MANAGING DECISION MAKING LECTURE 4

Lecturer: Sara Aslam Fall 2011 Kinnaird College for Women

THE NATURE OF DECISION MAKING

Decision Making The act of choosing one alternative from among a set of alternatives.

Managers make decisions about both problems and opportunities.

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TYPES OF DECISIONS

Programmed Decisions
A decision that is a fairly structured decision or recurs with some frequency or both.
Example: Starting your car in the morning.

Non-programmed decisions
A decision that is relatively unstructured and occurs much less often than a programmed decision.
Example: Choosing a vacation destination.

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DECISION-MAKING CONDITIONS
The decision maker faces conditions of...

Certainty

Risk

Uncertainty

Level of ambiguity and chances of making a bad decision

Lower
Principles of Management Instructor: Sara Aslam

Moderate

Higher
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CERTAIN, RISK, & CERTAINTY

Just as there are different kinds of decisions, there are also different conditions under which decisions are made

Decision Making under Certainty:

when the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative, a state of certainty exists. E.g. McDs and suppliers

Decision Making under Risk:

A more common decision making condition is a state of risk. Under this, the availability of each alternative and its potential pay-offs and costs are all associated with probability estimates.
(example: union relations that might cause a lot of cost if wrongly estimated)
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Principles of Management Instructor: Sara Aslam

CERTAIN, RISK, & CERTAINTY

Decision Making under uncertainty:

A condition in which the decision maker does not know all the alternatives, the risks associated with each, or the consequences each alternative is likely to have.

Managers must rely on their past experiences in such complex situations.

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DISTINGUISHING BETWEEN DECISION MAKING CONDITIONS

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RATIONAL PERSPECTIVES ON DECISION MAKING

The Classical Model of Decision Making:
Is a perspective approach that tells managers how they should make decisions. It assumes that managers are logical and rational and that they make decisions that are in the best interests of the organisation.

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RATIONAL PERSPECTIVES ON DECISION MAKING (CONTD)

The Classical Model of Decision Making

obtain complete . . . and end up with When faced with a and perfect information

decision situation, managers should . . .

eliminate uncertainty evaluate everything

rationally and logically

a decision that best

serves the interests

of the organization.

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EVALUATING ALTERNATIVES IN THE DECISION-MAKING PROCESS

Are the alternatives

Is the alternative
Yes

Is the alternative
Yes consequences affordable? Yes

Retain for further consideration

feasible?

satisfactory?

No

No

No

Eliminate from consideration

Eliminate from consideration

Eliminate from consideration

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STEPS IN THE RATIONAL DECISION-MAKING PROCESS

Step 1. Recognizing and defining the decision situation 2. Identifying alternatives Detail Some stimulus indicates that a decision must be made. The stimulus may be positive or negative. Both obvious and creative alternatives are desired. In general, the more important the decision, the more alternatives should be considered. Each alternative is evaluated to determine its feasibility, its satisfactoriness, and its consequences. Example A plant manager sees that employee turnover has increased by 5 percent. The plant manager can increase wages, increase benefits, or change hiring standards.

3. Evaluating alternatives

Increasing benefits may not be feasible. Increasing wages and changing hiring standards may satisfy all conditions.

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Principles of Management Instructor: Sara Aslam

STEPS IN THE RATIONAL DECISION-MAKING PROCESS (CONTD)

Step 4. Selecting the best alternative Detail Consider all situational factors, and choose the alternative that best fits the managers situation. The chosen alternative is implemented into the organizational system. Example Changing hiring standards will take an extended period of time to cut turnover, so increase wages. The plant manager may need permission from corporate headquarters. The human resource department establishes a new wage structure. The plant manager notes that, six months later, turnover has dropped to its previous level.

5. Implementing the chosen alternative

6. Following up and evaluating the results

At some time in the future, the manager should ascertain the extent to which the alternative chosen in step 4 and implemented in step 5 has worked.

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Thank You!

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