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Decision Making

Decision making defined as selection of a course of action from among alternativesit is at the core of planning

A plan cannot be sad to exist unless a decision- a commitment of sources, direction or reputation- has been made.

Rationality in Decision Making

People acting or deciding rationally are attempting to reach some goal that cannot be attained without action.Limited or Bounded Rationality

A manager must settle for limited rationality or bounded rationality or the limitations of information, time and certainty limit rationality.

Herbert Simon called thisSatisficing is defined as picking a course of action that is satisfactory or good enough under the circumstances

Principle of the Limiting Factors

A limiting factors is something that stands in the way of accomplishing a desire objective.

The principle of limiting factors is By recognizing and overcoming those factors that stand critically in the way of a goal, the best alternative course of action can be selected.Evaluation of Alternatives

Quantitative Factors-these are factors that can be measured in numerical terms such as time or various fixed and operating cost.

Qualitative/Intangible Factors -factors that are difficult to measure numerically such as the quality of labor relations, the risk of technological change or the international political climate.Marginal AnalysisEvaluating of alternative may involve utilizing the techniques of marginal analysis to compare additional revenues arising from additional cost.

Cost of Effective AnalysisIt seeks the best ratio of benefits and costsIt is a technique for choosing the best plan when the objectives are less specific than sales, costs, or profits.

The major features of cost effectiveness analysis are that it:Focuses on the result of programHelps weigh the potential benefits of each alternative against its potential costInvolves a comparison of the alternatives in terms of the overall advantagesSelecting an Alternatives: Three Approaches

Experience Reliance on the past experience probably pays a larger part that it deserves in decision making. Experienced managers usually believed, often without realizing it, that the things they have successfully accomplished and the mistakes they have made furnish almost infallible guides to the future. This attitude is likely to be more pronounced the more experience a manager has had and the higher in an organization he or she has risen.ExperimentationExperimentation is often used in scientific inquiry. People often argue that it should be employed more often in managing and that the only way a manager can make sure some plans are right- especially in view of the intangible factors- is to try the various alternatives and see which is best.

Research and analysis One of the most effective techniques for selecting from alternatives when major decisions are involved is research and analysis. This approach means solving a problem by first comprehending it. It thus involves a search for relationships among the more critical of the variables, constraints and premises that bear upon the goal sought. It is the pencil-and-paper approach to decision makingProgrammed and Non-Programmed Decisions

Programmed decisions are applied to structured or routine problems.

Non-programmed decisions are used for unstructured, novel and ill-defined situations of a nonrecurring natureDecision Making Under Certainty, Uncertainty, and the Risk

In a situation involving certainty, people are reasonably sure about what will happen when they make a decision. The information is available and is considered to be reliable, and the cause and effect relationships are known.In a situation of uncertainty, people have only a meager data base, they do not know whether or not the data is reliable, and they are very unsure about whether or not the situation may change. Moreover, they cannot evaluate the interactions of the different variables.In a risk situation, factual information may exist, but it may be incomplete. To improve decision making, one may estimate the objective probabilities of an outcome by using for example, mathematical methods.Modern Approaches to Decision Making under Uncertainty.Risk analysisDecision trees-the decision points, chance events and probabilities involved various course that might be undertakenPreference theory- or utility theory, is based on the notion that individual attitudes toward risk will vary.

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