DECISION MAKING - is defined as selection of a course of action

from among alternatives; it is the core of planning. A plan

cannot be said to exist unless a decision – a commitment of
resources, direction, or reputation has been made. Until that
point, there are only planning studies and analyses.

DECISION MAKING: THE ESSENSE OF THE MANAGER’S JOB:

It is the manager’s central job because they must

constantly choose what is to be done, who to do it, and when,
where, and occasionally even how it will be done.

DECISION MAKING UNDER CERTAINTY, UNCERTAINTY AND RISK:

In a situation involving certainty, people are

reasonably sure about what will happen when they make a decision.
The information is available and is considered to be reliable,
and the cause and effect relationships are known.

In a situation of uncertainty, people have only a

meager data base, they do not know whether or not the data are
reliable, and they are very unsure about whether or not the
situation may change. Moreover, they cannot evaluate the
interactions of the different variables. To illustrate, a
corporation decides to expand its operation in a strange country
but knows little about the country’s culture, laws, economic
environment, and politics. The political situation may be so
volatile that even the experts cannot predict a possible change
in government.

In a risk situation, factual information may exist,

but it may be incomplete. To improve decision making, one may
estimate the objective probabilities of an income by using, for
example, mathematical models. On the other hand, subjective
probability, based on judgment and experience, may be used.
Fortunately, there are a number of tools available that help
managers make more effective decisions.

STEPS IN DECISION MAKING:

STEP 1 – IDENTIFYING A PROBLEM

The decision-making process begins with the existence

of a problem, or more specifically, a discrepancy between an
existing and a desired state of affairs. This is the most
critical part of the decision-making process for it is what
determines the direction that the decision making process takes,
and ultimately, decision that is made.

STEP 2 – GENERATING ALTERNATIVE COURSES OF ACTION

Managers must determine what is relevant in making a

decision.

This step involves identifying items or activities

that could reduce or eliminate the difference between the actual
situation and the desired situation. For this step to be
effective, the decision makers must allot enough time to generate
creative alternatives as well as ensure that all individuals
involved in the process exercise patience and tolerance of others
and their ideas.

STEP 3 – EVALUATING THE ALTERNATIVES

Numerous methods exist for evaluating the

alternatives, including determining the “pros and cons” of each;
performing a cost-benefit analysis of each alternative, and
weighing factors important in the decision, ranking each
alternative relative to its ability to meet each factor, and then
multiply cumulatively to provide a final value for each
alternative. Regardless of the method used, it is during this
third step of the decision-making process that the decision maker
evaluates each alternative in terms of feasibility (can it be
done?), its effectiveness (how well does it resolve the problem
situation?), and its consequences ( what will be its costs -
financial and nonfinancial - to the organization?).

THREE APPROACHES IN SELECTING AN ALTERNATIVE:

1) EXPERIENCE – Most managers use their experiences as

guidelines in making decisions. To some extent, experience
is the best teacher. However, relying on past experience
can be dangerous since situations are dynamic and most
people do not recognize the underlying reasons for their
mistakes and failures.

2) EXPERIMENTATION – is often used in scientific inquiry. This

is often the most expensive of all techniques. Sometimes,
after an experiment has been tried, there may still be
doubt about what it proved, since the future may not
duplicate the present. This technique therefore should be
used only after considering other alternatives.

Experimentation is used in other ways. A firm may test

a new product in a certain market before expanding its sale
nationwide. Organizational techniques are often tried in a
branch office or plant before being applied over an entire
company.

3) RESEARCH AND ANALYSIS – This approach means solving a

problem by first comprehending it. It thus involves a
search for relationships among the more critical of the
variables, constraints, and premises that bear upon the
goal of sought.

STEP 4 – SELECTING THE BEST ALTERNATIVE

Once the alternatives have been identified, the

decision maker must critically analyze each one. The best
alternative could be the one with the most “pros” and the fewest
“cons”; the one with the greatest benefits and the lowest costs;
or the one with the highest cumulative value, if using weighing.
Yet, even with a thorough evaluating process, the best
alternative may not be obvious. It is at this point that managers
must decide which alternative has the highest combined level of
feasibility and effectiveness, coupled with the lowest costs to
the organization.

CRITERIA IN DETERMINING A VIABLE ALTERNATIVE:

FEASIBILITY – Many alternatives that are intuitively feasible

turn out to be impossible given organization’s resource
constraints such as time, money, human resources, legal
restrictions, competitions, politics, and the economy. An
alternative is feasible only if it can be implemented within the
constraints faced by the company.

QUALITY – The quality criterion refers to the extent to which an

alternative effectively solves the problem under consideration.
Alternatives that only partially solve the problem or represent
questionable solution are eliminated at this stage.

ACCEPTABILITY – This criterion refers to the degree to which the

decision makers and others who will be affected by the
implementation of the alternative are willing to support it.
Acceptability has long been recognized as an important criterion
against which to judge decisions.

COSTS – The costs criterion refers to both the resource levels

required and the extent to which the alternative is likely to
have undesirable side effects. Thus the term “costs’ is used here
in the broad sense to include not only direct monetary
expenditures but also more intangible issues such as possible
vigorous competitor retaliation.

REVERSIBILITY – The criterion refers to the extent to which the

alternative can be reversed, if at all. For example, when the
Coca-Cola Company ran into difficulties in introducing its new
formula for Coke in 1985, it was able to reverse the decision
by reintroducing its old formula as Coke Classic.

ETHICS – This refers to the extent to which an alternative is

compatible with the social responsibilities of the organization
and the ethical standards of its managers.

STEP 5 – IMPLEMENTING THE DECISION

This is the step in the decision-making process that

transforms the selected alternative from an abstract thought into
reality. Implementing the decision involves planning and
executing the actions that must take place so that the selected
alternative can actually solve the problem.

Implementation is a crucial step in the decision-

making process, for the best alternative in the world cannot
resolve a problem if it is not implemented properly. Successful
implementation of a decision does not depend solely to the
manager but also on the willingness of others to accept the
decision and to work hard to ensure that it is carried out.

STEP 6 – EVALUATING THE DECISION

The last step in the decision-making process appraises

the result of the decision to see whether it has corrected the
problem.

If after this evaluation, the problem still exists,

the manager needs to dissect carefully what went wrong. Was he
problem incorrectly defined? Were errors made in the evaluation
of various alternatives? Was the right alternative selected but
improperly implemented? Answers to questions like these might
send the manger back to one of the earlier steps. It might even
require starting the whole decision process anew.

GROUP DECISION TECHNIQUES

A) BRAINSTORMING - is a technique in which group members

spontaneously suggest ideas to solve a problem. Its primary
purpose is to generate a multitude of creative
alternatives, regardless of the likelihood of their being
implemented. There are four (4) basic rules:

1) Criticism is not allowed.

2) “Freewheeling” is encouraged.
3) Quantity is desired.
4) Combination and improvement are encouraged.

B) NOMINAL GROUP TECHNIQUE – a process that involves the use

of a highly structured meeting agenda and restricts
discussion or interpersonal communication during the
decision-making process. While the group members are all
physically present, they are required to operate
independently. The following are the steps:
 1) Members meet as a group, but before any discussion
takes place, each member independently writes down his
or her ideas for possible problem solutions.

2) This silent period is followed by each member

presenting one idea to the group. Each member takes
his or her turn, going around the table, presenting
one idea at a time until all ideas have been presented
and recorded (typically on a flip chart or
chalkboard). No discussion takes place until all ideas
have been recorded.

3) The group now discusses the ideas for clarity and

evaluates them.

4) Each group member silently and independently assigns a

rank to the ideas. The final decision is determined by
the idea with the highest aggregate ranking.

C) DELPHI TECHNIQUE – A group decision-making technique in

which members never meet face-to-face. This is more complex
and time-consuming. The steps are:

1) The problem is identified, and members are asked to

provide potential solutions through a series of
carefully designed questionnaires.

2) Each member anonymously and independently completes

the first questionnaire.

3) Results of the first questionnaire are compiled at a

central location, transcribed, and reproduced.

4) Each member receives a copy of the results.

5) After viewing the results, members are again asked for

their solutions or cause changes in the original
position.

6) Steps 4 and 5 are repeated as often as necessary until

consensus is reached.

D) ELECTRONIC MEETINGS – Decision making groups that interact

by way of linked computers. Once the technology for the
meeting is in place, the concept is simple. Up to fifty
people sit around a horseshoe-shaped table that is empty
except for a series of computer terminals. Issues are
presented to participants and they type their responses
into their computer screens. Individual comments, as well
as aggregate votes, are displayed on a projection screen in
the room.

Advantages:1) There is anonymity

2) There is honesty.
3) It’s fasts.

Disadvantages:1) Those who can type quickly can outshine

those who may be verbally eloquent but are lousy typist;
those with the best ideas don’t get credit for them.
2) It lacks the informational richness of
face-to-face oral communication.

ADVANTAGES OF GROUP DECISION MAKING:

1. Provides more complete information.

2. Generates more alternatives.
3. Increases acceptance of a solution
4. Increases legitimacy
 5. Less-experienced participants in group interaction learn a
great deal about group dynamics by actually being involved
in the group decision-making process.

DISADVANTAGES OF GROUP DECISION MAKING:

1. Time consuming
2. Minority domination
3. Pressures to conform
4. Ambiguous responsibility

FACTORS THAT AFFECT DECISION MAKING:

1) INTUITION – it means immediately comprehending that

something is the case, seemingly without the use of
any reasoning process of conscious analysis.
2) EMOTION AND STRESS – there are times when managers
become susceptible to letting their emotions get in
the way of decision making.
3) FRAMING – involves the tendency to view positively
presented information favorably and negatively
presented information unfavorably.
4) ESCALATION OF COMMITMENT - refers to the tendency to
persists with a failing course of action. In such
cases, the decision makers become so immersed in their
chosen course of action that they ignore or discount
information that challenges the soundness of their
initial decision.
5) CONFIDENCE AND RISK PROPENSITY - confidence means
that a person has faith that his or her decisions are
reliable and good. Risk propensity refers to a
person’s willingness to take risks when making
decisions.

TOWARDS MORE EFFECTIVE DECISION MAKING:

1. Use of information effectively

2. Enhance systems for decision making
3. Empower those who must implement decisions
4. Communicate effectively
5. Delegate pragmatically
6. Build on strength