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MANAGING DECISION MAKING
LECTURE 4 Lecturer: Sara Aslam
Fall 2011
Kinnaird College for Women
THE NATURE OF DECISION MAKING
Decision Making
The act of choosing one alternative from among a set of
alternatives.
Managers make decisions about both
problems and opportunities.
Principles of Management
Instructor: Sara Aslam
2
TYPES OF DECISIONS
Programmed Decisions
A decision that is a fairly structured decision or recurs
with some frequency or both.
Example: Starting your car in the morning.
Non-programmed decisions
A decision that is relatively unstructured
and occurs much less often than a
programmed decision.
Example: Choosing a vacation destination.
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Principles of Management
Instructor: Sara Aslam
DECISION-MAKING CONDITIONS
Level of ambiguity and chances of making a bad decision
Lower Higher Moderate
Certainty Uncertainty Risk
The decision
maker faces
conditions of...
4
Principles of Management
Instructor: Sara Aslam
CERTAIN, RISK, & CERTAINTY
Just as there are different kinds of decisions, there are also
different conditions under which decisions are made
Decision Making under Certainty:
when the decision maker knows with reasonable certainty what
the alternatives are and what conditions are associated with
each alternative, a state of certainty exists. E.g. McD’s and
suppliers
Decision Making under Risk:
A more common decision making condition is a state of risk.
Under this, the availability of each alternative and its potential
pay-offs and costs are all associated with probability estimates. (example: union relations that might cause a lot of cost if wrongly
estimated)
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Principles of Management
Instructor: Sara Aslam
CERTAIN, RISK, & CERTAINTY
Decision Making under uncertainty:
A condition in which the decision maker does not know all the
alternatives, the risks associated with each, or the
consequences each alternative is likely to have.
Managers must rely on their past experiences in such complex
situations.
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Principles of Management
Instructor: Sara Aslam
DISTINGUISHING BETWEEN
DECISION MAKING CONDITIONS
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Principles of Management
Instructor: Sara Aslam
RATIONAL PERSPECTIVES ON
DECISION MAKING
The Classical Model of Decision Making:
Is a perspective approach that tells managers how they
should make decisions. It assumes that managers are logical
and rational and that they make decisions that are in the best
interests of the organisation.
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Principles of Management
Instructor: Sara Aslam
RATIONAL PERSPECTIVES ON
DECISION MAKING (CONT’D)
The Classical Model of Decision Making
When faced with a
decision situation,
managers should . . .
. . . and end up with
a decision that best
serves the interests
of the organization.
• obtain complete
and perfect information
• eliminate uncertainty
• evaluate everything
rationally and logically
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Principles of Management
Instructor: Sara Aslam
EVALUATING ALTERNATIVES IN THE
DECISION-MAKING PROCESS
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Is the alternative
feasible?
Eliminate from
consideration
Is the alternative
satisfactory?
Are the alternative’s
consequences
affordable?
Retain for further
consideration Yes Yes Yes
Eliminate from
consideration
Eliminate from
consideration
No No No
Principles of Management
Instructor: Sara Aslam
STEPS IN THE RATIONAL
DECISION-MAKING PROCESS
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Step Detail Example
1. Recognizing and defining the decision situation
Some stimulus indicates that a decision must be made. The stimulus may be positive or negative.
A plant manager sees that employee turnover has increased by 5 percent.
2. Identifying alterna-tives
Both obvious and creative alternatives are desired. In general, the more important the decision, the more alternatives should be considered.
The plant manager can increase wages, increase benefits, or change hiring standards.
3. Evaluating alterna-tives
Each alternative is evalu-ated to determine its feasibility, its satisfactoriness, and its consequences.
Increasing benefits may not be feasible. Increasing wages and changing hiring standards may satisfy all conditions.
Principles of Management
Instructor: Sara Aslam
STEPS IN THE RATIONAL
DECISION-MAKING PROCESS (CONT’D)
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Step Detail Example
4. Selecting the best alternative
Consider all situational factors, and choose the alternative that best fits the manager’s situation.
Changing hiring standards will take an extended period of time to cut turnover, so increase wages.
5. Implementing the chosen alternative
The chosen alternative is implemented into the organizational system.
The plant manager may need permission from corporate headquarters. The human resource department establishes a new wage structure.
6. Following up and evaluating the results
At some time in the future, the manager should ascertain the extent to which the alternative chosen in step 4 and implemented in step 5 has worked.
The plant manager notes that, six months later, turnover has dropped to its previous level.
Principles of Management
Instructor: Sara Aslam
Thank You!
13
Principles of Management
Instructor: Sara Aslam