Chapter Three

Decision Making
Decision Making
Decision making is a conscious choice among
analyzed alternatives followed by an action to
implement the choice.
Decision making is a selection process, the means to
achieve the end
Decision making includes the evaluation of available
alternatives through critical appraisal methods.
 A decision may be both negative and positive.
 Decision making requires a rational selection of a
course of action.
decision-making is universal.
All managerial functions have to be decided
the critical decision-making is during planning because
planning identifies the objectives of the organization
 Decision-making has three elements (parts)
When managers make decisions; they are choosing or
selecting from among alternatives.
When managers make decisions, they have available
alternatives. When there are no alternatives, there is no
decision-making, rather it become mandatory.
When managers make decisions, they have purpose in
mind. The purpose in mind is organizational
objectives.
The Decision Making Process
1. Problem Identification and Definition
A necessary condition for a decision to exist is a
problem
If problems do not exist, there will be no need for
decisions; i.e. problems are prerequisites for decisions.
The problem is very critical when the gap between the
standard set and actual performance attained is very
high.
Problem Indicators
 Deviation from past performance
 Deviation from the plan
 Outside criticism
Decision makers face three types of problems:
a. crisis problem
b. non-crisis problem
c. opportunity problem
Steps to diagnose the cause of the problem
1. Scanning stage
2. Categorization stage
3. Diagnosis stage
2. Developing Alternatives
3. Evaluating Alternatives
 Tangible factors include profits earned, time taken, money
invested, rate of returns on investment, etc.
 Intangible factors include public relations, good will, loyalty,
quality, the risk of technological changes, etc.
Peter. F. Drucker has suggested the following
criteria:
 Risk
 Economy of efforts
 Timing
 Resources

4. Choosing an Alternative
 Experience, Experimentation and Research

5. Implementing and Monitoring the Chosen Solution

Decision-Making Conditions
decisions are made under three basic conditions.
certainty, condition of risk, and condition of uncertainty.
Decision-making under Certainty
 the external conditions are identified and very predictable
 information is available and reliable
 know the cause and effect
Decision-making under Risk
 cannot predict an alternative outcome with certainty
 have information to predict the probability and incomplete
Decision-making under Uncertainty
 little is known about the alternatives or the outcomes.
 Uncertainty arises from two sources. managers may face
external conditions over their control.
 managers may not have access to key information.
Types of Decisions
Programmed decisions: are the decisions managers make in
response to repetitive and routine situations. They are handled
by using rules, standard operating procedures, and specific
policies.
Non programmed decisions: are made for non-repetitive, non-
routine, infrequent, special, highly important, dynamic,
complex and unstructured problems. They are usually handled
by general problem solving process, judgment, intuition and
creativity.
 Types of Managerial Decisions

Type of Type of Procedures Examples

decisions problem
Programme Repetitive, Rules, Business: processing payroll
d routine standard vouchers
operating College: processing admission
procedures, applicants
policies Hospital: preparing patient for
surgery.
Government: using state owned
motor vehicle
Non- Complex, Creative Business: introducing a new
programme novel problem product.
d solving College: constructing new
classroom facilities
Hospital: reacting to regional
disease epidemic
Government: solving spiraling
Why Do Managers Make Poor Decisions?
End of Chapter Three