Module # 2

DECISION MAKING

Principles of Management

© M. Salman Anjum
 Learning
Learning Objectives
Objectives of
of Module
Module
After studying this chapter, you should be able to:
1. Define decision making
2. Outline the steps in the decision-making process
3. Identify few decisions at managers make while performing
managerial functions
4. Contrast programmed and nonprogrammed decisions and
their application at different management levels
5. Contrast the three decision-making conditions
6. Advantages and disadvantages of group decision making
7. Identify few effective group decision making tools
© Salman Anjum - Module # 2 2
 Manager
Manager && Decision
Decision Making
Making -- Quote
Quote

~ The one word

hat makes a good manager -- decisivene
Lee Iacocca

© Salman Anjum - Module # 2 3

2.1

Decision
Decision Making
Making

– The process of identifying and

choosing alternative courses of
action to meet the demands of
a situation.

– The pace of decision making is

accelerating: managers making
more decisions and having
less time to make them.

© Salman Anjum - Module # 2 4

2.2

Decision
Decision Making
Making Process
Process

1 2
3
Define and Identifying
Allocating Weights
Diagnose Decision Criteria to Criteria
Problem

8 4
Evaluating Decision Developing
Effectiveness Alternatives

7 6 5
Implementing the Selecting an Analyzing
Alternative Alternative Alternatives

© Salman Anjum - Module # 2 5

2.2

Decision
Decision Making
Making Process
Process -- Example
Example
Identification of a problem “My sales Reps need new Laptops!”

Memory and Storage, Display Quality,

Identification of Decision Criteria
Better Life,Warranty, Carrying weight

Allocation of weights to criteria Memory and Storage-10, Display Quality-8,

Better Life-6,Warranty-4, Carrying weight-
3
Development of alternatives
Toshiba, HP, Soni Vaio, Qosmio, Gateway,
Apple iBook, Dell
Analyzing of alternatives
Toshiba, HP, Soni Vaio, Qosmio, Gateway,
Apple iBook, Dell
Selection of alternatives

Toshiba, HP, Soni Vaio, Qosmio,

Implementation of alternatives Gateway, Apple iBook, Dell

© Salman Anjum“ -Toshiba!”

Evaluation of decision alternatives Module # 2 6
2.2.1 Decision Making Process

Step
Step 1:
1: Identifying
Identifying the
the Problem
Problem
 Problem
– A discrepancy between an existing and desired
state of affairs.
 Characteristics of Problems
– A problem becomes a problem when a manager
becomes aware of it.
– There is pressure to solve the problem.
– The manager must have the authority, information,
or resources needed to solve the problem.
© Salman Anjum - Module # 2 7
2.2.2 Decision Making Process

Step
Step 2:
2: Identifying
Identifying Decision
Decision Criteria
Criteria

 Decision criteria are factors that

are important (relevant) to
resolving the problem.
– Costs that will be incurred
(investments required)
– Risks likely to be encountered
(chance of failure)
– Outcomes that are desired (growth
of the firm)

© Salman Anjum - Module # 2 8

2.2.3 Decision Making Process

Step
Step 3:
3: Allocating
Allocating Weights
Weights to
to Criteria
Criteria

 Decision criteria are not

of equal importance:
– Assigning a weight to
each item places the
items in the correct
priority order of their
importance in the
decision making process.

© Salman Anjum - Module # 2 9

2.2.4 Decision Making Process

Step
Step 4:
4: Developing
Developing Alternatives
Alternatives

 Identifying viable
alternatives
– Alternatives are listed
(without evaluation) that
can resolve the
problem.

© Salman Anjum - Module # 2 10

2.2.5 Decision Making Process

Step
Step 5:
5: Analyzing
Analyzing Alternatives
Alternatives
 Appraising each alternative’s strengths and
weaknesses
– An alternative’s appraisal is based on its ability to
resolve the issues identified in steps 2 and 3.

© Salman Anjum - Module # 2 11

2.2.6 Decision Making Process

Step
Step 6:
6: Selecting
Selecting an
an Alternatives
Alternatives

 Choosing the best

alternative
– The alternative with the
highest total weight is
chosen.

© Salman Anjum - Module # 2 12

2.2.7 Decision Making Process

Step
Step 7:
7: Implementing
Implementing the
the Decision
Decision

 Putting the chosen

alternative into action.
– Conveying the decision to and
gaining commitment from those
who will carry out the decision.

© Salman Anjum - Module # 2 13

2.2.8 Decision Making Process

Step
Step 8:
8: Evaluating
Evaluating the
theDecision’s
Decision’sEffectiveness
Effectiveness

 The soundness of the

decision is judged by its
outcomes.
– How effectively was the
problem resolved by
outcomes resulting from the
chosen alternatives?
– If the problem was not
resolved, what went wrong?

© Salman Anjum - Module # 2 14

2.3

Decisions
Decisions in
in Management
Management Functions
Functions

© Salman Anjum - Module # 2 15

2.4.1 Types of Problems & Decisions

Programmed
Programmed Decisions
Decisions for
for Structured
Structured Problems
Problems

 Structured Problems
– Straightforward
– Are familiar (have occurred before),
– Are easily and completely defined —
information about the problem is
available and complete
• Customer returning purchase to store

 Programmed Decision
– A repetitive decision that can be
handled by a routine approach.

© Salman Anjum - Module # 2 16

2.4.1 Types of Problems & Decisions

Types
Types of
of Programmed
Programmed Decisions
Decisions
 Policy
– A general guideline for making a decision about a structured
problem.
• Accept all customer-returned merchandise.
 Procedure
– A series of interrelated steps that a manager can use to respond
(applying a policy) to a structured problem.
• Follow all steps for completing merchandise return
documentation.
 Rule
– An explicit statement that limits what a manager or employee can or
cannot do in carrying out the steps involved in a procedure.
• Only managers can approve all refunds over $50.00.
• No credit purchases are refunded for cash.

© Salman Anjum - Module # 2 17

 2.4.2 Types of Problems & Decisions

Nonprogramed
NonprogramedDecisions
Decisionsfor
for Unstructured
Unstructured Problems
Problems

 Unstructured Problems
 Problems that are new or unusual and for which
information is ambiguous or incomplete.
 Problems that will require custom-made solutions.
• Whether to build a new manufacturing facility in China

 Non-programmed Decisions
 Decision that are unique and nonrecurring.
 Decision that generate unique responses.

© Salman Anjum - Module # 2 18

2.4.3 Types of Problems & Decisions

Programmed
ProgrammedVs.
Vs. Non-programmed
Non-programmedDecisions
Decisions
Characteristics Programmed Non-programmed
Decisions Decisions
Type of Problem Structured Unstructured

Managerial Level Lower level Upper level

Frequency Repetitive New,unusual

Information Readily available Ambiguous or

incomplete
Time Frame for Short Relatively long
Solution
Solution Relies on Procedures,rules, and Judgment and creativity
policies
© Salman Anjum - Module # 2 19
2.4.4

Types
Types of
of Decisions
Decisions && Manager
Manager Focus
Focus

 Few managerial decisions in the

real world are either fully
programmed or non-
programmed
 These are extremes and most
decisions fall somewhere in
between
 Its best to think of decisions as
mainly programmed or mainly
non-programmed

© Salman Anjum - Module # 2 20

2.4.5

Types
Types of
of Decisions
Decisions && Level
Level in
in Organization
Organization

Ill-structured Top

Nonprogrammed
Type of Decisions Level in
Problem Organization

Programmed
Decisions

Well-structured Lower

© Salman Anjum - Module # 2 21

2.5

Decision
Decision Making
Making Conditions
Conditions

Certainty Uncertainty

Objective Subjective
Probabilities Risk Probabilities

Clear Intuition and judgment

© Salman Anjum - Module # 2 22
2.5.1

Decision
Decision Making Conditions -- Certainty
Making Conditions Certainty

 The condition under which individuals are:

1. fully informed about a problem,
2. alternative solutions are known, and
3. the results of each solution are known

 Both the problem and alternative solutions

are totally known and well defined

 Exception for most managers

© Salman Anjum - Module # 2 23

2.5.2

Decision
Decision Making Conditions -- Risk
Making Conditions Risk

 The condition under which individuals can:

1. define a problem,
2. specify the probability of certain events,
3. identify alternative solutions, and
4. state the probability of each solution leading
to a result
 Probability: the percentage of times that a
specific result would occur if an individual
were to make the same decision a large
number of times

© Salman Anjum - Module # 2 24

2.5.3

Decision
Decision Making Conditions -- Uncertainty
Making Conditions Uncertainty

 Condition under which individuals

do not have the necessary
information to assign probabilities
to the outcomes of alternative
solutions
 May not even be able to define the
problem, much less identify
alternative solutions and possible
outcomes

© Salman Anjum - Module # 2 25

2.5.3
Examples
Examples of
of Possible
PossibleCrises
Crises as
as
Sources
Sourcesof
of Uncertainty
Uncertaintyand
and High
HighRisk
Risk

Economic Crises Physical Crises

Recessions Industrial accidents
Stock market crashes Supply breakdowns
Hostile takeovers Product failures

Other
Crises
Natural Disasters Information Crises
Fires Theft of proprietary information
Floods Tampering with company records
Earthquakes Cyberattacks

© Salman Anjum - Module # 2 26

2.5.4

Integrating
Integrating Decision
Decision Making
Making Conditions
Conditions
Unusual and Innovative
Ambiguous Decisions e
Uncertainty ad
m
e
ar
s
Adaptive i on
s
Decisions eci
d
Problem Types

h
hic
Risk
rw
Routine nde
Decisions u
ons
ti
ndi
Co

Certainty

Known and Untried and

Well Defined Solution Types Ambiguous
(Alternative Solutions)
© Salman Anjum - Module # 2 27
2.6

Group
Group Decision
Decision Making
Making
 Potential Advantages  Potential Disadvantages
1. Better-quality decisions 1. Wasted time and slower
2. More information, 2. Satisficing
alternatives, creativity, and 3. Domination and goal
innovation displacement
3. Better understanding of 4. Conformity and groupthink
the decision
4. Greater commitment to the
decision
5. Improved morale and
motivation
6. Good training
© Salman Anjum - Module # 2 28
2.7

Group
Group Decision
Decision Making
Making Techniques
Techniques

© Salman Anjum - Module # 2 29

2.7.1

Group
Group Decision
Brainstorming
Decision Making
Making Techniques
Brainstorming
Techniques

– The process of suggesting many possible

alternatives without evaluation.
– Used to generate ideas in a group decision making

© Salman Anjum - Module # 2 30

2.7.2

Group
Brainstorming
Group Decision
Decision Making
Brainstorming –– Ground
Making Techniques
Ground Rules
Techniques
Rules

 Relax, Have fun, Support

 Select a moderator, no dominating
& interrupting
 Create solutions/ideas in silence
 No boundaries, no limits on the
number of ideas
 Just Keywords
 Short session (Max 20 minutes)
 No criticizing (during or after)

© Salman Anjum - Module # 2 31

2.7.2

Group
Brainstorming
Group Decision
Decision Making
Brainstorming –– Ground
Making Techniques
Ground Rules
Techniques
Rules

 Multiple rounds, if required

 After session explain quickly
 Select promising solutions/ideas
 Promising solutions/ideas are
developed in more detail listing pros
and cons
 Team select one solution/idea

© Salman Anjum - Module # 2 32

 Group
Brainstorming
Group Decision
Class
ClassMaking
Brainstorming
Decision Exercise
–– Ground
Making Techniques
Exercise
Ground Rules
Techniques
Rules

 Pakistan textile industry is

going through difficult period.
Lets do some brainstorming
to find out some ideas for its
recovery!

© Salman Anjum - Module # 2 33