CHAPTER FOUR

DECISION MAKING

4.1 Meaning of decision making

Decision-making is a conscious choice among analyzed alternatives, followed by action

to implement a choice. It can be defined as a solution selected after examining several
alternatives chosen because the decider foresees that the course of action he selects
will be more than others to further his goals and will be accompanied by the fewest
possible objectionable consequences.

Decision-making is a selection process, the means to achieve the end, the application of
intellectual abilities to a great extent, a dynamic process, situational and taken to
achieve the objectives of an organization. Decision making includes the evaluation of
available alternatives through critical appraisal methods.Decision-making is defined as a
rational choice among alternatives. There have to be options to choose from; if there
are not, there is no choice possible and no decision. Decision-making is a process, not a
lightning bolt occurrence. In making the decision, a manager is making a judgment,
reaching a conclusion, from a list of known alternatives. Decision-making is part of
every aspect of the manager’s duties, which include planning, organizing, staffing,
leading and controlling, i.e. decision-making is universal. In all managerial functions
decision-making is involved. All managerial functions have to be decided. For example,
managers can formulate planning objectives only after making decisions about the
organization’s basic mission

Effective decision making requires a rational selection of a course of action. Managers’

goals can be reached under existing circumstances and limitations. They must also have
the information and the ability to analyze and evaluate alternatives in the light of the
goals sought. And finally, they must have a desire to come to the best solution by
selecting the alternative that most effectively satisfies goal attainment. Thus, rationality
implies making decision based on facts, experience, experimentation or research and
analysis with distinct procedure.

4.2 The Decision‐Making Process

Managers are constantly called upon to make decisions in order to solve problems.
Decision-making and problem solving are ongoing processes of evaluating situations or
problems, considering alternatives, making choices, and following them up with the
necessary actions. Sometimes the decision-making process is extremely short, and
mental reflection is essentially instantaneous. In other situations, the process can drag

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on for weeks or even months. The entire decision-making process is dependent upon
the right information being available to the right people at the right times.

1. Identifying problems

A necessary condition for a decision to exist is a problem - the discrepancy between an

actual and desired state; a gap between where one is and where one wants to be. If
problems do not exist, there will be no need for decisions; i.e. problems are
prerequisites for decisions. How critical a problem for the organization is measured by
the gap between levels of performance specified in the organization’s goals and
objectives and the level of performance attained; i.e. it is measured by the gap
between level of performance specified (standards set) and level of performance
attained. The problem is very critical when the gap between the standard set and actual
performance attained is very high. To locate problems, managers rely on several
different indicators:

 Deviations from past performance. A sudden change in some established pattern of

performance often indicates that a problem has developed. When employee
turnover increases, sales decline, selling expenses increase, or more defective units
are produced, a problem usually exists.
 Deviation from plan. When results do not meet planned objectives, a problem is
likely. For example, a new product fails to meet its market share objective, profit
levels are lower than planned, the production department is exceeding its budgets.
These occurrences signal that some plan is off course.
 Out side criticism. The actions of outsiders may indicate problems. Customers may
be dissatisfied with a new product or with their delivery schedules; a labor union
may present a grievance; investment firms may not recommend the organization as
a good investment opportunity; alumni may withdraw their support from an athletic
program.

Confusions are common in problem definition because the events or issues that attract
the manager’s attention may be symptoms of another more fundamental and pervasive
difficulty than the problem itself. That is, there may exist confusion on the
identification of a problem and its symptoms. The accurate definition of a problem
affects all the steps that follow. Managers once they have identified problems, they
have to try to diagnose the cause of the problem. Causes unlike symptoms are seldom
apparent.

2. Developing Alternatives

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Before a decision is made feasible alternatives should be developed. This is a search
process in which relevant internal and external environment of the organization are
investigated to provide information that can be developed into possible alternatives. At
this point it is necessary to list as many possible alternatives solutions to the problem as
you can. No major decision should be made until several alternative solutions have
been developed. Decision-making at this stage requires finding creative and imaginative
alternatives using full mental faculty. The manager needs help in this situation through
brainstorming or Delphi technique.

3. Evaluating Alternatives

Once managers have developed a set of alternatives, they must evaluate them to see
how effective each would be. Each alternative must be judged in light of the goals and
resources of the organization and how well the alternative will help solve the problem.
In addition, each alternative must be judged in terms of its consequences for the
organization. Will any problems arise when a particular course of action is followed?
Such factors as worker’s willingness…

4. Choosing an Alternative

Based on the evaluation made managers select the best alternative. In trying to select
an alternative or combination of alternatives, managers find a solution that appears to
offer the fewest serious disadvantages and the most advantages. The purpose of
selecting an alternative is to solve the problem so as to achieve a predetermined
objective. Managers should take care not to solve one problem and create another with
their choice. A decision is not an end by itself but only a means to an end. This means
the factors that lead to implementation and follow –up should follow solution selection.

5. Implementing the Chosen Solution

For the entire decision-making process to be successful, considerable thought must be

given to implementing and monitoring the chosen solution. It is possible to make a
"good' decision in terms of the first five steps and still have the process fail because of
difficulties at this final step. A decision that is not implemented is little more than an
abstraction. In other words, any decision must be effectively implemented to achieve
the objectives for which it was made. Implementing a decision involves more than
giving orders. Resources must be acquired and allocated. Decisions are not ends by
themselves they are means to an end; so proper implementation is necessary to
achieve that end.

6. Establishing a control and evaluation system

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 Monitoring is necessary to ensure that things are progressing as planned and that the
problem that triggered the decision process has been resolved. Effective management
involves periodic measurements of results. Actual results are compared with planned
results (the objective); if deviations exist, changes must be made. Here again we see
the importance of measurable objectives. If such objectives do not exist, then there is
no way to judge performance. If actual results do not much planned results, then the
changes must be made in the solution chosen, in its implementation, or in the original
objective if it deemed unattainable. The various actions taken to implement a decision
must be monitored. The more important the problem, the greater the effort that needs
to be expended on appropriate follow up mechanisms. Are things working according to
plan? What is happening in the internal and external environments as a result of the
decision? Are subordinates performing according to expectations? ……. must be closely
monitored.

4.3 Types of decision

Although managers in large business organizations, government offices, hospitals and

schools may be separated by background, lifestyle and distance, they all sooner or later
must share the common experience of making decisions. They all will face situations
involving several alternatives and an evaluation of the outcome. In this section we will
discuss two types of decisions.

Types of Decisions

Decisions can be classified in to: programmed and non programmed.

1. Programmed Decisions

Programmed decisions are those made in routine, repetitive, well-structured situations

through the use of predetermined decision rules. The decision rules may be based on
habit, computational techniques, or established policies and procedures. Such rules
usually stem from prior experience or technical knowledge about what works in the
particular type of situation. Most of the decisions made by first line managers and many
of those made by middle managers are the programmed type, but very few of the
decisions made by top-level managers are the programmed type. Managers can usually
handle programmed decisions through rules, procedures, and policies.

E.g. Establishing a re-order point, Decide if students meet graduation requirements,

Determination of employee pay rates

2. Non-programmed Decisions

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Non-programmed decisions are used to solve non-recurring, novel, and unstructured
problems. No well-established procedure exists for handling them, because it has not
occurred before managers do not have experience to draw up on, or problems are
complex or completely new. Because of their nature non-programmed decisions usually
involve significant amounts of uncertainty. They are treated through farsightedness.
Most of the highly significant decisions that managers make fall into the non-
programmed category. Non-programmed decisions are commonly found at the middle
and top levels of management and are often related to an organization’s policy-making
activities.

E.g. To add a product to the existing product line, to reorganize a company, to acquire
another firm

Types of Managerial Decisions

Type of Type of Procedures Examples
decisions problem
Programmed Repetitive, Rules, Business: processing payroll vouchers
routine standard College: processing admission applicants
operating Hospital: preparing patient for surgery.
procedures, Government: using state owned motor
policies vehicle.
Non- Complex, Creative Business: introducing a new product.
programmed novel problem College: constructing new classroom
solving facilities
Hospital: reacting to regional disease
epidemic
Government: solving spiraling inflation
problem

Decision-Making Conditions

When managers make decisions, the amount of information available to them or the
degree of knowledge they have about the likelihood of the occurrence of each
alternative vary from managers to managers or/and from situation to situation. To put
it in other way, decisions are made under three basic conditions. These are condition of
certainty, condition of risk, and condition of uncertainty.

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 1. Decision-making under Certainty

When managers know with certainty what their alternatives are and what conditions are
associated with each alternative, a state of certainty exists. Decisions under certainty
are those in which the external conditions are identified and very predictable; i.e. we
are reasonably sure what will happen when we make a decision. The information is
available and is considered to be reliable, and we know the cause and effect
relationships. In decision-making under certainty there is a little ambiguity and relatively
low chance of making poor/bad decisions. Decision-making under certainty seldom
occurs, however, because external conditions seldom are perfectly predictable and
because it is impossible to try to account for all possible influences on any given
outcome it is very rare.

2. Decision-making under Risk

A more common decision-making situation is under risk. Under the state of risk, the
availability of each alternative, the likelihood of its occurrence and its potential payoffs
and costs are associated with probability estimates; i.e. decisions under risk are those
in which probabilities can be assigned to the expected outcomes of each alternative. In
a risk situation, managers may have factual information, but it may be incomplete.
There is moderate ambiguity and moderate chance of making bad decision.

E.g. tossing a coin, metrology

3. Decision-making under Uncertainty

Under this condition the decision maker does not know what all the alternatives are,
what the probability of each will occur is or what consequence each is likely to have.
This uncertainty comes from the dynamism of contemporary organizations and their
environment. Big multi-national corporations assume these kinds of decisions. Decision-
making under uncertainty is the most ambiguous and there is high chance of making
poor decisions. In decision-making under uncertainty, probabilities cannot be assigned
to surrounding conditions such as competition, government regulations, technological
advances, the overall economy, etc. Uncertainty is associated with the consequences of
alternatives, not the alternatives themselves. The decision-making is like being a
pioneer. Reliance on experience, judgment, and other people's experiences can assist
the manager is assessing the value of alternatives.

E.g. Innovation of new machine, journey of discoverers.

Why Do Managers Make Poor Decisions?

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All managers recognize the importance of making sound decisions. Yet most managers
readily admit having made poor decisions that hurt their company or their own
effectiveness. Why do managers make mistakes? Why don’t decision always result in
achieving some desired goal? Making the wrong decision can result from any one of
these decision-making errors:

 Lack of adequate time: Waiting until the last minute to make a decision often
prevents considering all alternatives. It also hampers thorough analyses of the
alternatives.

 Failure to define goals: Objectives cannot be attained unless they are clearly
defined. They should be explicitly stated so that the manager can see the
relationship between a decision and a desired result.

 Using unreliable sources of information: A decision is only as good as the

information on which it is based. Poor sources of information always result in poor
decisions.

 Fear of consequences: Managers often are reluctant to make bold,

comprehensive decisions because they fear disastrous results. A “plays it safe”
attitude sometimes limits a manager’s effectiveness.

 Focusing on symptoms rather than causes: Addressing the symptoms of a

problem will not solve it. Taking aspirin for a toothache may provide temporary
relief, but if an abscess causes the pain, the problem will persist. Business managers
too often foul on the results of problems instead of the causes.

 Reliance on Hunch and Intuition: Intuition, judgment and ‘feel’ are important
assets to the decision maker. But a manager who permits intuition to outweigh
scientific evidence is likely to make a poor decision.

Sometimes a manager’s decision is not exactly “poor”, but it still doesn’t produce
optimal results. Less than optimal decisions can have three causes:

1. Bounded rationality imposes limits on a decision, such as that it should be

economical or logistically practical. This limit serves as a screening device,
eliminating some of the alternatives. The manager must choose from the options
that have filtered through the restrictions. The overall optimal decision may no
longer be a valid option when using this method. The decision maker simply selects
the best alternative, given various specifications that must be met.

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2. Sub optimization is a manager’s tendency to operate solely in the interests of
his/her department rather than in the interests of the company as a whole. In
making a decision, the department manager cannot be so self-centered as to ignore
the effects of the action on other areas. The key is to improve the company’s
performance, not just the performance of one department.

3. Unforeseen changes in the business environment also cause less than optimal
decisions.

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