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CHAPTER THREE
DECISION MAKING
Definition
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Decision making:
It is the act of choosing one alternative from among a
set of alternatives.
Decision-making is part of every aspect of the
manager’s duties, which include planning, organizing,
staffing, leading and controlling
Even though in all managerial functions decision-
making is involved, the critical decision-making is
during planning because planning identifies the
objectives of the organization
Elements of decision making
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When managers make decisions; they are choosing
or selecting from among alternatives.
When managers make decisions, they have
available alternatives. When there are no alternatives,
there is no decision-making, rather it become
mandatory.
When managers make decisions, they have purpose
in mind. The purpose in mind is organizational
objectives.
THE DECISION-MAKING PROCESS
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Every decision is the outcome of a dynamic process
that is influenced by multitude of forces.
So decision-making has its own processes / series
of steps.
Step 1: Identifying problems:
A necessary condition for a decision to exist is a
problem
THE DECISION-MAKING PROCESS
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What is problem? The discrepancy between an
actual and desired state; a gap between where one is
and where one wants to be.
If problems do not exist, there will be no need for
decisions
How the criticality of the problem is measured?
It is measured by the gap between level of
performance specified (standards set) and level of
performance attained.
THE DECISION-MAKING PROCESS
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How the gap is located?
i)Deviations from past performance: employee
turnover increases, sales decline, selling expenses
increase, or more defective units are produced
ii)Deviation from plan: a new product fails to meet
its market share objective, profit levels are lower
than planned, and the production department is
exceeding its budgets.
THE DECISION-MAKING PROCESS
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iii)Outside criticism: The actions of outsiders may
indicate problems.
Customers may be dissatisfied with a new product or
with their delivery schedules; a labor union may
present a grievance.
THE DECISION-MAKING PROCESS
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Decision makers face three types of problems:
A crisis problem:is a serious difficulty requiring
immediate action.
A non-crisis problem:is an issue that requires
resolutions but does not simultaneously have the
importance and immediacy characteristics of a crisis.
An opportunity problem: is a situation that offers
strong potential for significant organizational gain if
appropriate actions are taken.
THE DECISION-MAKING PROCESS
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This step has three general stages:
Scanning stage: Involves monitoring the work
situation for changing circumstances that may signal
the emergence of a problem.
Categorization stage: At this point the manager
attempts to categorize the situation as a problem and a
no problem.
Diagnosis stage: involves gathering additional
information and specifying both the nature and the
causes of the problem.
THE DECISION-MAKING PROCESS
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Step2:Developing Alternatives: This is a search
process in which relevant internal and external
environment of the organization are investigated to
provide information that can be developed into
possible alternatives.
Step3:Evaluating Alternatives: Each alternative
must be judged in light of the goals and resources of
the organization and how well the alternative will
help solve the problem.
THE DECISION-MAKING PROCESS
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Step4:Choosing an Alternative: Based on the
evaluation made managers select the best
alternative
Managers should take care not to solve one
problem and create another with their choice.
Step5:Implementing and Monitoring the
Chosen Solution:
Types of Decisions
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Programmed Decisions
are those made in routine, repetitive, well-structured
situations through the use of predetermined decision
rules.
The decision rules may be based on habit,
computational techniques, or established policies and
procedures.
Types of Decisions
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Most of the decisions made by first line managers
and many of those made by middle managers are the
programmed type, but very few of the decisions made
by top-level managers are the programmed type.
Example: Establishing a re-order point, Decide
if students meet graduation requirements,
Determination of employee pay rates
Types of Decisions
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Non-programmed Decisions:
Non-programmed decisions are used 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.
Types of Decisions
Type of decisions Type of problem Procedures Examples
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Programmed Repetitive, routine Rules, standard operating Business: processing
procedures, policies payroll vouchers
College: processing
admission applicants
Hospital: preparing
patient for surgery.
Government: using state
owned motor vehicle.
Non-programmed Complex, novel Creative problem solving Business: introducing a
new product.
College: constructing new
classroom facilities
Hospital: reacting to
regional disease epidemic
Government: solving
spiraling inflation
problem
Why Do Managers Make Poor Decisions?
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The reasons are:
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 and Intuition