[Solution] Nature of Decision Making
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Author: Sarah Bennett
Types of Decisions and Decision-Making Conditions
A manager cannot take any action, or choose not to act, without first making a decision. Thus, decision making plays a role in all four functions of management—planning, organizing, leading, and controlling. Consciously and unconsciously, managers take many factors into account as they make decisions, and it's important that they follow a sound decision-making process in order to achieve good results.
What Is Decision Making?
Decision making is the act of choosing one alternative from among a set of alternatives. The decision-making process includes several steps:
- Recognizing and defining the nature of a decision situation. First, the manager needs to appreciate that a decision needs to be made.
- Identifying alternatives. If there is only one possible course of action, then no decision needs to be made; the manager does the only thing that can be done. Almost always, however, there are multiple options.
- Choosing the most effective alternative. To make this judgment, the manager needs to have a clear definition of effectiveness as it applies to the situation. For example, in one situation, the most effective decision is one that minimizes costs, while in another situation, the most effective decision is one that maximizes market share.
- Putting the decision into effect. The manager makes a plan to translate the decision into actions.
Decision-Making Process Example
- The manager of a call center learns that a high proportion of dissatisfied customers demand refunds and are unwilling to give the company a chance to fix the problem.
- The manager gathers information, and several alternatives emerge. The call center could assign dissatisfied customers to a select few representatives who are especially good at handling such calls. The company could also offer customers substantial discounts if they agree to give the company another chance.
- Based on experience, the manager has confidence in the ability of her best representatives to deal with upset customers. At the same time, she is concerned that discounts would cost the company too much money. She decides to set up a workflow that routes upset customers to select representatives.
- The manager works with the technology and training teams to develop a way to screen and route customers appropriately.
Types of Decisions
Managers make different types of decisions, which can be categorized based on their complexity and frequency:
- Programmed decisions are made in response to recurring, routine problems with established decision rules.
- Unprogrammed decisions involve unique, non-routine problems where no standard solutions exist.
The Conditions Under Which Decisions Are Made
Managers make decisions under various conditions, which affect the approach and likelihood of success:
- Certainty - The manager has complete information about alternatives and outcomes.
- Risk - The manager knows the alternatives and the probability of outcomes.
- Uncertainty - The manager has incomplete information about alternatives and outcomes.
Select the correct responses to the following question.
Which of the following are steps in the decision-making process? Check all that apply.
- Developing a plan to put the decision into effect
- Choosing the alternative that is likely to be most effective
- Defining jobs to structure the work of enacting the decision
- Identifying alternative courses of action
View Explanation
The four steps of decision making are:
- Recognizing and defining a decision situation
- Identifying alternative actions
- Choosing the most effective alternative
- Putting the decision into effect
Defining jobs to structure work is part of the organizing function of management.
Select the term that best completes the following sentence.
If a manager needs to decide how to deal with a new and highly complex situation, this manager needs to make an .
View Explanation
An unprogrammed decision deals with a situation in which no clear guidance exists for how to choose the best alternative. Unprogrammed decisions often arise in situations that are new and/or complicated. For example, if you have a yard, you might consider whether to install outdoor lighting for security and to entertain friends with evening barbeques and bonfires. You need to consider many alternatives, including how much money to spend, what kind of lights and how many to get, and where to place them.
Select the correct response for the following questions.
Which of the following describes the best decision a manager can make?
- The manager chooses the course of action that will cost the least.
- The manager chooses the course of action that will produce the highest quality outcome.
- The manager chooses the most effective course of action as indicated by the particular circumstances
View Explanation
In step 3 of the decision-making process, the manager must choose the most effective alternative. Which alternative is "most effective" depends on the organization's strategy and environmental factors. The most effective alternative may not be the least costly one or the one that produces the highest quality outcome.
Managers make decisions under different types of conditions. Which of the following describes a state of uncertainty?
- The manager understands the availability of each alternative and the probability that each will have the desired outcome.
- The manager does not know what all the alternatives are, nor does the manager have complete information about their risks and outcomes.
- The manager completely understands the available alternatives and the outcome of each.
View Explanation
Under conditions of uncertainty, a manager has incomplete information about what actions might be taken and, for the alternatives that are known, what their risks and benefits are. Upper-level managers often must make decisions in a state of uncertainty.
