Process of choosing from among alternatives

Process of identifying problems and opportunities then resolving them

According to Drucker

Decision making is a judgement. It is a choice between right and wrong. It is at best a choice between ‘almost right’ and ‘probably wrong’.

1. GOAL DIRECTED ACTIVITY2. INTEGRAL PART OF

MANAGEMENT3. INTELLECTUAL ACTIVITY4. INVOLVES CHOICE

Decision Making Cognitive process leading to the

selection of a course of action among alternative

Every decision making process produces a final choice. It can be an action or an opinion

Fundamental process in organisation Decision maker chooses based on

evaluation of information

◦Choice and allocation of resources

Problems faced by managerProblems faced by manager

TYPES OF DECISIONSTYPES OF DECISIONS Based on frequency

◦Programmed decision◦Non-programmed decision

Based on information conditions◦Complete certainty◦Risk◦Complete uncertainty

Based on frequency PROGRAMMED DECISION

A decision that recurs often enough for a decision rule to be developed

DECISION RULE – Statement that tells decision maker which alternative to choose once they have the information about the decision situation

Highly structured

Clear and well known goals

Decision making procedure already established

Sources and channels of information clearly defined

Minimum of uncertainty

Recurs frequently

Based on frequency NONPROGRAMMED DECISION

A decision that recurs infrequently and for which there is no previously established decision rule.

Requires problem solvingProblem solving is a form of decision making in which the issue is unique and alternatives must be developed and evaluated without the aid of a programmed decision rule.

Poorly structured

Information not available

No clear procedure for making decision

Goals are vague

Non recurring type or non routine

CharacteristicsProgrammed

decisionNonprogrammed

decisions

CertaintyOutcome of each alternative is known

RiskOutcome is uncertain but has information to estimate probabilities of outcomes

UncertaintyLacks enough information to estimate probability of outcomes

TYPES OF BUSINESS DECISIONLocation decision

Decision regarding location of plant or factoryLocation determine profitabilitySite selection depends on nature of business

Operating decisionDecision regarding day to day operation of the business

Types of business decisionGrowth decision

Decision regarding future expansion or diversificationDetermines future of the business

Finance decisionDecision regarding required optimum financeExcess – pay dividend to unutilised portionDeficit – affect day to day operation

Personal and Organisational decisionPersonal decision is an attempt to

achieve personal goals. It cannot be delegated. It can affect an organisation.

Organisational decision is taken to achieve organisational objective. It can often be delegated

Basic and routine decisionsBasic decisions are on time decisions involving long term commitments of relative permanence involving large investments.eg: Top management policy

Routine decisions are everyday, highly repetitive having little impact on overall organisation.eg: accountants decision on new entry

TYPES OF DECISION BASED ON LEVELS OF MANAGEMENT

Strategic Decisions Tactical Decisions Operational Decisions

Decisions are taken where future planning is concerned. So less

frequent

Decisions are not frequently taken.

Decisions are taken daily.

Long-term decisions Medium -term decisions

Short-term decisions

Decisions are taken in accordance with

organizational mission and vision.

Decisions are taken in accordance with

strategic decision.

Decisions are taken according to tactical

decisions.

Related to overall counter planning of

Organization.

Related to production Related to working of employees

Deal with organizational Growth.

Related to production and factory growth.

Deal with welfare of employees working in

an organization.

Manager arrives one firm conclusion with minimum amount of information

Do not consider many alternatives Concerned action, results, speed and

efficiency Long, detailed report will be sent back,

ignored or given to someone else to summarise

Prefer simple and clear solution

Manager who prefers concise report consisting of wide variety of briefly stated alternatives from which he have to choose

Rather than planning highly structured solutions manager prefers that solutions evolve as he gains acceptance from others

Carefully analyses large amount of information to arrive at one best solution.

Values perfection, precision and thoroughness

Solve problems creatively

Manager uses mass amount of information to generate many possible solutions simultaneously

Carefully analyse alternatives Manager constantly alters and improve his

plans Willing to use innovative models

Autocratic or Directive styles◦ Prefer simple and clear solution◦ Make decision rapidly◦ Do not consider many alternatives◦ Rely on existing technology

Analytical◦ Prefer complex problems◦ Carefully analyse alternatives◦ Enjoys solving problems◦ Willing to use innovative models

Conceptual◦ Socially oriented◦ Humanistic and artistic approach◦ Solve problems creatively◦ Enjoy new ideas

Behavioural◦ Concern for their organisation◦ Interest in helping others◦ Open to suggestions◦ Rely on meetings

1.Escalating commitmentTendency to persist in an ineffective course of action when evidence reveals that the project cannot succeed

Managers tend to misrepresent negative information

Society values perspectives and consistency

2. Risk-certainty-uncertaintyRange of information available from complete certainty to complete uncertainty

3. Muddling through - incrementalismMuddling through occurs when goals are in broad terms, managers proceed to make intuitive decisions that seem to be most advantageous at the time.

Rapid changing environment leads to insufficient time and information to take formal analysis of possible alternatives. Events are dealt with an incremental fashion. Bits and pieces of strategies are formed

4. Optimising and sub optimising Alternative which achieves desired

goal have positive or negative impact on another goal

Two objectives cannot be fully achieved one is optimised and other is sub optimised

5. ValuesValues are beliefs that guide

actions and judgements across a variety of situations

6. PersonalitySet of distinct traits and characters that can be used to compare and contrast individuals

7. Propensity for riskRisk on probability of obtaining a desired outcome.Probabilities are developed from information.Research indicates that decision makers vary greatly in their propensity for taking risk

8. Availability of FinanceCertain decisions will be rejected

because they cost too much

9. Existing Business PolicyIt is not always practical to re-write

business policy to accommodate one decision.