3. Decision Making
Decision making in philosophical view
• Decision making according to the philosophers
• Decision making in business
4. Introduction:
• Decision making is the act of choosing one, alternatives among a sat
of alternatives.
• Decision making is most closely linked with the planning function. Its
also a part of organization, leading, and controlling.
• Philosophical decision theory unifies normative studies of beliefs,
desire and action. Its method distinguishes it from other
investigations of choice. Although it draws on the behavioral and
social sciences, it task is to advance foundation studies of choice
rather than empirical investigation of it.
5. Theories of decision making:
We have two types of decision making theory:
Optimal decision theory:
The investigation and analysis of why individuals and agents of choice make the decision.
Looks at the assumptions made by individual making the decisions and the assumptions they make deciding.
Normative decision theory:
Analyze and outcomes of decisions
Determines the optimal decision based on outcomes
6. Decision making conditions:
certainty
• Under condition of
certainty, the manager
have enough information
to know the outcome of
the decision before it is
made.
Risk
• Most managerial decisions are
made under conditions of risk.
Risks exist when the individual
has some information regarding
the outcome of the decision but
does not know everything when
making decision under conditions
of the risk, the manager may find
it helpful to use probabilities.
Uncertainty
• Uncertainty exists when
the probilities of the
various results are nit
known. The manager
feels unable to assign
estimates to any of the
alternatives.
7. Effective decision making process:
Collect some pertinent information before you make your decision: what information is needed, the best sources of information, and how to
get it. This step involves both internal and external “work.” Some information is internal: you’ll seek it through a process of self-assessment.
Other information is external: you’ll find it online, in books, from other people, and from other sources.
Gather relevant information:
Step 2:
You realize that you need to make a decision. Try to clearly define the nature of the decision you must make. This first step is very important.
Identify the decision:
Step 1:
. This approach increases the chances that you will choose the most satisfying alternative possible
8. Effective decision making process:
Step 3:
Identify the alternatives:
As you collect information, you will probably identify several possible paths of action, or alternatives. You can also use your imagination and additional
information to construct new alternatives. In this step, you will list all possible and desirable alternatives.
Step 4:
Weigh the evidence:
Draw on your information and emotions to imagine what it would be like if you carried out each of the alternatives to the end. Evaluate whether the need identified in Step 1 would
be met or resolved through the use of each alternative. As you go through this difficult internal process, you’ll begin to favor certain alternatives: those that seem to have a higher
potential for reaching your goal. Finally, place the alternatives in a priority order, based upon your own value system.
9. Effective decision making process:
Step 5:
Choose among alternatives
Once you have weighed all the evidence, you are ready to select the alternative that seems to be best one for you. You may even choose a combination of
alternatives. Your choice in Step 5 may very likely be the same or similar to the alternative you placed at the top of your list at the end of Step 4.
Step 6:
Take action
You’re now ready to take some positive action by beginning to implement the alternative you chose in Step 5.
Step 7:
Review your decision & its consequences
In this final step, consider the results of your decision and evaluate whether or not it has resolved the need you identified in Step 1. If the decision has not met the identified need, you
may want to repeat certain steps of the process to make a new decision. For example, you might want to gather more detailed or somewhat different information or explore additional
alternatives.
10.
11. According to Aristotle:
Aristotle was a Greek philosopher and polymath
during the Classical period in Ancient Greece.
Taught by Plato, he was the founder of the
Peripatetic school. He also gave the theory of
decision making we discuss below:
Process of deliberation:
According to the Aristotle, deliberation give rise
to decision and consequently, rational action. We
deliberate about, what is within our power and
can be done.
12. According to Aristotle:
• Decision making in an organization:
Decision making both in personal life and within the context of organizations,
must be governed by the virtue of prudence, or by what Aristotle called
practical wisdom.
Practical wisdom was an intellectual virtue of perceiving and understanding
in effective ways benevolently and beneficially.
The art of choosing well:
According to Aristotle, virtue lies at the root of choosing well. “Virtue makes
the choice free of errors and the end correct, so that one chooses what is
proper or, as some people believe, (Virtus makes) the reasoning correct”
13. According to the Herbert Simons:
• Herbert Simon's was a American scientist. He received
noble prize and his primary research in philosophical
decision making theory. We discuss in below:
The Herbert Simon’s Decision-Making Theory also
considers psychological aspects that classical economists
overlooked or ignored. Internal factors such as stress and
motivations, among others, limit an individual’s capacity
to solve complex problems. In short, decisions are based
on bounded rationality—humans behave differently
when there are risks and uncertainties involved. At the
core of the theory lies ‘satisficing’, which is a combination
of satisfying and sufficing. It suggests that one should
pursue objectives or make decisions that involve
minimum risks and complications instead of focusing on
maximizing profits.
14. According to Herbert A Simon’s:
It suggests that one should pursue objectives or make decisions that
involve minimum risks and complications instead of focusing on
maximizing profits.
In contrast to classical theorists, Simon suggests that there is never
one best course of action or decision. It’s because one can’t have
complete information about something, therefore, there will always be
a better course of action or decision.
15. Decision making in business:
Decisions allow leaders to respond to changing market conditions,
threats, and opportunities, in order to secure the future success of
their organization. As your business expands and demand grows, you
will be forced to increase your production capacity. The next step
would be to decide how much capacity installation is required to meet
demand effectively.
For fulfill all production and requirements of business we need create
different decision of different persons
16. Terms of decision making in Business:
Decisions are part of the manager's remit.
Difficult choices may have to be made for the
common good of the organization. There are
three types of decision in business:
Strategic Long term Complex
made by senior
managers
Example: aiming
to be market
leader
Tactile Mid term Less complex
Made by middle
managers
Example:
launching new
product/opening
new branches
Operational Day to day
Simple and
Routine
Made by juniors
managers
example: regular
ordering of
supplies/creating
staff rota
19. Centralized
decision making
• Centralized decision making is when most
decisions are taken by senior managers or the
head office.
advantages
• decisions made by the most experienced people
• decisions made more quickly
• lead to greater uniformity within the organization
disadvantages
• staff demotivated from lack of input in decisions
• central team slower to respond to local changes
in market
TYPES OF DECISION MAKING
20. Decentralized
decision
making
• Decentralized decision making is when each
department within the organization has the
authority to make their own decisions.
advantages
• staff motivated by opportunity to make
decisions and be creative
• can provide better level of customer service
• local teams can respond quickly to changes in
local market
disadvantages
• decisions made by less experienced people
• local decisions may be inconsistent with overall
strategy
21. Role of managers:
Managers have different jobs or roles they undertake in order to be efficient
and effective.
Plan –
Organize –
The success or failure of an organization depends on how effective
managers' decisions are.
Good decision making
Bad decision making
preparing for the future and create action points
Having resources ready and putting plan into action
