SMG 604- DECISION MAKING

CHAPTER 2
THE ENVIRONMENT OF
DECISION MAKING
 Decision Making Environment

∗ The quality of the decisions made in an organization will dictate

the success or failure of the said business.

∗ So all the available information and alternatives must be studied

before arriving at an important decision. The process of decision
making will help a great deal.

∗ Another factor that affects these decisions is the environment in

which they are taken. There are a few different types of
environments in which these decisions are made.

∗ And the type of decision making environment has an impact on

the way the decision is taken. Broadly there are three basic types
of decision making environment. Let us take a brief look at each
of them.
Decision Making

Perceptions
of the
decision
maker

Outcomes
Stages of decision making Process
∗ The identification phase
∗ The development phase
∗ The selection phase

1 • Define the problem

2 • Gather facts and Develop alternatives
3 • Evaluate Alternatives
4 • Select the best alternatives
5 • Implement the chosen alternatives
6 • Evaluate the decision
 The Problem

∗ Problem :
∗ A discrepancy between an existing and desired
state of affairs
∗ Characteristics :
∗ A problem becomes a problem when a manager
becomes aware of it
∗ there is a pressure to solve the problem
∗ the manager must have the authority, information,
or resources needed to solve the problem.
 Why Information is
Incomplete
Uncertainty Ambiguous
& risk Information

Incomplete
Information

Time constraints &

information costs
 Conditions that Affect the
Possibility of Decision Failure

Organizational
Problem

Low Possibility of Failure High

Certainty Risk Uncertainty Ambiguity

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution
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Decision-Making Conditions

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 Decision-Making Conditions

∗Certainty
∗ exists when a solid factual basis allows
prediction of decision’s outcome.
∗ Exist when information is sufficient to
predict the results of each alternative in
advance of implementation.

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∗Risk
∗ Exist when decision makers lack complete
certainty regarding the outcomes of various
courses of action, but they are aware of the
probabilities associated with their occurrence.
∗ exists when a decision is made on the basis of
incomplete but reliable information.
∗ Objective probabilities: based on reliable data.
∗ Subjective probabilities: based on judgment.
∗ Uncertainty
∗ exists when no reliable data exists on which to base
a decision.
∗ Limited information prevents estimation of outcome
∗ Exist when managers have so little information on
hand that they cannot even assign probabilities to
various alternatives and their possible outcomes.
∗ Described as a rapidly changing setting in terms of:
∗ External conditions
∗ The information technology required to make decision
∗ The people who influence problem and choice definitions
∗ A good decision maker will be the good manager
∗ Be a best decision maker.., Be a best manager