DECISION MAKING

A "decision" refers to making a choice or selecting a course of action from among several alternatives. It involves
evaluating different options by considering various factors, and ultimately choosing the most suitable option based on
one's preferences, goals, values, or criteria.

 They can range from simple and routine choices to complex and strategic ones
 It's important to note that decisions can have consequences, both positive and negative

WHY DECISION-MAKING IS IMPORTANT

1. Problem-solving: Decision-making allows us to identify and solve problems. By evaluating different options and
selecting the most suitable course of action, we can address challenges effectively and find solutions.
2. Goal achievement: Decisions help us move closer to our desired goals and objectives. Without making decisions,
we may remain indecisive or stagnant, hindering progress and growth.
3. Resource allocation: Decision-making involves allocating resources such as time, money, and manpower
effectively. By making informed choices, we can optimize resource utilization and maximize efficiency.
4. Risk management: Decisions often involve assessing and managing risks. Through careful consideration of
potential risks and rewards, we can mitigate potential threats and capitalize on opportunities.
5. Adaptation to change: Decision-making is crucial for adapting to changing circumstances and making necessary
adjustments. It allows us to respond to new challenges, seize emerging opportunities, and navigate through
uncertainties.
6. Personal development: Decision-making enhances personal development and self-awareness. By making
choices and reflecting on their outcomes, we learn about ourselves, our values, and our preferences. This self-
reflection helps us make more informed decisions in the future.
7. Leadership and management: Effective leaders and managers are skilled decision-makers. They are responsible
for guiding teams, organizations, or communities, and their decisions can have a significant impact on the
success and direction of those entities.

DECISION-MAKING STEPS
 IDENTIFYING THE PROBLEM
THE DIFFERENCE BETWEEN THE EXISTING STATE AND DESIRED STATE IS CALLED THE PROBLEM
 CHARACTERISTICS OF PROBLEMS
A PROBLEM BECOMES A PROBLEM WHEN A MANAGER OR PERSON BECOMES AWARE OF IT
PRESSURE TO SOLVE IT (Time pressure: Decision-making often occurs under time constraints, requiring quick and
efficient problem-solving. Time pressure can add stress and complexity to the decision-making process, influencing
the available options and the depth of analysis.

Managers must have enough authority, information, and resources to solve a problem

Some key features include

I. It must be a clear and concise statement

II. We should know context and scope (context means where the problem exists and scope means what
difference it will make)

III. Complexity and conflicts (Complexity: Problems in decision-making can be complex, involving multiple factors, variables,
and interdependencies. They may require analysis and consideration of various perspectives, data, and information to fully
understand the problem and its implications Conflict: Decision-making problems can give rise to conflicting interests,
perspectives, or objectives among stakeholders. Conflicting goals and viewpoints can make it challenging to reach a consensus
or make a decision that satisfies all parties involved.)

 DECISION CRITERIA
 Decision criteria, also known as decision factors or decision criteria, are the specific standards or
requirements that are used to evaluate and compare different options or alternatives when making a
decision. These criteria help decision-makers assess the desirability, feasibility, and suitability of each
option and determine the most favorable choice.
1. Financial criteria: These criteria focus on the financial impact and implications of the decision. They may include factors such as cost,
return on investment (ROI), profitability, revenue generation, cost-effectiveness, or payback period.
2. Risk criteria: Risk criteria evaluate the potential risks and uncertainties associated with each option. They may include factors such as risk
probability, risk impact, risk mitigation strategies, risk tolerance, or risk-reward trade-offs.
3. Growth of firm: outcomes which are desired
4. Time criteria: Time-related criteria consider the time frame or deadlines associated with the decision. They may include factors such as
project timelines, delivery schedules, time-to-market, time savings, or time-sensitive opportunities.
 WEIGHTING THE CRITERIA
The weighting of decision criteria refers to the process of assigning relative importance or priority to
different criteria used in the decision-making process. It involves quantifying the significance or weight
of each criterion to reflect its relative contribution to the overall decision

 Developing alternatives
Decision-making refers to the process of generating different possible options or viable courses of action
that can be considered while solving a problem.
IMPORTANCE
I. Broad perspectives
II. Risk minimization
III. Flexibility and adaptability
 ANALYZING DIFFERENT ALTERNATIVES
ANALYZING THE WEAKNESS AND STRENGTHS OF EACH ALTERNATIVE
 Structured Problems: FAMILIAR (DOIS)
 Well-defined: Structured problems have clear and straightforward parameters. They are precisely
outlined and their boundaries are easily identifiable.
 COMPLETE INFORMATION
 Known Solutions: These problems come with established methods, procedures, or algorithms for
resolution. There is often a set sequence of steps to follow to reach a solution.
 Objective Nature: Structured problems usually have objective criteria to determine when a solution is
reached. The answer is more or less fixed.
 Examples: Calculating an equation using a formula, following a recipe to cook, or solving a
straightforward mathematical problem.

Unstructured Problems: UNFAMILIAR

 Lack of Clear Definition: Unstructured problems are complex and may lack well-defined boundaries.
They often involve ambiguity and multiple interconnected factors.
 No Clear Solutions: There might not be a predetermined or known method to solve unstructured
problems. They require creativity, critical thinking, and adaptability.
 Subjective Elements: Solutions to unstructured problems can be subjective and may vary based on
perspectives or contexts.
 Examples: Addressing climate change, solving deeply rooted societal issues like poverty or inequality,
or handling complex interpersonal conflicts.

Programmed and non-programmed decisions are terms used in management and decision-making to
distinguish between different types of choices made within an organization.
Programmed Decisions: (NURRR)

ROUTINE DECISION These are routine decisions that are repetitive and are typically based on a routine
approach
NATURE They are well-structured and have clear, predefined steps for resolution.
USAGE-programmed decisions are usually made for recurring or frequent situations where managers
can rely on established protocols or guidelines.
REQUIREMENT NO CRITICAL ANALYSIS REQUIRED
RISK ASSOCIATED
Examples include routine budget approvals, scheduling regular maintenance, or following specific
protocols for handling customer inquiries.

Non-Programmed Decisions:
NON ROUTINE DECISION
NARURE These decisions are unique, novel, and unstructured.
USAGAE They arise in non-recurring or exceptional situations where there are no established
guidelines or protocols to follow.
REQUIRMENT They require creativity, analysis, and judgment by managers or decision-makers.
RISK Non-programmed decisions often involve higher levels of uncertainty and risk because they lack
precedent or established procedures.
Examples include strategic decisions like entering a new market, launching a new product, or
responding to completely unexpected cries
 Rational decision-making is a theoretical framework that assumes individuals or organizations
make choices that are logical, consistent, and aimed at maximizing their goals or outcomes. Several
assumptions underpin this model:
1. Complete Information: Rational decision-making assumes that decision-makers have access to all
available information relevant to the decision. This means they can accurately assess and evaluate
alternatives based on a comprehensive understanding of the situation. In reality, however, information
might be incomplete, uncertain, or even inaccessible.
2. Consistent Preferences: It assumes that decision-makers have clear and consistent preferences or
goals. These preferences are stable and can be ranked in order of importance. In practice, human
preferences can be influenced by various biases, emotions, or changing circumstances, leading to
inconsistency.
3. Clear Decision Criteria: Rational decision-making presumes that individuals or organizations know the
criteria for evaluating alternatives and can weigh them objectively. It assumes that decision-makers
can quantify the costs, benefits, and risks associated with each option. However, in complex situations,
criteria might be ambiguous or difficult to quantify.
4. Optimal Choices: The rational model assumes that decision-makers aim to select the option that
maximizes their objectives or goals. It suggests that they will choose the most effective and efficient
alternative based on the available information and criteria. Yet, in reality, constraints like time,
resources, and cognitive limitations might prevent finding or implementing the optimal solution.
5. No Constraints: Rational decision-making assumes that there are no constraints such as limited
resources, time pressures, or organizational limitations. In real-life situations, decisions are often made
under constraints that impact the available alternatives and the decision-making process itself.

Bounded Rationality:
Bounded rationality challenges the notion of perfect rationality assumed in traditional decision-making
models. It recognizes that decision-makers have limitations in gathering, processing, and acting on
information due to various constraints:
 Cognitive Constraints: Human minds have limited capacity to process and analyze vast amounts of
information. This limitation leads to selective attention, focusing on only certain aspects of a problem.
 Time Constraints: Decision-makers often have limited time to gather information and make decisions,
which affects the depth of analysis and evaluation.
 Incomplete Information: It acknowledges that decision-makers might not have access to or be aware
of all available information necessary to make a fully rational decision.

Satisficing:
Satisficing is a concept introduced by Nobel laureate Herbert Simon. It proposes that rather than
exhaustively seeking the optimal solution, decision-makers tend to settle for a solution that is "good
enough" given the constraints they face. This approach:
 Acknowledges the limitations in information and cognitive resources.
  Accepts that finding the best possible solution might be impractical or impossible.
 Suggests that decision-makers opt for satisfactory solutions that meet their criteria without necessarily
being the absolute best

Escalation of Commitment:
Escalation of commitment refers to the tendency of individuals or organizations to continue investing
resources into a failing course of action. This occurs despite evidence that the decision is not yielding
the desired results. Key factors contributing to the escalation of commitment include:
 Past Investments: Decision-makers feel compelled to justify past investments, leading them to persist
even when it's evident that the current path is ineffective.
 Emotional Attachment: Personal or emotional attachment to a decision, project, or idea can cloud
judgment and lead to continued investment despite negative outcomes.
 Avoidance of Loss: Fear of admitting failure or incurring losses prompts individuals to persist rather
than accept the need to change direction.
 PUBLIC COMMITMENT
 MORE LOSS
 LIMITED INFO

Intuitive decision-making refers to the process of arriving at decisions based on instincts, feelings, or
unconscious understanding rather than explicit, rational analysis. It involves using one's intuition, gut feelings, or
tacit knowledge accumulated through experiences, expertise, and pattern recognition.

Key aspects of intuitive decision-making include:

 Rapid Processing:
Intuition often operates at a subconscious level, allowing individuals to rapidly process information
without consciously going through step-by-step analytical reasoning. This quick processing can be
beneficial in time-sensitive situations where immediate decisions are necessary.
Pattern Recognition:
Intuition draws upon past experiences and expertise to recognize patterns or similarities between current
situations and ones encountered previously. Decision-makers use these patterns to make judgments and
decisions without explicitly analyzing each component.
 Emotion and Feelings:
Intuitive decisions are often influenced by emotions, feelings, and personal beliefs. While rational
decisions aim to eliminate emotional biases, intuition may embrace emotions as valuable sources of
information in decision-making.
 Expertise and Practice:
Experts in various fields often rely heavily on intuition. Through years of practice and exposure to different
situations, experts develop a deep understanding of their domain, allowing them to make intuitive
decisions that seem almost automatic but are based on a wealth of accumulated knowledge.
 Limitations and Biases:
 While intuition can be advantageous, it's subject to biases and errors. Biases arising from personal beliefs,
limited perspectives, or emotional states can affect intuitive judgments, leading to suboptimal decisions.
Additionally, relying solely on intuition without considering available data or rational analysis might lead to
oversights or mistakes.
 Context-Dependent Effectiveness:
Intuitive decision-making might be more effective in familiar or well-practiced domains where individuals
have ample experience. However, in complex or novel situations where the context is unfamiliar, intuition
might be less reliable and could benefit from complementing it with analytical approaches

THREE CONDITIONS OF DECISION MAKING

ALSO TIME, INFORMATION, AND EMOTIONS
Certainty:
Definition: Decision-making under certainty occurs when the decision-maker has full information about
the available alternatives and their outcomes.
Characteristics:
 All relevant information is known.
 Outcomes for each alternative are precisely known and can be accurately predicted.
 There is no ambiguity or doubt about the consequences of each choice.

Example: Flipping a fair coin where the outcome (heads or tails) is certain and known in advance.

Risk:
Definition: Decision-making under risk occurs when the decision-maker has incomplete information but
can estimate the probabilities associated with various outcomes.
Characteristics:
 Not all information is known, but probabilities of different outcomes can be estimated or
calculated.
 Decision-makers have some idea about the likelihood of different results for each alternative.
 It involves a degree of uncertainty, but the probabilities allow for rational assessment and
decision-making.
Example: Making investment decisions in the stock market where historical data and analysis can provide
probabilities of different returns for various investment options.
Uncertainty:
Definition: Decision-making under uncertainty occurs when there is a lack of information or knowledge
about possible outcomes and their probabilities.
Characteristics:
 Information about alternatives or their probabilities is unavailable or highly ambiguous.
 Decision-makers cannot predict or estimate the likelihood of different outcomes.
 There's a high level of unpredictability and ambiguity regarding the consequences of each
choice.
Example: Launching a new product in an emerging market with little historical data or market trends to
predict consumer behavior.
Contrast:
 Information Availability: Certainty involves complete information, while Risk involves partial
information with known probabilities, and Uncertainty involves a lack of information or ambiguous
data.
 Predictability: In certainty, outcomes are entirely predictable. In risk, there's predictability based on
probabilities, whereas in uncertainty, outcomes are unpredictable or highly ambiguous.
 Level of Confidence: Decision-makers are highly confident in certainty, reasonably confident in risk due
to estimated probabilities, and lack confidence in uncertainty due to the absence of reliable
information.
 Decision Strategies: Decision-making strategies differ across these conditions. Certainty allows for
straightforward decision-making, while risk requires probability assessment, and uncertainty often
involves more exploratory or adaptive decision-making approaches due to the lack of reliable data

Maximax Criterion:
 Focus: Maximax focuses on maximizing the potential gain or payoff.
 Method: When faced with multiple alternatives, the maximax strategy involves selecting the
alternative that offers the maximum possible payoff or highest expected return among the best
outcomes for each option.
 Application: It's an optimistic approach often used when decision-makers are willing to take higher
risks or are optimistic about the future. This criterion aims to achieve the best possible outcome
without considering potential losses or risks.

Maximin Criterion:
 Focus: Maximin focuses on minimizing the potential loss or risk.
 Method: When evaluating alternatives, the maximin strategy involves selecting the alternative that
provides the maximum payoff for the worst possible outcome. It focuses on minimizing the maximum
possible loss or risk associated with each option.
 Application: This conservative approach is employed when decision-makers are risk-averse or cautious,
especially when dealing with highly uncertain or unfavorable conditions. The focus is on avoiding the
worst-case scenario.

Minimax (or Minimizing the Maximum Regret) Criterion:

 Focus: Minimax aims to minimize the maximum regret or opportunity loss.
 Method: Unlike maximax or maximin, minimax does not focus solely on maximizing gains or minimizing
losses. Instead, it evaluates alternatives based on the difference between the actual outcome and the
best possible outcome for each alternative, aiming to minimize this difference.
 Application: It's used when decision-makers want to consider the potential regret or opportunity loss
associated with their choices. This criterion is applied in situations where outcomes are uncertain, and
decision-makers want to mitigate potential future regret from their decisions.

Regarding decision-making biases, here are twelve common biases that can affect how decisions are
made CAAOSFSEBHRL

Confirmation Bias: Giving more weight to information that confirms preexisting beliefs or hypotheses.
Anchoring Bias: Relying heavily on the first piece of information encountered when making decisions.
 Availability Heuristic: Overestimating the importance of information readily available in memory when
making judgments.
Overconfidence Bias: Overestimating one's own abilities or the accuracy of judgments.
Sunk Cost Fallacy: Allowing past investments of time, money, or effort to influence decisions about the
future, regardless of the current situation.
Recency Bias: Placing more importance on recent events or information when making decisions.
Hindsight Bias: Believing that the occurrence of an event was predictable or that one would have foreseen
it once the outcome is known.
Loss Aversion: Placing more emphasis on avoiding losses than acquiring gains, often leading to risk-averse
behavior.
Framing Effect: Decisions are influenced by the way information is presented.
Status Quo Bias: Preferring things to stay the same by resisting change or new alternatives.
Endowment Effect: Overvaluing things simply because you own them.
Bandwagon Effect: Making decisions based on the belief that since everyone else is doing something, it
must be the right choice

TODAYS WORLD AND MANAGER

In today's fast-paced and complex world, managers can make effective decisions by incorporating
several key strategies:
1 Embracing Data-Driven Insights: Leveraging technology and data analytics to gather and
analyze vast amounts of information allows managers to make more informed decisions based
on concrete evidence rather than gut feelings or assumptions.
2 Adopting Agile Decision-Making: Flexibility and adaptability are crucial. Embracing agile
methodologies allows managers to quickly respond to changes, iterate on decisions, and test
hypotheses, fostering a more responsive decision-making process.
3 Incorporating Diverse Perspectives: Encouraging diverse viewpoints and fostering an
inclusive decision-making environment enables managers to consider a wide range of
perspectives and solutions, leading to more comprehensive and innovative decisions.
4 Balancing Speed and Thoroughness: While timely decisions are essential, managers should
aim for a balance between making quick decisions and ensuring thorough analysis. Rapid
decision-making should not compromise the quality of the decision.
5 Managing Risk Effectively: Recognizing and mitigating potential risks associated with
decisions is vital. This involves evaluating risks, developing contingency plans, and being
prepared to adapt if unforeseen challenges arise.
6 Promoting Continuous Learning: Encouraging a culture of continuous learning and
improvement allows managers to learn from both successful and unsuccessful decisions. This
fosters a more adaptive and knowledgeable decision-making approach over time.
6 CLEAR COMMUNICATION
6 COLLABERATIVE DECISION
6 SWOT
6 FEEDBACKS
6 CONTEXT AND CONTENT OF PROBLEM

here are the characteristics of an effective decision-making process:

 1 Clarity of Purpose: Clearly defining the objective or problem that needs to be addressed by
the decision-making process.
2 Inclusivity: Involving relevant stakeholders and considering diverse perspectives to ensure a
comprehensive view of the situation.
3 Information Gathering: Collecting relevant, accurate, and timely information that's essential
for making informed decisions.
4 Analysis and Evaluation: Thoroughly assessing available options or alternatives, weighing
their pros and cons, and evaluating their potential outcomes.
5 Timeliness: Making decisions within an appropriate timeframe while balancing the need for
speed with the requirement for thorough analysis.
6 Implementation and Review: Effectively executing the decision and regularly evaluating its
outcomes to learn and improve the decision-making process.

Regarding the habits of highly reliable organizations:

Preoccupation with Failure: These organizations are constantly vigilant about identifying potential
risks or failures before they become significant problems, emphasizing proactive risk management.
Reluctance to Simplify: They avoid oversimplifying complex issues and continuously seek a deeper
understanding of potential risks, acknowledging the complexity of their operations.
Sensitivity to Operations: They encourage open communication and feedback from employees
involved in day-to-day operations, valuing insights from those directly involved in executing tasks.
Commitment to Flexibility These organizations create adaptive systems and processes that can
withstand unexpected events or changes, emphasizing resilience and flexibility.
Deference to Expertise: They value the expertise and insights of frontline workers, ensuring that their
knowledge is considered and integrated into decision-making processes.
MINDFULNESS
COMMITMENT TO CONINOUS LEARNING
DECENTERALIZAED DECISION MAKING
RESPECT FOR CONTIGENCY PLANS