Nature of Decision Making

Prepared by Ms. Mary Anne R. Mactal

‘Good decisions come from experience. Experience comes from making bad decisions.”’-

Mark Twain

Decision Making

• Is a mental process wherein individuals evaluate the options available to them and choose the one that best suits their needs.

• Is act of choosing one alternative from among a set of alternatives.

Decision Making Process

Defining & Analysis the

Problem

Developing Alternative Solutions

Evaluation the Alternative Solutions

Selecting the Best Solution

Implementing the Decision

Follow Up

Decision Making Type

• Programmed Decisions

is one that is fairly structured or recurs with some frequency or both.

are routine and repetitive, and the organization typically develops specific ways to handle them.

• Non Programmed Decisions

is one that is unstructured and occurs much less often than a programmed decision.

typically one shot decisions that are usually less structured.

ExamplesRe ordering printer cartridges.

Selecting new cell phone phone provider.

Buying your favourite toothpaste.

Selecting a college to attend masteral.

Decision Making Conditions

• Certain

-If, at the time a decisions is made, only a single outcome is likely, the decisions is certain.

• Risky

-If, at the time a decisions is made, the probabilities of several alternatives outcomes are known, the decision is risky.

• Uncertain

-If, at the time a decision is made. The range of possible outcomes is not known and the probability of these different outcomes occurring is not known. The decision is uncertain.

Intuitive Judgment

• Is a decision reached on the basis of subjective feeling.

• Process by which information acquired through associated learning and stored in long-term memory is accessed unconsciously to form the basis of a judgment or decision.

Example of Certain ConditionSuppose you were offered two alternative investments –Investment A and Investment B. Investment A gives a return of 5% in two years whereas Investment B gives a return of 6% also in two years. You have sufficient information related to these investments. You are able to know the types of investment, period of investment and the rate of return. From this complete information, you are able to know the return in revenue from each investment made. Which investment will you choose?

Example of Risky Condition

From monthly sales statement, it is noticed that total sales had increase each month. Therefore, you are able to assume that the company will obtain net profit this year after making losses last year. Without obtaining other information such as operational cost, change of taste in consumers and loan interest, you can only assume that the company will obtain a profit based on the sales trend for the past few months. Then you state that the probability that the company will obtain profits is 60% and the probability that the company will make losses is 40%. With this, you make a decision to increase investment.

Example of Uncertain Conditions

Company ABC has been conduction its rattan furniture business for a long time in the are of Bandar Banjau. Now, Company ABC decides to introduce a new product into its market, that is decorative items made from ceramic. As these ceramic decorations are something new to the people of Bandar Banjau and there have been no previous traders selling this, Company ABC cannot forecast the response of consumers towards this product. This is because there ins no previous data that can be used as a guide. Will the residents of Bandar Banjau be interested in ceramic products?