Chapter Two Decision Making Decision Making: is defined as the process of selecting or choosing the best course of action from numbers of alternatives based on the criteria. Because managers are continually confronted with opportunities and problems, they must constantly analyze the effect of different decisions on their organizations and select the alternative that will move the firm toward its stated objectives. Types of Decisions: Several authors believe that there are two types of decisions: programmed & non-programmed decisions. A. Programmed decisions: These decisions are "programmable" because of a specific procedure can be worked out to resolve them based on experience in similar situations. • Once a standard procedure has been established, it can be used to treat all like situations. • They usually involve an organization's every day operational and administrative activities • They are primarily found at the middle and lower levels of management. • Data used in making a programmed decision usually are complete and well defined. • Participants know the details and agree on how to resolve the problem. B. Non-programmed Decisions: are used to solve nonrecurring problems/Non-Repetitive problems. • No well-established procedure exists for handling them, primarily because managers do not have experience to draw upon. • In contrast to programmed decisions, available data are usually incomplete. • Non programmable decisions are commonly found at the middle and top levels of management and often is related to an organization's policy-making activities such as whether to add a product to the existing product line, to reorganize the company, or to acquire another firm, are examples The steps in decision making process include the following: 1. Ascertain the need for a decision/Identify the problem: The decision making process begins by determining a problem exists; that is, there is an unsatisfactory condition. 2. Establish decision criteria: Once the need for a decision has been determined, there comes a need to establish decision criteria which requires identifying those characteristics that are important in making the decision. 3. Allocate weights to criteria The identified criteria should be weighted based on their importance and arranged in priority. This is because some are obviously more important than others and we need to weight each criterion to reflect its importance in the decision. 4. Develop Alternatives This involves developing a list of the alternative that may be viable in dealing with the stated problem. 5. Evaluate Alternatives Once the alternatives are enumerated. The decision maker must critically evaluate each one and identify the strong and weak points when compared against the criteria and the weights established. In evaluating each alternative, we not only consider things that can be measured in numerical terms such as time and various types of fixed & operating costs,

1. Chapter two
Decision Making
 Decision making: is defined as the process of
selecting or choosing the best course of
action from numbers of alternatives based
on the criteria.
 Because managers are continually
confronted with opportunities and
threats/problem from external environment.
 They must constantly analyze the effect of
different decisions on their organizations
 Then select the alternative that will move
the firm toward its stated objectives.
1

2. Types of decision making
 Several authors believe that there are two
types of decisions: programmed & non-
programmed decisions.
 A. programmed decision making
It is "programmable" because of a
specific procedure can be worked out to
resolve based on experience in similar
situations.
A decision that is repetitive and routine
2

3. Cont’d
 A definite method for its solution can be
established
 Does not have to be treated as new, each
time its occurrence
 It involves an organization's every day
operational and administrative activities
 They are primarily found at the middle
and lower levels of management.
3

4. Cont’d
 Data used in making a programmed
decision usually are complete and well
defined.
 Participants know the details and agree
on how to resolve the problem.
 Examples: pricing standard
customer orders, determining billing
dates, recording office supplies etc.
4

5. B. Non-programmed Decision
 It is used to solve non-recurring problems.
 No well-established procedure exists for handling
them.
 A decision that is unique (novel or new) and ill-
structured.
 Managers do not have experience to draw upon.
 In contrast to programmed decisions, available
data are usually incomplete.
5

6. Cont’d
 Non programmable decisions are
commonly found at the middle and top
levels of management
 It is “tough” decisions that involve
risk and uncertainty and
 call for entrepreneurial abilities
 Such decisions draw heavily on the
analytical abilities of the manager
6

7. Cont’d
 It is often related to an organization's policy-
making activities, such as:
 Add a product to the existing product line,
 Reorganize the company, or
 Acquire another firm.
 Examples: Moving into a new market,
investing in a new unproven technology,
changing strategic direction
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8. Types of Problems & Level of management
Non-programmed
decision making
Programmed
Decisions
Ill-structured
Well-structured
Type of
Problem
Level in
management
Top
Lower
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9. Decision-making Process
1. Identifying a problem
2. Identifying decision criteria
3. Allocating weights to criteria
4. Developing alternatives
5. Analyzing alternatives
6. Selecting an alternative
7. Implementing the alternative
8. Evaluation of decision effectiveness
9

10. 1. Identifying a problem
 Problem is a discrepancy (difference)
between an existing and a desired state.
 The decision making process begins by
determining a problem exists; that is,
unsatisfactory condition.
Example:
“The manager has resigned, and we need
another manager”
Here the phrase “manager has resigned”
reflects the current state while “need another
manager” represents a desired state.
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11. 2. Identifying Decision Criteria
The word criteria, is defined as “a
standard by which something can be
judged”.
A decision criteria therefore, is the basis
of a decision, which outlines the
relevant and important factors for a
decision.
And implicitly, it also defines what is not
important.
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12. Decision Criteria: Example
In the above-cited scenario, the
decision criteria may include the
following factors:
 Relevant qualifications
 Leadership skills
 Communication skills
 Planning and analytical skills
 Professional experience
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13. 3. Allocating Weights to Criteria
 The next step in the decision making
process is prioritization.
 Prioritization is achieved by assigning
quantitative weights to each criteria
element.
 The weight defines the relative
significance of each element.
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14. 4. Developing Alternatives
 This involves developing a list of the
alternative that may be viable in dealing
with the stated problem.
 Involves defining the possible
alternatives (or choices) that would
resolve the problem.
 In our case, the alternatives would be a
list of candidates or job applicants.
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15. 5. Analyzing Alternatives
 Alternatives are rated and analyzed on the
basis of the criteria.
 The decision maker must critically evaluate
each one and identify the strong and weak
points
 The rating can be based on a specified scale,
say 1 – 5 etc.
 Rating may be subjective in nature and thus,
may depend on the judgment of the
individual(s)
15

16. Cont’d
 we are not only consider things that can
be measured in numerical terms such as
time and various types of fixed &
operating costs.
 but also consider intangible or qualitative
factors such as:
The quality of labor relations,
The risk of technological change
The international political climate.
16

17. 6. Selecting an alternative
 Involves choosing the best alternative,
based on the above rating and
analysis that suit to the problem.
 In selecting the best alternative,
factors such as risk, economy of
efforts, timing and limiting factors
should be considered adequately.
 Generally implies selecting the
alternative with the highest score.
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18. 7. Implementing the Alternative
 Putting the decision into action
 This requires:
Communication of decisions to
subordinates,
Getting acceptance of the decisions,
and
Getting support and cooperation for
converting the decision in to effective
action.
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19. 8. Evaluation
 Evaluation forms an integral part of any
process
 Involves evaluation of the outcome based
on the desired goal and criteria
 Involves assessing the effectiveness and
efficiency of the outcome (or the entire
process)
 In case of any undesired results, each
step of the process is carefully reviewed
to trace the root causes
19

20. Decision making under different
conditions/state of nature
Decision under certainty condition
● All required information are completed
● Decision has clear-cut goals
● Future outcomes associated with each
alternative are clear
● Decisions made in which the external
conditions are very predictable
20

21. Cont’d
Decision under risk condition
● Decision has clear-cut goals
● Good information is available
● Future outcomes associated with each
alternative are subject to chance
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22. Cont’d
Decision under uncertainty condition
● Managers know which goals they wish to
achieve
● Future outcome about alternatives is
unknown
● Information about alternatives and future
events is incomplete
● Managers may have to come up with
creative approaches to alternatives
22

23. Cont’d
Decision under ambiguity condition
● By far the most difficult decision situation
● Goals to be achieved or the problem to be
solved is unclear
● Alternatives are difficult to define
● Information about outcomes is
unavailable
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