Foundation

s of

Decision-making
Decision :
A choice among two or more alternative

Decision-making process
A set of eight steps that includes identifying
a problem, selecting a solution, and
evaluating the effectiveness of the solution

Note that : Mangers at all levels and in all areas of

organization make decisions

Decision making process is as relevant to
personal decisions as it is to corporate decisions
.
Making decisions isnt something that just
mangers do , all organizational members make
decisions .

The Decision-Making Process

Identification
of a
Problem

I need to buy
a new car.

Identification
of Decision
Criteria

Price
Interior Comfort
Durability
Repair Record
Performance

Allocation
of Weights
to Criteria

Price
Interior Comfort
Durability
Repair Record
Performance

Prentice
Hall, 2001

Chapter 4

10
8
6
4
2

Development
of
Alternatives
Analysis
of
Alternatives

Dodge

Audi

Isuzu

Chevy

Toyota

Ford

Jeep

Mazda

Toyota

Ford
Jeep
Mazda

Selection
of an
Alternative

Dodge
Audi
Isuzu
Chevy

The Toyota
is the best.

Implementation
of the
Alternative
Prentice
Hall, 2001

Price
Comfort
Durability
Repair Record
Performance

Appraisal of
Decision Results
Chapter 4

Step 1: Identify a Problem

Problem
A discrepancy between an existing and a
desired state of affairs .
it is not necessary that problem here mean
disaster .
It may :1- solve problem
2- achieve goal
3- take advantage of opportunity or chance

Note that : Managers have to be cautious not to confuse problems

with symptoms of the of the problem .
Problem identification is subjective .
A manger who resolve the wrong problem perfectly just
as poorly as the manger who doesnt even recognize a
problem and does nothing .
Effectively identifying problems is important , but not
easy .

Step 2: identifying Decision Criteria

Decision criteria : Factors that are relevant in
making the decision .

Price
Interior comfort
Durability
Repair record
Performance
Handling

Step 3: Allocating Weights to criteria

Determining the relative priority of
each criteria .

EXHIBIT 43

Criteria and Weights in Car-Buying Decision

(Scale of 1 to 10)

Step 4: developing Alternatives

the decision maker should list viable

alternative that could resolve the problem .

Step 5: Analyzing Alternatives

EXHIBIT 44

Assessment of Car Alternatives

EXHIBIT 45

Weighting of Vehicles
(Assessment Criteria Criteria Weight)

Step 6: Selecting an alternative

Choosing the best alternative or the one

that generated the highest total .

Step 7: implementing the alternative

Putting the decision into action .
Note that :If people who must implement a decision
participate in the process , they are more
likely to support it than if you just tell them
what to do .

Step 8: evaluating decision effectiveness

Evaluating the outcome or result of the
decision to see whether the problem
was solved .
If the problem still exist , you may went
to the earlier step or starting the whole
process over .

Making Decisions conditions

Certainty
Risk
uncertainty

 certainty
Facts (information) are well know .
Alternatives are known .
Outcomes can be predicted accurately .
Usually involve lower-level issues .
Most managerial decisions are not like that.

 Risk
Facts (information) are know
Alternative are less clearly define .
The probability of outcomes is predicted from
experience , historical data .
A far more common situation .

 Uncertainty
Facts (information) are unknown.
Few alternative are known
The probability of outcomes can not be predicted
accurately .
The choice of alternative is influenced by the
limited amount of available information , and the
psychological orientation of the decision maker .

Types of decisions
1- Programmability
2-Decision Scope

1- Programmability
Depending on the nature of
problem , a manager can use one
of two different type of
decisions .

1- Programmed decision
2- Non-Programmed
decisions

 structured problems
Straightforward, familiar, easily defined
problems
Programmed decision
Established routines and procedures
exist for resolving company problems
Repetitive decision that can be handled
using routine approach

Sequential
Procedures

Making
Programmed
Decisions

Specific
Rules
Guiding
Policies
Prentice
Hall, 2001

Chapter 4

24

Programmed Decision-Making Aids

Policy
A general guide that establishes parameters for
making decisions about recurring problems

Procedure
A series of interrelated sequential steps that can be
used to respond to a well-structured problem (policy
implementation)

Rule
An explicit statement that tells managers what they
should or should not to do (limits on procedural actions)

 unstructured problems
New problems in which information is ambiguous
or incomplete

Non-programmed decisions
The situation is unique and there are no
previously established routines or procedures
that can used to solve the problem

 Non-programmed decisions
Decisions that must be custom-made to
solve unique and nonrecurring problems

2-Decision Scope
There are basically 3 main types of
decision

STRATEGIC
TACTICAL
OPERATIONAL

STRATEGIC DECISIONS
long term perspective (5+years)
made by top management
Focus on entire organization
Outcome may be uncertain

Example :
country

Expansion into a foreign

TACTICAL DECISIONS
short/medium term
Focus on sub-units of the organizations
For a given function ( marketing , operation ,
finance )
made by middle management
outcome more predictable
Example :Develop a new marketing campaign to
raise awareness of the organisations products

OPERATIONAL DECISIONS
Extremely short term perspective
lower level decisions
Focus on routine activites
little risk
quickly taken