Decision-making in simple may be defined as “the

selection of a future course of action from among

various alternatives’.
Decision making: the process by which
managers respond to opportunities and threats
by analyzing options, and making decisions
about goals and courses of action.
Decisions in response to opportunities:
managers respond to ways to improve
organizational performance.
Decisions in response to threats: occurs when
managers are impacted by adverse events to the
organization.
Decision-making is a typical form of planning. It involves
choosing the best alternative among various alternatives, in
order to realize certain objectives.

Decision represents a judgement, a final word, and resolution

of conflicts or a commitment to act in certain manner in the
given set of circumstances.

It is really a mental exercise which decides what to do.

 Characteristics of Decision making

The following characteristics emerge from the definition of decision

making:

* Decision making is a continuous process

* It involves a choice and the existence of alternatives
*Decision making is always purposive in that decisions should aim
at achieving some purposes
*It is an intellectual process supported by sound-reasoning and
judgment
* Decision-making is all pervasive in the sense that all levels
of managers take decisions, though at the impact and scope of
decisions vary.
The following are the different types of decisions:
1. Programmed and Non-programmed Decisions
Programmed decisions are normally repetitive in nature. They
are the easiest to make. Usually these decisions are taken in consultation
with the existing policy, rule or procedure which are already laid down
in the organisation.
For example: making purchase orders, sanctioning of
different types of leave, increments in salary, settlement of normal
disputes, etc. Managers in dealing with such issues of routine nature
usually follow the established procedures.

Non-programmed decisions are different in

that they are non-routine in nature. They are related to some exceptional
situations for which there are no established methods of handling such
For example: Issues related to handling a serious industrial
relations
problem, declining market share, increasing competition,
problems with the collaborator.

No rules to follow since the decision is new.

These decisions are made based on information, and a
manger’s intuition, and judgment.
 2. Operational and Strategic Decisions
Operational or tactical decisions relate to the present. The primary
purpose is to achieve high degree of efficiency in the company’s ongoing
operations. Better working conditions, effective supervision, prudent use
of existing resources, better maintenance of the equipment, etc., fall in
this category The focus in the operational
decisions is on the short-run or immediate present .
One the other hand Strategic Decisions, expanding the scale of
operations, entering new markets, changing the product mix, shifting
the manufacturing facility from one place to the other, striking alliances
with other companies, etc., are strategic in nature.
it is on the long run in the case of strategic decisions.
3. Organizational and Personal Decisions
Decisions taken by managers in the ordinary course of business
in their capacity as managers relating to the organizational issues are
organizational decisions. For example: decisions regarding introducing
a new incentive system, transferring an employee, reallocation or
redeployment of employees etc. are taken by managers to achieve certain
objectives.
Personal Decisions , managers do take some decisions
which are purely personal in nature. However, their impact may not
exactly confine to their selves and they may affect the organization also.
For example: the manager’s decision to quit the organization, though
personal in nature, may impact for the organization.
4. Individual and Group Decisions
It is quite common that some decisions are taken by a manager
individually while some decisions are taken collectively by a group of
managers.
Individual decisions are taken where the problem is of routine
nature,
whereas important and strategic decisions which have a bearing
on many aspects of the organisation are generally taken by a group.
Group decision making is preferred these days because it contributes for
better coordination among the people concerned with the implementation
of the decision.
Steps in the Decision-making Process
Steps in the Decision-Making Process

Define the Problem

Analyze the problem

Develop Alternatives

Evaluate Alternatives

Select &
Implement
the Decision

Follow-up and Feed back

 DEFINE THE PROBLEM

STEP 1: Problem definition is the most crucial step in the entire

decision making process. As the saying goes, “a problem well
defined is a problem half-solved,” utmost care has to be exercised
in this stage for wrong definition of the problem leads to wrong
solutions.
This is also called diagnostic stage. Jumping to conclusions on
the basis of certain symptoms has to be avoided.
The problem has to be examined from different angles so as to
identify the exact causes.
Unless exact causes are identified, right decisions cannot be
taken.
2. ANALYZE THE PROBLEM The problem has to be thoroughly
analysed. The past events that contributed to the problem, the present
situation and the impact of the problem on the future have to be examined.
Problems do no crop up overnight. The genesis of the problem and the
various contributing factors need to be analysed.
* In analysing the problem, personal prejudices have to be avoided. As far
as possible, an objective assessment of the situation is useful to arrive at
right decisions.
* Proper analysis of the problem helps the manager to assess the
scope and importance of the problem.
* If the problem is of minor nature, he can authorize his subordinates to
solve it. If it is a major problem requiring the involvement of many people,
he can initiate the necessary steps.
3. Develop Alternatives There are hardly few problems for
which there are not many alternatives. Effective decision-making
depends on the development of as many alternative solutions as
possible. The underlying assumption is that a decision selected
from among many alternatives tends to be a better one.
• The ability to identify and develop alternative courses of action
depends on the manager’s creativity and imagination.
• As the thinking of two people may not be similar, the skills
and abilities in developing alternatives significantly vary from one
manager to the other.
4. Evaluate Alternatives
•The next step in the decision-making process involves evaluation of the
alternative courses or solutions identified to solve the problem.
•Alternatives have to be evaluated in the light of the objectives to be
achieved and the resources required.
•Evaluation involves a through scrutiny of the relative merits and
demerits of each of the alternatives in relation to the objectives sought
to be achieved by solving the problem.
 Select & Implement
5.Step the Decision 5
*Scientific evaluation of the alternatives reveals the acceptability
of various alternatives. After weighing the pros and cons in detail, the
best alternative has to be selected and implemented.

* Once an alternative is selected that becomes the decision and it

has to be implemented in a systematic way. The required resources for
the implementation and the necessary cooperation from the people
concerned with or affected by the decision have to be ensured. Otherwise,
however good the decision may be, it may encounter stiff resistance in the
implementation stage.
6. Follow-up and Feed
back
•Once the decision is implemented, it has to be closely monitored.
Adequate follow-up measures have to be taken. In the course of
implementation, so many unexpected events may render the decision
ineffective. The decision may not yield the desired results.
•Constant follow-up helps to take corrective measures as and when
necessary. Further, such a follow-up enables to identify the shortcomings
or negative consequences of the decision. It provides valuable feed-back
on which the decision may be reviewed or reconsidered.
Three Decision Making Models

Political Model

Administrative Model

Classical Model
 Classical Model/ Rational mode

Based on economic conditions

Is considered to be normative

Accomplishes goals that are known and agreed
upon.
Strives for certainty by gathering complete
information.
Criteria for evaluating alternatives are known.
Decision maker is rational and uses logic.
 Administrative Model

How managers actually make decisions in situations

characterized by non-programmed decisions, uncertainty, and
ambiguity.
Focuses on organizational, rather than economic.
Two concepts are instrumental in shaping the administrative
model.
Bounded Rationality: means that people have limits or
boundaries on how rational they can be.
Satisficing: means that decision makers choose the first
solution alternative that satisfies minimal decision criteria.
Is considered to be descriptive.
It is considered intuitive.
 Political Model

 Closely resembles the real environment in

which most managers and decision makers
operate.
 Decisions are complex.
 Disagreement and conflict over problems
and solutions are normal.
 Coalition building is important.
 Comparisons of:
Classical, Political, &
Administrative Models

Classical Model Administrative Model Political Model

Clear-cut problem and
goals.
Condition of certainty.
Full information about
alternatives and their
outcomes.
Rational choice by
individual for maximizing
outcomes.
Vague problem and goals. Pluralistic; conflicting goals.
Condition of uncertainty. Condition of
uncertainty/ambiguity.
Limited information about
alternatives and their Inconsistent viewpoints;
outcomes. ambiguous information.
Satisfying choice for Bargaining and discussion
resolving problem using among coalition members.
intuition.
 List alternatives Assumes allinformation
& consequences is available to manager

Rank eachalternative Assumes managercan

from low tohigh process information

Assumes managerknows
Select best
alternative the best future course of
the organization
Classical model of decision making: a
prescriptive model that tells how the decision
should be made.
 Assumes managers have access to all the
information needed to reach a decision.
 Managers can then make the optimum decision by
easily ranking their own preferences among
alternatives.
Unfortunately, mangers often do not have all
(or even most) required information.
 Administrative Model ofdecision making:
Challenges the classical assumptions that managers have and
process all the information.
 As a result, decision making is risky.

 Bounded rationality: There is a large number of alternatives

and information is vast so that managers cannot consider it
all.
 Decisions are limited by people’s cognitive abilities.

 Incomplete information: most managers do not see all

alternatives and decide based on incomplete information.
Uncertainty Ambiguous
& risk Information

Incomplete
Information

Time constraints&
information costs
 Suggests decision makers use heuristics to deal
with bounded rationality.
 A heuristic is a rule of thumb to deal with complex
situations.
 If the heuristic is wrong, however, then poor
decisions result from its use.
Systematic errors can result from use of an
incorrect heuristic.
 These errors will appear over and over since the
rule used to make decision is flawed.
Prior Hypothesis

Representativeness Cognitive
Biases
Illusion of Control

Escalating Commitment
Prior hypothesis bias: manager allows strong prior
beliefs about a relationship between variables and
makes decisions based on these beliefs even when
evidence shows they are wrong.
Representativeness: decision maker incorrectly
generalizes a decision from a small sample or one
incident.
Illusion of control: manager over-estimates their ability
to control events.
Escalating commitment: manager has already
committed considerable resource to project and then
commits more even after feedback indicates problems
Many decisions are made in a group setting.
 Groups tend to reduce cognitive biases and can call
on combined skills, and abilities.
There are some disadvantages with groups:
Group think: biased decision making resulting
from group members striving for agreement.
 Usually occurs when group members rally around
a central manger’s idea (CEO), and become blindly
committed without considering alternatives.
 The group tends to convince each member that the
idea must go forward.
Devil’s Advocacy: one member of the group acts
as the devil’s advocate and critiques the way the
group identified alternatives.
 Points out problems with the alternative selection.
Dialectical inquiry: two different groups are
assigned to the problem and each group evaluates
the other group’s alternatives.
 Top managers then hear each group present their
alternatives and each group can critique the other.
Promote diversity: by increasing the diversity in a
group, a wider set of alternatives may be
considered.
Devil’sAdvocacy Dialectic Inquiry
Presentation of
Alter. 1 Alter. 2
alternative

Critique of Debate thetwo

alternative alternatives

Reassess Reassess
alternative alternatives
accept, modify,reject accept 1 or 2,combine
Organizational Learning: Managers seek to improve
member’s ability to understand the organization and
environment so as to raise effectiveness.
 The learning organization: managers try to improve the
people’s ability to behave creatively to maximize
organizational learning .
Creativity: is the ability of the decision maker to
discover novel ideas leading to a feasible course of
action.
 A creative management staff and employees are the key to
the learning organization.
 Build complex,
Develop Personal challenging
Mastery mental models
Encourage
Systems
Thinking
Build Shared PromoteTeam
Vision Learning
Senge suggests top managers follow several steps to build
in learning:
 Personal Mastery: managers empower employees and
allow them to create and explore.
 Mental Models: challenge employees to find new, better
methods to perform a task.
 Team Learning: is more important than individual learning
since most decisions are made in groups.
 Build a Shared Vision: a people share a common mental
model of the firm to evaluate opportunities.
 Systems Thinking: know that actions in one area of the
firm impacts all others.
Organizations can buildan environment
supportive of creativity.
 Many of these issues are the same as for the
learning organization.
 Managers must provide employees with the
ability totake risks.
 If people take risks, they will occasionally fail.
Thus, to build creativity, periodic failures
must berewarded.
 This idea is hard to accept for some managers.
Brainstorming: managers meet face-to-face
to generate and debate many alternatives.
▪ Group members are not allowed to evaluate
alternatives until all alternatives are listed.
▪ Be creative and radical in stating alternatives.
▪ When all are listed, then the pros and cons of each
are discussed and a short list created.
Production blocking is a potential problem
with brainstorming.
▪ Members cannot absorb all information being
presented during the session and can forget their own
alternatives.
Nominal Group Technique: Provides a more
structured way to generate alternatives in
writing.
▪ Avoids the production blocking problem.
▪ Similar to brainstorming except that each member is
given time to first write down all alternatives he or she
would suggest.
▪ Alternatives are then read aloud without discussion until
all have been listed.
▪ Then discussion occurs and alternatives are ranked.
Delphi Technique: provides for a written
format without having all managers meet face-
to-face.
▪ Problem is distributed in written form to managers who
then generate written alternatives.
▪ Responses are received and summarized by top
managers.
▪ These results are sent back to participants for feedback,
and ranking.
▪ The process continues until consensus is reached.
 Delphi allows distant managers to participate.