Decision Making

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FOUNDATION IN BUSINESS MGT1210: FUNDAMENTAL OF MANAGEMENT

TOPIC 3: DECISION MAKING


A decision is a choice or a judgment of what we need to do to achieve a certain objective.
Decision making therefore involves planning a course of action and setting controls to check
if the plan is proceeding towards the objective. The quality of the decisions made has a
direct effect on the success or failure of a business. It requires information of past
experiences and predictions of future events. Because the future is unknown, each decision
made carries a risk.

Decision Criteria

A large number of decisions have to be made in organization every day, but they are all very
different in nature. Decisions will vary with respect to the following factors:

- how much money is involved?


- the number of people affected by the decision.
- the scope of responsibility
- the time span within which the effects of the decision become noticeable
- the level of risk or uncertainty involved
- the emotional reaction provoked by the decision.

Decisions managers may make:


Planning
-what are the organization’s long term objectives?
-what strategies will best achieve those objectives?
-what should the organization’s short term objectives be?
-how difficult should individual goals be?
Organizing
-How many employees should I have report directly to me?
-How much centralization should there be in the organization?
-How should jobs be designed?
-When should the organization implement a different structure?
Leading
-How do I handle employees who appear to be low in motivation?
-What is the most effective leadership style in a given situation?
-How will a specific change affect worker productivity?
-When is the right time to stimulate conflict?
Controlling
-What activities in the organization need to be controlled?
-How should those activities be controlled?
-When is a performance deviation significant?
-What type of management information system should the organization have?

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FOUNDATION IN BUSINESS MGT1210: FUNDAMENTAL OF MANAGEMENT

Types of decisions

 Structured problems and programmed decisions

Some problems are straightforward. The decision maker’s goal is clear, the problem is
familiar and information about the problem is easily defined and complete. Example might
include when a customer returns a purchase to a store, such situation is called structured
problem because they are straight forward, familiar, and easily defined.

A programmed decision is a repetitive decision that can be handled using a routine


approach. Because the problem is structured, the manager doesn’t have to go to the trouble
and expense of going through an involved decision making process. With this type of
decision, the “develop the alternatives” stage of the decision making process either doesn’t
exist or is given little attention. Because once the structured problem is defined, the solution
is usually self-evident or at least reduced to a few alternatives that are familiar and have
proved successful in the past. Instead, the manager relies on one of the three types of
programmed decisions: procedure, rule or policy.

A procedure is a series of sequential steps a manager uses to respond to a structured


problem. The only difficulty is identifying the problem. Once the problem is clear, so the
procedure.

A rule is an explicit statement that tells a manager what can or cannot be done. Rules are
frequently used because they’re simple to follow and ensure consistency. E.g. rules about
lateness and absenteeism permit supervisors to make disciplinary decisions rapidly and
fairly.

A policy establishes general parameters for the decision maker rather than specifically
stating what should or should not be done. Policies typically contain an ambiguous term
that leaves interpretation up to the decision maker. E.g. customer always comes first and
should always be satisfied.

 Unstructured problems and non-programmed decisions.

Unstructured problems are problems that are new or unusual and for which information is
ambiguous or incomplete. When problems are unstructured, managers must rely on non-
programmed decision making in order to develop unique solutions.

Non-programmed decisions are unique and nonrecurring and involve custom made
solutions. Lower level managers mostly rely on programmed decisions because they
confront familiar and repetitive problems. As managers move up the organizational
hierarchy, the problems they confront become more unstructured. Because lower level
managers handle the routine decisions and let upper level managers deal with the unusual

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FOUNDATION IN BUSINESS MGT1210: FUNDAMENTAL OF MANAGEMENT

or difficult decisions. Also, upper level managers delegate routine decisions to their
subordinates so they can deal with more difficult issues.

Characteristics Programmed Decisions Non-programmed decisions


Type of problem Structured Unstructured
Managerial level Lower levels Upper levels
Frequency Repetitive, routine New, unusual
Information Readily available Ambiguous or incomplete
Goals Clear, specific Vague
Time frame for solution Short Relatively long
Solution relies on Procedures, rules, policies Judgment and creativity
Figure 1 : Programmed versus Non-programmed decisions

Steps in the decision making process

1. Analyze and define the problem


Problem analysis and definition involves a careful study of the problem itself, its causes
and its effect on the organization. To do this, the decision maker needs information from
the external and internal environment. He musts also bear in mind the objectives of the
organization, what does the organization hope to achieve in solving the problem.

There are four aspects to a problem:


i) the identity aspect
-what is the problem? (whey is there a problem?)
-what is the deviation from the norm?
ii) the geographical aspect
-where can the problem be found?
iii) the time frame aspect
-when did the problem start?
iv) the extent aspect
-how big is the problem?
-how frequently does the problem occur?

2. State the alternatives


When developing alternative solutions, the decision maker must again bear in mind the
organization’s objectives. The alternatives should bring him closer to these objectives,
not sacrifice nor compromise them.
Each alternative brings with it a certain amount of risk. The decision maker must state
the results or consequences of each proposed solution so that a comparison can be
made. What is the probability of the risk occurring? If the risk does occur, what impact
does it have on the organization?

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FOUNDATION IN BUSINESS MGT1210: FUNDAMENTAL OF MANAGEMENT

3. Select the best alternative


In order to choose among alternatives, the decision maker must have a list of criteria.
Criteria can be classified into those which must be met and those which are desirable
but not crucial to the decision. The desirable criteria can then be ranked in order of
importance.
Drucker suggests four criteria that can be used to decide the best alternative:
i) the risk related to the expected gain.
ii) the amount of effort required.
iii) the timing, e.g. whether a dramatic change is desirable or a slow, one step at a
time approach is more suitable.
iv) the availability of resources, especially human abilities.
Alternatives that do not meet the essential criteria are immediately eliminated. The
remaining alternatives are then compared against the desirable criteria. The alternative
selected is the one which performed best against the selection criteria and has the
amount of risk that the decision maker is willing to accept.
The common complaint of many managers that they do not have sufficient time to go
carefully through all the foregoing steps. Sometimes a quick decision is needed and it
may not be possible to gather all the facts before a decision is made. A quick decision is
not necessarily a good decision. Many managers who make quick decisions end up
spending more time undoing the damage.

4. Implement the plan of action


Put the decision into action by conveying it to those affected and getting their
commitment to it. We know that if the people who must implement a decision
participate in the process, they are more likely to support it than if you just tell them
who to do. Another thing managers may need to do during implementation is reassess
the environment for any changes, especially with a long term decision. Are the criteria,
alternatives and choices still the best ones, or has the environment changed in such a
way that you need to reevaluate.

5. Evaluating decision effectiveness


The last step in the decision making process involves evaluating the outcome or result of
the decision to see if the problem was resolved. If the evaluation shows that the
problem still exists, then the manager needs to assess what went wrong. Was the
problem incorrectly defined? Were errors made when evaluating alternatives? Was the
right alternative selected but poorly implemented? The answers might lead you to redo
an earlier step or might even require starting the whole process over.

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FOUNDATION IN BUSINESS MGT1210: FUNDAMENTAL OF MANAGEMENT

Analyze and define the


problem

State the alternatives

Select the best alternatives

Implement the plan of action

Evaluating decision
effectiveness

Figure 1: Decision making process

Barriers to effective decision making

1. Sometimes managers choose the alternative which requires the minimum amount of
time, effort and money. They look at problems superficially and implement minor
changes to existing policies. This may be the result of some or all of these factors:
 incompetent subordinates
 lack of adequate support staff and physical resources
 lack of training or ability to do the job
 lack of direction from top management
 poorly defined job specifications
 lack of feedback
2. Barrier arises when panic sets in because of the pressures of both the problem and lack
of time. The stress may make the manager unable to appraise the problem objectively.

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3. Managers may delay implementing a decision if they expect a change in the


environment.
4. Reverse delegation, the manager when faced with a problem of which he has had no
experience, delegates the responsibility for and consequences of making the decision to
a subordinate. The subordinate does not have the authority to be effective.

Improving decision making

1. Managers can become more effective at decision making if they acquire relevant
information.
2. Managers need to set priorities so that they can concentrate their efforts on the
important tasks. Time management and the setting of priorities are two important skills
that managers should acquire.
3. Managers need to proceed methodically and carefully, taking one step at a time. Time
and effort must be taken to study the problem carefully and the manager must keep in
mind the mistakes that others have made so as to avoid.

Making decision in a group

Methods of Group Decision Making

No two groups will ever function in the same way while involved in the process of decision
making. Some are proactive groups while there are other groups, which need a driving force
or a facilitator to facilitate the process. There are several methods of group decision-making.
Here are some of the common methods employed in the process of decision-making:

•Authoritarian Style

The authoritarian style is like a dictatorship, in which the decision ultimately rests in the
hands of one person. This style of decision-making is applicable in the presence of a
powerful person who dictates the entire process of decision-making and has the final
authority on the outcome. This style, although in use at various places, tends to have more
disadvantages than advantages because the people whose opinions are disregarded might
have negative feelings about the entire process. A variation of this method is the minority
control method wherein the group discusses the issues but the power of decision-making
rests not in the hands of one but a small group of people within the group.

•Brainstorming

This group decision-making method is best when the decision-making has to be started from
scratch, which means creating the various options and then weighing them. This is an
excellent method for group decisions, which is very popular owing to the complete creative
freedom it offers to all the participants. There can be a facilitator to facilitate the entire
discussion just to ensure that the people don’t digress. The facilitator can merely help to
start off the conversation, provide subtle hints and nudges when the participants get stuck

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FOUNDATION IN BUSINESS MGT1210: FUNDAMENTAL OF MANAGEMENT

and thus help to make effective and creative group decisions. The positive aspect of this
method is that it values the opinion of every individual member and the final decision is
reached by consensus.

•Voting Based Method

This is a group decision-making process, which is convenient to use when the group has
certain set of defined options before it and needs to pick out the optimum solution. A voting
system allows every participant to cast his/her vote for the option that he/she thinks is the
best. The option that gathers the maximum number of votes is selected. This method
however does not value the individual opinion of each and every participant in the group. A
variation of this method is the majority method wherein a majority of people within the
group has the power to pass the final decision.

Advantages and Disadvantages of Group Decisions

Like any other process, the process of taking group decisions has its own sets of advantages
and disadvantages. Here are the advantages and disadvantages of group decisions:

Advantages of Group Decisions:

1. Group decisions help to combine individual strengths of the group members and
hence has a set of varied skill sets applied in the decision making process.
2. Individual opinions can be biased or affected with pre-conceives notions are
restricted perspectives, group decision help to get a broader perspective owing
to differences of perception between individual in the group.
3. A group decision always means enhanced collective understanding of the course
of action to be taken after the decision is taken.
4. A group decision gains greater group commitment since everyone has his/her
share in the decision making.
5. Group decisions imbibe a strong sense of team spirit amongst the group
members and help the group to think together in terms of success as well as
failure.

Disadvantages of Group Decisions:

1. One of the major disadvantages of group decision making is that it is more time
consuming than the process of individual decision making.
2. Group decisions take longer to be finalized since there are many opinions to be
considered and valued.
3. In case of authoritarian or minority group decision making, the people whose
opinions are not considered tend to be left out from the decision making process
and hence the team spirit ceases to grow.
4. The responsibility and accountability of the decisions are not equally shared in some
cases which lead to a split in the group and hence hamper the overall efficiency of
the group.

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FOUNDATION IN BUSINESS MGT1210: FUNDAMENTAL OF MANAGEMENT

5. While involved in a group decision making process it is always better to study the
advantages and disadvantages of group decisions and hence formulate a group-
decision making process that suits your group and gives you the optimum results.

Tutorial questions:

1. Define decision making and comment on the types of decisions made.


2. Explain the steps in the decision making process.
3. What are the barriers to effective decision making?
4. Why are goals and objectives important to decision making?
5. What can managers do to improve their decision making abilities?
6. How do managers get their staff to accept unpopular decisions? What rules do managers use
when trying to decide on an issue?
7. Define the steps in the decision-making process.
8. Define certainty, risk, and uncertainty as they relate to decision making.
9. Identify the two types of decision problems and the two types of decisions that are used to
solve them.
10. Describe the advantages and disadvantages of group decisions.
11. Explain three techniques for improving group decision making.
12. Are problem solving and decision making really important? Explain.
13. Why is it necessary to determine the decision structure and decision-making conditions?
14. What is the currently trend in using groups to solve problems and make decisions?
15. Which potential disadvantages of group problem solving and decision making do you think is
most common?
16. Why generating and analyzing alternatives are separate steps in the decision-making model?

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