
 INTRODUCTION

 Managers make decisions on a

daily basis.
 Decisions can be simple or
difficult
 Decisions can be routine or
non routine
 Introduction

 Decisions can have small or large impact on

individuals or the entire organisation.
 People require information in order to make
good decisions.
 In an organisation, decision making is central
to all levels of managers and among all the
four management functions.
 Introduction.

 Survival of an organisation depends on

managers’ decision or problem solving skills
 The quality of the decisions, speed and
implementation are all important.
 Decision makers consider the manager’s
level; importance of the decision; resources;
time scale; conditions; amount of detail; data
availability; and structure
 Decision making definition:

 Decision making is a process through which

management choose decision alternatives
they believe will be most suitable for solving
their problems than all the available
alternatives.
 Definition

 According to Smit et al. (2008: 166) decision

making is a process of selecting an alternative
course of action that will solve a problem and
realign the organisation with its original goals
or its revised goals.
Problem and opportunity definition

A problem is something that endangers the

organisation’s ability to reach its objectives and
an opportunity is a situation that occurs when
circumstances offer an organisation a chance to
exceed its stated goals and objectives (Stoner
(1992:248)
 How do you tell there is a problem?

 When there is deviation from past

experiences,
 When there is deviation from a set plan
 When other people present problems
(complains) to management, and
 How do you tell there is a problem?

 When management notice/perceive a variance

between what has actually happened and
what they wanted (planned) to happen
 When competitors are outperforming your
company.
 Programmed decisions.

 Programmed decisions are routine decisions

that are usually repetitive and made more
frequently during the process of performing
different task.
 eg the use of predetermined toilet
cleaning schedule in a restaurant (check
sheets).
 Programmed decisions

 Because of their routine nature, standards

and defined methods are determined in
advance on how best to implement
programmed decisions.
 e.g employment application forms
 Programmed decisions.

 Little effort and time is needed to deal with

programmed decisions and there is limited
flexibility. Form completion is guided
 Programmed decisions

 Those making programmed decisions are

therefore guided by, policy documents, SOPs,
manuals, regulations and guidelines.
 Effective managers lean on policies to save
time but remain alert for exceptional cases.
 Non-programmed decisions

 These are non-routine decisions that require

unique and specific solutions (these are once
off encounters or those that are rarely
repeated, hence solutions cannot be
predetermined because decisions made to
solve a problem are unique for that particular
decision situation.
 Non-programmed decisions

 e.g how a C.E.O will deal with striking

employees. What factors will influence a
decision in this case?
 Non-programmed decisions

 Novel and ill-structured, dealing with new

complex problems; How do you deal with a
factory fire incident?
 There are no methods and standards of
dealing with non-programmed decisions
 Non-programmed decisions

 It deals with most significant problems that

senior management must handle on a daily
basis and there will be little guarantee that
same problem will recur.
 Non-programmed decisions

 Dealing with non-programmed decisions

needs analytic skills to systematically make
logical decisions, using the rational decision
making process (Stoner 1992:252.
 Non-programmed decisions

 Smit et al. (2008:249) suggest that,

situations like this requires use of dialectical
inquiry methods (Devil’s Advocate Methods)
to identify unnoticed opportunities,
considering even the opposite of assumptions
that have been made then developing
alternative solutions.
 Assessing decisions at different management
levels
Criteria Strategic Decisions Tactical Operational
. Decisions Decisions
Level of conduct Low and irregular Average High and regular

Nature of the problem or Strategic /Corporate Functional/divisional/functio Operational/shop flow level

decision dealt with nal routine decisions

Subjective or objective Highly moderate Very objective based on

assessment judgmental/subjective specific often standing
instructions

Information needs Large volume and high moderate Low volume low variety
variety
Time horizons Long term Medium term Short term
Completeness Summaries detailed analysis detailed with specific
instructions
Decision making High because wrong Reasonably high Low –wrong decisions
pressure decisions can be fatal may not have serious
implications

Amount of detail general average Specific details

Ease of evaluation difficult reasonable easy

Point of view based on knowledge and must be guided by as per standing

expectations company policy instructions
 Conditions.

 Certainty
 Risky
 Uncertainty
 Decisions under certainty conditions

 Outcomes are known with a degree of

certainty.
 Outcomes are known in advance(predictable).
 All the information that one needs about all
alternatives is available.
 Decisions under certainty conditions

 Probability that something will happen is 1.

 Decision criteria is to select the alternative
with the greatest benefit
 Decisions under risky conditions

 Outcomes may be predicted to some level of

certainty.
 Outcomes are known with some level of
expectation(assigning probabilities).
 Decisions under risky conditions

 Information that one needs about all

alternatives is probability based.
 Probability that something will happen
depends on prevailing state of nature.(see
decision making models)
 Decisions under risky conditions

 Decision criteria is to select the alternative

with the greatest expected benefit.
 Assignment of probabilities is subjective
otherwise doing that on an objective basis
involves some rudimentary processes which
tame time and money.
 RISK

 You need to make your decision choice and

risk the consequences of such a decision; e.g.
It is difficult to determine with a degree of
certainty how students will react to a pay-out
slash/cut. Under those circumstances the
decision is to cut students pay out and risk
the effect of student demonstrations that will
follow.
 Decisions under risk are a gamble; it is a win
or lose situation.
Decisions under uncertainty

 There are several possible outcomes

depending on who is making the
decision(optimistic decision makers vs
pessimistic decision makers).
 No information is readily available.
 Decisions under uncertainty

 Probability that something will happen is not

known.
 It is difficult to have one prescribed decision
criteria because the different decision making
criteria will arrive at different result, not
necessarily comparable.
 Decisions under uncertainty

 You will have to rely on gut feeling (decisions

made depend on personality of the decision
maker, the manager’s mood on a particular
day, e.t.c.)
 It is not possible to make comprehensive
judgments
Possible sources of uncertainty

 Economic crises e.g [recession, stock market

crashes, hostile take overs]
 Physical crises e.g[industrial accidents,
product failure, supply breakdown]
 Possible sources of uncertainty

 Personnel crises e.g [strikes, work place

violence, skills shortage]
 Criminal crises e.g[theft of money, theft of
goods and tampering with the product]
 Possible sources of uncertainty.

 Information crises e.g[industrial espionage,

tampering with records, financial
reengineering/massaging]
 Reputation crises e.g [rumour mongering,
hype, unethical behaviour]
 Natural disasters e.g [fires, floods,
earthquakes, changing climate]
 The rational decision making model

1. Identify existing problem or opportunity.

2. Specify objectives & criteria for a solution
3. List alternative problem solutions
4. Analyse & compare alternatives(list according to
priority)
5. Select most beneficial alternative.
6. Implement chosen alternative
7. Monitor to see that desired results are achieved.
Stevenson (2012:213).
 Decision model

 The decision maker is expected to select

the best possible solution (an optimising
solution)
 Use of Linear programming methods,
forecasting methods, simulation and
heuristics
 Decision model

 When evaluating each alternative, it is

advisable to consider:
 strengths &weaknesses;
 advantages & disadvantages;
 benefits and costs;
 use of scientific approaches to management
and decision making.
 Decision model

 Your basis for evaluating alternatives must

also consider if the alternative is feasible,
weather is a satisfactory solution, and the
solution’s consequences for the rest of the
organisation(Stoner 1992:257)
 Also consider sustainability issues-
 Definition of sustainability

 Sustainability is the process of maintaining

change in a balanced environment, in which
the exploitation of resources, the direction of
investments, the orientation of technological
development and institutional change are all
in harmony and enhance both current and
future potential to meet human needs and
aspirations
 Implementing decisions

 Implementation is a very critical stage in

decision making.
 Good decisions are sometimes marred by
poor implementation while a poor decision
may be helped by good implementation.
 Implementing decisions

 You need a suitable structure, leadership,

strong organisational culture, and a fair
reward system to enhance the
implementation of decisions.
 The soundness of a decision can be evaluated
against actual performance vs planned results
 Use of gap analysis will inform you about the
general performance of the organisation
 Implementing decisions

 When implementing non-programmed, high

risk decisions the general aim is optimisation.
 Optimisation must lead to maximum
achievement of goals and objectives.
 The Bounded rationality model.

 Under the model the decision maker selects

the first option that meets the minimal criteria
(satisficing decisions)
 The process is characterised by the use of
heuristics (the concept that managers make
the most logical decisions they can within the
constraints of limited resources e.g. (their
ability, knowledge and experience)
 The Bounded rationality model

 The model proceeds along empirical lines,

using rules of thumb to find solutions or
answers.
 It can be used to simplify decisions e.g. a
bank that uses account holders salary to
determine personal loan limits is simplifying
the loans processing by assuming that salary
is the only source of income for the clients.
 The Bounded rationality model.

 Process is often marred by biases because

instead of searching for the perfect or ideal
decision, managers frequently settle for one
that will adequately serve their purposes
[satisficing decisions, the first decision that is
satisfactory is accepted rather than the option
that maximizes or optimises benefits]
 The Bounded rationality model

 Bounded rationality is applicable when making

programmed, and less risk decisions under
less risk to certain conditions
 In this case detailed analysis for the small
routine decisions may not be necessary as
they often lead to paralysis analysis.
 Group Decisions.

 Sometimes decisions in organisations have to

be made by a group of people instead of
individual managers
 Areas that normally require interdepartmental
cooperation include new product decisions,
company closure, entering new markets and
other policy decisions.
 Advantages of group decisions.

1. Groups generally come up with more and better

alternatives than an individual do,
2. Groups draw on collective and diverse
organisational experiences.
 Advantages of group decisions

3. Group members support the

implementation of the decision more
fervently than they would if the decision had
been made by an individual.
4. Group members tend to perceive the
decision as their own, therefore they strive to
implement decisions successfully rather than
prematually give in to failure.
 Possible disadvantages.

1. Group decisions often take more time than

individual decisions
2. Group decisions cost more because of the
number of people involved and decision
meetings to be held.
 Possible advantages

3. Lower quality of decisions(a result of

decision makers coming up with
compromised or negotiated decisions that
save the purpose of maintaining
relationships in the group)= the problem
called group think).
 How to improve group decision
making.

 Brainstorming
 Nominal group technique
 Delphi technique
 Group decision support systems(GDSS)
 Brainstorming

 Group members are encouraged to make

contributions without any criticisms
 There is apparent cross fertilisation of ideas which
has a synergistic effect
 Quantity is important because the more ideas
conceived, the greater will be the likelihood of
outstanding ideas emerging.
 Nominal Group technique

 This is a structured group decision making

technique which restricts discussion or
interpersonal communication during the
decision making process
 Relevant when group decisions may be
affected by a dominant person, conformity or
group think.
 Nominal group techniques

 Although group members (7-10) are all physically

present they operate independently.
 Every member contributes ideas in writing and
rank the ideas before the discussions start.
 Group leader systematically gathers information
and each member will present an idea to the group
and discussions commence after all presentations.
 Preferred solutions can be voted for
 The Delphi technique

 This is a consensus seeking decision

making technique
 Decisions on a particular issue are made
by experts in different geographical areas
through the use of confidential
questionnaires to refine solutions.
 Group decision support systems

 Uses groups of computers hence it is a supported

group decision making system.
 Computers are used to support face to face
groups or groups that communicate through
electronic media C/O brainstorming through
networked work stations.
 Group decision support systems

 Electronic meeting are 55% faster than the

traditional face to face meetings.
 Computer conferences have substituted
Delphi techniques.
1. Robert Axelrod’s The Prisoner’s dilemma model.

P2.Confess P2.Don’t Confess

Both get 8 yrs. No.1 gets 1 yr.

P1.Confess
&

No.2 gets 10 yrs.

No.2 gets 1 yr. Both get 2 yrs.

P1.Don’t
&
Confess
No.1 gets 10 yrs.
Robert Axelrod’s The Prisoner’s dilemma model

 The model encourages cooperation and communication

among people involved in decision making processes.
 The process discourages selfishness when it comes to
sharing information considered to be common among
group members.
 Information available must be used for the benefit of all
interested stakeholders.
 Those who are selfish will not bear fruit of their
behaviour, instead they are actually punished for refusing
to cooperate or to share information.
 Prisoner’s dilemma cont:

 Situations can be better if people cooperate. Sometimes

when we try to be selfish we end up faring worse, hence
the ethical dilemma in decision making. We can generally
do better for ourselves by cooperating.
 Expectation theory.

State of nature
Alternatives Low dmnd High dmnd Expected profit

Restaurant business -R3 m R8m R 300 000.00

Theatre business - R1.5m R4m R 150 000.00

Probability 0.7 0.3

 Expectation theory.

 EMV (restaurant)= (0.3)(-5) + (8)(0.3)=R 0.3M

 EMV(theatre) = (0.7)(-1.5) + (4)(0.3) = R 0.15
 Decision criteria is to select the alternative with
the highest expected monetary value
 Select investing in restaurant business and earn
R300,000
 Decision tree diagram
E8m

hd
- .3
1.11
Restaura Ld.7 -E3m
nt
E4m
Decision 0.15
Theatre hd.3
node
2
Ld.7
-E1.5m

EMV1=.3*8+.7*-5 = -E1.1m
EMV 2=.3*4+.7*-1.5+=E0.15
 wants).

 The Kepner Fourie method is a qualitative

approach with some subjectivity (must and
want criteria) which are assigned some values
and weights.
 First compare all the alternatives on a must
criteria and eliminate alternatives that do not
meet the must criteria.
 wants).

 Rate the want criteria on a 1 to 10 scale

 Assign values of 1 to 10 for each attribute
against the individual alternatives.
 The Kepner-Fourie Method (must and
wants).

 Use predetermined weights for the given

attributes. Thus, the predetermined weight
times the allocated value gives you a final
score for each attribute.
 Compare the total scores for all the
alternatives
 Select alternative with the highest weighted
score as your solution to the problem.
 Must-wants method cont:

Must criteria House1 House2 House House4

. 3
Cost under   X 
R500000.
Available in 2    X
mths
Eliminate houses On the basis Of must criteria
3 &4

Weigh Give Final Give Final

t score score n score
4 bedrooms scor
e
8 * 5 40 10 80
2 bedrooms 7 * 5 35 10 70
Double garage 10 * 9 90 9 90
Near schools 9 * 10 90 6 54
security 10 * 10 100 8 80

Swimming pool 5 * 6 30 9 45

Total weighted 385 419

score
 Costs benefit analysis (CBA).

 It compares costs and benefits of each

alternative using subjective intuition and
judgment. In certain circumstances things like
political and societal factors are highly
regarded.
 Rules for decision making

DAVID. W.EWING(1990)INSIDE
THE HBS: STRATEGIES AND
LESSONS OF AMERICA’S
LEADING SCHOOL OF BUSINESS
 Guides to decision making

1. Don’t make a decision until you have to (not an

excuse to procrastinate)-it only means there
may be a value in delay that should be weighed
against the value of deciding now instead of
later.
2. Something worth doing isn’t necessarily worth
doing well(you cannot do everything as well as
you may like it-hence need to have priorities c/o
the 80-20 rule)
 Guides to decision making cont:

3. Don’t let anybody get control of you (do not put

yourself at the mercy of some boss, investor,
creditor or other who can make you march to
his or her tune). Keep your options open so that
you can change, if necessary, to some other
course.
4. Don’t be afraid to be wrong (it is not a sin to be
wrong-managers are likely to be more
successful if they aren’t afraid of trying new
things and risking failure).If you do not make at
least 10 mistakes a day you are not doing
anything BUT of cause, this works well if you are
in a supportive environment.
 Guides to decision making

5. When you delegate, keep your hand in

(delegation means you do it but I’m going to
check in from time to time to be sure we are
on track).
6. If you are wasting time do not blame it on
your boss (You-not they are in control of what
you are doing)-self responsibility-if you do not
have the authority you need, get it e.g if
some stupid bosses are leaving you idle or
putting you on meaningless tasks, take
charge and do something that is worthwhile.
 Guides to decision making

7. Listen to your inner voice (self-understanding)-

Be prepared to decide against the evidence and
advice of colleagues.
NB. Guides are guides, they need to be
tempered with, they are fallible, and of
cause they carry no guarantees or
warrantees, yet they are useful.