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Decision making: is the process of choosing a course of action from among alternatives to achieve a

desired goal.

Nature of decision making


1. Goal oriented process
2. Always related to environment
final choice
3. Continuous or ongoing process

4. Implies a set of alternatives


5. Dynamic process
6. Implies freedom to the decision maker regarding the
7. Intellectual or rational process

Types of Decisions
1. Programmed and Non-programmed Decisions
2. Organizational and Personal Decision

3. Routine and Strategic Decision


4. Individual and Group Decision

Programmed and Non-programmed Decisions

Characteristics
1. Type of problem
2. Goals
3. Information
4. Frequency
5. Level of management
6. Time frame for solution
7. Basis of solution

Programmed Decisions
Structured
Clear and Specific
Unambiguous or complete
Routine and repetitive
Lower Levels
Short term
Policies, procedures and
rules

Non-Programmed Decisions
Unstructured
Vague
Ambiguous or incomplete
New and unusual
Upper Levels
Long term
Judgement and creativity

Routine and Strategic Decisions


Characteristics
1. Nature
2. Commitments
3. Impact
4. Frequency
5. Level of management
6. Basis of solution
7. Example

Routine Decisions
Repetitive nature
Short term
Minor impact
Routine and repetitive
Lower Levels
Standard procedures and
rules
Overtime payment or not

Strategic Decisions
Non repetitive nature
Long term
Permanent
New and unusual
Upper Levels
Judgement and creativity
Launching a new product..

Organisatonal and personal decisions: organizational decisions are made in the interest of the organisaton.
They are made by managers in their official capacity as allocators of resources. These decisions are based
on rationality, judgement and experience. Such decisions can be delegated to lower levels. These
decisions affect the functioning of the organisation.
Personal decisions are made by managers as individuals and on their own behalf. Such decisions can not
be delegated. Decisions to marry, to buy a house.affect the personal life of the manager but may affect
the organisation indirectly or directly.

Individual and group decision: individual decisions are taken by a single individual. They are concerned
mainly with routine problems for which broad policies are available. In such decisions, analysis of various
variables is relatively simple. Decisions taken by the Board of Directors or a committee are examples of
group decisions. These decisions are generally important for the organisation.

Advantages and Disadvantages of Group Decision Making


Advantages
1. More information and knowledge
2. A greater number of alternatives can be
generated due to wider experience, variety of
opinions and more thorough probing of facts.
3. Participation in decision-making increases
acceptance and commitment to decisions
4. People understand the decision better
5. interaction between individuals helps to
improve cooperation and coordination.
6. one man control reduced as authority is
shared.

Disadvantages
1. Waste of time due to delay in decisions
2. Groups create pressures on members to
conformity and to compromise on the least
common alternative.
3. Domination of the group by one or two
powerful and influential members
4. May be costlier than individual decisions
5. tendency to pass the buck or avoid
responsibility
6. Disagreement among group members may
lead to conflict and ill feelings between them.

Steps in Scientific Decision Making Process

A)

Indentify the
Problem

Implem entation and


Follow up

Diagnose the
Problem

Select the Best


Alternative

Discover
Alternatives

Evaluate
Alterantives

1.
2.
3.
4.

Problem Identification: Problem may arise


due to gap between present and desired state of
affairs. The threats and opportunities created by
environment changes may also create decision
problem. In order to recognize the problem
quickly, a manager must continuously monitor
the decision making environment. Imagination,
experience and judgement are required for
detection of problems.

B) Problem Diagnosis: Diagnosing the real


problem implies analyzing it in terms of its
elements, its magnitude, its urgency, its course
and its relation with other problems. Problem
may be analyzed in terms of the following:

Nature of the decision-routine or strategic


Impact of the decision
Futurity of the decision
Periodicity of the decision and

5. Limiting or strategic factor relevant to the


decision
C) Discover Alternatives: A reasonably wide range of alternatives increases the
managers freedom of choice. But is wise for management to limit itself to the discovery
of the limiting factor should be followed for this purpose. In choosing alternatives, time
and cost constraints should be kept in mind. Development of alternatives is a creative
process requiring research and imagination.

D) Evaluating the Alternatives:


Peter Drucker has suggested the following criteria to weigh the alternative courses of
action:
1.
2.
3.
4.

Risk. Degree of risk involved in each alternative


Economy of Effort: Cost, time and effort involved in each alternative
Timing: whether the problem is urgent.
Limitation of Resources: Physical, financial and human resources available with the
organisation.

E) Select the Best Alternative: After evaluation, the optimum alternative is selected.
Optimum alternative is the alternative that will maximize the results under given
conditions. Past experience, experimentation, research and analysis are useful in
selecting the best alternative.

F) Implementation and follow up: implementation involves several steps:


First, the decision should be communicated to those responsible for its
implementation. Secondly, acceptance of the decision should be obtained. Thirdly,
procedures and time sequence should be established for the implementation. Necessary
resources should be allocated and responsibility for specific tasks should be assigned to
individuals.
The effects of the decision should be judged through periodic progress reports. In
case the feedback indicates that the decision is not yielding the desired results,
necessary changes should be made in the decision or in its implementation.

Theories of Decision Making


1. Rational Economic Model

2. The Administrative Model

Rational Economic Model:


According to Simon, rationality is the selection of preferred behavior alternatives in terms of values
whereby the consequences of behavior can be evaluated. A rational business decision is one which
effectively and efficiently assures the attainment of aims for which the means are selected. It is based on
the following assumptions:
1.
2.
3.
4.
5.

The decision maker has a clear and well defined goal that he is trying to maximize
He is fully objective and rational, uninfluenced by emotions
The decision maker can identify the problems clearly and precisely
He knows all the alternatives available to him as well as the consequences of each alternative.
The decision maker can rank all consequences according to preferences and knows which
consequence is the best.
6. He has the full freedom to choose the alternative that best optimizes the decision.
Rational Economic Model
1. Perfect rationality
2. Normative (Setting Standards)
3. Exhaustive search for all possible
alternatives
4. optimal decision

Techniques of Decision Making:


1. Probability Theory
2. Game Theory

Administrative Model
1. bounded rationality
2. Descriptive (Not Logical)
3. Limited search for a few feasible
alternatives
4. satisfying or good enough decision

3.
4.
5.
6.
7.

Queuing theory
Replacement theory
Liner Programme(LP)
Decision Tree