Chapter Three Decision Making PDF

CHAPTER THREE DECISION MAKING 3.1. MEANING OF DECISION MAKING The Management function that consists of choosing one course of action from all the available alternatives. A rational choice or selection of one alternative from among a set of alternatives. If there is no option, there...

CHAPTER THREE DECISION MAKING 3.1. MEANING OF DECISION MAKING The Management function that consists of choosing one course of action from all the available alternatives. A rational choice or selection of one alternative from among a set of alternatives. If there is no option, there is no choice & no decision. 3.2. Rational decision making process Decision-making has its own processes / series of steps. 1.Identifying problems A necessary condition for a decision to exist is a problem. Discrepancy between an actual and desired state; a gap between where one is and where one wants to be.  CONT’D To locate problems, managers rely on several different indicators: o Deviation from plan o Deviations from past performance o Outside criticism Confusions are common in problem definition because the events or issues that attract the manager’s attention may be symptoms of another more fundamental and pervasive difficulty than the problem itself. Most common source of mistake in management decision is the emphasis on finding the right answers rather than the right questions. CON’T 2. Developing Alternatives Feasible alternatives should be developed. Relevant internal and external environment of the organization are investigated. Sources for alternatives include: o Experience and other persons o The practice of successful manager o Group opinions o Use of outside sources  CONT’D 3. Evaluating Alternatives Decide the relative merits and demerits of each of the alternatives. To see how effective each would be. 4. Choosing the best Alternative Based on the evaluation made, managers select the best alternative. Managers should take care not to  CONT’D 5. Implementing and Monitoring the Chosen Solution For the entire decision-making process to be successful, considerable thought must be given to implementing and monitoring. A decision that is not implemented is little more than an abstraction. Resources must be acquired and allocated. Monitoring is necessary to ensure that things are progressing as planned and that the problem has been resolved. 3.3. TYPES OF DECISIONS 1. Programmed Decisions Made in routine, repetitive, well-structured situations through the use of predetermined decision rules, techniques, or established policies and procedures. Stem from prior experience or technical knowledge about what works in the particular type of situation. Ex. Decide if students meet graduation requirements  CONT’D 2. Non-programmed Decisions To solve non-recurring, novel, and unstructured problems. No well-established procedure exists for handling them, because it has not occurred before, managers do not have experience to draw up on, or problems are complex or completely new. E.g. To add a product to the existing product line  3.3.1. Types of decisions & level of management Problems that arise infrequently & having a great deal of uncertainty surrounding them are often strategic in nature and should be the concern of top management. Problems that arise frequently & have fairly certain outcomes should be the concern of lower level management. Middle managers in most organizations concentrate on programmed decisions. 3.4. The decision making environment Decision making like other management functions doesn’t take place in vacuum. Manager can have perfect knowledge/ understanding of what to do & what the consequence of the action will be. Decisions are made under the conditions of certainty, risk & uncertainty. Different decision making environments/ circumstances require different responses from a manager.  CONT’D 1. Decision making under conditions of certainty The manager has what is known as perfect knowledge The manager had had this decision before; the alternatives are known 2. Decision making under conditions of risk The availability of each alternative, the likelihood of its occurrence and its potential payoffs and costs are associated with probability estimates.  CONT’D There is moderate ambiguity and moderate chance of making bad decision. In a risk situation, managers may have factual information, but it may be incomplete. 3. Decision making under conditions of uncertainty This is the most difficult situation for managers. It is like being a pioneer/ breaking new ground. the manager is not able to determine the exact odds (probabilities) of the potential alternatives available. Why Do Managers Make Poor Decisions? Lack of adequate time Failure to define goals Using unreliable sources of information Fear of consequences Focusing on symptoms rather than causes Reliance on Hunch/GUSS/FEELING/SIXT SENCE/ and Intuition /INSTINICT /Suspecion/  ! ! ! U YO N K H A T