DECISION MAKING Decision making is the process of

DECISION MAKING

� Decision making is the process of identifying and choosing alternative courses of action in a manner appropriate to the demand of the situation. It is also the process of identifying problems and opportunities and then resolving them.

Types of Decisions Basically, there are two (2) categories of managerial decisions. They are – Programmed and Non-programmed decisions.

Programmed Decisions Programmed decisions are decisions that are reached by following an established or systematic procedure. Programmed decisions are those that are routine and repetitive. Most decisions made by managers on a daily basis are of the programmed variety. The management has already established a set of rules, polices, and procedures to deal with everyday decisions.

Examples of programmed Decisions � � Hiring decisions in a personnel office Billing decisions in a hospital Consumer loan decisions in a bank Pricing decision in a university bookshop

Non- programmed Decisions � Non programmed decisions are those decisions made in complex, important and non-routine situations, often under new and largely unfamiliar circumstances. These decisions have little or no precedent. They are relatively unstructured and generally require a more creative approach by the decision maker. They are generally ‘one shot’ occurrences, for which standard responses are not available and hence require a creative process of problem solving which is specifically tailored to meet the requirements of the situation at hand. Non programmed decisions are more difficult to make than programmed decisions.

Examples of Non-programmed Decision � � Buying a new company or starting a new business Deciding whether to merge with another company Deciding on a new product or a new piece of equipment Deciding on how to replace an executive who died unexpectedly

Decision-Making Process (Decision -Making Steps) � � Whether a decision is programmed or nonprogrammed, six steps are associated with effective decision processes. Problem Identification and Definition – This is the first step in the decision-making process. This means that the decision maker must be aware of the decision he needs to make. Therefore, he must be able to recognize that a problem exists; that the problem must be defined and, that the problem must be diagnosed. A problem exists when there is a discrepancy between an existing state of affairs and a desired state of affairs.

� � Identify the decision criteria – Once a decision maker has defined the problem, he or she needs to identify the decision criteria that will be important in solving the problem. In this step, the decision maker determines what is relevant in making the decision. This step brings the decision maker’s interests, values, and similar personal preferences into the process. Identifying criteria is important because what on person thinks is relevant may not be for another person. Generate and Develop Possible Alternatives – After the problem has been identified, recognized, defined, diagnosed analyzed, the next step is to generate various alternative solutions. The more the alternative solutions that can be generated, the better it is for the manager, who by this situation will no longer be limited to fewer choices that can equally limit his ability to arrive at the probable cause.

� � � Evaluate and Select the Best Alternative – Once the alternatives have been generated, the decision maker must critically analyze and evaluate the alternatives in order to choose the best. A basic evaluation used in this step involves cost-benefit analysis. This is the comparison of what an alternative will cost in relation to the expected benefits. Cost-benefit analysis involves comparing the cost and the benefits of each potential course of action. Implement the Decision – This is the stage at which directions are set and problem-solving actions are initiated. Difficulties at this stage can be traced to lack of participation or failure to adequately involve those persons whose support is necessary to ensure a complete implementation of the plan.

Evaluate Results – Planning and decision making are not complete until results are evaluated. If the desired results are not achieved, the process must be repeated to make room for corrective actions. Both the positive and negative consequences of the chosen course of action should be examined. If the original solution appears inadequate, a return to earlier steps may be required to generate a modified or new plan.

Group Decision Making � There are many situations which suddenly come up as ill-structured problems confronting the manager, requiring him to devise unique solutions. The manager may make the decision himself or ask the employee (a group) to look at the problem objectively and come up with a recommendation. Group decision would be appropriate for nonprogrammed decisions because these decisions are complex and no single individual has all the knowledge and skills necessary to make the best decision.

Advantages of Group Decision Making � More Information and Knowledge – Since the group members have different specialties, they tend to provide more information and knowledge. Also, the information tends to be more comprehensive in nature and the group can generate a great number of alternatives. � Commitment and Loyalty – Implementation of the decision is more effective, since the people who are going to implement the decision also participate in the decision making process. This also increases the commitment of the people to see that the implementation succeeds. � Motivation Improves – The participative decision making process provides as a training ground for subordinates, thereby motivating them to work toward the accomplishment of the decisions since they were involved in the process. � Eliminates Biases –The input from a large number of people eliminates the biases that are generally introduced due to individual decision making. It also reduces the unreliability of individual’s decision.

Disadvantages of Group Decision Making � � � � Time Consuming – It is highly time-consuming in assembling the right group and usually a group takes more time in reaching a consensus since there are too many opinions to be taken into consideration. Dominance by One Member – Some members may simply agree with the others for the sake of agreement since there are social pressures to conform and not to be the odd man out. Conflicts and Disagreement – There may be some personal conflicts and disagreement that may create inter-personal obstacles which may diminish the efficiency of the process as well as the quality of the decision. Compromise of Organizational Goals – The decisions made by the group may not always be in accord with the goals and objectives of the organization. This is especially true when organizational goals are compromised by individual or group goals.