Decision making

- is a process of selecting a logical choice from the available options. It is the act of
making a choice. There are so many alternatives found in the organization and
departments. Decision making is defined as the selection of choice of one best
alternative. Before making decisions all alternatives should be evaluated from which
advantages and disadvantages are known. It helps to make the best decisions

Types of Decision Making

Rational
Intuitive
Combinations
Satisficing
Decision Support Systems
Recognition primed decision making

7 Steps in Decision Making: from Identification to Implementation

1. Identify a problem or opportunity
2. Gather information
3. Analyze the situation
4. Develop options
5. Evaluate alternatives
6. Select a preferred alternative
7. Act on the decision

Importance of decision making

1. Implementation of managerial function
2. Pervasiveness of decision making
3. Evaluation of managerial performance
4. Helpful in planning and policies
5. Selecting the best alternatives

6. Successful; operation of business

DECISION MAKING
Process of identifying problem and opportunities and choosing the best option
among alternative of action for resolving them successfully.
Condition:
Decision making under uncertainty
Provides no or incomplete information, may unknowns and possibilities to predict
expected result for decision making alternatives.
Decision making under risk
Provides probabilities regarding expected results for decision making
alternatives, it is due to the nature of the future conditions that are not always know in
advance.
Decision making under risk
Provides full and needed information to make decision.

STEPS IN RATIONAL DECISION MAKING

Managers often rely on fact-based analytical decision making. Rational decision making
can be very beneficial in the business world and differs from intuitive processes in
several ways. Learn more about both decision-making tools, and find out which process
provides the best solutions.

Rational Model:
1.

Define the problem.

2.

Identify the decision criteria

3.

Allocate weights to the criteria.

4.

Develop the alternatives.

5.

Evaluate the alternatives.

6.

Select the best alternative.

1. Define the Problem

This is the first step in which management identify the issue or the problem.
2. Identify the Decision Criteria
The next step in the rational decision-making process is to identify the decision
criteria. This step deals with choosing variables that will determine the decision
outcome. The criteria are usually dependent upon the individual's values and
beliefs.
3. Allocate Weights to Criteria
This means ranking which criteria is the most important to the decision-making
process. The decision maker weights the previously identified criteria in order to
give them priority in the the decision.
4. Developing the alternatives.
This is the next step which is where the potential solutions need to be
considered. There will not be any consideration in this step, just a generated list
of alternatives. Generate several possible options. Be creative and positive in
listing down the appropriate alternatives that fits with the criteria of the situation.

5. Evaluate the alternatives.

This is the process of analyzing and evaluating alternatives applies the criteria to
the alternatives or options in a way that facilitates decision making. This may be
a one-step or multi-step process depending on the complexity of situation.
Evaluation is required in order to select the best alternative for implementation.
While evaluating alternatives, the managers must compare the alternative plans

or decisions. For this, the manager must consider the quantitative and qualitative
factors.

Quantitative Factors: The quantitative factors are those factors that can be
measured numerically. The quantitative factors are tangible in nature.
Qualitative Factors: The manager must also consider the qualitative
factors. The qualitative factors are intangible in nature.
There are also techniques that help for the evaluation of alternatives in Decision
Making: The Marginal Analysis and The Cost-Effectiveness Analysis.

Marginal Analysis: Managers may use the marginal analysis technique.

The marginal analysis technique helps to compare additional revenues
with additional costs. If the additional revenue is greater than the
additional costs, more profit can be made by producing more. However, if
the additional revenue is less than the additional costs, more profit can be
made by producing less.
Cost Effectiveness Analysis: This is an improvement of the traditional
marginal analysis. Managers consider the alternative that provides the
maximum benefits at the minimum cost is selected. The main feature of
cost effectiveness analysis is that it gives importance to the results.

6. Select the best alternative.

Sometimes it is hard to make a decision. You will need to balance the upside
against the downside. After preparing and critically evaluating the alternative
solutions, the next step in the decision-making process is to select an alternative
that seems to be most rational for solving the given problem. The alternative
selected must be communicated to those who are likely to be affected by it.
Acceptance of the decision by group members is always desirable and useful for
its effective implementation that will reflect great results. After the selection of the
best decision, the next step is to convert the selected decision into an effective
action. Without such action, the decision will remain merely a declaration of good
intentions. You will need to implement it, and then learn from it.

Limitations of Rational Decision Making

1. Decision makers do not have complete knowledge of all the facts surrounding the
problems.
2. The search for decision is stopped as soon as the minimum acceptable level of
rationality is reached.

3. A decision making situation may involve multiple goals all of which cannot be
maximized simultaneously.
4. The environment of decision making is often uncertain.
5. A decision in one area may have an adverse effect on another area of
operations.
6. Human factors are the main limits on rational decision making.