MGT 101 - Principles of Management and Business
The Decision Making Process
Week 4
Objectives
✤
To describe the decision making process
✤
To practice decision making
The Decision Making Process
✤
Definition:
A set of eight steps that begins with identifying a problem; it
moves through selecting an alternative that can alleviate the
problem and concludes with evaluating the decision’s effectiveness
✤
✤
This process can be used to describe both individual and group
decisions.
The Decision Making Process
Identification
of a
Problem
Identification
of Decision
Criteria
Allocation
of Weights
to Criteria
Development
of
Alternatives
Evaluation
of
Decision
Effectiveness
Analysis
of
Alternatives
Selection
of an
Alternative
Implementation
of the
Alternative
Step 1: Identification of a
Problem
✤
A Problem: a discrepancy between an existing and a desired state of
affairs
✤
In real world, most problems are not clear.. Thus, problem
identification is not simple
✤
Also, problem identification is subjective
✤
Furthermore, managers who mistakenly solve the wrong problem are
not different from those who don’t solve it!
How Can Managers Identify
Problems?
✤
They need to make comparisons between current state of affairs AND
some standard
✤
The standard can be:
✤
past performance
✤
previously set goals
✤
the performance of some other unit within the organization or some
other organization
Step 2: Identification of Decision
Criteria
✤
Here, we select specific criteria that we will use in making the
decision. The criteria include: price, weight, size, number of
employees, hours needed ... etc.
✤
Decision Criteria (single is criterion): factors that are relevant in a
decision
✤
Every decision making has a criteria whether explicitly stated or not
✤
If a factor is not included, it’s considered irrelevant
Step 3: Allocation of Weights to
Criteria
✤
In this step, we give weights to the criteria identified in the previous
step
✤
A simple approach: Give 10 to the highest important factor, and then
assign weight the rest against that standard
✤
For example: if you give another criterion 5, the standard is twice as
important
✤
Mainly, you use your personal preferences. In a more studied
decisions, you will use data, statistics, studies, analysis, and research
Important Criteria and Weights in
a Car-Buying Decision
Criterion
Weight
Price
10
Interior Comfort
8
Durability
5
Repair Record
5
Performance
3
Handling
1
Step 4: Development of
Alternatives
✤
Here, we list all the alternatives that could succeed in solving the
problem
✤
We only list them, without evaluating them
Step 5: Analysis of Alternatives
✤
Each alternative is evaluated by appraising it against the criteria
✤
The strengths and weaknesses of each alternative become both
evident as we compare them to the criteria and weights established in
step 2 and step 3
✤
The assessment is clearly a personal judgement
Assessment of Possible Car
Alternatives
Alternative
Initial
Price
Interior
Comfort
Repair
Total
Durability Record Performance Handling
Mazda
C230
5
6
9
10
7
7
44
Isuzu
Ascender
7
6
8
6
5
6
38
BMW 335
9
7
6
4
4
7
37
Toyota
Camry
6
5
10
10
6
6
43
VW Passat
8
6
6
5
7
8
40
What if?
✤
✤
If one alternative scored 10 on every criterion, we wouldn’t need to
consider the weights
Similarly, if the weights were all equal, you could evaluate each
alternative merely by summing up the appropriate lines
Evaluation of Car Alternatives:
Assessment Criteria x Criteria
Weight
Alternative
Initial Price
[10]
Interior
Comfort
[8]
Durability
[5]
Repair
Record
[5]
Performance
[3]
Handling
[1]
Total
Mazda
C230
5
50
6
48
9
45
10
50
7
21
7
7
221
Isuzu
Ascender
7
70
6
48
8
40
6
30
5
15
6
6
209
BMW 335
9
90
7
56
6
30
4
20
4
12
7
7
215
Toyota
Camry
6
60
5
40
10
50
10
50
6
18
6
6
224
VW Passat
8
80
6
48
6
30
5
25
7
21
8
8
212
Step 6: Selection of an
Alternative
✤
Here, we choose the best alternative among those assessed
✤
We merely choose the alternative that scored the highest score in
step 5
✤
In our example: Toyota Camry
Step 7: Implementation of the
Alternative
✤
Decision implementation: putting a decision into action
✤
This includes conveying the decision to those affected and getting
their commitment to it
Step 8: Evaluation of Decision
Effictiveness
✤
Managers appraise the result of the decision to see whether it has
corrected the problem; did the alternative chosen in step 6 and
implemented in step 7 accomplish the desired result?
Learning Outcomes
✤
Decision making is a process of eight steps
✤
Managers use criteria to make decisions, whether they mention them
or not
✤
Managers should make alternatives and evaluate them based on the
criteria
✤
Managers need to evaluate their decisions to make sure they are
solving the right problem