Chapter 4

CHAPTER FOUR: DECISION MAKING
4.1. Definition of Decision-making

A decision is the selection of the best alternative from various options. Decisions usually imply
alternatives. A decision problem demands two or more alternatives. Decisions are also made to
achieve goals. In general, decision-making may be viewed as the process by which individuals
select a course of action from among alternatives to produce a designed result. It is a process
made up of four continuous interrelated phases which include:
 explorative (searching);
 speculative (analyzing);
 evaluative (weighing)
 selective (commitment).
a. Explorative: The decision maker must find occasions for making a decision. He must make
a realistic appraisal of where the firm is, what the current problems are. Asking “ What
should be done?” and “What are the challenges?” represents searching.
b. Speculative: The decision maker must analyze various factors affecting a “decision
problem” so that an appropriate response can be obtained. “How to take advantage of the
challenging opportunities in the environment?” and “How to utilize the resources to get
the maximum possible benefit for the organization?” indicate analyzing.
c. Evaluative: The decision maker is expected to make a cost-benefit analysis of various
alternatives. Asking “what are the costs?” and “what are the potential benefits?” indicates
evaluating.
d. Selective: This is a question of making a choice among alternatives.
4.2 Types of Decisions
The quality of decision-making skills is one of the critical factors in managerial success.
Managers are evaluated by the decisions they make and, more often, by the results obtained from
their decisions. As a result, it is useful to distinguish between decisions made by managers at
different levels in the organization. Managers are usually involved in making two types of
decisions as indicated below.
a) Programmed Decisions
A programmed decision is one that is routine and repetitive. Rules and polices are established
well in advance to solve recurring problems quickly. For example, a hospital establishes a
procedure for admitting new patients; a supervisor administers disciplinary actions against
workers reporting late for work etc. Thus, programmed decisions can be made in a routine way
on the basis of pre-established set of alternatives.
b) Non-programmed Decisions: usually deal with unique/unusual problems. In such cases, the
decision maker is forced to make decision in a poorly structured situation where there are no
readymade courses of action to resort. Deciding how to restructure an organization, to improve
efficiency, where to locate a new company warehouse, whom to promote to the vacant position
of Regional Manager, are examples of non-programmed decisions.
4.3. The Decision-making Process.

The decision-making process describes the elements of an organization that accepts and
processes information inputs and transforms them into useful conclusions. To make good
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decisions, managers should invariably follow a sequential set of steps. If managers do not go
through a systematic and rational sequence, they are likely to make a decision that will solve the
wrong problem.
The decision making process can be described graphically as follows.
1 2 3 4 5 6
Awareness Diagnose Develop the Implement
of and state the Evaluate the
potential Select the best & follow-
problem problem alternatives
alternatives alternative up the
decision
Internal Environment
Feed-back
Decision Making
External – the basic step
Environment
i. Awareness of the problem (Define the problem)

The first step in the decision-making process is recognizing a problem. The manager needs to
become aware that a problem exists and that is important enough for managerial action.
Problems generally arise because of disparity between what is and what should be.
ii. Diagnose and state the problem
 Once aware of a problem, the manager must state the real problem. He must try to solve
the problem, not the symptoms. What appears to be the problem initially, may turn out to
be superficial ultimately. It may not be the real problem at all.
iii. Developing Potential Alternatives

The statement of the problem in clear, measurable terms, enables executives to develop
alternatives. Developing alternative solutions to the problem guarantees adequate focus and
attention on the problem. It helps managers to fully test the soundness of every proposal before
it is finally translated into action. Managers should encourage people to develop different
solutions for the same problem.
iv. Analyze / Evaluate the Alternatives
In this step, the decision maker tries to outline the advantages and disadvantages of each
alternative. The consequences of each alternative would also be considered.
v. Select the Best Alternative
In this step, the decision maker merely selects the most appropriate alternative or combination of
alternatives from the alternatives listed along with their correspondent advantages and
disadvantages. The following four criteria are commonly used for making the right choice
among available alternatives:
a. The risk
b. Economy of effort
c. Timing
d. Limitation of resources
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vi. Implement and Verify / Follow-up the Decision After making a decision, a manager is
required to implement it.
. He must seek feed-back regarding the effectiveness of the implemented solutions and establish
follow-up procedures to evaluate the effects of the decision
4.4 The Decision-making Environment (condition)
Decision-making does not take place in a vacuum. There are various conditions that affect the
decision-making process and the decision maker as well. Consequently, decisions are made
under the conditions of certainty, risk, uncertainty and conflict or competition.
i. Decision-making under certainty
Decision-making under certainty implies that all the information required to arrive at a final
decision is known with complete certainty. Thus, the decision-making under certainty model
assumes that manager taking decision has full knowledge of the certainty of the information, its
non-ambiguity and stability. This means that, a manager making decision under certainty relies
on a standing plan or policy, and in such a condition decisions are made routinely.
ii. Decision-making under risk
In the condition of risk, a decision maker (manager) knows what the problem is and is aware of
all possible outcomes and their probability of occurrences. He knows what the alternatives are.
But does not know how each alternative will work. Thus, the manager is faced with the dilemma
of choosing the best alternative available.
iii. Decision-making under uncertainty
This is the most difficult decision making condition for the manager. Hence, a manager cannot
develop probability estimates for various alternatives. Thus, in the situation of uncertainty the
manager is not able to determine the exact odds (probabilities) of the potential alternatives
available.
iv. Decision-making under conflict or competition
In this decision condition, there is a clash of interest of competitive firms and every decision
maker carefully considers the actions of his opponents and takes a decision that minimizes loss
or maximizes the gain.

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CHAPTER FOUR: DECISION MAKING

4.1. Definition of Decision-making

4.3. The Decision-making Process.

i. Awareness of the problem (Define the problem)

iii. Developing Potential Alternatives

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