Chapter 5: Decision Making

Bikrant Shrestha



Concept of Decision Making
Importance of Decision Making
Steps in Decision Making Process
Types of Managerial Decisions





Learning Objectives
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3
Managerial Decision Making
Decision making is not easy

It must be done amid
ever-changing factors
unclear information
conflicting points of view
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4
Decisions and Decision Making
Decision = choice made from available
alternatives

Decision Making = process of identifying
problems and opportunities and resolving
them

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5
Decisions and Decision Making
Many decisions that managers deal with
every day involve at least some degree of
uncertainty and require nonprogrammed
decision making
May be difficult to make
Made amid changing factors
Information may be unclear
May have to deal with conflicting points of view
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Concept of Decision Making
In course of regular performance, many problems might
arise in an organization
Can create obstacles
Needs to solve in a timely manner
Choice made from available resources
Conclusion for the solution of problems
The process of selecting a course of action from among
alternatives to achieve a desired goal or to solve a
problem
Must for smooth running and operating an organization

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Cont..
Success of an organization depends upon
the decision-making ability of the manager
and its implementation in practical field
Should give focus to objectives and goals
while making decisions
It is said that Whatever a manager does, he
does through making decisions

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Some definitions:
Decision making is the process of identifying
and selecting a course of action to solve a
specific problem- J. Stoner
Decision making is the selection based on
some criteria from two or more alternatives-
G.R. Terry
Decision making is the act of choosing one
alternative from among a set of alternatives-
R.W. Griffin
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Conclusion:
Process of selecting best alternative among
different alternatives
Needed for all levels of management
Solution for a problem



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Features
Human and rational process
Selected process
Dynamic process
Goal-oriented process
Freedom
Continuous process
Positive or negative impact

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Importance of Decision Making
Decision making is everywhere
Useful for successful operation and gaining
organizational goal
Acc. To H. Simon, The process of managing
is decision making itself.

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Importance of Decision Making
Pervasive function
Indispensible components
Selection of best alternative
Establishment of plans and policies
Evaluation of managerial performance
Successful operation of business

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13
Six Steps in the Decision-
Making Process
Evaluation
Of result and
Follow up
Identify
Appropriate
Alternatives
Identification
of problems
Evaluate all the
alternatives
Selection of
best
Alternative
Implementation
of Chosen
Alternative
Decision-
Making
Process
O
O
O
O
O
O
O
O
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Identification of Problems
The step of problem finding
Finding out the GAP
What is and What should be or the actual and
desired situation
Until and unless problem is not identified, corrective
action cant be taken
Needs careful analysis of the situation
This step is the completion of the decision making
process
Just like finding out disease by doctor and then
providing medicine

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Identify Appropriate Alternatives
Various ways are there to solve the problems
Step of identifying several ways for solution
of the problem
Manager should invest maximum time for
identifying alternatives
Needs creative and innovative thinking
Should consider facts, ideas, experts
opinion, creditors, customers, etc

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Constraints should be considered such as;
legal restrictions, moral and ethical norms,
authority constraints, etc
It is a mental step which needs brainstorming
and imagination


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Evaluation of Alternatives
Alternatives should be evaluated before making final
decision Feasibility analysis
Evaluation should be done on the basis of cost, time,
legal constraints, availability of human and other
resources
A manager should analyze whether that alternative
is satisfactory in order to meet the solution of the
problem or not
Consequences and effect for rest of the organization
and towards customers, firms image should be also
considered

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Evaluation Framework

Is the alternative satisfactory?
Is the alternative feasible?
Are the alternatives
consequences affordable?
Retain for further consideration?
Eliminate from consideration
Eliminate from consideration
Eliminate from consideration
YES
YES
YES
NO
NO
NO
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Select The Best Alternative
This step consists of process of choosing the best
alternative among various alternatives that can meet
the solution of the problem and helps to achieve
organizational goal
Usually, some approaches are followed in selecting
a best course of action:
O Experiences
O Experimentation
O Research and analysis
O Personal values and aspiration
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Cost and benefit analysis should be done
while selecting the best alternative
The decision maker has to provide judgment
for the selection of a particular evaluation
The selection of best solution helps for easy
implementation and to gain positive outcome
in organizational objectives
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Implementation of selected Alternative
Important step after the previous one
It means putting decision into action
Manager should be aware about resistance
to changes in an organization
Communication and full cooperation is
needed for this step
Lack of support from employees may lead to
failure of implementation of decision
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Evaluate The Results and Follow-up
Implementation must be carefully monitored and
evaluated
Criteria's of measurement of the results should be
determined such as; how the critical events should
be measured, how they are to be measured, how the
measurements are to be evaluated, etc.
Results should be compared to the standard
outcome
If the desired outcome is not achieved, a manager
should find out the reason behind it

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Challenge
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Types of Managerial Decisions
Every manager has to make decision
The nature of decision varies according to the nature
of problem and various levels of management in an
organization.
Types of managerial decisions are:
O Programmed and Non-programmed decisions
O Routine and Basic decisions
O Organizational and Personal decisions
O Individual and Group decisions
O Policy and Operating decisions
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Programmed and Non-programmed
Decisions
Programmed Decisions:
Decisions are said to be programmed if they are
repetitive, structured and routine, and a definite
procedure has been developed for what actions
should taken
Repetitive decision
Handled by routine procedures, set of standard
policy
Taken by lower and middle level managers
Have short term impact




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Non-programmed Decisions
Unstructured, non- routined, unique in nature, and non
recurring types of decisions
Dealing with complex issues
Involve gathering, forecasting and strategic issues. They also
involve strategy, resource commitment and long term
investments
Taken by top executives
Needs creativity, judgment and problem solving process
Also called a truly managerial decision as it is related with
strategic issues
For e.g. investment decisions, product mix, etc

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Routine and Basic Decisions:
Routine Decisions:
Related to day-to-day working of the
organization
Taken in prompt manner and implemented in the
similar way
Similar to the programmed decisions
Decisions are made within the framework of set
of rules, policies and procedures
Made frequently by lower and middle level
managers

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Basic Decisions:

Also known as strategic decisions
Similar to Non-programmed decisions and have long term
impact to the business
Are very crucial for the survival of the organization
Are unique, one time problem solving decisions
Involve decisions like; long term investments, policy decisions,
and long term commitments
Taken by the top level management
Needs creative thinking, judgment, deep study and intuition
For e.g. expansion of business, replacement of plant and
machines, hiring of new staffs, etc
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Organizational and personal Decisions
Organizational Decisions:
+ Also known as formal or official decisions
+ Under this, an executive takes any decision in his
official capacity and authority
+ Affect functioning of the organization directly
+ Before taking decisions, a manager should fulfill all
the official procedures, system and formalities
+ Authority can be delegated here.
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Personal Decisions:
Also known as informal or individual decisions
Taken on the basis of personal skill, knowledge
and capacity or personal of an individual
Dont affect organization directly but affect
indirectly by such decisions
Also made on the basis of personal interest,
desire and necessity of the decision maker
For e.g. getting voluntary retirement, reject to get
promotion, refuse to go for higher education, etc
These types of decisions cant be delegated

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Individual and Group Decisions:

Individual Decisions:
Decisions taken by an individual or a single
person such as; general manager, departmental
manager, etc. is called individual decision
Usually occurs in a small organization like sole
trading concern
The decision maker considers organizational
objectives and working condition for taking
decision

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Group Decisions
Under this, a group of persons are involved in the
decision making process such as; Board of
Directors, Management Committee, etc
Also known as collective decision
Usually taken in large organization such as; joint
stock company, partnership firm, etc
May take long time for making decision but are well
balanced and easy to implement
Are more complex in nature incomparision to
individual decisions
Votes of majority comes into effect



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Policy and Operating Decisions:
Policy Decisions:
Taken by the top level management and
have long term impact
They involve introduction of new rules,
regulations and programs amendment of
existing rules, introduction of new products,
etc
For e.g. Declaring 15% bonus for employees
on their salary for a particular month


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Operating Decisions:
Taken by lower and middle level managers
Concerned with day to day operation works
of an organization
Involves practical implementation of plans
and policies
For e.g. calculating the amount of 15%
bonus of an employee declared by the top
level management

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35
New
Decision
Approaches
for Turbulent
Times
New Decision Approaches
for Turbulent Times