DECISION-MAKING

DHEEBA.J
ASSISTANT PROFESSOR
PRIYADARSHINI ENGINEERING COLLEGE
PRINCIPLES OF MANAGEMENT (BA5102)
WHAT IS DECISION MAKING?

Decision = choice made from

available alternatives

Decision Making = process of

identifying problems and
opportunities and resolving them
DEFINITION

Decision-Making:
is defined as the selection of a course
of action from among a set of alternatives.

Knootz
and Weihrich
FEATURES OF DECISION-MAKING
Decision making is a selection process

Decision making is a goal oriented process

Decision making is an end process
Decision making is a human and rational process
Decision making is a dynamic process
Decision making is situational.
Decision making is continuous and on going.
RATIONAL APPROACH TO
DECISION MAKING

A decision making
model that describes hoe
individual should behave
in order to maximize
some outcomes.
DECISION-MAKING PROCESS

Identifying
Implementing
the
And
problem
Following up

Analyzing the
problem
Decision-
Selecting an
making
Alternative
Process

Evaluation Searching
Of For
Alternatives Alternatives
DECISION-MAKING PROCESS
Identifying the Problem

Begins with recognition of a problem. It arises due

to the gap between what is and what should be i.e.
present and desire state of affaire.
DECISION-MAKING PROCESS
Diagnosis and
Analysis of the problem
The manager try to identify the causes for the
problem or the source of the problem.

Analyze the problem is the process of classifying the

problem and gathering information.
DECISION-MAKING PROCESS
Search for Alternatives
A problem can be solved in many ways, it
may have several alternatives. A manager should need
creative and critical thinking to develop the alternatives
Time and cost factor should be kept in mind.
DECISION-MAKING PROCESS
Evaluation of Alternatives
Evaluation is the process of measuring the positive
and negative consequences of each alternative.
Peter F. Drucker suggested the following criteria to
measure the alternatives
Degree of Risk
Economy of effort
Timing or situation
Limitation of the resources
DECISION-MAKING PROCESS
Selecting an Alternative
Optimum alternative is one which maximize the
results under given condition. The various approaches like
experiment, experience, research and analysis are used
while selecting an alternative.
DECISION-MAKING PROCESS
Implementation and
Follow up
Once an alternative is selected , it is put it
in to action in a systematic way.
Implementation involves
Decision should be communicated
Acceptance should be obtained
Procedure and time sequence established
Resources should be allocated
The results should be monitored and follow up
action should be taken.
 TYPES OF DECISIONS

Programmed and Non programmed decisions

Major and minor
Routine and strategic decision
Policy and Operative decision
Organizational and personal
Policy and operative
Individual and group
Initiative or forced
Problem and opportunity.
TECHNIQUES OF
DECISION-MAKING
Marginal Analysis
Financial Analysis
Break-Even Analysis
Ratio Analysis
Operation Analysis
Pareto Analysis
Paired comparison Analysis
Force field Analysis
Grid Analysis
Normal group Analysis
Brain storming Analysis
Delphi Techniques
 cont
Marginal Analysis

The decision is used to figure out

how much extra output will result if one
more variable is added . this technique is
useful for evaluating alternatives in the
decision making process.
TECHNIQUES OF DECISION-
MAKING CONT
Financial Analysis
This is used to estimate the profitability
of an investment to calculate the pay back
period.
Break-Even Analysis
This technique is used to determine the break
even point for the company.
Break-Even point = Total revenue Equals to
total cost and the profit is
nil.
TECHNIQUES OF DECISION-
MAKING CONT
Ratio Analysis
The purpose of conducting a ratio analysis is to interpret
financial statements to determine the strength and weakness of
a firm.
Operation Research
it is the research of operations. Various theories and
models like game theory, decision tree analysis, queuing model
etc are used.
Pareto Analysis
It is based on the principle that by doing 20% of work,
we can generate 80% of the doing entire job. It is finding the
changes that will give the biggest difference.
TECHNIQUES OF DECISION-
MAKING CONT

Paired comparison Analysis

Helps to set priorities where there are conflicting demands
on limited resources.it is also an deal tool for comparing
completely different options like whether to invest in
marketing, a new IT system .
Grid / decision matrix/pugh matrix Analysis:
It is effective when there are number of alternatives and
many other factors are taken in to consideration.
Force field analysis
This is the specialized method where weighting the pros and
cons of the factors.
TECHNIQUES OF DECISION-
MAKING CONT

Brain storming
This type is meant to over come the pressure by the ideal
group by interaction.
Nominal Group Technic:
It restricts discussion or interpersonal communication during
decision making. Members operate independently.
Delphi Technique
Getting opinion from the experts.
IMPORTANCE OF DECISION
MAKING

Better Utilization of resources

Facing problem and situations
Business growth
Achieving objectives
Increase efficiency
Facilitate innovation
Motivates employees
Effective management
TYPES OF DECISIONS
Programmed and non
programmed Major and minor

Routine and strategic Policy and Operative

Organizational and personal Individual and group

Long term departmental and Crisis and resaearch

non economic

Problems and opportunity

Initiative or forced
TYPES OF DECISIONS
Programmed and Non-programmed

Many decisions regarding basic operating systems and

procedures and standard organizational transactions fall into
this category.
Most of the decisions made by top managers involving
strategy and organization design are non-programmed.
Decisions about mergers, acquisitions and takeovers, new
facilities, new products, labor contracts and legal issues are
non-programmed decisions. Intuition and experience are
major factors in these decisions.
DECISION MAKING CONDITIONS

Decision Making Under

Certainty
Decision Making Under
Risk
Decision Making Under
Uncertainty
DECISION MAKING
CONDITIONS
Certainty

A state of certainty exists when a decision

maker knows, with reasonable certainty, what
the alternatives are and what conditions are
associated with each alternative. Very few
organizational decisions, however, are made
under these conditions.
DECISION MAKING CONDITIONS

Risk
A state of risk exists when a decision maker makes decisions
under a condition in which the availability of each alternative
and its potential payoffs and costs are all associated with
probability estimate.
Decisions such as these are based on past experiences,
relevant information, the advice of others and ones own
judgment.
Decision is calculated on the basis of which alternative
has the highest probability of working effectively. [union
negotiations,
 DECISION MAKING CONDITIONS
Uncertainty
A state of uncertainty exists when a decision maker does not
know all of the alternatives, the risks associated with each, or the
consequences each alternative is likely to have.
Most of the major decision making in todays organizations is done
under these conditions.
To make effective decisions under these conditions, managers
must secure as much relevant information as possible and approach the
situation from a logical and rational view.
Intuition, judgment and experience always play major roles in the
decision- making process under these conditions.
END