Topic 4 –

Decision Making
 Learning Outcomes

 By the end of this topic, you should be able to:-

➢ Describe the decision making process;
➢ Explain the limits to making rational decisions;
➢ Describe people’s behavior in bounded decision
making;
➢ Identify two general mistakes in decision making;
➢ Explain the strengths and weaknesses of group
decision making; and
➢ Explain three techniques for improving group
decision making.
 Decision Making

Decision:
– after planning, a concrete decision must be obtained.

It is not easy to make such decisions, but as managers, you are

expected to posses the skills to make an informed decision that
is precise, constructive and impartial.

Any decision make it will bring about positive or harmful effects

to the unit or organization.

A manager must learn to make constructive

decisions and hence master the techniques of
effective decision making.
 Decision Making

Decision: a reasoned choice among alternatives

Examples:
– Where to advertise a new product
– What stock to buy
– What movie to see
– Where to go for dinner

Decision Making: a process of choosing among alternative courses

of action for the purpose of attaining a goal or goals
 Decision Making Process

1. defining problems,
2. gathering information,
3. generating alternatives, and
4. choosing a course of action
 Decision Making Process (8 Steps)

STEP 1 STEP 2
Identifying Problem Identifying Decision
Criteria

STEP 3 STEP 4
Assigning Weightage Developing
for the Criteria Alternatives

STEP 5 STEP 6
Analysis of Choosing from
Alternatives Alternatives

STEP 7 STEP 8
Implementation of Evaluation of the
Alternative Effectiveness of the
Decision
 Decision Making Process
Allocation of
Problem Identification of Weights to Development of
Identification Decision Criteria Criteria Alternatives

“My salespeople Price Reliability 10 Acer

need new computers” Weight Screen size 8 Compaq
Warranty Warranty 5 Gateway
Screen type Weight 5 HP
Reliability Price 4 Micromedia
Screen size Screen type 3 NEC
Sony
Toshiba

Analysis of Selection of an Implementation

Alternatives Alternative of an Alternative

Acer Acer
Compaq Compaq Gateway
Evaluation
Gateway Gateway of Decision
HP HP
Micromedia Micromedia
Effectiveness
NEC NEC
Sony Sony
Toshiba Toshiba
 Decision Making Process

Decision-Making Process
– a comprehensive, 8-step process

Step 1 - Identifying a Problem

• problem - discrepancy between an existing and a desired state
of affairs
• The decision making process commences with the existence
of a problem or there is a conflict between existing situation
and a desired situation.

• How can a problem be identified?

✓Comparing the present situation against the standard.
 Decision Making Process

– Step 2 - Identifying Decision Criteria

• After identifying the problem being forced, one must first
determine the various decision criteria.
• Every decision making, whether implicit or explicit, has
criteria which will assist decision making.
• Example:
✓ Buying a car, if your decision is to buy a new car, what
are the considerations to be looked into before making a
choice?
✓Could it be the price of car?
✓Safety?
✓Type of car and etc?
 Decision Making Process

– Step 3 - Allocating Weights to the Criteria

• must weight the criteria to give them appropriate priority in
the decision
• It represents the simplest approach whereby a weight of 10
is given the important criteria and lower weight is less
important criteria.
Criteria Weigthtage
Price 10
Internal Comfort 8
Durability 5
Repair Records 5
Performance 3
Maintenance 2
Color 1
Criteria and weightage in Purchase of Car Decision Making
 Decision Making Process

– Step 4 - Developing Alternatives

• list the viable alternatives that could resolve the problem
without evaluating them
✓ Manager need to find various ways to solve problem in the pursuit to obtain
best solution. This effort includes generating ideas on the possible
strategies and approaches to handle the problem.

✓ Idea generation require creativity and imaginations. Manager may use

his/her personal knowledge and experiences to develop ideas.

✓ Get idea from peers, employees, vendor or customer or refer to books,

reference materials and etc.

✓ Useful and effective ideas can e developed through various methods

including group discussions, brainstorming and meeting.
 Decision Making Process
– Step 5 - Analyzing Alternatives
• each alternative is evaluated against the criteria
• You now have a list of car types that you desires and a set of identifies
criteria with the respective weights. What is the next step?
• You have to assess the cars by giving marks on the scale 1 to 10 after
test driving the cars
Alternatives Initial Price Internal Durability Record of Performance Maintenance Total
Comfort Repair

Kembara 2 10 8 7 5 5 37
Mercedes 9 6 5 6 8 6 40
BMW 8 5 6 6 4 6 35
Honda 9 5 6 7 6 5 38
Volvo 5 6 9 10 7 7 44
Jaguar 10 5 6 4 3 3 31
Mazda 4 8 7 6 8 9 42
Assessment of Car Alternatives.
 Decision Making Process
– Step 6 - Selecting an Alternative
• Is criteria step of selecting from existing alternatives.
• After identifying the important criteria, assigning a weight, listing the
type of cars to be considered, and giving marks for each criterion and
car.
• We should make a selection based in the highest score.
• The score can be obtained by multiplying the marks in Step 5 with the
weight assigned in Step 3.
Alternatives Initial Price Internal Durability Record of Performance Maintenance Total
Comfort Repair

Kembara 20 80 40 35 15 5 195
Mercedes 90 48 25 30 24 6 223
BMW 80 40 30 30 12 6 198
Honda 90 40 30 35 18 5 218
Volvo 50 48 45 50 21 7 221
Jaguar 100 40 30 20 9 3 202
Mazda 40 64 35 30 24 9 202
Weightage of Car (Alternatives x Weightage)
 Decision Making Process

– Step 7 - Implementing the Alternative

• Although the selection process is complete, the decision
can still fail if NOT implemented well. As such, this
step aims to turn decision into action.
• This step involves conveying the decision to those
involved and getting their full commitment.

– Step 8 - Evaluating Decision Effectiveness

• This final step in the decision making process is to
evaluate whether the decision has solved the problem.
 The Decision-Making Process
Identification
of a I need to buy
Problem a new car.

Identification •Price
of Decision •Interior Comfort
Criteria •Durability
•Repair Record
•Performance
Allocation •Price 10
of Weights •Interior Comfort 8
to Criteria •Durability 6
•Repair Record 4
•Performance 2
Development
Dodge Audi Isuzu Chevy
of
Alternatives
Toyota Ford Jeep Mazda

Toyota •Price Dodge

Analysis
Ford •Comfort Audi
of
•Durability
Alternatives Jeep Isuzu
•Repair Record
Mazda •Performance Chevy

Selection
of an
The Toyota
Alternative
is the best.

Implementation
of the Appraisal of
Alternative Decision Results