Chapter 3

Chapter Three
Decision Making
Decision Making: is defined as the process of selecting or choosing the best course of action
from numbers of alternatives based on the criteria. Because managers are continually
confronted with opportunities and problems, they must constantly analyze the effect of
different decisions on their organizations and select the alternative that will move the firm
toward its stated objectives.
Types of Decisions: Several authors believe that there are two types of decisions: programmed
& non-programmed decisions.
A. Programmed decisions: These decisions are "programmable" because of a specific
procedure can be worked out to resolve them based on experience in similar situations.
 Once a standard procedure has been established, it can be used to treat all like
situations.
 They usually involve an organization's every day operational and administrative
activities
 They are primarily found at the middle and lower levels of management.
 Data used in making a programmed decision usually are complete and well defined.
 Participants know the details and agree on how to resolve the problem.
B. Non-programmed Decisions: are used to solve nonrecurring problems.
 No well-established procedure exists for handling them, primarily because managers
do not have experience to draw upon.
 In contrast to programmed decisions, available data are usually incomplete.
 Non programmable decisions are commonly found at the middle and top levels of
management and often is related to an organization's policy-making activities such
as whether to add a product to the existing product line, to reorganize the company,
or to acquire another firm, are examples
The steps in decision making process include the following:

1. Ascertain the need for a decision/Identify the problem:
The decision making process begins by determining a problem exists; that is, there is an
unsatisfactory condition.
2. Establish decision criteria:
Once the need for a decision has been determined, there comes a need to establish decision
criteria which requires identifying those characteristics that are important in making the
decision.
3. Allocate weights to criteria
The identified criteria should be weighted based on their importance and arranged in priority.
This is because some are obviously more important than others and we need to weight each
criterion to reflect its importance in the decision.
4. Develop Alternatives
This involves developing a list of the alternative that may be viable in dealing with the stated
problem.
5. Evaluate Alternatives
Once the alternatives are enumerated. The decision maker must critically evaluate each one
and identify the strong and weak points when compared against the criteria and the weights
established. In evaluating each alternative, we not only consider things that can be measured
in numerical terms such as time and various types of fixed & operating costs, but also
consider intangible or qualitative factors such as the quality of labor relations, the risk of
technological change or the international political climate.
6. Select the Best Alternative
After we evaluate the alternatives, the next logical step is to select the best alternative that
suits to solve our decision problem. In selecting the best alternative, factors such as risk,
economy of efforts, timing and limiting factors should be considered adequately.
7. Putting Decision Into Action
After selecting the best alternative, we implement or put it into action. This requires
communication of decisions to subordinates, getting acceptance of the decisions, and getting
support and cooperation for converting the decision in to effective action. The decision
should be effective at proper time and in proper way to make the action effective to achieve
desired objectives.
8. Following up Decisions
Having implemented the decision, the manager should compare the results of that course of
action with the desired outcome, if necessary, take corrective action. Since decisions are
made based on forecasts about the future, the best decision that we select may not suit
absolutely to achieve our objectives. Therefore, managers should adjust, modify or take any
other correctives if necessary.
Decision making situations

1. Decisions under certainty:- decisions made in which the external conditions are identified
and very predictable /whenever there is complete data & information/.
2. Decisions under risk:- those decisions in which probabilities can be assigned to the expected
outcomes of each alternative
3. Decisions under uncertainty:- it is a case where neither there is complete data not
probabilities can be assigned to the surrounding conditions. Some conditions that are
uncontrollable by management include competition, government regulations, technological
advances, the overall economy, and the social and cultural tendencies of society.

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Chapter Three

The steps in decision making process include the following:

Decision making situations

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