Mekelle University
College of Business and Economics
School of Management
Department of Management
Chapter – Three
Decision Making
Overview
• Concept of Decision Making
• Decision Making Process
• Decision-Making Conditions /Situations
• Types of Decision (programmed and non -
programmed decisions)
• Why Do Managers Make Poor Decisions?
Meaning of Decision Making
• Decision-making is the process of identifying and
choosing best course of action from available alternatives to
achieve specific organizational goals/objectives.
• It is a rational choice.
• Though in all managerial functions decision-making is
involved, the critical decision-making is during planning.
Decision-making has three elements:
When managers make decisions? When:
I. They are choosing or selecting from among alternatives,
II. They have available alternatives,
III. They have purpose in mind.
Decision Making Process
Decisions are organizational responses to problems. Which has the
following processes:
1. Identifying problems- a necessary condition for a decision to
exist is a problem - the discrepancy between an actual & desired
state; a gap between where one is and where one wants to be.
To locate problems, managers rely on several different indicators:
• Deviations from past performance,
• Deviation from plan &
• Criticism.
Decision makers face three types of problems such as:
a. A crisis problem- quick, decisive action
b. A non-crisis problem- thoughtful strategies
c. An opportunity problem- are the chance to improve or innovate.
Careful. It needs to act strategically to seize such benefit.
Managers once they have identified problems, they have to try to
diagnose the cause of the problem.
This step has three general stages:
Scanning stage: gather feedback and data
Categorization stage: organize data in to clear groups
Diagnosis stage: analyze and pinpoint the root cause.
2. Developing Alternatives -
Before a decision is made feasible alternatives should be
developed.
Here possible alternatives solutions to the problem should be
listed as much as possible.
This stage requires finding creative and imaginative alternatives
via different techniques. (Brainstorming or Delphi technique..etc.)
3. Evaluating Alternatives
Each alternative must be judged in light of the goals and resources
of the organization.
In addition, each alternative must be judged in terms of its
consequences for the organization.
“It is to evaluate how effective each alternative would be”.
4. Choosing an Alternative
• Here, managers find a solution that appears to offer the fewest
serious disadvantages and the most advantages.
• Managers should take care not to solve one problem and create
another with their choice.
• A decision is not an end by itself but only a means to an end.
5. Implementing and Monitoring the Chosen Solution
Implementing the Solution: involves more than giving orders.
Resources must be acquired and allocated.
Monitoring the solution: helps to ensure that things are
progressing as planned and that the problem that triggered the
decision process has been resolved.
Decision-Making Conditions /Situations
“The amount of information available or the degree of knowledge
they have about the likelihood of the occurrence of each alternative”
Thus, decisions are made under three basic conditions.
A) Decision-making under Certainty-
When managers know with certainty what their alternatives are
and what conditions are associated with each alternative, a state of
certainty exists.
Here, there is low chance of making poor/bad decision/s.
B) Decision-making under Risk -
Here, the availability of each alternative, the likelihood of its
occurrence and its potential payoffs and costs are associated with
probability estimates.
There is moderate ambiguity and moderate chance of making bad
decision.
C) Decision-making under Uncertainty-
Here, the decision maker does not know what all the alternatives
and their consequences.
This can be due to dynamism of contemporary organizations and
their environment.
Reliance on experience, judgment, and other people's experiences
can help well.
Types of Decisions
Decisions can be classified in to: programmed and non-
programmed.
1) Programmed Decisions
• Programmed decisions are those made in routine, repetitive, well-
structured situations through the use of predetermined decision
rules.
• Managers can usually handle programmed decisions through rules,
procedures, and policies.
• Most programmed type of decisions are used for (first line
managers) and many (middle managers) but very few by (top-
level managers) .
2 ) Non-programmed Decisions
• Non-programmed decisions are used to solve non-recurring,
novel, unstructured and complex problems.
• No well-established procedure exists for handling them, because it
has not occurred before managers do not have experience to draw
up on, or problems are complex or completely new.
• Such decisions are commonly found at the middle and top level
management that involves significant amounts of uncertainty.
• Here, it requires creative problem solving practice or experience.
Continuum of Decision situations
Well-Structured Partially Ill-Structured
(Programmed) Structured (Non-Programmed)
Decision Specified and Only part of the Cannot be fully
Procedure agreed upon in decision process is structured in
advance of structured. advance of
resolution. resolution.
Managerial Minimal Manager resolves Individuals resolve
Involvement involvement based on structured each case based on
required at the time experience and experience and
of each resolution. intuition. judgment.
Consistency of Repeated Managers may Different managers
Results resolutions with the agree on certain may reach different
same data yield the data but not all conclusions for the
same results. conclusions. same situation.
Why Do Managers Make Poor Decisions?
Why do managers make mistakes?
Why doesn’t decision always result in achieving some desired goal?
Making the wrong decision can result from any one of these decision-
making errors:
Lack of adequate time,
Failure to define goals/objectives,
Using unreliable sources of information,
Fear of consequences,
Focusing on symptoms rather than causes,
Reliance on Hunch and Intuition:
Intuition, judgment and ‘feel’ are important assets to the decision
maker.
But a manager who permits intuition to outweigh scientific
evidence is likely to make a poor decision.
• Sometimes a manager’s decision is not exactly “poor”, but it still
doesn’t produce optimal results.
Less than optimal decisions can have three causes:
a) Bounded rationality- The decision maker simply selects the best
alternative, given various specifications that must be met.
b) Sub optimization- is a manager’s tendency to operate solely in the
interests of his/her department rather than in the interests of the
company as a whole.
The key is to improve the company’s performance, not just the
performance of one department.
c) Unforeseen changes in the environment -also cause less than
optimal decisions.
Thank you
