Chapter Three 2022

CHAPTER THREE
THE DECISION MAKING
3.1 Meaning of decision making

What is decision making?
Decision making is defined as a rational choice among alternatives. “If there is no option, there is no choice & no
decision.” In decision making, manager is making judgments – reaching conclusion- from a list of known
activities. Decision making is universal. It is the main part of all managers job. A management makes decisions
constantly while performing management functions. Decision making is not a separate, isolated function of
management, but the common core to other functions.
Managers at all levels are engaged in decision making and make big & small decisions daily. They make
decisions while
 Planning a budget
 Organizing a work schedule
 Interviewing a prospective employee
 Watching a worker on the assembly line
 Making adjustment to projects, etc.
3.2 Rational decision making process
Decision making is a process which an important part of a manager’s job. It is necessary to find anything that can
improve the quality of decision making. The effective measure is to follow conscious, rational decision making
process. The decision making process are logical & simple and all are essential to the process.
Decision making process has seven (7) steps.
Step 1. Define the problem
Defining the problem is the critical step. There is a particular problem you have to solve. The accurate definition
of a problem affects all steps that follow. If the problem is inaccurately defined, every step in the decision making
process will be based on that incorrect point.
The good method for manager to define the problem is to focus on the problem but not on the symptoms. This is
accomplished by asking the right question & developing a sound questioning process.
As to Peter Drucker, “The most common source of mistake in management decision is the emphasis on finding
the right answers rather than the right questions.”
Finding a solution to the problem will be greatly aided by its proper identification. The consequence of not
properly defining the problems is wasted time & energy.
Step 2. Identify the limiting or critical factors
Once the problem is defined, the manager needs to develop the limiting or critical factors of the problem.
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Limiting factors are the constraints those rule out certain alternative solutions. The common limitations are time,
resources, personnel, money, facilities, and equipment. They narrow down the range of possible alternatives.
Step 3. Develop potential alternatives
At this point, it is necessary to look for, develop & list as many possible alternative solutions to the problem as
you can. These alternatives should eliminate, correct, or neutralize the problem. Doing nothing about a problem
sometimes is the proper alternative at least until the situation has been thoroughly analyzed. Occasionally, just the
passing of time provides a cure. Censorship/ restriction limits the number of alternatives developed. Alternatives
should be separate solutions to the problems. In developing alternatives, the goal has to be creative and wide-
ranging as possible. Sources for alternatives include:
o Experience
o Persons (whose opinions & judgments are respected)
o The practice of successful manager
o Group opinions through the use of task forces & committee
o The use of outside sources, including managers in other organizations.
Step 4. Analyze the alternatives
This step is to decide the relative merits and demerits of each of the alternatives. If the alternatives conflict with
critical (limiting) factors, they must be automatically discarded. Depending on the type of problem, the potential
solutions developed. The manager might need to make a more through analysis by applying specific decision
making aids.
Step5. Select the best alternative
Here all the alternatives are listed along with their corresponding advantages and disadvantages.
To select the alternatives, you must find a solution that appears to offer the fewest serious disadvantages & the
most advantages. Take care not to solve one problem & create another with your choice.
Step 6. Implement the solution
Managers are paid to make decisions and to get results from these decisions. A decision has to be put into effect.
Everyone involved with it must know what s/he must do; how to do it; why & when.
A good alternative that half–heartedly applied by uncommitted person will often create problems. Like plans,
decisions need effective implementation to yield the desired results. People must be sold on their roles & must
know exactly what they must do & why. Programs, procedures, rules or policies must be thoughtfully put into
effect.
Step 7. Establish a control & evaluation system.
This is the final stage of decision – making process. Ongoing actions need to be monitored. It should provide
feedback on
 how well the decision was implemented
 what results are positive & negative , and
 what adjustments are necessary to get the results that were wanted & when the solution was chosen.
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If a manager uses this decision making process, the probability for success in decision would be improved,
because it provides a step–by–step roadmap for the manager to move logically through decision making.
3.3 Types of decisions
Manager in organizations may be separated by their background; lifestyle & distance, they all sooner or later must
share common experience of decision making. They all face situations involving several alternatives & an
evaluation of the outcome.
Types of decisions are
1. Programmed decisions
Programmed decisions are decision managers make in response to repetitive & routing problems. If a particular
situation occurs often, managers will develop a routine procedure for handling it.
Most management faces a great number of programmed decisions in their daily operations. Programmed
decisions should be made with out expending unnecessary time & effort. In most organizations, programmed
decisions are handled through policies; in some management scientists have developed mathematical models.
2. Non – programmed decisions
Non – programmed decisions are decisions made for novel and unstructured problems. When a problem hasn’t
arisen in exactly the same manner before, or is complex or extremely important, it requires a non programmed
decision. Non programmed decisions are more complicated. They require the expenditure of lots of money, worth
of resources every year. Very little is known about this type of decision making. They are usually handled by
general problem solving processes, judgments, intuitions, and creativity.
These two types/ classifications of decisions are broad. It is important to differentiate between them clearly.
Types of decisions & level of management
The nature of the problem how frequently it occurs, and the degree of certainty surrounding it should dictate at
what level of management the decision should be taken/ made.
Problems that arise infrequently & having a great deal of uncertainty surrounding them are often strategic in
nature and should be the concern of top management. Problems that arise frequently & have fairly certain
outcomes should be the concern of lower level management. Middle managers in most organizations concentrate
on programmed decisions.
Top Non
programmed
Unstructured
Structured
Programmed
Lower
Organizational Hierarchy Nature of problems Nature of decision making

Fig: The relationship between levels of managers & kinds of decision
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3.4 Decision making environment/conditions
As there are different kinds of decisions, there are also different conditions in which decisions must be made. The
manager must be aware of the environment in which s/he makes decisions. Decision making like other
management functions doesn’t take place in vacuum. There are factors in the environment that affect the process
& the decision maker. In some situations one manager can have perfect knowledge/ understanding of what to do
& what the consequence of the action will be; where as in others has no such knowledge or have few clues.
Decisions are made under the conditions of certainty, risk & uncertainty. These different decision making
environments/ circumstances require different responses from a manager.
Decision making conditions/ environments
Certainty Risk Uncertainty
Level of ambiguity & chance of making bad decision
Lower moderate higher

Fig: The decision making condition
1. Decision making under conditions of certainty

This situation means the manager has what is known as perfect knowledge, i.e. the manager had had this decision
before; the alternatives are known; and the consequences of each alternative are fully understood. It can mean a
manager can rely on standing plans; the decisions will be made routinely.
2. Decision making under conditions of risk
This situation provides a more difficult decision making environment than the certainty situation. In this situation,
the manager knows what the problem is; what the alternative are; but doesn’t know how each alternative will
work out even though s/he knows the odds (probabilities) of possible outcomes. The manager is faced with
dilemma of choosing the best alternative available.
3. decision making under conditions of uncertainty
This is the most difficult situation for managers. It is like being a pioneer/ breaking new ground. In this situation,
the manager is not able to determine the exact odds (probabilities) of the potential alternatives available. S/he may
be dealing with too many variables, or perhaps there are too many unknown facts. The management is unable to
accurately predict the probable results of choosing anyone of the alternatives. Reliance on experience, judgment
& other people’s experience can assist the manager in assessing the value of the alternatives.
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CHAPTER THREE

THE DECISION MAKING

3.1 Meaning of decision making

Organizational Hierarchy Nature of problems Nature of decision making

Decision making conditions/ environments

Certainty Risk Uncertainty

Level of ambiguity & chance of making bad decision

Lower moderate higher

1. Decision making under conditions of certainty

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