A NARRATIVE REPORT OF:

Francis Eric L Demetria MPA-610

Professor: Dr. Amelia Girly L Aranas

Chapter 3.0: Decision Making Definition and Classification

Definition of Decision Making

 In psychology, decision-making (also spelled decision

making and decision-making) is regarded as the cognitive

process resulting in the selection of a belief or a course of action

among several alternative possibilities.

 Decision-making is the process of identifying and choosing alternatives

based on the values, preferences and beliefs of the decision-maker.

 Every decision-making process produces a final choice, which may or

may not prompt action.

An Overview

Decision-making can be regarded as a problem-solving activity yielding a

solution deemed to be optimal, or at least satisfactory. It is therefore a

process which can be more or less rational or irrational and can be based

on explicit or tacit knowledge and beliefs. Tacit knowledge is often used to fill

the gaps in complex decision making processes. [2] Usually both of these types

of knowledge, tacit and explicit, are used together in the decision-making

process.

Human performance has been the subject of active research from several

perspectives:

 Psychological: examining individual decisions in the context of a set of

needs, preferences and values the individual has or seeks.

 Cognitive: the decision-making process regarded as a continuous process

integrated in the interaction with the environment.

 Normative: the analysis of individual decisions concerned with the logic of

decision-making or  communicative rationality, and the invariant choice it

leads to a major part of decision-making involves the analysis of a finite

set of alternatives described in terms of evaluative criteria. Then the task

might be to rank these alternatives in terms of how attractive they are to

the decision-maker(s) when all the criteria are considered simultaneously.

Another task might be to find the best alternative or to determine the

relative total priority of each alternative (for instance, if alternatives

represent projects competing for funds) when all the criteria are

considered simultaneously.
Solving such problems is the focus of multiple-criteria decision

analysis (MCDA). This area of decision-making, although very old, has

attracted the interest of many researchers and practitioners and is still

highly debated as there are many MCDA methods which may yield very

different results when they are applied on exactly the same data. [4] This

leads to the formulation of a decision-making paradox. Logical decision-

making is an important part of all science-based professions, where

specialists apply their knowledge in a given area to make informed

decisions. For example, medical decision-making often involves

a diagnosis and the selection of appropriate treatment. But naturalistic

decision-making research shows that in situations with higher time

pressure, higher stakes, or increased ambiguities, experts may

use intuitive decision-making rather than structured approaches. They

may follow a recognition primed decision that fits their experience and

arrive at a course of action without weighing alternatives.

Characteristics of Problem Analysis

 Problems are merely deviations from performance standards

 Problems must be precisely identified and described

 Problems are caused by a change from a distinctive feature

 Something can always be used to distinguish between what has and

hasn’t been affected by a cause

 Causes of problems can be deduced from relevant changes found in

analyzing the problem

 Most likely cause of a problem is the one that exactly explains all the

facts, while having the fewest (or weakest) assumptions.

Characteristics of Decision-Making

 Objectives must first be established

 Objectives must be classified and placed in order of importance

 Alternative actions must be developed

 The alternatives must be evaluated against all the objectives

 The alternative that is able to achieve all the objectives is the

tentative decision

 The tentative decision is evaluated for more possible

consequences

 The decisive actions are taken, and additional actions are taken to

prevent any adverse consequences from becoming problems and

starting both systems (problem analysis and decision-making) all

over again
  There are steps that are generally followed that result in a decision

model that can be used to determine an optimal production plan

 In a situation featuring conflict, role-playing may be helpful for

predicting decisions to be made by involved parties.

7 Decision-Making Process Steps

 Identify the decision. To make a decision, you must first identify the

problem you need to solve or the question you need to answer

 Gather relevant information

 Identify the alternatives

 Weigh the evidence

 Choose among alternatives

 Take action

 Review your decision.

Problem Analysis on Decision Making

Analysis Paralysis

Analysis paralysis is the state of over-analyzing (or over-thinking) a

situation so that a decision or action is never taken, in effect paralyzing

the outcome.
Information Overloads

The volume of information and the tools we have to assimilate” it.

Information used in decision making is to reduce or eliminate

uncertainty. Excessive information affects problem processing and

tasking, which affects decision-making. Crystal C. Hall and colleagues

described an “illusion of knowledge”, which means that as individuals

encounter too much knowledge it can interfere with their ability to

make rational decisions.

Post-Decision Analysis

Evaluation and analysis of past decisions is complementary to

decision-making. See also mental accounting and Postmortem

documentation. Decision-making is a region of intense study in the

fields of systems neuroscience, and cognitive neuroscience. Several

brain structures, including the anterior cingulate

cortex (ACC), orbitofrontal cortex and the overlapping ventromedial

prefrontal cortex are believed to be involved in decision-making

processes. A neuroimaging study[15] found distinctive patterns of neural

activation in these regions depending on whether decisions were

made on the basis of perceived personal volition or following

directions from someone else. Patients with damage to

the ventromedial prefrontal cortex have difficulty making

advantageous decisions. A common laboratory paradigm for studying

neural decision-making is the two-alternative forced choice task

(2AFC), in which a subject has to choose between two alternatives

within a certain time. A study of a two-alternative forced choice task

involving rhesus monkeys found that neurons in the parietal cortex not

only represent the formation of a decision but also signal the degree of

certainty (or “confidence”) associated with the decision. [18] Another

recent study found that lesions to the ACC in the macaque resulted in

impaired decision-making in the long run of reinforcement guided

tasks suggesting that the ACC may be involved in evaluating past

reinforcement information and guiding future action. A 2012 study

found that rats and humans can optimally accumulate incoming

sensory evidence, to make statistically optimal decisions.

Emotions

Emotion appears able to aid the decision-making process. Decision-

making often occurs in the face of uncertainty about whether one's

choices will lead to benefit or harm (see also Risk). The somatic

marker hypothesis is a neurobiological theory of how decisions are

made in the face of uncertain outcome. This theory holds that such

decisions are aided by emotions, in the form of bodily states, that are

elicited during the deliberation of future consequences and that mark

different options for behavior as being advantageous or

disadvantageous. This process involves interplay between neural

systems that elicit emotional/bodily states and neural systems that

map these emotional/bodily states. A recent lesion mapping study of

152 patients with focal brain lesions conducted by Aron K. Barbey and

colleagues provided evidence to help discover the neural mechanisms

of emotional intelligence.

Two Techniques of Decision Making

Decision-making techniques can be separated into two broad

categories: group decision-making techniques and individual decision-

making techniques. Individual decision-making techniques can also

often be applied by a group.

On Group Decision-Making

 Consensus decision-making tries to avoid "winners" and

"losers". Consensus requires that a majority approve a given

course of action, but that the minority agrees to go along with the
 course of action. In other words, if the minority opposes the course

of action, consensus requires that the course of action be modified

to remove objectionable features.

 Voting-based methods:

o Majority requires support from more than 50% of the members

of the group. Thus, the bar for action is lower than with

consensus.

o Plurality, where the largest block in a group decides, even if it

falls short of a majority.

o Quadratic voting allows participants to cast

their preference and intensity of preference for each decision

(as opposed to a simple for or against decision). It addresses

issues of voting paradox and majority-rule.

o Range voting lets each member score one or more of the

available options. The option with the highest average is

chosen. This method has experimentally been shown to

produce the lowest Bayesian regret among common voting

methods, even when voters are strategic.[citation needed]

 Delphi method is a structured communication technique for

groups, originally developed for collaborative forecasting but has

also been used for policy making.

 Dotmocracy is a facilitation method that relies on the use of

special forms called Dotmocracy Sheets to allow large groups to

collectively brainstorm and recognize agreement on an unlimited

number of ideas they have authored.

 Participative decision-making occurs when an authority opens up

the decision-making process to a group of people for a

collaborative effort.

 Decision engineering uses a visual map of the decision-making

process based on system dynamics and can be automated

through a decision modeling tool, integrating big data, machine

learning, and expert knowledge as appropriate.

On Individual Decision-Making

Decisional balance sheet: listing the advantages and disadvantages

(benefits and costs, pros and cons) of each option. Expected-value

optimization: choosing the alternative with the highest probability-

weighted utility, possibly with some consideration for risk aversion.

This may involve considering the opportunity cost of different

alternatives.

 Satisficing: examining alternatives only until the first acceptable

one is found. The opposite is maximizing or optimizing, in which

 many or all alternatives are examined in order to find the best

option.

 Acquiesce to a person in authority or an "expert"; "just following

orders".

 Anti-authoritarianism: taking the most opposite action compared

to the advice of mistrusted authorities.

 Flipism e.g. flipping a coin, cutting a deck of playing cards, and

other random or coincidence methods – or prayer, tarot cards,

astrology, augurs, revelation, or other forms of divination,

superstition or pseudoscience.

 Automated decision support: setting up criteria for automated

decisions.

 Decision support systems: using decision-making software when

faced with highly complex decisions or when considering many

stakeholders, categories, or other factors that affect decisions.

A variety of researchers have formulated similar prescriptive steps

aimed at improving decision-making.

General Decision-Making Style (GDMS)

In the general decision-making style (GDMS) test developed by

Suzanne Scott and Reginald Bruce, there are five decision-making

styles: rational, intuitive, dependent, avoidant, and

spontaneous. These five different decision-making styles change

depending on the context and situation, and one style is not

necessarily better than any other. In the examples below, the

individual is working for a company and is offered a job from a different

company.

 The rational style is an in-depth search for, and a strong

consideration of, other options and/or information prior to making a

decision. In this style, the individual would research the new job

being offered, review their current job, and look at the pros and

cons of taking the new job versus staying with their current

company.

 The intuitive style is confidence in one's initial feelings and gut

reactions. In this style, if the individual initially prefers the new job

because they have a feeling that the work environment is better

suited for them, then they would decide to take the new job. The

individual might not make this decision as soon as the job is

offered.

 The dependent style is asking for other people's input and

instructions on what decision should be made. In this style, the

 individual could ask friends, family, coworkers, etc., but the

individual might not ask all of these people.

 The avoidant style is averting the responsibility of making a

decision. In this style, the individual would not make a decision.

Therefore, the individual would stick with their current job.

 The spontaneous style is a need to make a decision as soon as

possible rather than waiting to make a decision. In this style, the

individual would either reject or accept the job as soon as it is

offered.

3.1 Organization/Individual/Personal

There are a few characteristics that differentiate organizational

decision-making from individual decision-making as studied in lab

experiments.

1. Unlike most lab studies of individual decision-making, ambiguity is

pervasive in organizations. There is often only ambiguous information,

and there is ambiguity about preferences as well as about interpreting

the history of decisions.

2. Decision-making in and by organizations is embedded in

a longitudinal context, meaning that participants in organizational

decision-making are a part of on-going processes. Even if they don’t

take on active roles in all phases of decision-making, they are part of

the Decision Process and its consequences. Decisions in

organizations are made in a sequential manner, and commitment may

be more important in such processes than judgmental accuracy. In

contrast, most lab studies of individual decision-making are conducted

in artificial settings (lab) that are not connected to the subjects’ on-

going activities.

3. Incentives play an important role in organizational decision-

making. Incentives, penalties, and their ramifications are real and may

have long-lasting effects. These effects are intensified due to the

longitudinal nature of decision-making in organizational settings.

Incentives and penalties are very salient in organizations, and often

they command managerial attention.

4. Many executives, especially in middle management, may

make repeated decisions on similar issues. Managers may develop a

sense of using his/her skills (which may be faulty) and a sense of

having control and using one’s skills are pervasive in managerial

thinking about risk taking. Several repeated decisions are made by

following rules rather than by using pure information processing

modes.

5. Conflict is pervasive in organizational decision-making. Many times

power considerations and agenda setting determine decisions rather

than calculations based on the decision’s parameters. The nature of

 authority relations may have a large impact on the way decisions are

made in organizations, which are basically political systems

3.2 Basic and Routinary

Tactical or routine decisions are made repetitively following certain

established rules, procedures and policies. They neither require collection of

new data nor conferring with people. Thus, they can be taken without much

deliberation. They may be complicated but are always one-dimensional. They

do not require any special effort by the manager.

Such decisions are generally taken by the managers at the middle and lower

management level. Strategic or basic decisions, on the other hand, are more

important and so they are taken generally by the top management and middle

management. The higher the level of a manager, the more strategic decisions

he is required to take. The strategic decisions relate to policy matters and so

require a thorough fact finding and analysis of the possible alternatives.

Finding the correct problem in such decisions assumes great importance. The

managers are more serious about such decisions as they influence decision-

making at the lower levels. Decision making may be classified under various

categories based on the scope, importance and the impact. Decisions have

been classified by various authorities in various ways.

3.3. Programmed and Non-Programmed Decisions:

Programmed decisions are repetitive in nature. Such decisions deal with

simple, common, frequently occurring problems that have established

procedures. These decisions are taken based on the existing policy, rule or

procedure of the organization. For example: making purchase orders,

sanctioning of different types of leave, increments in salary, etc. Managers in

dealing with such issues of routine nature, follow the established procedures.

Non-programmed decisions are not routine in nature. They are related to

exceptional situations for which there are no established procedures. For

example- Issues relating to declining market share, increasing competition,

etc. fall in this category. These problems have to be handled in a different

way. Many of the decisions that managers at top levels make are non-

programmed decisions.

3.4 Decision-Making Techniques: Traditional and Modern Techniques!

Decision-making has become a complex problem. A number of techniques

are available which help in taking decisions. The nature and significance of

decision will determine the type of technique to be used. The selection of

appropriate technique depends upon the judgment of decision maker. The

decision making techniques can be classified into traditional and modern.

The important techniques of decision-making are as follows:

3.4a. Traditional Techniques of Decision-Making:

The decisions can be classified into programmed decisions and non-

programmed decisions. Both the classifications have different decision-

making techniques.\

3.4a. Decision-Making for Programmed Decisions:

Following techniques are used for taking programmed decisions:

(a) Standard Procedures and Rules:

Every organization develops standard procedures and rules for taking routine

and repetitive decisions. Whenever needed, a manager refers to the standard

procedures and rules before taking simple decisions. An effort is made to

have consistency in routine decisions. Routine decisions do not require

application of special skill and knowledge so such decisions can be taken

without much difficulty.

(b) Organizational Structure:

A relationship is established between a superior and a subordinate. This

relationship comes out of organizational structure. Persons at different

organizational structures are assigned work to be done by them. For taking

up this work, managers need authority to take decisions. The authority to take

decisions needs proper information back up. All managers or decision making

centres are linked to information system for supplying information when

needed.

3.5b. Decision-Making for Non-Programmed Decisions:

Non-programmed decisions are strategic in nature and require separate

analysis and interpretation. The quantitative and scientific techniques help in

taking such complex and unique problems. A manager does not entirely

depend upon his knowledge, ability and judgment but these skills are

associated with scientific methods for achieving good results. The use of

quantitative techniques ensures high degree of precision and accuracy.

Some of these techniques are explained below:

(a) Linear Programming:

This technique is used to determine the best use of limited resources for

achieving a given objective. It is based on the assumption that there exists a

linear relationship between variables and the limits of variations could be

ascertained. It is particularly helpful where input data can be quantified and

objectives are subject to definite measurement. Linear programming is

applicable in such problem areas as production planning, transportation,

warehouse location and utilization of production and warehouse facilities at

an overall minimum cost.

(b) Probability Theory:

This statistical tool is based on the assumption that certain things are likely to

happen in future in a manner which can be predicted to some extent by

assigning various probabilities. In this technique pay-off matrices and decision

trees are constructed to represent variables. The decision tree is an extension

of pay-off matrices and helps the managers in assigning financial results to

various available recourses of action, modifying these result probabilities and

comparing them for selecting an appropriate course of action.

(c) Game Theory:

Game theory helps in making decisions under competitive situations. It was

basically developed for use in wars so that actions of the army can be

decided in the light of actions taken by opposite army. The term “game’ it

represents conflicts between two or more parties. The game is described by

set rules. These rules clearly specify what each person, called player, is

required to do under all possible set of circumstances. A person has to

consider a rational course of action by not only by considering his actions but

also by considering the actions of other persons. All players act intelligently
and rationally and are well informed about the decision situation except the

opponent’s actions in a particular period. For each player the outcome may

represent a gain or loss or a draw

(d) Queuing Theory:

It is also known as ‘waiting line theory’ to be applied for maintaining a balance

between the cost of waiting line and cost of preventing the waiting line in

respect of utilization of personnel, equipment and services. In waiting line

situations, problems arise because of either too much demand on the

facilities, in which case we may say that there is an excess of waiting time or

that there are not enough service facilities or too little demand in which case

there is either too much idle facility time or too many facilities.

An effort is made to obtain balance between the costs associated with waiting

time and idle time and queuing theory helps in achieving this balance. This

theory helps in arriving at a decision about the provision of optimum facilities.

It should be noted that this theory does not directly solve the problem of

minimizing the total waiting and service costs but it provides the management

with information necessary to take relevant decisions for the purpose.

 (e) Network Techniques:

Network technique is used for preparing and controlling the project activities.

Project Evaluation and Review Technique (PERT) and Critical Path Method

(CPM) are used for planning; monitoring and implementing time bound

projects. These techniques help managers in deciding the logical sequence in

which various activities will be performed. By applying these techniques large

and complex projects can be executive within the stipulated time and cost.

2. Modern Techniques of Decision-Making:

Modern business is facing drastic changes in working. The decision-making is

becoming more and more complex these days. The changing and challenging

business environment requires special attention for decision making process.

Some techniques followed at present are discussed as follows:

(a) Heuristic Techniques:

This technique is based on the assumption that in a complex and changing

business situation strategic problems cannot be solved by applying rational

and scientific techniques. In an uncertain environment and conflicting

interests the problem will have to be fragmented into small components for

taking a realistic view. By splitting the problem into small parts and analysing

each part separately, a decision can be reached. It is a trial and error method

based on rules of thumb. Heuristic techniques are developed by managers to

deal with various components at different stages. Computers can easily be

used for solving complex and strategic problems. This technique is a more

refined way of trial and error method because it is developed by applying

analytical and creative approach.

(b) Participative Decision-Making:

It is method of applying democratic means for decision making process. In

traditional managerial techniques, decisions are taken at top levels of

management and these are intimated to lower levels for implementation. In

participative decision-making, employees at various levels are involved in

making various decisions. When subordinates are made a part of decision

making, it not only helps in getting the advantage of their practical experience

but also helps in implementing decisions properly. The subordinate staffs feel

motivated and encouraged and take active interest in the work ing.

3.5a. Systematic Approach to Decision Making

A logical and systematic decision-making process helps you address the

critical elements that result in a good decision. By taking an organized

approach, you're less likely to miss important factors, and you can build on the

approach to make your decisions better and better.

There are six steps to making an effective decision:

1. Create a constructive environment.

2. Generate good alternatives.

3. Explore these alternatives.

4. Choose the best alternative.

5. Check your decision.

6. Communicate your decision, and take action.

3.5b. Operational Approach to Decision Making

Operational decisions are short-term decisions that are made generally

weekly, daily, or hourly, focusing mainly on the details of operations, day-to-

day resource allocation, details of inventory control, and delivery routing, to

ensure the efficiency of operations and an optimized flow of products along

the biomass-based production chains. Operational decisions can be revised

and adjusted frequently, due to the dynamic structure of internal and external

conditions of supply chains and associated activities.

Operational decisions are made to execute the short-term processes with the

aim of achieving the long- and medium-term goals that the strategic and

tactical level decisions have adopted. Given the constraints established by

the configuration and medium-term planning policies, the goal during the

operational level is to guarantee the continuous operation of the facilities in

the supply chain and to maximize benefit from short-term activities. These

activities include:

 daily and weekly forecasting to estimate the end users’ demand,

 setting the due date when demand is to be met and reviewing the

variations between lead time and due date,

 daily and weekly production planning and scheduling,

 allocation of a shipment of biomass sources or products to a particular

transportation mode and vehicle,

 daily and weekly delivery schedules and routes, fleet management,

 monitoring shortage of supply and backlogs, planning additional

activities in daily and weekly basis to meet the shortages,

 daily and weekly inventory control and replenishment,

 Organizing the labor and working shifts.

 3.6 George P Huber Model on Decision Making

3.7. Certainty, Risk and Uncertainty Continuum

After reading this article you will learn about Decision-Making under Certainty,

Risk and Uncertainty.

a. Decision-making under Certainty:

A condition of certainty exists when the decision-maker knows with

reasonable certainty what the alternatives are, what conditions are associated

with each alternative, and the outcome of each alternative. Under conditions

of certainty, accurate, measurable, and reliable information on which to base

decisions is available.

The cause and effect relationships are known and the future is highly

predictable under conditions of certainty. Such conditions exist in case of

routine and repetitive decisions concerning the day-to-day operations of the

business.

b. Decision-making under Risk:

When a manager lacks perfect information or whenever an information

asymmetry exists, risk arises. Under a state of risk, the decision maker has

incomplete information about available alternatives but has a good idea of the

probability of outcomes for each alternative.

While making decisions under a state of risk, managers must determine the

probability associated with each alternative on the basis of the available

information and his experience.

 c. Decision-making under Uncertainty:

Most significant decisions made in today’s complex environment are

formulated under a state of uncertainty. Conditions of uncertainty exist when

the future environment is unpredictable and everything is in a state of flux.

The decision-maker is not aware of all available alternatives, the risks

associated with each, and the consequences of each alternative or their

probabilities.

The manager does not possess complete information about the alternatives

and whatever information is available, may not be completely reliable. In the

face of such uncertainty, managers need to make certain assumptions about

the situation in order to provide a reasonable framework for decision-making.

They have to depend upon their judgment and experience for making

decisions.

Modern Approaches to Decision-making under Uncertainty:

There are several modern techniques to improve the quality of decision-

making under conditions of uncertainty.

The most important among these are:

(1) Risk analysis,

(2) Decision trees and

(3) Preference theory.

Risk Analysis:

Managers who follow this approach analyze the size and nature of the risk

involved in choosing a particular course of action.

For instance, while launching a new product, a manager has to carefully

analyze each of the following variables the cost of launching the product, its

production cost, the capital investment required, the price that can be set for

the product, the potential market size and what percent of the total market it

will represent. Risk analysis involves quantitative and qualitative risk

assessment, risk management and risk communication and provides

managers with a better understanding of the risk and the benefits associated

with a proposed course of action. The decision represents a trade-off

between the risks and the benefits associated with a particular course of

action under conditions of uncertainty.

Decision Trees:

These are considered to be one of the best ways to analyze a decision. A

decision-tree approach involves a graphic representation of alternative

courses of action and the possible outcomes and risks associated with each

action. By means of a “tree” diagram depicting the decision points, chance

events and probabilities involved in various courses of action, this technique

of decision-making allows the decision-maker to trace the optimum path or

course of action.

Preference or Utility Theory:

This is another approach to decision-making under conditions of uncertainty.

This approach is based on the notion that individual attitudes towards risk

vary. Some individuals are willing to take only smaller risks (“risk averters”),

while others are willing to take greater risks (“gamblers”). Statistical

probabilities associated with the various courses of action are based on the

assumption that decision-makers will follow them. 3 For instance, if there

were 60 percent chances of a decision being right, it might seem reasonable

that a person would take the risk. This may not be necessarily true as the

individual might not wish to take the risk, since the chances of the decision

being wrong are 40 percent. The attitudes towards risk vary with events, with

people and positions.

Top-level managers usually take the largest amount of risk. However, the

same managers who make a decision that risks millions of rupees of the

company in a given program with a 75 percent chance of success are not

likely to do the same with their own money. Moreover, a manager willing to

take a 75 percent risk in one situation may not be willing to do so in another.

Similarly, a top executive might launch an advertising campaign having a 70

percent chance of success but might decide against investing in plant and

machinery unless it involves a higher probability of success.

Though personal attitudes towards risk vary, two things are certain.

Firstly, attitudes towards risk vary with situations, i.e. some people are risk

averters in some situations and gamblers in others.

Secondly, some people have a high aversion to risk, while others have a low

aversion.

Most managers prefer to be risk averters to a certain extent, and may thus

also forego opportunities. When the stakes are high, most managers tend to

be risk averters; when the stakes are small, they tend to be gamblers.
Ten Guided Questions on Decision Making Definition and Classification

1. What is the definition of Decision Making?

2. Names at least three (3) Characteristics of Problem Analysis

3. Names at least three (3) Characteristics of Decision-Making

4. Enumerate the seven (7) Decision-Making Process Steps

5. What are two (2) Techniques of Decision Making?

6. Enumerate the five (5) General Decision-Making Style (GDMS)

7. What are the six (6) steps in making an effective decision?

8. How would you understand Decision-making under Certainty?

9. Names at least three (3) activities under Operational Approach to

Decision Making

10. What the three (3) important conditions on Decision-making under

Uncertainty?

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