Chapter 5.
DECISION MAKING
DECISION MAKING: Choosing one
alternative from more than one.
DECSION MAKING
FRAMEWORK
Means the situations under which
managers make decisions.
1. Certainty:
2. Uncertainty
3. Risk
4. Conflict
5. Pressure
6. Lack of Structure
1. Certainty: When there is no risk.
2. Uncertainty: When there is risk.
3. Risk: The situation where the
probability of success is less than 100%
4. Conflict: Lack of convergence or
disagreement about ideas and opinions.
5. Pressure: Stress from the upper
management, internal or external
factors.
6. Lack of Structure: How much
structured are the problems. There are
two types of problems with regard to
structure.
a. Structured Problems: The problems
that have objectively correct answers.
For example computing the salary or
commission of employees.
b. Unstructured Problems: Which may
have no proven answers. May lead to a
number of solutions all of which may
have merits and demerits. Suppose
hiring the key person of your
competing company.
FACTORS WHICH HINDER
RATIONAL DECISION MAKING
1. Pressure of time, resources,
situation and management.
2. Lack of proper Information which is
needed for decision making.
3. Organizational Policies sometimes
forbid you from rational DM.
4. Organizational Politics are also a
factor.
5. Overconfidence of the manager that
he is right.
6. Lack of Confidence or fear also
becomes a factor of avoiding RDM
7. Perceptions, biases or self-interest
of the managers about certain things.
DECISION MAKING PROCESS
STEPS OF RATIONAL DECISION
MAKING
1. Identification of Problem
2. Identification of Decision
Criteria
3. Allocation of Weights to
Criteria
4. Development of Alternatives
5. Analysis of Alternatives
6. Selection of an Alternative
7. Implementation of Alternative
8. Follow up
Explanation
1. Identification of Problem: First of
all you have to define the problem.
Otherwise you may go to a wrong
direction.
2. Identification of Decision Criteria:
Suppose if you want to purchase
computers for your company, you will
decide about the following things like
1. Quality and Reliability
2. Price
3. After Sales Services (Warranty,
Guaranty
4. Accessibility
5. Social Acceptability
3. Allocation of Weights to Criteria:
This means that you will allocate
weightage or points to different aspects
of decision criteria
For example you allocate the points in
the following way
1. Quality and Reliability
30 Price
30
2. After Sales Services (Warranty,
Guaranty 20
3. Accessibility
10
4. Social Acceptability
10
4. Development of Alternatives: You
will consider various options or
companies selling the computers like
1. Compaq
2. IBM
3. Dell
4. Acer
5. Sony
5. Analysis of Alternatives: You will
compare the options as per decision
criteria.
Quality Price Services Access
Social
Compaq
IBM
Dell
Acer
Sony
6. Selection of an Alternative: After
the comparison, you will select a
particular option or alternative
7. Implementation of Alternative:
Implementing the alternative means to
put the decision into practice. In this
case you will purchase the computers.
8. Follow up: This means to see after
some time as to the decision proved
right or wrong.
TYPES OF DECISIONS
1. PROGRAMMED DECISIONS
2. NONPROGRAMMED DECISIONS
3. INNOVATIVE DECISIONS
1. PROGRAMMED DECISIONS: A
simple decision which may be based on
structured problem and may be
handled with a routine approach or
previous solution. Like hiring of a new
sales person.
2. NONPROGRAMMED DECISIONS:
An unusual decision based on
unstructured or new problem, which
may be resolved through some different
approach by studying and investigating
the entire situation. Like launching of a
new product, changing manufacturing
procedures and techniques.
3. INNOVATIVE DECISIONS: A
decision based on highly unusual,
complex and ambiguous problems,
which may need a creative and
imaginative solution. For example,
merger of some other company, selling
of a unit or division to some other
company etc.
TYPES OF DECISIONS
1. Directive
2. Analytic
3. Conceptual
4. Participative
1. Directive: Quick and speedy
decision maker, who makes decisions
with minimum information gathering
and focusing on short run.
2. Analytic: Careful decision makers
who make decisions with analysis of the
situation.
3. Conceptual: They are
characterized as creative decision
makers, who have the capability to cope
up with unique situations with the use
of the power of intuition and
imagination.
4. Participative: They make the
decisions with the involvement of the
concerned team members.
ADVANTAGES OF
PARTICIPATIVE DECISION
MAKING
1. More information or input
2. More Alternatives
3. Acceptance from the others
4. Legitimacy
5. Cooperation in Implementation
DISADVANTAGES
1. Time Consuming
2. Group Dominance
3. Affecting
4. Conflicts
CREATIVITY
Creativity: Creativity means deciding
what do you want to do? How can you do
it and how can you do it better?
Three forms of creativity
1. Creating something out of nothing
2. Synthesizing or combining
3. Changing or modifying
HOW TO DEVELOP
CREATIVITY
1. Be relaxed
2. Exercise your mind
3. Determine what do you want to
do?
4. Look for ways to tackle the
problem
5. Look for ways to do better
6. Read books
7. See different people, places,
systems, procedures
8. Good and peaceful life in terms of
political, social and economic
circumstances.