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.