DECISION MAKING PROCESS IN BUSINESS: PROCESS IMPORTANCE AND RELATED CONCEPTS

1. ASSIGNMENT
MC-203 MANAGERIAL ECONOMICS
TOPIC :- CONCEPT OF BUSINESS DECISION
NAME :- VISHAL VERMA(7071497236)
SECTION :- B
ROLL NO :- 2154
RESPECTED TEACHER’S NAME :- PROF. DR. SUNITA

2. ACKNOWLEDGEMENT
In performing our assignment, we had to take the help of some respected persons,
who deserve our greatest gratitude. We would like to show our gratitude to PROF. DR.
SUNITA SRIVASTAVA for giving us a good guideline for assignment throughout
numerous consultations. We would also like to expend our deepest gratitude to all
those who have directly or indirectly guided us in accomplishing this assignment.
In addition, a thank you to PROFESSOR PAWAN KUMAR GUPTA SIR AND MISS
LAKSHMI MAM who, introduced us to the methodology of work and guidance.
We also thank the ‘UNIVERSITY OF LUCKNOW’ for their help and support in the
form of facilities provided to us.
Many people, especially our classmates and team members itself, have made
valuable comment suggestions on this proposal which gave us an inspairation to
improve our assignment. We thank all the people for their help.

3. VINAY KUMAR
M.COM(PURE) SEC- B
ROLL NO - 2154

4. “No sensible decision can be made any longer
without taking into account not only the world as it is,
but the world as it will be. . .”
-Isaac Asimov

5. What is Decision Making?
Decision making is the cognitive process leading to the
selection of a course of action among alternatives.
Every decision making process produces a final choice . It
can be an action or an opinion .
It begins when we need to do something but we do not know
what.
Therefore, decision making is a reasoning process which can
be rational or irrational, and can be based on explicit
assumptions or tacit assumptions.
Examples: Shopping, deciding what to eat, What to wear,
when to sleep, etc..

6. Decision-making Process
1. Identifying a problem
2. Identifying decision criteria
3. Allocating weights to criteria
4. Developing alternatives
5. Analyzing alternatives
6. Selecting an alternative
7. Implementing the alternative
8. Evaluation (of decision effectiveness)

7. Problem Definition
Problem is a discrepancy (difference) between an existing
and a desired state.
Example:
“ The manager has resigned, and we need another manager”
Here the phrase “manager has resigned” reflects the current
state while “need another manager” represents a desired
state .
Identifying Decision Criteria
The word criteria, is defined as “ a standard by which
something can be judged ”. A decision criteria therefore, is
the basis of a decision, which outlines the relevant and
important factors for a decision. And implicitly, it also defines

8. Developing Alternatives
Involves defining the possible alternatives (or choices) that
would resolve the problem.
In our case, the alternatives would be a list of candidates or
job applicants.
Analyzing Alternatives
Alternatives are rated and analyzed on the basis of the
criteria
The rating can be based on a specified scale , say 1 – 5 etc.
Rating may be subjective in nature and thus, may depend on
the judgment of the individual(s)

9. Selecting an alternative
Involves choosing the best alternative, based on the above
rating and analysis
Generally implies selecting the alternative with the highest
score.
Implementing the Alternative
Putting the decision into action
Involves clear communication of the decision to all concerned
and obtaining their commitment

10. Evaluation
Evaluation forms an integral part of any process
Involves evaluation of the outcome based on the desired goal
and criteria
Involves assessing the effectiveness and efficiency of the
outcome (or the entire process)
In case of any undesired results, each step of the process is
carefully reviewed to trace the root causes

11. 6 C's of Decision Making
1. Construct.
2. Compile.
3. Collect.
4. Compare.
5. Consider.
6. Commit.

12. Construct a clear picture of precisely what must
be decided.
Compile a list of requirements that must be met.
Collect information on alternatives that meet the
requirements.
Compare alternatives that meet the requirements.
Consider the “what might go wrong” factor with
each alternative.
Commit to a decision and follow through with it.

13. Problem Analysis vs Decision Making
It is important to differentiate between problem analysis and
decision making. The concepts are completely separate from
one another. Problem analysis must be done first, then the
information gathered in that process may be used towards
decision making.
Problem Analysis
• Analyze performance, what should the results be against
what they actually are
• Problems are merely deviations from performance
standards
• Problem must be precisely identified and described

14. • Something can always be used to distinguish between what
has and hasn't been effected by a cause
• Causes to problems can be deducted from relevant changes
found in analyzing the problem
• Most likely cause to a problem is the one that exactly explains
all the facts
Decision Making
• Objectives must first be established
• Objectives must be classified and placed in order of
importance
• Alternative actions must be developed

15. • The alternative must be evaluated against all the objectives
• The alternative that is able to achieve all the objectives is
the
tentative decision
• The tentative decision is evaluated for more possible
consequences
• The decisive actions are taken, and additional actions are
taken to prevent any adverse consequences from becoming
problems and starting both systems (problem analysis and
decision making) all over again
• There are steps that are generally followed that result in a
decision model that can be used to determine an optimal
production plan

16. Decision-Making Stages
There are four stages that should be involved in all group
decision making. These stages, or sometimes called phases,
are important for the decision-making process to begin
1. Orientation stage- This phase is where members meet
for the first time and start to get to know each other.
2. Conflict stage- Once group members become familiar
with each other, disputes, little fights and arguments
occur. Group members eventually work it out.
3. Emergence stage- The group begins to clear up vague
opinions by talking about them.
4. Reinforcement stage- Members finally make a decision,
while justifying themselves that it was the right decision.

17. THE DECISION MAKING MODEL
Classify and define
problem or opportunity
Set objectives and
criteria
Generate creative and
innovative alternative
Analyze alternatives and
select the most feasible
Plan and
implement the
decision
Control the
decision

18. Decision-making Models
Model :
“ A simplified representation or description of a
system or complex entity ”
Examples :
1. Rational Model (Classical Model)
• The decision maker attempts to use optimizing—
selecting the best possible alternative.
2. Bounded Rationality Model
• The decision maker uses satisficing —selecting the first
alternative that meets the minimal criteria for solving the
problem.

19. Rational/Bounded Rational
So Rational and Bounded Rational Models are
cognitive models that describe how managers make
rational decisions

20. 1. Define and
diagnose the
problem
2. Set goals
3. Search
for
alternative
solutions
External and
internal
Environ. forces
4.
Compar
e and
evaluate
solution
5. Choose
among
alternative
solutions
7. Follow
up and
control
6. Implement
the solution
selected

21. Decision-Making Styles
Reflexive Style
Makes quick decisions without taking the time to get all
the information that may be needed and without
considering all the alternatives.
Reflective Style
Takes plenty of time to make decisions, gathering
considerable information and analyzing several
alternatives.
Consistent Style
Tends to make decisions without either rushing or
wasting time.

22. Decision-Making Steps
When in an organization and faced with a difficult decision,
there are several steps one can take to ensure the best
possible solutions will be decided. These steps are put into
seven effective ways to go about this decision making process .
The first step - Outline your goal and outcome. This will enable
decision makers to see exactly what they are trying to
accomplish and keep them on a specific path.
The second step - Gather data. This will help decision makers
have actual evidence to help them come up with a solution.
The third step - Brainstorm to develop alternatives. Coming up
with more than one solution enables you to see which one can
actually work.

23. The fourth step - List pros and cons of each alternative. With
the list of pros and cons, you can eliminate the solutions that
have more cons than pros, making your decision easier.
The fifth step - Make the decision. Once you analyze each
solution, you should pick the one that has many pros (or the
pros that are most significant), and is a solution that everyone
can agree with.
The sixth step - Immediately take action. Once the decision
is picked, you should implement it right away.
The seventh step - Learn from, and reflect on the decision
making. This step allows you to see what you did right and
wrong when coming up, and putting the decision to use.

24. PLAN, IMPLEMENT THE DECISION, AND
CONTROL
Plan
Develop a plan of action and a schedule of
implementation.
Implement the Plan
Communicate and delegate for direct action.
Control
Use checkpoints to determine whether the alternative is
solving the problem.
Avoid escalation of commitment to a bad alternative.

25. Barriers to Good Decision Making
1. Hasty - Making quick decisions without having
much thought.
2. Narrow - Decision making is based on very
limited information.
3. Scattered - Our thoughts in making decisions are
disconnected or disorganized.
4. Fuzzy - Sometimes, the lack of clarity on
important aspects of a decision causes us to
overlook certain important considerations.