chapter 2

one of the most important aspects in an organization.

Decision-making

made in the best interest of the organization and to support

organizational growth, however the process of arriving at this continues to

become more complex.

Decisions

he process of identifying

and choosing alternative courses of action in a manner

appropriate to the demands of the situation

Decision making

according to Nickels and others, “is the heart

of all the management functions”.

Decision making

the process of deciding about something

important, especially in a group of people or in an organization.

Decision making

process of making a conscious

choice between two or more rational alternatives in order to select the

one that will produce the most desirable consequences (benefits)

relative to unwanted consequences (costs).

Managerial decision making

t/r: If there is only one

alternative, there is nothing to decide.

true

it is a continuous and dynamic activity that pervades all

other activities pertaining to the organization.

Managerial decision making

plays vital

importance in the functioning of an organization

decision making process

Nature of Decision Making

• it requires solid scientific knowledge coupled with skills and experience in addition to mental maturity.

• regarded as a check and balance system that keeps the organization growing both in vertical and linear directions.

• decision making process seeks a goal.

Types of Problems and Decisions

• Well-Structured Problems and Programmed Decisions.

• Poorly Structured Problems and Nonprogrammed Decisions.

Problems are straight forward

Well-Structured Problems and Programmed Decisions.

The goal of the decision maker is clear, the problem is familiar, and information

about the problem is easily defined and complete.

Well-Structured Problems and Programmed Decisions.

Decisions are programmed to the extent that they are repetitive and routine and to

the extent that a definite approach has been worked out for handling them.

Well-Structured Problems and Programmed Decisions.

Its solution is usually self-evident or at least reduced to very few alternatives that

are familiar and that have proved successful in the past.

Well-Structured Problems and Programmed Decisions.

Also known as routine decisions involve standard decision procedures, and entail a

minimum of uncertainty.

Well-Structured Problems and Programmed Decisions.

Ex 1 of Well-Structured Problems and Programmed Decisions.

customer's wanting to return a purchase to a retail store

Ex 2 of Well-Structured Problems and Programmed Decisions.

a supplier's being late with an important delivery

Ex 3 of Well-Structured Problems and Programmed Decisions.

a news team's responding to an unexpected and fast-breaking event

Ex 4 of Well-Structured Problems and Programmed Decisions.

a college's handling of a student wanting to drop a class.

types of programmed decisions

• Organizational decisions.

• Operational decisions.

• Research decisions.

• Opportunity decisions.

types of programmed decisions - Decisions taken in interest of the organization.

Organizational decisions.

types of programmed decisions - Decisions are taken as a matter of routine. It relates to daily operations and aims to achieve short-term objectives of the firm.vtaken by middle and lower- level managers within the framework of policies and

procedures and allow limited use of discretion by managers.

types of programmed decisions - Decisions which involve regular survey of the market and decisions made under situations of crisis or emergency are crisis — intuitive

decisions.

Research decisions.

types of programmed decisions - These decisions reflect foresightedness. Managers forecast

opportunities to promote organizational growth. The decision to grow and diversify (i.e.

market penetration and market development)

Opportunity decisions.

Problems that are new or unusual and for which information is ambiguous or

incomplete.

Poorly Structured Problems and Nonprogrammed Decisions.

Decisions are taken in unstructured situations which reflect novel, ill-defined and

complex problems.

Poorly Structured Problems and Nonprogrammed Decisions.

The problems are non-recurring or exceptional in nature.

Poorly Structured Problems and Nonprogrammed Decisions.

require extensive brainstorming

Poorly Structured Problems and Nonprogrammed Decisions.

Managers use skills and subjective judgment to solve the problems through

scientific analysis and logical reasoning.

Poorly Structured Problems and Nonprogrammed Decisions.

ex 1 of Poorly Structured Problems and Nonprogrammed Decisions.

When problems are poorly structured, managers must rely on nonprogrammed

decision making in order to develop unique solutions.

ex 2 of Poorly Structured Problems and Nonprogrammed Decisions.

Nonprogrammed decisions also called as nonroutine decisions are unique and

nonrecurring, often involving incomplete knowledge, high uncertainty, and the use

of subjective judgment or even intuition, where no alternative can be proved to be

the best possible solution to the particular problem.

ex 3 of Poorly Structured Problems and Nonprogrammed Decisions.

Such decisions become more and more common the higher one goes in

management and the longer the future period influenced by the decision is.

ex 4 of Poorly Structured Problems and Nonprogrammed Decisions.

When a manager confronts a poorly structured problem, or one that is unique,

there is no cut and-dried solution, thus, it requires a custom-made response

through nonprogrammed decision making.

describes a series of steps

that decision makers should consider if their goal is

to maximize the quality of their outcomes.

Rational decision-making

Decision Making Process

1. Identify the problem or Diagnose the Problem.

2. Analyze the environment.

3. Articulate problem or opportunity.

4. Develop viable alternatives.

5. Evaluate Alternatives.

6. Make a choice.

7. Implement Decision.

8. Evaluate and adapt decision results.

first step to decision-making

Identify the problem or Diagnose the Problem.

any deviation from a set of expectations.

Problem

t/f: Decisions are made to solve problems.

true

identification of constraints

which may be spelled out as either internal or external limitations.

objective of environmental analysis

Managers

scan the ____________ to see whether or not

organizational operations conform to environmental standards.

internal and external environment

refers to organizational activities within the

company that surrounds decision making.

internal environment

refers to variables that are outside the organization and not typically within

the short-run control of top management.

external environment

provides input for generating solutions.

Information

2 types of information

• quantitative

• qualitative

information should be:

• reliable

• adequate

• timely

In this step, the engineer manager prepares a list of

alternative solutions, then determines the viability of each

solution.

Develop viable alternatives.

developing two or more ways of solving

the problem.

Alternatives

This is important since the next step is about making a choice.

Evaluate Alternatives.

Proper

evaluation makes choosing the right solution less difficult.

Evaluate Alternatives.

All the alternatives

are weighed for their strengths and weaknesses.

Evaluate Alternatives.

t/f: All the alternatives

are weighed for their strengths and weaknesses.

true

the alternatives will

be evaluated depending on

• the nature of the problem

• objectives of the company

• the nature of alternatives presented.

refers to the

process of selecting among alternatives representing potential solutions to a

problem.

Choice-making

refers to carrying out the decision

so that the objectives sought will be achieved.

implementation

At this stage, the resources

must be made available so that decision may be properly implemented.

implement decision

It is therefore important for the

engineer manager to use control and feedback mechanisms to ensure results

and to provide information for future decisions.

evaluate and adapt decision results

Decision Making Conditions

• certainty

• risk

• uncertainty

a situation

in which a manager can make accurate decisions because the outcome of

every alternative is known.

certainty,

implies that we are certain of the future

state of nature.

condition of certainty

One common technique for decision making under certainty

linear programming

In this method, a desired benefit (such as profit) can be

expressed as a mathematical function (the value model or objective function)

of several variables.

linear programming

linear programming Steps

1. State the problem

2. decision variables

3. Objective function

4. Constraints.

those conditions in

which the decision maker is able to estimate the likelihood of

certain alternatives or outcomes.

risk

The ability to assign probabilities

to outcomes may be the result of personal experiences or

secondary information.

risk

managers

have historical data that allow them to assign probabilities to

different alternatives.

conditions of risk

the decision maker can choose among several possible approaches for making

the decision.

condition of uncertainty,

The choice of alternative is influenced by the limited amount of information available to the

decision maker.

Uncertainty

the psychological

orientation of the decision maker.

conditions of uncertainty

Different approaches to decision making under uncertainty

• Optimistic manager

• Pessimistic manager

• Decision maker

• Minimax approach

approaches to decision making under uncertainty - maximax choice (maximizing the maximum possible payoff)

Optimistic manager

approaches to decision making under uncertainty - maximin choice (maximizing the minimum possible payoff)

Pessimistic manager

approaches to decision making under uncertainty -principle of insufficient reason; all states of nature are equally likely (highest average)

Decision maker

approaches to decision making under uncertainty - opportunity loss (regret)

Minimax approach

Tools and Techniques for Making Better Decisions

• Decision Trees.

• Delphi Technique

• Nominal Group Technique

• Payback Analysis

• Marginal Analysis

• SWOT

• Decision Matrix.

• Pareto Analysis.

tools that help choose between several courses of action or alternatives.

Decision Trees.

They are represented as tree-shaped diagram used to determine a course of action or show a statistical probability. Each branch of the decision tree represents a possible decision or occurrence. The tree structure shows how one choice leads to the next, and the use of branches indicates that each option is mutually exclusive.

Decision Trees.

used by a manager to graphically represent which actions could be taken and how

these actions relate to future events.

Decision Trees.

Group process using written responses

Delphi Technique

Series of questionnaires

Delphi Technique

Process ends when consensus is reached

Delphi Technique

Responses may be anonymous

Delphi Technique

Nominal Group Technique - steps

1. Write down ideas

2. Data gathering

3. Discussions / clarifications

4. Voting for favorite ideas

Generally used in financial management

Payback Analysis

Break even point analysis

Payback Analysis

Payback Analysis - objective

choose alternative with quickest payback of initial cost

Weighs benefits of an input or activity against the costs

Marginal Analysis

Emphasis on ROI

Marginal Analysis

SWOT

Strengths Weaknesses Opportunities Threads

things your company does well

strengths

qualities that separate you from your competitors

strengths

internal resources such as skilled knowledgeable saff

strengths

tangible assets such as intellectual property, capital, proprietary technologies etc

strengths

things your company lacks

weaknesses

things your competitors do better than you

weaknesses

resource limitaions

weaknesses

unclear unique selling proposition

weaknesses

underserved markers for specific products

opportunities