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Chapter 2 - Decision Making

This chapter covers the decision-making process, defining problems, and types of decisions, including programmed and non-programmed decisions. It outlines the steps in decision-making, from identifying a problem to evaluating the effectiveness of the chosen solution. Additionally, it discusses conditions affecting decision-making, such as certainty, risk, and uncertainty.

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bgn240111111
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2 views

Chapter 2 - Decision Making

This chapter covers the decision-making process, defining problems, and types of decisions, including programmed and non-programmed decisions. It outlines the steps in decision-making, from identifying a problem to evaluating the effectiveness of the chosen solution. Additionally, it discusses conditions affecting decision-making, such as certainty, risk, and uncertainty.

Uploaded by

bgn240111111
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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FUNDAMENTAL OF MANAGEMENT (PMG1123)

CHAPTER 2

DECISION MAKING

1
Learning Objectives :
After reading this chapter, students should be able to:
1. Explain the decision making process
2. Describe how manager can be a decision maker
3. List and explain three types of programmed decisions
4. Explain the differences between non programmed
and programmed decisions

2
TOPIC CONTENT
2. Decision Making

2.1. Definition of problem


2.1.1. Types of problem
2.2. Definition of decision making
2.2.1. Types of decisions
2.2.1.1 Types of programmed decision
2.3. The Decision- Making Process
2.4. Condition in making decision
2.4.1. Certainty
2.4.2. Risk
2.4.3. Uncertainty
3
2.1 Definition of problem
Definition of problem:
A discrepancy between an existing and
desired state of affairs.

 It’s a perceived gap between the existing state and a


desired state condition, or a deviation from a norm,
standard, or the status quo.

4
2.1.1 Types of Problems

1. Structured Problem

2. Unstructured problem

13
Structured

 Involve clear goals.


 Are familiar (have occurred before).
 Can be easily and completely defined—
information about the problem is available
and complete.

 Example: Late delivery from suppliers, customers wanting to


return an online purchase, or handling customer complaints.

6–6
Unstructured

 Problems that are new or unusual.


 Information is ambiguous or incomplete.
 Problems that demand custom-made
solutions.

 Example: Dealing with an economic crisis or adapting


to rapidly changing technology

6–7
2.2. Definition of decision making
Decision:
 Decision is a choice made from two or
more alternative courses of action.

 It’s a selection made between two or


more alternatives.

Copyright © 2005 Prentice Hall, Inc. All rights


6–8 reserved.
Decision Making:
 Decision making is a process which
begins with identification of a problem
and ends with evaluation of
implemented solutions.

 Decision making involves the process


of identifying problems and finding
alternatives to solve them.

6–9
2.2.1 Types of Decisions

1.Programmed Decisions

2.Non - Programmed Decisions

14
Programmed Decision

 Repetitive decisions that can be


handled by a routine approach.
 Decisions that tend to heavily rely on
previous solutions.
 Suitable for structured problems.

Example: Handling employee leave applications, purchase


requisitions, or managing students' course changes (drops
and adds).
6–
11
Non Programmed Decision

 Decision that is unique and


nonrecurring.
 Decisions that generate a unique
response.
 Suitable for unstructured problems.

Example: Introducing a new product, opening a new branch


or to merge two organizations.

6–
12
2.2.1.1 Types of Programmed Decisions

1. Policy

2. Procedure

3. Rule

15
Policy

A general guideline for making a


decision about a structured problem.
 Example: A company’s policy to accept all customers return.

 Example: A company policy requires employees to work for at


least 5 years within the organization before they are eligible to
apply for senior positions.

6–
14
Procedure
A series of interrelated steps that a
manager can use to respond to
structured problem.
 Example: Follow all the steps required for completing goods
return documentation.

 Example: As part of the procedures for applying for a credit


card, the bank’s policy mandates that customers must fill up a
specific form and await the bank’s approval of the application.

6–
15
Rule
An explicit statement that limits what
a manager or employee can or
cannot do.
 Example: Managers must approve all refunds over RM50; no
credit purchases are eligible for cash refunds.

 Example: Rules such as no smoking in public areas, no talking


or eating in the library, or requiring customers to pay monthly
installments on a specified date.

6–
16
2.3 The Decision-making Process
Step 1: Identifying the problem
• How do managers become aware of a discrepancy? They
have make a comparison between the current state of
affairs and some standard, which can be based on past
performance, previously set goals, or the performance of
other units within organization or in other organizations.

• Characteristics of Problems
❖ A problem becomes a problem when a manager
becomes aware of it.
❖ There is pressure to solve the problem.
❖ The manager must have the authority, information, or
5 resources needed to solve the problem.
Step 2: Identifying decision criteria
Once a manager has identified a problem that requires
attention, it’s essential to identify the decision criteria crucial
in solving the problem.

❖Decision criteria are factors that are important


(relevant) to resolving the problem.

❖Important relevant consist of:-


1. Costs that will be incurred (investments required)
2. Risks likely to be encountered (chance of failure)
3. Outcomes that are desired (growth of the firm)
6
Step 3: Allocating weights to the criteria

After identify decision criteria, weights are allocated to


each of them in order to determine their relative
priority.“

❖ Decision criteria are not of equal importance.

❖ Assigning a weight to each item places the items


in the correct priority order of their importance in
the decision making process.

7
Step 4: Developing Alternatives

❖Identifying viable alternatives.

❖In this stage, all alternatives (without


evaluation) that can help solve the problem
will be listed

8
Step 5: Analyzing Alternatives

❖Appraising each alternative’s strengths


and weaknesses.

❖An alternative’s appraisal is based on its


ability to resolve the issues identified in
steps 2 and 3.

9
Step 6: Selecting an Alternative

❖ Choosing the best alternative.

❖ The alternative with the highest total


weight is chosen.

10
Step 7: Implementing the Decision

❖ Putting the chosen alternative into action.

❖ Conveying the decision to and gaining


commitment from those who will carry out
the decision.

12
Step 8: Evaluating the decision’s
effectiveness

 The decision is judge by its outcomes.

 The effectiveness of the problem was resolved


by outcomes resulting from the chosen
alternatives.

 The mistakes if the problem was not resolved


(factors of negative outcomes).
13
6–
25
2.4 Three Conditions in Making Decision

Certainty

Risk

Uncertainty

17
2.4.1 Certainty
• A situation in which a manager can
make an accurate decision because
the outcome of every alternative
choice is known.

• Information is fully available.

 Example: When we decide to deposit excess


funds, we know exactly the interest rate offered
by each bank.
6–
27
2.4.2 Risk
• A situation in which the manager is able
estimate the likelihood (probability) of
outcomes that result from the choice of
particular alternatives.

• Information is not fully available.

 Example: When hiring a new employee, the HR


manager has historical data from past experiences,
information in resume and insights gathered during the
interview session.
6–
28
2.4.3 Uncertainty
A situation in which manager do not know
the probabilities and maybe not even the
possible outcomes, which may force them
to rely on intuition, hunches, and ‘gut
feelings.

Very limited or no information is available.

Example: The effectiveness of a marketing


strategy planned to introduce new products will
6– not be known until the strategy is implemented.
29
Learning Outcomes :
After reading this chapter, students should be able to:
1. Explain the decision making process
2. Describe how manager can be a decision maker
3. List and explain three types of programmed decisions
4. Explain the differences between non programmed
and programmed decisions

18

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