Decision Making

What is decision making?

• the process of choosing from among alternatives
• the process through which managers identify and resolve problems and capitalize on opportunities

Types of decisions

1) Programmed decision

• decision made in response to situation that are routine or recurring
• they are solutions for routine problems determined by rule, procedure or habit
• they are save manager's time, allowing them to allocate mare attention to other more important activities
• they are mostly made by lower level managers
• examples: decision to purchase raw materials, decision to process loan applications in banks

2) Non-programmed decision

• decision made in response to situations that are unique or exceptional
• these decisions deals with non-routine problems or situations
• these decisions require considerable creativity and cleverness in order to have good solutions
• they mostly made by upper level managers
• examples: how to allocate resources of the organization, solving problems on failing product in the market

Making programmed decisions becomes more important as managers rise in the organizational hierarchy

Decision making conditions

Managers make decision in different conditions

1) Decision making under certainty

• managers have accurate and reliable information about the outcome of the various alternatives
• the alternatives solutions are highly predictable
• examples: decision to invest money in a fixed deposit account

2) Decision making under risks

• managers know only the probability of a given alternative
• managers do not enough information to make decision
• the alternative solutions or outcomes are less predictable
• example: investing money in shares

3) Decision making under uncertainty

• managers know only a little about the alternatives or outcomes
• uncertainty arises from two sources - unpredictable external conditions or lack of information to make decision ( to establish probability )
• example: opening new market in Mongolia

Steps in the decision-making process

Managers are influenced by their individuals personalities, attitude, ethics and values in market decisions

1) Identify opportunities or problems

• managers must have accurate and reliable information about the situations
• this information must be interpreted correctly so that problems could be solved
• inaccurate information will not help to solve problems but probably will create other problems

2) Identifying objectives

• managers have to identify the objectives of the decision making ( example: to increase output by 10% at the end of the month )
• these objectives will guide the managers in selecting the alternatives

3) Generating alternatives

• generate many alternatives decisions
• the alternatives could be standard as well as unique and innovative. It could include the alternatives the organization has used in the past
• alternatives could be developed through brainstorming or nominal group technique

4) Evaluating alternatives

• managers must assess the advantages and disadvantages of each alternatives
• managers have evaluate each alternatives based on predetermined criteria
• examples of criteria: the quality desired, the costs, benefits and risks of each alternative
• some of the questions to be answered:

          - is the alternative solution feasible?
          - is the alternative solution have a better change to achieve goals?
          - what is the impact on other departments?

• the result must be a ranking of alternatives

5) Reaching decisions

• managers select the best alternative decision
• the final choice of decision must be based on careful judgement. They have to examine all the facts and finally select the best alternative

6) Implement the strategies

• managers must plan effectively to make the decision fully operational:

          - develop schedule for the activities and tasks
          - list the resources required to implement each activity and tasks
          - estimate the time needed for each activity
          - assign responsibility for each activity or tasks to specific individuals

7) Monitoring and evaluating

• managers must observe the implementation of the decision and take corrective actions if necessary

• get feedback on the progress of the activity - positive feedback indicates the decision is working. Negative feedback indicates the decision was a poor one and needs time to be reexamined or it may requires more time, resources and effort