BU CBE

Department of Mgmt
CHAPTER THREE
Decision Making

Chapter Objective
After completing this chapter, you should be able to:
 Explain what decision making is and its importance in management
 Describe the different types decisions
 Describe the steps in decision making process
3. Decision Making
1.1. What Is Decision Making?
Decision making is defined as a rational choice among alternatives. There have to be
options to choose from; if there are not, there is no choice possible and no decision.
Decision making is a process, not a lightning – bolt occurrence. In making the
decision, a manger is making a judgment – reaching a conclusion – from a list of
known alternatives.
Decision Making Is Universal
Decision making is a part of all mangers’ jobs. A manger makes decisions constantly
while performing the functions of planning, organizing, staffing, directing, and
controlling. Decision making is not a separate, isolated function of management but a
common core to the other functions.
Mangers at all levels of the organization are engaged in decision making. The
decisions made by top management, dealing with the mission of the organization and
strategies for achieving it, have an impact on the total organization. Middle – level
managers, in turn, focus their decision making on implementing the strategies, as well
as on budget and resource allocations. Finally, first – level management deals with
repetitive day – today operations. Decision making is indeed universal.
Managers make big decisions and small ones daily. Whether they realize it or not,
they go through a process to make those decisions. Whether planning a budget,

5
BU CBE
Department of Mgmt
organizing a work schedule, interviewing a prospective employee, watching a worker
on the assembly line, or making adjustments to a project, the manager is performing a
decision making process.
Types of Decisions
Although mangers in large business organizations, government offices, hospitals, and
schools may be separated by background, lifestyle, ad distance, they all sooner or later
must share the common experience of making decisions. They all will face situations
involving several alternatives and an evaluation of the outcome. In this section, we will
discuss various types of decisions.
Programmed Decisions
Programmed decisions are the decisions mangers make in response to repetitive and
routine problems. If a particular situation occurs often, managers will develop a routine
procedure for handling it.
Non Programmed Decisions
When a problem has not arisen in exactly the same manner before, or is complex or
extremely important, it may require a nonprogrammer decision. Decisions are termed
nonprogrammer when they are made for novel and unstructured problems. Making such
decisions is clearly a creative process.
The two classifications – programmed and non programmed are broad, yet it is important
to clearly differentiate between them. The managements of most organizations face great
numbers of programmed decisions in their daily operations. Such decisions should be
made without expending unnecessary time and effort. Reaching nonprogrammer
decisions, however, is more complicated and requires the expenditure of lots of money
worth of resources every year. Government organizations make nonprogrammer
decisions that influence the lives of every citizen. Business organizations make
nonprogrammer decisions to manufacture new products. Hospitals and schools make
nonprogrammer decisions that influence patients and student’s years later. Unfortunately,
very little knows about this type of decision making.

5
BU CBE
Department of Mgmt
In most organizations, programmed decisions are handled through policies. In some
organizations and industries, management scientists have developed mathematical
models that help ease these types of decisions. Non programmed decisions, however, are
usually handled by general problem – solving processes, judgment, intuition, and
creativity.
Types of Decisions and Level of Management
Problems that arise infrequently and have a great deal of uncertainty surrounding them
are often of a strategic nature and should be the concern of top management. Problems
that arise frequently and have fairly certain outcomes should be the concern of lower
levels of management.
Middle managers in most organizations concentrate mostly on programmed decisions.
The nature of the problem, how frequently it arises, and the degree of certainty
surrounding it should dictate at what level of management the decision should be made.
1.2. The Decision – Making Process
Because decision making is such an important part of a manager’s job, we need to
discover anything ht can improve the quality of decision making. One of the most
effective measures is to follow a conscious, rational, decision – making process. A
manger who makes decisions on an impulse will not have the day – to – day decision –
making success of the manger who consciously works through the decision – making
process.

The decision – making process has seven steps. They are logical and simple in
themselves, but they are all essential to the process;
1. Define the problem
2. Identify the limiting or critical factors
3. Develop potential alternatives
4. Analyze the alternatives
5. Select the best alternative or combination of best alternatives

5
BU CBE
Department of Mgmt
6. Implement the solution
7. Establish a control and evaluation system
Define the Problem
What is the particular problem you have to resolve? Defining the problem is the critical
step. Finding a solution to the problem will be greatly aided by its proper identification.
The consequences of not properly defining the problem are wasted time and energy.
Identify the Limiting or Critical Factors
Once the problem is defined, the manger needs to develop the limiting or critical factors
of the problem. Limiting factors are those constrains that rule out certain alternative
solutions. Resources personnel, money, facilities, and equipment – are the most common
limiting or critical factors that narrow down the range of possible alternatives.
Develop Potential Alternatives
At this point, it is necessary to look for, develop, and list as many possible alternatives
solutions to the problem-as you can. These alternatives should eliminate, correct, or
neutralize the problem. Doing nothing about a problem sometimes is the proper
alternative, at least until the situation has been thoroughly analyzed. Occasionally, just
the passing of time provides a cure.
In developing alternatives, the goal is to be as creative and wide-ranging as possible.
Sources for alternatives include experience, other persons whose opinions and judgments
are expected, the practice of successful managers, group opinions through the use of task
forces and committees, and the use of outside sources, including mangers in other
organizations.
Analyses the Alternatives
The purpose of this step is to decide the relative merits of each of the alternatives. What
are the positives and negatives (the advantages and disadvantages) of each alternative?
Do any alternatives conflict with the critical (limiting) factors that you identified earlier?
If so, they must be automatically discarded. Depending on the type of problem and the

5
BU CBE
Department of Mgmt
potential solutions developed, the manger might need to make a more thorough analysis
by applying specific decision – making aids.
Select the Best Alternative
By this point, the alternatives have been listed along with their corresponding advantages
and disadvantage. Which should be selected? Sometimes the optimal solution is a
combination of several of the alternatives. In trying to select an alternative or
combination of alternatives, you must, reasonably enough, find a solution that appears to
offer the fewest serious disadvantage and the most advantages. Take care to solve one
problem and create another with you.
Implement the Solution
Mangers are paid to make decisions, but they are also paid to get results from these
decisions. A decision that just sits there hoping someone will put it into effect may as
well never have been made. Everyone involved with it must know what he or she must
do, how to do it, why, and when.
Establish a Control and Evaluation System
The final step in the decision – making process is to create a control and evolution
system. Ongoing actions need to be monitored. This system should provide feedback on
how well the decision was implemented, what the results are – positive or negative and
what adjustments are necessary to get the results that were wanted when the solution was
chosen.