Decision Making the Essence of Managers Job

Section 02

BBMgmt.Hons (Mkt) (Kelaniya, SL), MBA (Fin.) (Indira Gandhi, India), MPA
(Colombo, SL), PGD. (Indira Gandhi, India), Reading for Ph.D. (KDU, SL)

Content of the Section

The Decision Making Process

The Rational Decision Maker
Decision Making Styles
Analyzing Decision Alternatives
( Certainty, Risk, Uncertainty)
Group Decision Making

Decision Making Process

Decision Making
The word decision is defined as:
A choice between two or more alternatives.
Thus decision making can be defined as:
the selection of a course of action from
among alternatives .

Identification of a problem

Decision Making Process

Step 1: Identifying the Problem

Problem
A discrepancy between an existing and desired
state of affairs.
Ex: The manager has resigned, and we need
another manager
Characteristics of Problems
A problem becomes a problem when a
manager becomes aware of it.
There is pressure to solve the problem.
The manager must have the authority,
information, or resources needed to solve the
problem.

Step 2: Identifying Decision Criteria

Decision criteria are factors that are important
(relevant) to resolving the problem.
The word criteria, is defined as a standard by
which something can be judged.
A decision criteria therefore, is the basis of a
decision, which outlines the relevant and important
factors for a decision. And absolutely, it also defines
what is not important.
Ex:
Costs that will be incurred (investments required)
Risks likely to be encountered (chance of failure)
Outcomes that are desired (growth of the firm)

Step 3: Allocating weights to the criteria

Decision criteria are not of equal importance:
Assigning a weight to each item places the items in
the correct priority order of their importance in the
decision making process.

This is prioritization.
Prioritization is achieved by assigning
quantitative weights to each criteria
element.
The weightage defines the relative
significance of each element

Step 4: Developing Alternatives

Identifying viable alternatives
Involves defining the possible alternatives
(or choices) that would resolve the
problem.

Step 5: Analyzing Alternatives

Appraising each alternatives strengths

and weaknesses
An alternatives appraisal is based on its ability
to resolve the issues identified in steps 2 and 3.

Alternatives are rated and analyzed on the

basis of the criteria
The rating can be based on a specified
scale, say 1 5 etc.
Rating may be subjective in nature and
thus, may depend on the judgment of the
individual(s)

Step 6: Selecting an Alternative

Choosing the best alternative

The alternative with the highest

total weight is chosen.

Step 7: Implementing the Alternative

Putting the chosen alternative into action.
Conveying the decision to and gaining commitment
from those who will carry out the decision.

Step 8: Evaluating the Decisions Effectiveness

The soundness of the decision is judged by its
outcomes.
How effectively was the problem resolved by
outcomes resulting from the chosen alternatives?
If the problem was not resolved, what went
wrong?

Rational Decision Maker

Rational Decision Making

Rationality
Managers make consistent, value-maximizing
choices with specified constraints.
Feature of a rational decision maker:
is perfectly rational, fully objective, and logical.
has carefully defined the problem and
identified all viable alternatives.
Has a clear and specific goal
will select the alternative that maximizes
outcomes in the organizations interests rather
than in their personal interests.

Decision Making Styles

Directive
Represents low tolerance for haziness
and uncertainty
Reflects rational thinking of the manager
Such decision styles are more suitable for
routine technical tasks

Analytic
Analytical style is also a rational style of
thinking
Involves a very high tolerance for
haziness and uncertainty
Such managers generally seek detailed
information before making a decision

Behavioural
Represents a creative way of thinking
Involves a low tolerance for haziness or
uncertainty
Managers with a behavioral style
introduce new ways of doing things

Conceptual
Conceptual style also reflects a creative
and instinctive way of thinking
Conceptual style managers have a very
broad vision and generally look at
numerous alternatives for decisionmaking
Focused on the long run and often result
in creative outcomes or alternatives

Analyzing Decision Alternatives

( Decision Making Conditions)

Decision Making under

Certainty
A situation in which a manager can make an
accurate decision because the outcome of every
alternative choice is known.
Ex: Singapore Airline needs to buy five jumbo
jets.

Decision Making under Risk

This is common.
A situation in which the manager is able to
estimate the likelihood (probability) of
outcomes that result from the choice of
particular alternatives.
Ex: Labour Contract Negotiator receive an
offer from the union right before a strike
deadline.

Decision Making under uncertainty

Limited information prevents estimation of
outcome probabilities for alternatives
associated with the problem and may force
managers to rely on insight ( Previous
experience, hunches, and gut feelings.

Ex: Introducing a new product to the

Market

Decision Making Conditions

The Decision
maker faces
conditions of

Certainty

Risk

Uncertainty

Level of haziness and chances of making a bad decision

Level of haziness and chances of making a bad decision
Lower

Moderate

Higher

Group Decision-making

Group Decision-making
The factors requiring group decisions
include:
Involving sensitive issues
High cost alternatives
Involving very high risk factor
Strategic impact

Forms of Group Decision

Making
Interacting Groups:
Existing or a newly designed groups can
make decision. They talk among
themselves, argue, agree, argue more ,
form internal coalition after some period of
deliberation a decision is made.

Delphi Group
This method is sometimes used for
achieving a consensus of expert opinion.
Delphi procedure seeks inputs from a
panel of experts who contribute
individually. Their opinions are combined
effectively and finally averaged.

Nominal Group
Not like Delphi method, group members
are brought together. The members form a
group name only, however ; they do not
talk to one another freely like members in
Interacting group. Nominal groups are
used more often to generate creative and
innovative alternatives or ideas.

Group Decisions: Advantages

Acceptance of group members

Coordination is easier
Communication is easier
Existence of large alternatives
More information can be processed
Diversity of experience and perspectives

Group Decisions: Disadvantages

Take longer time

Group can be indecisive
Groups can compromise
Groups can be dominated
Victim to Groupthink

Need of Group Decision

Making
Need for innovation and creativity
Data collection
Importance of acceptance
Importance of solution
Complex problem
Democratic process
Risk taking solution needed
Better understanding
Whole responsibility
Feedback required

Thank you !