Decision-making

Choosing between two

or more alternatives
Types of decisions

 Programmed decisions :
Made in accordance with some policy, rules or procedures so
that they do not have to be handled each time they occur.

 Non-programmed decisions:

No simple procedure, non-repetitive

need ad hoc methods and information
Types of decisions cont..
 Major and minor (based on importance of decision)

 Routine : related to present (eg. lighting, parking facility) and

strategic (eg. lowering the price of a product)

 Individual and group( based on the number of decision-

makers)
(Advantages of group decision?)

 Simple (variables to be considered are few) and complex

(variables are many)
Steps in rational decision-making
 Recognizing the problem
 Deciding priorities among problems
 Diagnosing the problem
 Developing alternative solutions or courses of action
 Measuring and comparing the alternative solutions
 Converting the decision into effective action and
follow-up of the action
Decision-making models

 Economic man model

Man is completely rational. He makes his search for the best alternative
in a planned, orderly and logical manner

But…a man does not have enough capacity to –

 Gather all necessary information for a decision
 Mentally store this information
 Accurately recall this information any time he likes
 Do a series of complex calculations
 Rank all consequences on the basis of merits.

 Moreover, a man’s loyalty to organization is also not always very high.

Decision-making models cont..
Administrative man model or
Bounded rationality model

Man uses only limited rationality in his decisions because his

information-processing skills are limited. He looks for an alternative
which is good enough. Search for ideal alternative may promote
paralysis by analysis ! He is not required to initiate an all
encompassing search from the very beginning to find out all possible
alternatives and to evaluate which one of them is best. He can do so
one by one in a sequence. If the 1st alternative doesn’t work, only then
he would look for 2nd alternative and so on. As soon as a workable
alternative is found , he discontinues his search.
This man is guided by his experience.
Decision-making models cont..

Social man model

 Man being a bundle of feelings, emotions and

instincts, is guided by his unconscious desires. He is
also subject to social pressures and influences.
Obviously, he is incapable of making rational
management decisions.
 His decisions cannot be termed organizationally
rational, though they may be personally rational
Environment of decision-making
 Certainty:

Decision-maker can specify the consequences of a

particular decision

Eg. When a co. has to make shipments to a number

of customers from its warehouse, it can obtain
relevant facts like the type of transport available,
cost per unit for each type from source to destination
etc.
Environment of decision-making cont..

 Risk:

Consequences of a particular decision cannot be specified with

certainty but can be specified with known probability values

Eg. Whether to run one bus or two buses on a particular route.

 Uncertainty:

Probability associated with the possible outcomes not known

Eg. iPhone in India

Difficulties in decision-making
 Incomplete information:

Most decisions involve too many complex variables for one person to
be able to examine all of them fully.

 Un-supporting environment:

If there is all round goodwill and trust the manager is encouraged to

make decisions with confidence

 Non-acceptance by subordinates:

Acceptance is necessary for effective implementation. Democratic

leadership style helps in gaining acceptance.
Difficulties in decision-making cont..

 Ineffective communication:

Care should be taken to communicate all decisions

to employees in clear, precise and simple language.

 Incorrect timing:

If the decision is correct but the time is inopportune,

it will not serve any purpose.