Chapter 3

The Nature of
Decision Making
 Learning objective
3.1 Definition of decision making
3.2 Types of decision making
3.2.1 Programmed decision
3.2.2 Non-programmed decision
3.3 Types of condition under decision
making
3.4 The rationale of decision making
3.5 Decision making process
3.6 Group decision making techniques
LO 3.1 Definition of decision making

The process through which managers identify and resolve problems

and capitalize on opportunities

The process by which a course of action is selected as the way to deal

with a specific problem
LO 3.2 Types of decision making
Types of
Decision
Making

Non-
Program
Program

It is structured. Deals with unique, unusual or

A repetitive decision that can
be handled by a routine approach
Example: Rules & regulations
exceptional problem. It is unstructured
and requires higher level management
Non-routine decision making that
occurs in response to unusual,
unpredictable opportunities and treat

Example: Governments decision to

prevent H1N1 by stopped all the travelling
outside country
LO 3.3 Types of condition under decision making

Decision maker know exactly what will happen and

able to predict the outcome precisely

Certainty E.g.: If you put RM1000 in bank under fixed deposit

or a year at 5% interest, then interest earned will be
RM50 after 1 year

A condition under which there is not full knowledge

of the problem and reasonable probabilities for
alternative outcomes cannot be determined.
Uncertainty
A situation in which a decision maker has neither
certainty nor reasonable probability about the
outcome
 Cont..

Refer to future conditions that are not always

known in advance
Decision maker is able to estimate the likelihood of
Risk certain outcome based on personal experience or
secondary information
Some information is available, but it is not enough
to answer all questions about the outcomes

Means the goals to be achieved or problem to be

Ambiguity solved is unclear, alternatives are difficult to define
and information about outcomes is not available.
LO 3.4 The rationale of decision making

Investigate the situation

Define problem
Diagnose causes
Identify decision objectives

Develop alternatives
Seek creative alternatives
Do not evaluate yet
LO 3.4 The rationale of decision making

Evaluate alternative & select the best one

Evaluate alternative: Time required, costs involved, risk
involved, benefits or advantages & limitation
Select the best alternative

Implement & monitor

Plan implementation- review the plan periodically
Monitor implementation & make necessary adjustment
LO 3.5 Decision making process

Managers regularly review data related to their areas of responsibility,

including both outside information and reports and information
Identifying from within the organization
opportunities
and diagnosing
problems

Reflect the results the organization wants to attain. Both the quantity and
quality of the desired results should be specified because these aspects of
the objectives will ultimately guide the decision maker in selecting the
Identifying appropriate course of action
objectives Objectives can be short range or long range

Alternatives Strategies that might be implemented in the decision-

making situation
Generating Creativity and imagination are often required in this step
alternatives
 Cont
Assess the value or relative advantages or disadvantages of each
alternative under consideration
Evaluating
alternatives

Making a final choice

The best decisions are often based on careful judgments, making a
Reaching good decision involves carefully examining all the facts, determining
decisions whether sufficient information is available, and finally selecting the
best alternatives

When decisions involve taking action or making changes, choosing

ways to put these actions or changes into effect become an essential
managerial task
Choosing
The key to effective implementation are:
implementatio
n strategies a) Sensitivity to those who will be affected by the decision
b) Proper planning and consideration of the resources necessary to
carry out the decision
 Cont

No decision-making process is complete until the impact of the

decision has been evaluated
Managers must observe the impact of the decision and take
Monitoring and further action if it becomes necessary
evaluating
feedback
 LO3.6 Group decision making techniques

1) Brainstorming A technique used to enhance creativity that

encourages group members to generate as many novel ideas
as possible on a given topic without evaluating them

Can enhance creativity by overcoming pressures for conformity that

can retard the development of creative decision-making
Focuses on generating ideas rather than on choosing an alternative
 Cont

2) Nominal group technique (NGT) A structured

process designed to stimulate creative group decision-
making in which agreement is lacking or the members have
incomplete knowledge concerning the nature of the
problem

Individual members list their ideas on the specific problem and

present the ideas at one time, without discussion
Members ideas are recorded so that everyone can see them
After all members ideas are presented, the group discusses the
ideas to clarify and evaluate them
 Cont

3) Delphi technique An approach that uses the experts to

make predictions and forecasts about future events without
meeting face-to-face

Using survey instruments or questionnaires, a group leader

collects written expert opinions on a topic
 Group Decision Making
Advantages & Disadvantages
Advantages Disadvantages

1. More information and knowledge
are available.
2. More alternatives are likely to be
generated.
3. More acceptance of the final
decision is likely.
4. Enhanced communication of the
decision may result.
5. Better decisions generally emerge.
1. The process takes longer than individ-
ual decision making, so it is costlier.
2. Compromise decisions resulting from
indecisiveness may emerge.
3. One person may dominate the group.
4. Groupthink* may occur.

* a process in which bad decisions are made because the different members of a group
do not express their individual opinions about a plan, proposal, etc. but only say what
they think the rest of the group would agree with 15