CHAPTER 3
THE NATURE OF DECISION MAKING
CHAPTER OUTCOMES
Upon completing this topic, students will be
able to have a broad understanding of :
i. Concept of decision making
ii. The steps in decision making
iii. Types of decision and decision making
iv. The effective decision making and it’s
barriers.
Definition of DECISION MAKING
The process through which managers identify
and resolve problems and capitalize in
opportunities. (Goodman & Fandt)
A process of identifying and selecting a course
of act. (Stoner & Freeman)
The process by which a course of action is
selected as the way to deal with a specific
problem. (Rohaya, Norlida & Normala)
Steps in DECISION MAKING
Identify
opportunities and Identifying Generating
diagnosing Objectives alternatives
problems
Choosing
Reaching Evaluating
implementation
decisions alternatives
strategies
Monitoring and
evaluating
Types of problem
• Structured problems
- Clear goals and objective
- Familiar or has been happened before.
• Unstructured problems
– New problems or something unusual.
– The information is ambiguous
– Problems need custom-made solution.
Types of DECISION
Programmed
Routine, almost automatic process.
• Managers have made decision many times before.
• There are rules or guidelines to follow.
• Example: Deciding to reorder office supplies.
Non-programmed
Unusual situations that have not been often addressed.
• No rules to follow since the decision is new.
• These decisions are made based on information, and
a manger’s intuition, and judgment.
• Example: Should the firm invest in a new technology?
Conditions of Decision Making
The Rational Model
Rational
Describes choices that are consistent and value-
maximizing within specified constraints.
Rational Model Demands (The Situations)
Certainty Risk Uncertainty
Conditions of Decision Making
CERTAINTY RISK UNCERTAINTY
The implication that
the outcome of The probability that
A condition under
every possible a particular outcome
which there is not will result from a
alternative is
full knowledge of given decision.
known.
the problem and
a) the nature of reasonable No information or
problem probabilities for intuitive judgment to
alternative use as a basis for
b) possible assigning the
alternative outcomes cannot be
probabilities to each
determined states of nature.
c) result of
alternative
The Rationale Model
INVESTIGATE
THE
SITUATION
Define
problems,
diagnose causes
and identify
decision
IMPLEMENTA objectives. DEVELOP
TION AND ALTERNATIVE
MONITOR S
Take action Look for as
needed and many possible
examine the
current alternatives/cho
EVALUATE ices .
situation.
THE
ALTERNATIVE
S & SELECT
THE BEST
ONE
Cost, time, risk,
Group Decision Making
(Participative Decision Making)
• Decision that entrusted to a group
• A board standing committee, ad hoc
committee, or task forced, others.
• To push decision making to lower
level.
Group Decision Making
(Participative Decision Making)
ADVANTAGES
Experience & expertise are available
More information, data, & fact accumulated
Problems viewed from several perspectives
Higher members satisfaction
Greater acceptance & commitment to decisions
Improving Group Decision Making
• Brainstorming
– An idea-generating process that encourages
alternatives while withholding criticism
• Nominal group technique
– A decision-making technique in which group
members are physically present but operate
independently
• Electronic meeting
– A type of nominal group technique in which
participants are linked by computer
Copyright © 2004 Prentice Hall, Inc. All rights reserved. 4–12
