Decisions are processes by which a manager seeks to achieve some desired state.

They are means rather than ends. Making a decision involves making a choice between the alternatives. Decisions could be a) engineering or scientific or b) management. Decision making is the sequential process of thought and deliberation that results in a decision.

The process of decision making is same in both the types of decisions and involves a) defining the problem b) gathering facts related to the problem c) comparing these with right or wrong criteria based on knowledge and experience and then taking the best course of action Management decision making a more of an art than a science.

Management decisions are tough because management problems are wider in scope and they are related to human behavior which is most unpredictable. Management decisions could be either

a) programmed or

b) Non programmed.

While Programmed decisions are repetitive and routine in nature and provide solutions to structured problems the Non programmed decisions are of non routine or unique in nature and attempt to provide solutions to complex and unstructured problems
Un Programmed decisions

Management Level

Top

Broad, unstructured, infrequent, uncertainty Middle Both structured and unstructured Lower Frequent, structured, repetitive, routine, certainty

Programmed decisions

Identify & define The problem Develop alternatives Evaluate alternatives Certainty Risk

Gather Information

Revise

Uncertainty

Select alternatives Implement decision Evaluate & control

The evaluation of alternatives is based on alternative outcome relationship. three possible conditions are

The

Certainty

Risk and Uncertainty

1. 2.

Certainty : The decision maker has a complete knowledge of the outcome of each alternative. Risk : The decision maker has some probabilistic estimate of the outcome of each decision. Condition of risk occurs when the decision maker has enough information to allow the use of probability in evaluating the alternatives. Probability of occurrence of an is event is the expectancy of event happening.

Probability can be assigned based on

a.

Logic or deduction: This is Objective probability. This reflects the historical evidence. Ex. Getting head/tail for a tossed coin. Or getting a number on rolling dice etc. Past experience is with empirical evidence.

b.

c.

Subjective estimate due to intelligence or intuition. When the decision maker has access to probability information, the criterion for decision making is to maximize s the expected value of the decision.

3.

Uncertainty : The decision maker (dm) has absolutely no knowledge of the probability of outcome of each alternative.

When no information exists the personality characteristics of the decision maker become more important for determining which decision is made. The following five characteristics describe what most of the dms do.

a. b. c. d. e.

Optimistic Decisions Pessimistic Decisions Realistic decisions. Regret minimizing Decisions. Insufficient Reasoner

a.

Optimistic Decisions The DM think optimistically about the event that influence decisions. They choose the alternative that maximizes the outcome Pessimistic Decisions They believe that worst possible outcome will occur no matter what they do. They estimate the worst outcomes associated with each alternative and select the best of these worst outcomes.

b.

c.

Realistic Decisions. They take the middle path neither optimistic nor pessimistic. Regret minimizing Decisions. They want to minimize the dissonance they experience after the fact. Insufficient Reason Decisions. These are also called eqi-probable decision maker. They assume that all the possible outcomes have equal chance of occurring.

d.

e.

Individual differences influence the decision making process. The four individual differences which have a significant impact of the decision making process are
1.

Values: Values are the guidelines that a person uses when confronted with a situation in which a choice has to be made. Values are acquired early in life and are a basic part of individuals thought. Value judgment is involved at every stage in the process of decision making. They are reflected in the decision makers behavior before making the decision, in making the decision and in putting the decision into effect.

2.

Personality : Decision makers are influenced by many psychological forces both conscious and subconscious. These are strongly reflected in decision making under uncertainty. Personality traits of the decision maker combine with situational and interact ional variables influence the decision making process.

3.

4.

Propensity for risk : (Risk taking capacity ) This is a specific aspect of personality which strongly influences the process of making decision. Potential for dissonance : Traditionally researchers have focused much of their attention on the forces and influences on the decision maker before a decision is made. Utility of the alternatives is the criterion for decision making. Value of the decision is dependent on the utility. Recently Behavioral scientists have focused their attention on post decision anxiety or cognitive dissonance experienced by the decision maker

Such anxiety is related to lack of consistency or harmony among individuals various cognitions (attitudes, beliefs and so on) Individuals are likely to use one or more of the following to reduce their dissonance a. Seek information that supports their decision. b. selectively perceive information that supports the decision c. adopt a less favorable view of the foregone alternatives. d. Exaggerate the importance of positive aspects of the decision