Decision making & its types

1. The Principle Of Management
Decision Making
The selection of a course of action from among alternatives, it is the core of
planning. A plan can not be said until the decision is made. Until that point,
there are only planning studies & analyses. [1]R
Decision making is a primary task of a
manager - comment
The manager’s duty is to communicate the overall vision of the organization
and make sure the right people are in place to get it done, the job of the manager
is to make sure it gets done; Decision making is a very small component of
getting things done, so decision making is not a primary task. [2]R
Explanation
The word manager means, "One who handles, controls, or directs". During the
course of work problems arise. Many of these problems are easily handled by
individual team members. But when they can't solve them the manager must be
able to step in and solve the problem.
Sometimes there are multiple solutions. A good manager possesses an analytical
mind capable of troubleshooting a situation and coming up with the best
solution available. If that manager is creative they will be able to develop more
solutions than those obviously apparent. This does not discount the ability to
foresee potential problems and head them off.
Sometimes there are NO good solutions. A good manager confidently does
what's necessary to keep his team a float. They make difficult decisions that
they may not like but will ultimately be for the best. [3]R
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2. The Principle Of Management
Differentiate between Program & non-
Programmed Decisions
Programmed decisions
Programmed decisions are made in routine, repetitive, well-structured situations
with predetermined decision rules. These may be based on habit, or established
policies, rules and procedures and stem from prior experience or technical
knowledge about what works or does not work in a given situation.
Example
Organizations often have standardized routines for handling customer
complaints or employee discipline. Decisions are programmed to the extent that
they are repetitive and routine and that a definite approach has been worked out
for handling them. Because the problem is well-structured, the manager does
not have to go to the trouble and expense of working through an involved
decision making process.
Non-programmed decisions
Non-programmed decisions are unique decisions that require a 'custom made'
solution. This is when a manager is confronted with an ill-structured or novel
problem and there is no 'cut and dried solution'. The creation of a marketing
strategy for a new service represents an example of a non-programmed decision.
Example
IBM Australia's introduction of a personal computer in the 1980s was unlike
any other decision the company had previously made. [4]R
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3. The Principle Of Management
How do you understand the difference
between Decision made under condition of
a Certainty, Uncertainty & Risk ?
Virtually all decisions are made in an environment of at lest some uncertainty.
However, the degree will vary from relative certainty to great uncertainty, there
are certain risks involved in making decisions. [5]R
Certainty
Complete and accurate knowledge of outcome of each alternative. There is only
one outcome for each alternative.
Uncertainty
Multiple outcomes for each alternative can be identified but there is no
knowledge of the probability to be attached to each.
Risk
Multiple possible outcomes of each alternative can be identified and a
probability of occurrence can be attached to each. [6]R
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4. The Principle Of Management
Taking Decisions
Taking Decisions under Certainty
If the outcomes are known and the values of the outcomes are certain, the
task of the decision maker is to compute the optimal alternative or
outcome with some optimization criterion in mind.
As an example: if the optimization criterion is least cost and you are
considering two different brands of a product, which appear to be equal in
value to you, one costing 20% less than the other, then, all other things
being equal, you will choose the less expensive brand.
However, decision making under certainty is rare because all other things
are rarely equal.
Linear programming is one of the techniques for finding an optimal
solution under certainty. Linear programming problems normally need
computations with the help of a computer.
Taking Decisions under Uncertainty
Decisions under uncertainty (outcomes known but not the probabilities)
must be handled differently because, without probabilities, the
optimization criteria cannot be applied.
Some estimated probabilities are assigned to the outcomes and the
decision making is done as if it is decision making under risk.
Taking Decisions under Risk
The making of decisions under risk, when only the probabilities of
various outcomes are known, is similar to certainty.
Instead of optimizing the outcomes, the general rule is to optimize the
expected outcome.
As an example: if you are faced with a choice between two actions one
offering a 1% probability of a gain of $10000 and the other a 50%
probability of a gain of $400, you as a rational decision maker will
choose the second alternative because it has the higher expected value of
$200 as against $100 from the first alternative. [7]R
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5. The Principle Of Management
References
1. Management (A global and entrepreneurial perspective) 13th edition, part
2 & page # 138
2. http://in.answers.yahoo.com/question/index?qid=20060911010238AAuD
pcc
3. http://in.answers.yahoo.com/question/index?qid=20060926215439AAYp
hEK
4. http://wiki.answers.com/Q/Differences_between_non_programmed_and_
programmed_decisions
5. Management (A global and entrepreneurial perspective) 13th edition, part
2 & page # 146
6. http://decision-making-role.blogspot.com/2010/08/decisions-under-
certainty-risk-and.html
7. http://decision-making-role.blogspot.com/2010/08/decisions-under-
certainty-risk-and.html
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