CHAPTER 3:

The Nature of
Decision Making
FUNDAMENTALS OF
MANAGEMENT (MGT 162)
 ◦ Definition of decision making
◦ Types of decision making
◦ Programmed decision

LEARNING ◦ Non-programmed decision

◦ Types of condition under decision making
OBJECTIVES ◦ The rationale of decision making
◦ Decision making process
◦ Group decision making techniques
 ◦ The process through which managers
identify and resolve problems and capitalize
on opportunities.
DEFINITION ◦ The process by which a course of action is
selected as the way to deal with a specific
problem.
 Program Non-Program

TYPES OF
It is unstructured and requires higher
It is structured level management.
It usually deals with unique, unusual or
exceptional problem

DECISION A repetitive decision that can be

handled by a routine approach
Non-routine decision making that
occurs in response to unusual,
unpredictable opportunities and threat

MAKING Example: Rules & regulations i.e.

UiTM Dress Code, Usage of Student
ID
Example: Government’s decision to
prevent H1N1
TYPES OF CONDITIONS UNDER
DECISION MAKING
• Decision maker know exactly what will happen and able to predict the
outcome precisely
Certainty • e.g.: If you put RM1000 in bank under fixed deposit or a year at 5%
interest, then interest earned will be RM50 after 1 year

• Refer to future conditions that are not always known in advance

• Decision maker is able to estimate the likelihood of certain outcome
Risk based on personal experience or secondary information
• Some information is available, but it is not enough to answer all
questions about the outcomes

• A condition under which there is not full knowledge of the problem and
reasonable probabilities for alternative outcomes cannot be
Uncertainty determined.
• A situation in which a decision maker has neither certainty nor
reasonable probability about the outcome

• Te goals to be achieved or problem to be solved is unclear, alternatives

Ambiguity are difficult to define and information about outcomes is not available
 ◦ Investigate the situation
• Define problem
• Diagnose causes
• Identify decision objectives

THE ◦ Develop alternatives

• Seek creative alternatives
RATIONALE • Do not evaluate yet

OF ◦ Evaluate alternative and select the best one

• Evaluate alternative: Time required, costs involved, risk

DECISION involved, benefits or advantages & limitation

• Select the best alternative

MAKING ◦ Implement and monitor

• Plan implementation- review the plan periodically
• Monitor implementation & make necessary
adjustment
 DECISION MAKING PROCESS
(The 7 Steps)

Identifying Monitoring
Evaluating Reaching Choosing
opportunities Identifying Generating
implementation and evaluating
and diagnosing objectives alternatives alternatives decisions strategies feedback
problems
 Decision Making Process
1. Identifying opportunities and diagnosing problems
–Clear identification of opportunities or problem that require a decision.
–Recognize that a problem exist & must be solved
–Problem is discrepancy between current state & past performance,
current performance of other organizations or future expected
performance
–Obtaining reliable and accurate information

2. Identify objective
- Find the objective of the company

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 Decision Making Process
3. Generating alternatives
List the possible solutions
–The solutions can be categorized:
• Ready made: ideas that have been tried before
• Custom made: combining the new ideas into creative solutions
• Advice: Get & follow advice from others who have faced similar problems
–Results to attain (quality & quantity), often referred as targets, standards

4–9
 Decision Making Process
4. Evaluating Alternatives
–Determining the value or adequacy of the alternatives
–Methods to value:
• The are potentially more alternatives available than managers realize
• Predict the consequences of each alternatives if put it into the action
• Prepare contingency plan for each of the alternative if different scenarios
occur
• Success of failure of the decision will affect the track record of the decision
maker

4–10
 Decision Making Process
5. Making the Choice
–Identify the best possible outcome through:
• Positive vs Negative consequences
• Benefit vs cost vs expected total return
–Choose an option that is acceptable although not necessarily the best or
perfect

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 Decision Making Process
6. Implementing the Decision
–The manager who involve with this stage must understand the choice &
why it was made also committed.
–Precaution about possible problems & opportunities

7. Monitoring and Evaluating feedback

–Monitor the implementation through collecting information .
–If the decision is inappropriate or not working, the process will begin from
the 1st stage.

4–12
 Three (3) major types of group
decision making

GROUP ◦ Brainstorming
DECISION
◦ Nominal Group Technique (NGT)
MAKING
◦ Delphi Technique
 Methods of Group Decision Making
• Brainstorming
–A technique used to enhance creativity that encourages group members to
generate as many novel ideas as possible on a given topic without
evaluating them
–Can enhance creativity by overcoming pressures for conformity that can
retard the development of creative decision-making

4–14
Rules of Brainstorming

4–15
 Methods of Group Decision Making
• Nominal Group Technique
–A structured process designed to stimulate creative group decision-making
in which agreement is lacking or the members have incomplete knowledge
concerning the nature of the problem
–Individual members list their ideas on the specific problem and present the
ideas at one time, without discussion
–Members’ ideas are recorded so that everyone can see them
–After all members’ ideas are presented, the group discusses the ideas to
clarify and evaluate them

4–16
 17

Nominal Group Technique (NGT):

Individual members independently list Each members

their ideas on the specific problem. present the ideas
without discussion

Member’s ideas are recorded so

After each member present, the grp That everyone can see them.
discusses the ideas to clarify & evaluate them.

Finally, members vote on the ideas independently

Using a rank-order or rating or procedure.
 Methods of Group Decision Making
• Delphi Technique
–The participants of Delphi Technique does not meet face to face.
Participant experts can be thousands of miles apart.
–Uses experts to make predictions and forecasts about future events by
survey instruments or questionnaires without meeting face-to-face.

4–18
 ADVANTAGES DISADVANTAGES
GROUP 1. More information and
knowledge are available.
1. The process takes longer than
individual decision making, so
DECISION 2. More alternatives are likely to
be generated.
it is costlier.
2. Compromise decisions

MAKING: 3. More acceptance of the final

decision is likely.
resulting from indecisiveness
may emerge.

Advantages & 4. Enhanced communication of

the decision may result.
5. Better decisions generally
3. One person may dominate the
group.
4. Groupthink* may occur.
Disadvantages emerge.