Decision Making

Decision Making
Concept of Decision Making

 The word decision has been derived from the Latin word
‘decidere’ which means ‘a cutting away or cutting off, or
in a practical sense’.
 Thus, a decision involves a cut of alternatives between
those that are desirable, and those that are not desirable.
The decision is a kind of choice of a desirable alternative.
 Decision making can be regarded as an outcome of
mental processes (cognitive process) leading to the
selection of a course of action among several alternatives.
Every decision making process produces a final choice.
The output can be an action or an opinion of choice.
Definitions
 1. Decision making is the study of identifying

and choosing alternatives based on the
values and preferences of the decision maker
 2. Decision making is the process of
sufficiently reducing uncertainty and doubt

about alternatives to allow a reasonable
choice to be made from among them.
 According to Koontz, “Decision making is the
selection of course of action from among

alternatives; is the core of planning”.
Process of Decision-Making
 Identify the problem:

 managers identify the problem is any
deviation from a set of expectations.

 scan the internal and external environment
 Diagnose the problem:
 find cause of the problem
 helps to define the problem; its causes,
dimensions, degree of severity and origin

 The exact reason is found and the problems
is said to have been diagnosed.

 Establish objectives:
 means deciding to solve the problem.
 Objective is the end result that managers achieve
through the decision-making process.
 Collect information:
 managers collect information from the internal and
external environment.
 Information provides inputs for generating solutions.
 Information can be quantitative or qualitative. It
should be reliable, adequate and timely so that right
action can be taken at the right time.
 Generate alternatives: Alternatives means developing
two or more ways of solving the problem. Managers
develop as many solutions as possible to choose the
best, creative and most applicable alternative to solve
the problem.
 Four principles which help to generate alternatives:
 Do not criticize ideas while generating possible
solution.
 Freewheel
 Offer as many ideas as possible.
 Combine and improve on ideas that have been
offered.
 Evaluate alternatives: All the alternatives are weighed against each other
with respect to their strengths and weakness. They are useful if they
help to achieve the objective. Alternatives are evaluated in terms of
acceptable criteria to analyze their impact on the problem. Various
quantitative and qualitative criteria against which alternatives are
evaluated are costs, resources and acceptable.
 Select the alternative: After evaluating the alternatives against accepted

criteria, managers screen the non-feasible alternatives and select the
most appropriate alternative to achieve the desired objective. Alternative
can be selected through the following approaches such as experience,
experimentation and research and analysis.

 Implement the alternative: The selected alternative should be accepted and
implemented by the organizational members. Implementations must be
planed. Those who will be affected by implantations should participate in the
implementations process to make it effective and fruitful. Implementations of
the alternative should ensure the following:
 The selected alternative should be communicated to everyone in the
organization.
 Changes in the organization structure because of implementation should be
communicated to everyone in the organization.
 Authority and responsibility for implementation should be specifically
assigned.
 Resources should be allocated to departments for carrying out the decisions.
 Budgets, schedules, procedures and controls should be established to ensure
effective implementation.
 A committed workforce should be promoted. Unless everyone is committed to
the decision the desired outcome will not be achieved.

 Monitor the implementation: The implantation
process should be monitored to know its
acceptability amongst organizational members.
The alternative should be regularly monitored,
through progress reports, to see whether the
objective for which it was selected is achieved or
not. If not, managers should make corrections
wherever necessary in the implementation
process. It may even require restart of the entire
decision-making process. If yes, such alternative
forms the basis for future decision-making.
Techniques of Decision Making
 There are two major types of techniques in

decision making:
 I Non-Quantitative Technique for Decision
Making (Qualitative)
 II Quantitative Technique for Decision Making
I Non-Quantitative Technique for Decision Making
 Non-Quantitative Technique is helpful not

only for problem dealing with objectives but
also for problem dealing with means to
accomplish the objectives.
 In application, these techniques are highly
personal and considered the natural way to

make a decision.
 Generally, there are 4 non-quantitative
techniques:
Non-Quantitative Technique for Decision Making
 1. Intuition:
 is characterized by the use of hunches, inner feeling or the gut-feeling of
the decision-maker.
 An intuitive decision maker approaches a problem with multiple methods,
using trial and error to find a solution and tends not to structure information
gathering or evaluation.
 Generally, suggestion, influences, preferences and psychological make-up of
the decision maker play an important part.
 Thus the subjective element is vital in decision-making process. The
common explanation by the decider is, “It is just the way I feel about it”.
 Successful intuitive decision maker move fast, an activist, find unique
solution to difficult problem, ability to sense opportunities and push forward
major decision by sheer conviction of belief. Managers who wish to improve
intuition may try:
 a. becoming more involved by filling their minds with facts and experiences
in the areas where their future decisions will be made.
 b. practicing intuitive decision making and keeping a score on how well such
decisions turned out.
 c. developing an awareness that hunches can help in the decision making.
 2. Facts:
 The old statement that “a decision should be based on adequate
facts” is still widely accepted.
 When facts are used in decision making, the decision has its root
in the factual data which implies that the premises on which the
decisions based are sound, solid and intensely applicable to the
particular situation.
 Decision making based on facts suffers from two limitations:
 a. Many strategic decisions are made under the condition of partial
ignorance as to acquire the facts may involve cost and time. It is
not always necessary that the decision maker is having both i.e.
cost and time.
 b. In reality, facts alone are not sufficient to make decisions.
Imagination, experience and beliefs are required to interpret the
facts and reduce uncertainty.
 3. Experience:
 Experience is a valuable asset to drive at a decision; it is a common
practice to draw assistance from past events.
 person’s past experience provides the guidelines for decision making.
It helps answer the question of what to do in a particular situation.
 similar situations along with their decisions, as well as unlike
situations and their decisions, can be recognized and evaluated and
the decisions are made.
 In a rapidly changing environment, past success in decision making
does not ensure future success.
 While using experience in decision making, one must evaluate whether
the past experience is relevant for the situation under which the
decision is being made.
 A manager should use experience but need not to be blindly bound by
it.
 4. Considered Opinions:
 For considered opinion, relevant data are collected and
analyzed.
 The results are discussed in a group meeting. Opinions
of various participants are sought and analyzed to arrive
at a decision.
 advantage of this technique is that variety of viewpoints
is taken into consideration. This may result in better
decision and its acceptability.
 However, the decision-making process becomes
lengthy and time consuming. Therefore, if urgency in a
decision is important, this technique is not very relevant
II Quantitative Technique for Decision Making
 1. Operational Research:
 In this technique various elements of a problem are expressed in
numerical forms, thereafter, the relationship between these
elements is established on the basis of numerical formula and the
decision is made on the basis of analysis of their relationship.
 “The quantitative study of an organization in action carried out in
order to find ways in which it functions can be improved is called
OR”
 OR helps in the following ways in making decision regarding
business activities:
 Or can be used in long-range planning, materials handling and
layouts, distribution of products, selling and marketing, and so on.
 OR helps in optimum allocation of resources in the organization
(to provide minimum resources to various units and sub-units).
 To make quick decision by managers of market factors in order to
deal growing competition in national and international markets.
 2. Decision Tree:
 It is a graphical method for identifying
alternative actions, estimating probabilities
and indicating the expected result.
 This technique is used especially in that
problem where decision involves a series of

steps as second step depends upon the
outcome of first step and third depends on
the outcome of second step.
 3. Linear programming:
 In all business organization machines, material and
money are the limited resources and organization

cannot afford their wastage.
 In order to assure the minimum cost, organization
tries to allocate all these resources in the best

possible manner. With the help of this technique the
problem of allocation of resources can be solve easily.
Here, one uses the maximization and minimization of
linear functions of variable subject to constraint.
Main use of Linear programming is that it is used in a
variety of resources allocation problems.
 4. Game theory: It is quite helpful in making decisions under

competitive situation.
 This theory basically provides an answer to those whose outcome
depends not only on his own actions but also on the action of
others by considering a rational course of action.
 This theory was developed for use in wars so that actions of his
army can be decided in the light of actions taken by opposite
army.
 The term ‘game’ represents a conflict between two or more
parties. Therefore, game theory is basically a ‘science of conflict’.
 Thus, game theory is not concerned with finding an optimum or
winning strategy for a particular conflict situation but it provides
general rules concerning the logic that underlies strategic
behavior in competitive situation.
 5. Queuing Theory or Waiting Line theory:
 This theory involves the mathematical study of ‘queues’ or waiting lines.
 A group of items waiting to receive service, including those receiving the service, is
known as queues.
 The formation of waiting lines is a common phenomenon. It may happen at the
service station, booking window, retail store, etc. At some point of time, there may
be a long queue while at other time, there may not be a single person waiting to get
service.
 Queuing theory helps in achieving this balance.

 The balance between the costs associated with waiting time and idle time is
necessary. Excessive waiting is costly because it may result in loss of customers
leading to the achievement of objectives adversely. Similarly if too many facilities
have been provided, some of the facilities will remain underutilized resulting in non-
achievement of objectives.
 Queuing theory helps in arriving at a decision about the provision of optimum
facilities.
 However, it should be noted that this theory does not directly solve the problem of
minimizing the total waiting and services costs but it provides the management with
information necessary to take relevant decisions for the purpose.


Decision Making

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Decision Making

Concept of Decision Making

 1. Decision making is the study of identifying

sufficiently reducing uncertainty and doubt

selection of course of action from among

 Identify the problem:

deviation from a set of expectations.

dimensions, degree of severity and origin

is said to have been diagnosed.

 Select the alternative: After evaluating the alternatives against accepted

 There are two major types of techniques in

 Non-Quantitative Technique is helpful not

personal and considered the natural way to

problem where decision involves a series of

money are the limited resources and organization

tries to allocate all these resources in the best

 4. Game theory: It is quite helpful in making decisions under

 Queuing theory helps in achieving this balance.

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