Chapter 2

Human Decision-Making Process

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Content outline
What is decision?
Processes and Types of decisions
 How Business people make decisions
Psychology and culture in decision making.

Different decision-making methods

What is a decision?
A decision is the act of selecting a course of action from several
possible alternatives.
 It is a response to a situation that requires action or choice, often to
solve a problem or to pursue an opportunity.
In essence, a decision represents a commitment to a specific course
of action.

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 Human decision-making process
Decision-making is an essential cognitive process that we engage in
daily. It involves choosing between alternatives based on preferences,
values, and goals.
Whether we are deciding what to eat for lunch or making a complex
business choice, decision-making impacts various aspects of our
lives.
In a business context, decisions influence not only individual
outcomes but also the success and sustainability of organizations.

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Cont..
Introduction
What is decision,
Processes and Types of decisions
 How Business people make decisions
Psychology and culture in decision making.

Different decision-making methods

Processes of Decision-Making

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Cont..
The decision-making process typically involves the following stages:
[Link] of the Problem or Opportunity: The first step is recognizing
that a decision needs to be made. This could stem from a problem that needs
solving or an opportunity that presents itself.
[Link] Information: In this stage, decision-makers collect relevant data
and information to understand the situation better.
[Link] Alternatives: Next, various potential courses of action are
identified. These could be different strategies, approaches, or solutions to the
problem at hand.

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What is the first step in the decision-making
process?
Gathering Information
Identifying Alternatives
Identification of the Problem or Opportunity
A. Evaluating Outcomes

Correct answer: C
Cont..
4. Evaluating Alternatives: Decision-makers analyze the pros and cons of each
alternative, often considering risks, benefits, costs, and other factors that could
influence the outcome.
5. Choosing the Best Alternative: After evaluating the options, decision-makers
select the most appropriate course of action.
6. Implementing the Decision: The chosen alternative is put into action through
appropriate execution.
7. Reviewing the Decision: Finally, the outcomes of the decision are reviewed to
determine whether the desired result was achieved, and lessons are learned for
future decisions.

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In the process of evaluating alternatives, which of
the following factors is NOT typically considered?

Risks
Benefits
Randomness
A. Costs

Correct answer: C
In the process of evaluating alternatives, which of
the following factors is NOT typically considered?

Risks
Benefits
Randomness
A. Costs

Correct answer: C
Cont..

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Types of Decisions
Decisions can be classified into several categories based on different factors:
Structured vs. Unstructured Decisions:
Structured decisions are repetitive and routine, often following established rules or procedures.
Unstructured decisions involve unique, complex problems requiring novel solutions.

Strategic vs. Operational Decisions:

Strategic decisions concern the long-term direction and goals of an organization, such as market
expansion or product development.
Operational decisions, on the other hand, involve day-to-day operations, such as inventory management
or scheduling.
Programmed vs. Non-programmed Decisions:
Programmed decisions follow established procedures for routine problems.
Non-programmed decisions are novel and require creative problem-solving approaches.

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Structured Decisions
Structured decisions are routine, repetitive, and follow a set procedure or rule for
decision-making. They are often encountered in day-to-day operations where the
problem is clearly defined, and a known solution exists.
Characteristics:
 Well-defined problems.
 Clear criteria and rules for choosing among alternatives.
 Can often be automated or handled through standardized processes (e.g., software, algorithms).
 Common in lower management and operational levels, where decisions need to be made regularly
and efficiently.
 Minimal uncertainty due to the structured nature of the process.

Examples:
 Deciding the reorder level for inventory based on pre-determined rules.
 Approving a loan application based on a credit score threshold.
 Processing routine customer transactions.
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Which of the following best describes
structured decisions?
High degree of uncertainty and ambiguity
Routine and repetitive, following set procedures
Creative and innovative in nature
A. Spontaneous and intuitive decision-making

Correct answer: B
Unstructured Decisions
Unstructured decisions involve complex, non-routine problems where there is no clear
procedure or rule to follow. They often require human intuition, creativity, and judgment
to solve.
Characteristics:
 Vague or poorly defined problems with no predetermined solutions.
 Decision-making requires in-depth analysis, exploration of alternatives, and possibly collaboration
with experts.
 Typically occurs at higher levels of management (strategic decisions).
 High degree of uncertainty and ambiguity.
 Often involves long-term implications or the need for innovation.
Examples:
 Deciding whether to enter a new market or exit an existing one.
 Developing a new product or service from scratch.
 Responding to a major crisis, like a corporate scandal or a sudden economic downturn.
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Key Differences
Complexity: Structured decisions are simple and straightforward,
while unstructured decisions are complex and ambiguous.
Procedure: Structured decisions follow a fixed procedure;
unstructured decisions do not, relying instead on creativity and
insight.
Decision Level: Structured decisions are often at the operational
level, whereas unstructured decisions are generally at the strategic or
executive level.

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Strategic Decisions
Strategic decisions are high-level, long-term decisions that define the direction and goals of an
organization. They typically have a broad scope and impact the entire organization or a significant
part of it.
Characteristics:
 Focus on long-term objectives, often related to growth, market positioning, or competitive advantage.
 Involve significant resource allocation and risks.
 Made by top management (CEO, board of directors) and are central to the organization's mission and vision.
 Generally, less frequent but highly impactful.
 Require deep analysis of external and internal environments (e.g., SWOT analysis).
Examples:
 Deciding to expand into international markets.
 Merging with or acquiring another company.
 Developing a five-year growth plan.
 Changing the company's core business model (e.g., transitioning to a subscription-based model).

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Operational Decisions
•Operational decisions are short-term, day-to-day decisions that ensure the smooth running of the
organization. They focus on efficiency, resource management, and execution of strategic goals.
•Characteristics:
• Concerned with daily operations and the implementation of tactical plans.
• Made by middle and lower management to solve immediate issues.
• Have a narrow scope and impact specific departments or functions rather than the whole
organization.
• Often repetitive, structured, and based on established policies and procedures.
• Focus on improving productivity, reducing costs, and ensuring that activities are aligned with
strategic objectives.
•Examples:
• Scheduling employee shifts or managing workforce allocation.
• Ordering raw materials or managing inventory levels.
• Setting daily sales targets or responding to customer service issues.
• Adjusting production plans based on current demand.
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Key Differences
Time Horizon: Strategic decisions focus on the long term (years or decades),
while operational decisions focus on the short term (daily, weekly, monthly).
Scope: Strategic decisions affect the entire organization, while operational
decisions are more localized and affect specific departments or activities.
Level of Management: Strategic decisions are made by top management,
whereas operational decisions are made by lower or middle management.
Risk: Strategic decisions involve higher risks due to their long-term impact and
the uncertainty of future outcomes. Operational decisions carry lower risks as
they deal with day-to-day operations.

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Programmed Decisions
Programmed decisions are routine, well-structured decisions made by following established
rules or procedures. They are repetitive and can be made quickly because they follow a standard
operating procedure.
Characteristics:
 Decisions are based on established rules, guidelines, or procedures.
 Problems are well-known and predictable.
 These decisions are often automated or standardized, requiring minimal judgment or discretion.
 Frequent and often made at lower management or operational levels.
 Low level of uncertainty due to the predictable nature of the decision-making process.
Examples:
 Reordering inventory when stock falls below a certain level.
 Approving routine expense reports or travel requests.
 Hiring temporary staff based on established criteria.
 Granting a discount to customers under a certain condition (e.g., for large orders).
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Non-Programmed Decisions
Non-programmed decisions are novel, unstructured decisions that arise in situations that
have not been encountered before or do not have a clear solution. They require creative
problem-solving and are typically made at higher levels of management.
Characteristics:
 Unpredictable and not governed by rules or precedents.
 Require significant judgment, analysis, and evaluation.
 Unique problems or situations that may involve high stakes or long-term consequences.
 Often occur infrequently and involve a high level of risk and uncertainty.
 Made by senior management, particularly in response to strategic challenges or crises.
Examples:
 Responding to a sudden market disruption (e.g., a new competitor or technological change).
 Developing a response to a legal or regulatory challenge.
 Deciding how to manage a product recall or a major public relations crisis.
 Investing in an entirely new line of business or technology.
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Key Differences Programmed Decisions and Non-Programmed Decisions
Frequency: Programmed decisions are repetitive and frequent, while non-
programmed decisions are rare and unique.
Procedure: Programmed decisions follow established rules or procedures; non-
programmed decisions require creative problem-solving and judgment.
Risk and Uncertainty: Programmed decisions involve low risk because they
address predictable situations, whereas non-programmed decisions are riskier
due to the unknowns involved.
Management Level: Programmed decisions are typically made by lower-level
managers or even automated systems. Non-programmed decisions are often the
responsibility of top-level management.

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 Summary Table
Type of Decision Structured vs. Unstructured Strategic vs. Operational Programmed vs. Non-
Programmed
Definition Routine and follows rules vs. Long-term, broad goals vs. Routine, rule-based vs.
Complex and novel Short-term, day-to-day Unique, non-routine
operation
Nature Repetitive, predictable vs. High-level impact vs. Predefined vs. Custom
Ambiguous, uncertain Specific, departmental impact solution

Level of Management Lower levels (operational) vs. Top management (strategic) Lower levels vs. Higher
Higher levels (strategic) vs. Middle/lower levels
management (operational)

Risk and Uncertainty Low risk, routine vs. High High risk, long-term vs. Low Low risk, predictable vs.
risk, novel problems risk, short-term High risk, unpredictable
Example Reordering stock vs. Expanding into a new market Approving expense reports
Developing new business vs. Managing workforce vs. Handling a product recall
strategy shifts

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Cont..
Introduction
What is decision,
Processes and Types of decisions
 How Business people make decisions
Psychology and culture in decision making.

Different decision-making methods

How Business People Make Decisions
Business decision-making often requires balancing multiple factors, including financial
considerations, market trends, competition, and stakeholder expectations.
Some key approaches business people use to make decisions:
Rational Decision-Making: This approach involves logical, step-by-step analysis of
alternatives based on data and facts. It is often used for high-stakes decisions where thorough
evaluation is critical.
Intuitive Decision-Making: Experienced managers and entrepreneurs may rely on intuition,
making decisions based on their instincts and past experiences. While not always data-driven,
intuitive decision-making can be quick and effective in dynamic environments.
Group Decision-Making: In many business settings, decisions are made by teams or
committees. Collaborative decision-making allows for diverse perspectives but can be slower and
subject to groupthink if not managed properly

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What is a key feature of Rational Decision-
Making?
It relies solely on intuition.
It involves a logical, step-by-step analysis of alternatives based on
data.
It is always the quickest method to make decisions.
A. It prioritizes group input over individual analysis.

Correct answer: B
Cont..
Introduction
What is decision,
Processes and Types of decisions
 How Business people make decisions
Psychology and culture in decision making.

Different decision-making methods

Psychology and Culture in Decision-Making
Psychological and cultural factors have a significant impact on how decisions are made.
Understanding these influences can help improve decision-making outcomes:
Cognitive Biases: Human decision-makers are prone to biases that can affect judgment. Examples
include confirmation bias, where individuals favor information that supports their preconceived
notions, and anchoring bias, where they rely too heavily on the first piece of information received.
Emotional Influence: Emotions, such as fear, anxiety, or excitement, can cloud judgment and lead to
suboptimal decisions. Business people must often regulate their emotions to make more objective
choices.
Cultural Differences: Culture shapes how individuals perceive and approach decision-making. For
instance, in some cultures, collective decision-making is emphasized, while others may prioritize
individual autonomy.
Cultural values around risk tolerance, authority, and time orientation also play a role in decision
processes.

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What is confirmation bias in decision-making?

A tendency to seek out information that contradicts one’s beliefs

A preference for making decisions based solely on emotions
The tendency to favor information that supports preconceived
notions
A. The practice of delaying decisions until more information is
available

Correct answer: C
Cont..
Introduction
What is decision,
Processes and Types of decisions
 How Business people make decisions
Psychology and culture in decision making.

Different decision-making methods

Different Decision-Making Methods
Several methods are used to facilitate decision-making, each suitable for different contexts:
Cost-Benefit Analysis: This method involves evaluating the financial pros and cons of different
alternatives to identify the most beneficial option.
SWOT Analysis: A strategic tool that assesses the Strengths, Weaknesses, Opportunities, and
Threats related to a decision or situation.
Decision Trees: A visual and analytical tool that maps out the possible outcomes of different
decisions, helping to analyze the potential risks and rewards of each option.
Six Thinking Hats: Developed by Edward de Bono, this method encourages decision-makers to
look at problems from multiple perspectives (emotional, logical, creative, etc.) to generate more
comprehensive solutions.
Delphi Method: This is a group decision-making technique where experts are consulted
anonymously in multiple rounds to converge on the best decision through consensus.

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What does a Cost-Benefit Analysis primarily
evaluate?
Emotional impacts of decisions
Financial pros and cons of alternatives
Environmental effects of choices
A. Social implications of actions

Correct answer: B
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