Principles of Management I

Decision Making

Presented By: Viqar A.Usmani

Decision Making
The word decision has been derived from the Latin word
"decidere" which means "cutting off".
Thus, decision involves cutting off of alternatives between those that
are desirable and those that are not desirable.
In the words of George R. Terry,
"Decision-making is the selection based on some criteria from
two or more possible alternatives".

Presented By: Viqar A. Usmani

Characteristics of Decision Making

Decision making implies that there are various alternatives
and the most desirable alternative is chosen to solve the problem
or to arrive at expected results.
The decision-maker has freedom to choose an alternative.
Decision-making may not be completely rational but may be
judgmental and emotional.
Decision-making is goal-oriented.
Decision-making is a mental or intellectual process because the final
decision is made by the decision-maker.
(Cont.)

Presented By: Viqar A. Usmani

 A decision may be expressed in words or may be implied from

behavior.
Choosing from among the alternative courses of operation implies
uncertainty about the final result of each possible course of
operation.
Decision making is rational.
It is taken only after a thorough analysis and reasoning and
weighing the consequences of the various alternatives.

Presented By: Viqar A. Usmani

TYPES OF DECISIONS
a) Programmed and Non-Programmed Decisions:
Herbert Simon has grouped organizational decisions into two
categories based on the procedure followed.
They are:
i) Programmed decisions:
Programmed decisions are routine and repetitive and are made
within the framework of organizational policies and rules.
These policies and rules are established well in advance to
solve recurring problems in the organization.
Programmed decisions have short-run impact.
They are, generally, taken at the lower level of management.

Presented By: Viqar A.Usmani

ii) Non-Programmed Decisions:

Non-programmed decisions are decisions taken to meet nonrepetitive problems.
Non-programmed decisions are relevant for solving unique/
unusual problems in which various alternatives cannot be decided in
advance.
A common feature of non-programmed decisions is that they are novel
and non-recurring and therefore, readymade solutions are not
available.
Since these decisions are of high importance and have long-term
consequences, they are made by top level management
Presented By: Viqar A.Usmani

b) Strategic and Tactical Decisions:

Organizational decisions may also be classified as strategic or
tactical.
i) Strategic Decisions:
Basic decisions or strategic decisions are decisions which are of
crucial importance.
Strategic decisions a major choice of actions concerning allocation
of resources

and

contribution

to

the

achievement

of

organizational objectives.
Decisions like plant location, product diversification, entering
into new markets, selection of channels of distribution, capital
expenditure etc. are examples of basic or strategic decisions
Presented By: Viqar A.Usmani

ii) Tactical Decisions:

Routine decisions or tactical decisions are decisions which are
routine and repetitive. They are derived out of strategic decisions.
The various features of a tactical decision are as follows
Tactical

decision

relates

to day-to-day operation

of

the

organization and has to be taken very frequently.

Tactical decision is mostly a programmed one.
Therefore, the decision can be made within the context of
these variables.
The outcome of tactical decision is of short-term nature and
affects a narrow part of the organization
Presented By: Viqar A.Usmani

 The authority for making tactical decisions can be delegated

to lower level managers because:
first, the impact of tactical decision is narrow and of shortterm

nature and
Second, by delegating authority for such decisions to

lower-level managers, higher level managers are free to

devote more

time on strategic decisions.

Presented By: Viqar A.Usmani

Decision Making Process

The decision making process is presented in the figure below:

Presented By: Viqar A. Usmani

1.Specific Objective: The need for decision making arises in order to achieve
certain specific objectives.
The starting point in any analysis of decision making involves the
determination of whether a decision needs to be made.
2.Problem Identification: A problem is a felt need, a question which needs a
solution. In the words of Joseph L Massie
"A good decision is dependent upon the recognition of the right
problem".
The objective of problem identification is that if the problem is precisely
and specifically identifies, it will provide a clue in finding a possible
solution.

problem

can

be identified clearly, if managers go through

diagnosis and analysis of the problem.

Presented By: Viqar A.Usmani

Diagnosis:
Diagnosis is the process of identifying a problem from its signs
and symptoms.
A symptom is a condition or set of conditions that indicates the
existence of a problem.
Diagnosing the real problem implies knowing the gap between
what is and what ought to be,
identifying the reasons for the gap and understanding the problem in
relation to higher objectives of the organization.
Presented By: Viqar A.Usmani

Analysis:
Diagnosis gives rise to analysis. Analysis of a problem requires:
Who would make decision?
What information would be needed?
From where the information is available?
Analysis helps managers to gain an insight into the problem
Presented By: Viqar A.Usmani

3. Search for Alternatives:

A problem can be solved in several ways;
however, all the ways cannot be equally satisfying.
Therefore, the decision maker must try to find out the various
alternatives available in order to get the most satisfactory result of a
decision.
A decision maker can use several sources for identifying alternatives:
His own past experiences
Practices followed by others and
Using creative techniques.
Presented By: Viqar A.Usmani

4.Evaluation of Alternatives:
After the various alternatives are identified, the next step is to evaluate
them and select the one that will meet the choice criteria.
The decision maker must check proposed alternatives against limits,
and if an alternative does not meet them, he can discard it.
Having narrowed down the alternatives which require serious
consideration,
The decision maker will go for evaluating how each alternative may
contribute towards the objective supposed to be achieved by
implementing the decision
Presented By: Viqar A.Usmani

5. Choice of Alternative:
The evaluation of various alternatives presents a clear picture as to
how each

one of

them

contribute to

the

objectives

under

question.
A

comparison

is

made among the likely outcomes of various

alternatives and the best one is chosen.

6. Action:
Once the alternative is selected, it is put into action.
The actual process of decision making ends with the choice of an
alternative through which the objectives can be achieved
Presented By: Viqar A.Usmani

6. Results:
When the decision is put into action, it brings certain results.
These results must correspond with objectives, the starting point of
decision

process,

if

good

decision

has

been made and

implemented properly.
Thus, results provide indication whether decision making and its
implementation is proper.

Presented By: Viqar A.Usmani

Characteristics of Effective Decisions

An effective decision is one which should contain three aspects.
These aspects are given below:
Action Orientation: Decisions are action-oriented and are directed
towards relevant and controllable aspects of the environment.
Decisions should ultimately find their utility in implementation.
Goal Direction: Decision making should be goal-directed to enable the
organization to meet its objectives.
Effective in Implementation: Decision making should take into account
all the possible factors not only in terms of external context but also in
internal context so that a decision can be implemented properly.
Presented By: Viqar A.Usmani

RATIONAL DECISION MAKING MODEL

The Rational Decision Making Model is a model which emerges from
Organizational Behavior.
The process is one that is logical and follows the orderly path
from problem identification through solution.
It provides a structured and sequenced approach to decision making.
Using such an approach can help to ensure discipline and
consistency is built into your decision making process.

Presented By: Viqar A.Usmani

The Six-Step Rational Decision-Making Model

1. Define the problem.

2. Identify decision criteria
3. Weight the criteria
4. Generate alternatives
5. Rate each alternative on each criterion
6. Compute the optimal decision

Presented By: Viqar A.Usmani

Presented By: Viqar A. Usmani

1) Defining the problem

This is the initial step of the rational decision making process.
First the problem is identified and then defined to get a clear view of the situation.
2) Identify decision criteria
Once a decision maker has defined the problem, he or she needs to identify the
decision criteria that will be important in solving the problem. In this step,
the decision maker is determining what's relevant in making the decision.
This step brings the decision maker's interests, values, and personal
preferences into the process.
Identifying criteria is important because what one person thinks is relevant,
another may not.
Also keep in mind that any factors not identified in this step are
considered as irrelevant to the decision maker.

Presented By: Viqar A.Usmani

3) Weight the criteria

The decision-maker weights the previously identified criteria in order to give them
correct priority in the decision.

4) Generate alternatives
The decision maker generates possible alternatives that could succeed in
resolving the problem.
No attempt is made in this step to appraise these alternatives, only to list them.

5) Rate each alternative on each criterion

The decision maker must critically analyze and evaluate each one.
The Presented
strengths By:
and
weakness
Viqar
A.Usmaniof each alternative become evident as they
compared with the criteria and weights established in second and third steps.

6) Compute the optimal decision

Evaluating each alternative against the weighted criteria and
selecting the alternative with the highest total score.

Presented By: Viqar A.Usmani

DECISION
MAKING
CONDITIONS

UNDER

VARIOUS

The conditions for making decisions can be divided into three

types. Namely
a) Certainty
b) Uncertainty and
c) Risk
Virtually all decisions are made in an environment to at least some
uncertainty However;
the degree will vary from relative certainty to great uncertainty.
There are certain risks involved in making decisions.
Presented By: Viqar A.Usmani

a) Certainty:
In a situation involving certainty, people are reasonably sure about what
will happen when they make a decision.
The information is available and is considered to be reliable, and the
cause and effect relationships are known.
b) Uncertainty
In a situation of uncertainty, on the other hand, people have only a meager database,
they do not know whether or not the data are reliable, and they are very unsure about
whether or not the situation may change.
Presented By: Viqar A.Usmani

Moreover, they cannot evaluate the interactions of the different

variables.
For example, a corporation that decides to expand its Operation to an
unfamiliar country may know little about
the country, culture, laws, economic environment, and politics.
The political situation may be volatile that even experts cannot predict a
possible change in government.
c) Risk
In a situation with risks, factual information may exist, but it may be
incomplete.
To improve decision making One may estimate the objective probability of
an outcome by using, for example, mathematical models On the other hand,

subjective probability, based on judgment and experience may be used

Presented By: Viqa

All intelligent decision makers dealing with uncertainty like to know

the degree and nature of the risk they are taking in choosing a
course of action.
One of the deficiencies in using the traditional approaches of
operations research for problem solving is that many of the data used
in model are merely estimates and others are based on probabilities.
The ordinary practice is to have staff specialists coming up with best
estimates.

Presented By: Viqar A.Usmani

Virtually every decision is based on the interaction of a number

of important variables, many of which has an element of
uncertainty but, perhaps, a fairly high degree of probability.
Thus, the wisdom of launching a new product might depend on a
number of critical variables:
the cost of introducing the product,
the cost of producing it,
the capital investment that will he required,
the price that can be set for the product,
the size of the potential market, and
the share of the total market that it will represent
Presented By: Viqar A.Usmani

Presented By: Viqar A.Usmani