DECISION MAKING
and
PROBLEM SOLVING

The square on the right is obviously larger
in area than the one on the left, isn’t it?
How about the circles? Which looks larger
in circumference and diameter? The one
on the right? Not so! If you measure them,
you’ll see that they are identical in size.

ISSUE: Identify the best location for new school site.
If after evaluating each of the primary locations only one viable
choice remains, then there is really no decision left to make.
But if three locations each meet the basic requirements and
have different relative strengths, the president will then have
to make a decision from among the options.
** most of our interest relates to decision making**

Basic Elements of DECISION MAKING
. Goal
. Courses of action outcomes
. Information (available) Alternatives
.. each has an outcome likely to occur
.. Value of each outcome relative to goal
. Decision maker chooses alternative on the basis of his her
evaluation of the information

Information
Action
Outcome
Probabilities
Value of Out-
Comes Relative
To Goals
Choice of
One
alternative
Alternative
Actions
Goals
Action 1
Action 2
Action 3
Outcome 1.1
Outcome 1.2
Outcome 1.3
Outcome 2.1
Outcome 2.2
Outcome 3.1
Outcome 3.2
Outcome 3.3
Elements of
Decision Making

Decisions made in organizations can be
classified according to:
FREQUENCY - how often a particular decision
situation recurs
INFORMATION – are conditions describe how much
information is available about the
likelihood of various outcomes

Types of DECISIONS on the frequency of
recurrence
1. Programmed decision – recurs often enough for
decision rules to be developed.
- usually are highly structured :
a. goals are clear and well known;
b. decision-making procedure is already
established; and
c. sources and channels of information are
clearly defined

Types of DECISIONS on the frequency of
recurrence
2. Nonprogrammed decision – when a problem or decision
situation has not been encountered before, however,
a decision maker cannot rely on previously
established decision rules
- requires problem solving (a
special form of decision making in which the issue is
unique – it requires developing and evaluating alternatives
without the aid of a decision rule.
** one key element of nonprogrammed decisions is that
they require good judgment on the part of leaders and
decision makers.

Characteristics Programmed
Decisions
Nonprogrammed
Decisions
Type of Decision Well structured Poorly structured
Frequency Repetitive and
routine
New and unusual
Goals Clear, specific Vogue
Information Readily available Not available, unclear
channels
Consequences Minor Major
Organizational level Lower levels Upper levels
Time for solution Short Relatively long
Basis for solution Decision rules, set
procedures
Judgment and
creativity
Characteristics of Programmed and
Nonprogrammed Decisions

Information required for DECISION MAKING
1. Complete certainty - when all alternative outcomes
are known
2. Complete uncertainty - when all alternative
outcomes are unknown
3. Condition of Risk (points between the two
extremes)
- the decision maker has some information about the
possible outcomes and may be able to estimate the probability
of their occurrence
- the outcome of a given action is not known but has
enough information to estimate the probabilities of various
outcomes

Information
conditions
Alternatives Probability of
outcome occurring
Outcome Goal: To
Maximize
Profit
Certainty Promote
Do not
Promote
1.0
1.0
5,000 Php
500 Php
5,000 Php
500 Php
Risk Promote
Do not
Promote
Large market: 0.6
Small market: 0.4
Large market: 0.6
Small market:0.4
5,000 Php
500 Php
500 Php
150 Php
3000 Php
200 Php
Expected value
6000 Php
300 Php
60 Php
Expected value
360 Php
Uncertainty Promote
Do not
promote
?
?
?
?
?
?
Uncertain
Uncertain
Uncertain
Uncertain
Uncertain
Uncertain
Outcomes
unknown
Outcomes
unknown
Alternative Outcomes Under Different Information Conditions

Approaches to DECISION MAKING
Rational Approach - assumes that
managers follow a systematic , step-by-
step process from goals to implementation,
measurement, and control. It further
assumes the organization is dedicated to
making logical choices and doing what
makes the most sense economically and
managed by decision makers who are
entirely objective and have complete
information.
* actual decision making often is not wholly rational process

Steps in Rational Approach
1. State the Situational Goal
the rational decision-making process
begins with the statement of a situational
goal-that is a goal for a particular situation.
2. Identify the Problem
the purpose of problem identification is
to gather information that bears on the goal.
If there is discrepancy between the goal and
the actual state, action maybe stated.

3. Determining Decision Type
decision makers must determine if the
problem represents a programmed or a
nonprogrammed decision.
4. Generate Alternatives
decision makers may rely on education
and experience as well as knowledge of the
situation to generate alternatives

5. Evaluate Alternatives
decision maker must examine each
alternative for evidence that it will reduce the
discrepancy between the desired state and
the actual state.
6. Choose Alternative
choosing consists of selecting the
alternative with the highest possible payoff,
based on the benefits, costs, risks, and
uncertainties of all alternatives.

7. Implement the Plan
implementation requires the proper use
of resources and good managerial skills;
the success depends on the leadership,
the reward structure, the communications
system, and group dynamics.
8. Control: Measure and Adjust
the outcomes of the decision are
measured and compared with the desired
goal

The BEHAVIORAL APPROACH
- acknowledges the role and
importance of human behavior in the
decision-making process
- decision makers operate with
bounded rationality rather with the perfect
rationality assumed by the rational
approach

BEHAVIORAL APPRAOCH is characterized by:
1. the use of procedures and rules of
thumb – initially reduced uncertainty in
decision making
2. suboptimizing - is accepting less than the
possible outcome - - - frequently, it is not feasible to
make the ideal decision in a real-world situation given
organizational constraints
3. satisficing - is examining alternatives only
until a solution that meets minimal requirements is
found and then ceasing to look for a better one

PERSONAL APPROACH
- Janis-Mann concept called the conflict
model (Irving Janis and Leon Mann)
- based on research in social psychology
and individual decision processes
Characteristics of Personal Approach
1. it deals with important life decisions
* marriage, schooling, career, and
major organizational decisions

Characteristics of Personal Approach
2. It recognizes that procrastination and
rationalizations are mechanisms by which
people avoid making difficult decisions and
coping with the associated stress
3. It explicitly acknowledges that some
decisions probably will be wrong and that
the fear of making an unsound decision
can be a deterrent to making any decision
at all

Characteristics of Personal Approach
4. It provides for self-reaction – comparisons
of alternatives with internalized moral
standards
5. It recognizes that at times the decision
maker is ambivalent about alternative
courses of action

Start:
Challenging or negative
feedback or an
opportunity
Additional
information about
losses from
continuing
unchanged
Q. 1. are the risks
serious if I don’t
make a change?
Unconflicted
Adherence
Information about
losses from
changing
signs of more
information
available and of
other unused
resources
Q.2. are the risks
serious if I do make
a change?
Unconflicted
Change
Q.3. is it realistic
to hope to fid a
better solution?
Defensive
Avoidance
Information about
deadline and time
pressure
Q. 4. is there
sufficient time to
search and
dileberate?
Hypervigilance
Vigilance
End:
Incomplete
search
appraised,
and
contingency
planning
End: thorough
search/apprai
sed,and
contingency
planning
Antecedent Conditions Mediating Processes Consequences
No
No
No
No
Maybe or Yes
Maybe or Yes
Maybe or Yes
Maybe or Yes

Thank U !!!