Unit 3

Decision Making the Essence of

Manager’s Job (5 Hrs.)

The decision making process; the rational

decision maker; Decision making styles;
analyzing decision alternatives: Certainty,
Risk, Uncertainty, Group decision making
 Decision Making
• Decision making is the part of planning
process that involves selecting a course
of action from a set of alternatives.
• Managers need to make decisions to
solve various problems.
• They have to choose one objective from
many alternative objectives which is a
decision making.
• They have to allocate responsibilities to
employees, allocate machinery, shifting
job responsibilities, allocating job in
case of employees absenteeism, etc. are
some examples of decisions to be made
by mangers in regular manner.
• The act or process of choosing one best alternatives from set of
available alternatives is known as decision making.
• James Stoner- “ Decision making is the process of identifying
and selecting a course of action to solve specific problems.”
• Stephen P. Robbins- “ Decision making is defined as selection of
preferred course of action from two or more alternatives.”

• Managerial decisions are the output of decision making process.

• It is a challenging job for managers in this competitive age as the
single decision of a manager may lead to success or failure of
organization.
• Therefore, managers need to identify all available alternatives
patiently and choose the best combination of alternatives
among the available alternatives carefully.
• During this course of action they should have to fully utilize
available information and various techniques to evaluate them.
Elements or Features of Decision Making
• Managers require information and decision rules to select one
best alternative among.
• Decisions can impact organization and its stakeholders for short-
term or long term periods.
• Managers must have enough authority for decision making and
they must be responsible for the results of decisions made by
them.
• Communication system should be clear which ensure the
message of decision for all concerned parties.
• Decision should make on time and shouldn’t be delayed
unnecessarily.
• Decision making process must be goal-oriented.
• It is a continuous process. Managers need to make several
decisions every day.
• Decision making solves the specific problems.
• There must be facility of choice for decision making
 Decision making process
• Decision making is a continuous process for
accomplishing daily activities to long term survival of the
organization.
• Generally, a designed process is required to make the
effective decisions.
• Decision making process involves following steps.
1. Identifying and diagnosing the problem
2. Identifying the alternatives
3. Evaluating the alternatives
4. Choosing the best alternatives
5. Implementing the selected alternative
6. Evaluation and follow up
 Identifying and diagnosing the problem:
The initial stage in decision making is defining the problem clearly
with the causes. The gap between present situation and desired
situation should be defined clearly.

 Identifying the alternatives:

Every problem may have more than one alternative solutions. As
many alternative solutions can be developed, more reliable and
effective decision can be made. Therefore, managers should develop
every possible alternative regarding the decision issues. Related
information regarding potential solutions should be collected to
analyze them.

 Evaluating the alternatives:

In this step, each of the developed alternatives should be evaluated
in terms of decision criteria such as total cost, time, legal constraints,
and resources needs for particular alternatives. Alternatives should
be short listed and ranked on the basis of evaluation criteria. In this
process the alternative rearrangement, modification, substitution and
elimination parts of each of new alternative should analyzed
carefully.
 Choosing the best alternatives:
This is the most important step in decision making process. Decision makers
should select best one alternative or set of alternatives on the basis of
evaluation. They should select less expensive, low time consuming, more
effective and efficient alternatives, analyzing the strength and weaknesses
of each alternative. If any of the alternatives are not suitable , additional
exercise may require for developing new alternative. In real sense, it is the
last step in decision making process.

 Implementing the selected alternative:

Implementation is converting a decision into action. Managers should use
their skills and ideas to implement the selected alternative to get the
desired result. Without proper implementation of decision, it is
meaningless in achieving the objectives.

 Evaluation and follow up:

The final step in decision making examines the degree of implementation
effectiveness of decisions. They should be sure that the decision has served
the purpose for which it was made. Feedback should be collected and
adjustments should be made according to the changes in environment after
evaluating the progress of implementation.
 Rational Decision Making
• Rational decision making is the opposite of
intuitive decision making. It is a strict
procedure utilising objective knowledge and
logic.
• It involves identifying the problem to solve,
gathering facts, identifying options and
outcomes, analysing them, considering all the
relationships and selecting the decision.
• Rational decision making requires support:
methods and software tools.
Steps in Rational Decision Making
Rational decision making can be the difference between a
high performance culture driven by results and an
unorganized setting. If you would like to drive decisions that
guarantee results, you have to employ strategies that kindle
organizational objectives based on real data.
1. Verify and define your problem.
2. Research and brainstorm possible solutions for your
problem.
3. Set standards of success and failure for your potential
solutions.
4. Flesh out the potential results of each solution.
5. Choose the best solution and test it.
6. Track and analyze the results of your test.
7. If the test solves your problem, implement the solution. If
not, test a new one.
 1. Analytical
• Commitment to finding the best answer
• Enjoys problem solving
• Comfortable with large amounts of information
and data
• Innovative
• Thrives on control
• Will take as long as needed to find the best
option
• Enjoys variety and new challenges
 2. Conceptual
• Achievement oriented
• Creative
• Comfortable with “What ifs”
• Generally open minded with a broad outlook
• Humanitarian/ conscious of how decision will
affect others
• Thinks in the future
• Enjoys coming up with new ideas
 3. Directive
• Driven by results
• Relies primarily on rules and processes
• Aggressive nature
• Prefers to make decisions alone
• Institutive nature
• Typically reacts quickly and doesn’t like to dwell
on decisions
• Strong verbal communicator
• Informs people once a decision is made
 4. Behavioral
• Generally supportive; a team player
• Empathetic nature
• Looks to others for advice
• Gets buy in from stakeholders before making a
decision
• Good communicator
• Relies on implied data (e.g. “reading” people)
 Analyzing Decision Alternatives
• An analysis of alternatives (AOA) is an assessment of various
options present for reaching a goal.
• This usually involves sensitivity analysis, which is when the
evaluation of quantitative estimations and calculations gets
changed in an orderly way to assess their effect on the end result.
 Contd..
• Examples include, life-cycle costing (which is a
costing method that considers the expenses at
each stage of an asset's life cycle duration),
and cost-benefit analysis (which is the process
of measuring the benefits and costs of a
choice or project along with the alternatives
to have an unbiased scale for assessment).
 How does Analysis of Alternatives Work?
• An analysis of alternatives provides a foundation to always assess and
compare the advantage of various solutions for providing necessary
capability to certain end users.
• The usually process of an AoA includes:
• Plan: Define supported decisions and objectives, identifying
stakeholders, defining the timing, effort, or funding, creating the
study team, setting up the study plan
• Organize analysis framework: Identify the analysis problem
statement, scope, context, and foundation for alternative contrasting.
Set up assumptions and ground rules that outline the analysis.
• Define alternatives: Through extensive research, filtering, and
examining, identify several options which focus on the established
problem within the scope and context defined.
• Analyze alternatives: Assess each option against the criteria set up.
• Compare alternatives: Decide what the relative advantages of the
various solutions are as revealed by the analysis
• Report results: Record the results that are supportive of the needs of
the decision-maker or stakeholder.
 Group Decision Making
• Group decision-making (also known as
collaborative decision-making or collective
decision-making) is a situation faced when
individuals collectively make a choice from the
alternatives before them.
• The decision is then no longer attributable to
any single individual who is a member of the
group.
TECHNIQUES USED FOR Decision Making

1) BRAINSTORMING
• It is the process of generating many creative
solutions without evaluating their merit (primary
focus is an generating the idea rather then on
evaluation of idea)
• It is frequently need mechanism to provide the
maximum number of ideas in a short period of time.
• Brainstorming technique is very effective when the
problem is comparatively specific and can be simply
defined
2) NOMINAL GROUP TECHNIQUE(NGT)-
• Members from the group operate independently,
generating ideas for solving the problem on their
own, in silent and in writing.
• The concept is to respect individual idea and
interpersonal communication.
3) DELPHI TECHNIQUE-
• This Technique is the modification of the
NGT and it involves obtaining the opinions
of experts physically separated from each
other. (This technique never allows the
participant to meet FACE TO FACE)
• Generally the types of problems handled
by this technique are not specified in
nature of related to particular situation at
a given time.
• Ex:-the technique could be used to
understand the problems that could be
created in the event of a war.
4) SYNETICS
• It consists of members having varied background.
Leader play an important role breaks the traditional
rule, states the problems and asks the members to
review on the same.
• Members remain in the room until the novel idea
emerges. This technique is costly and time
consuming
• Ex. Role play, paradoxes etc are used to develop
creative ideas.
5) Marginal analysis-
• It is an examination of the associated costs and
potential benefits of specific business activities or
financial decisions.
• The goal is to determine if the costs associated with
the change in activity will result in a benefit that is
sufficient enough to offset them
6) Financial analysis- It is used to estimate profitability,
net cash flow (out/in) pay back period, investment
alternatives etc.
7) Break-Even analysis- Level of sales has to
cover all the fixed cost. At BEP the total
revenue equals total cost.
8)Ratio analysis- It is an accounting tool that
defines the relationship between 2 variables
such as cost and revenue interprets the
strengths and weakness of the firm.
8) Operation analysis-
• It is a research of a set of acts required for the
achievement of a desired outcome
• Ex. Mathematical tools and techniques like-
Linear programming, game theory, simulation,
queuing theory, transportation model, decision-
tree analysis.