THREE PHASES IN DECISION MAKING PROCESS

• You can define decision making as the process of choosing

between alternatives to achieve a goal. But if you closely look into
this process of selecting among available alternatives, you will be
able to identify three relatively distinct stages. Put into a time
framework, you will find:
• 1. The past, in which problems developed, information
accumulated, and the need for a decision was perceived
• 2. The present, in which alternatives are found and the choice is
made; and
• 3. The future, in which decisions will be carried out and evaluated.
 HENRY MINTZBERG
• Henry Mintzberg and some of his colleagues
(1976) have traced the phases of some
decisions actually taken in organisations.
They have also come up with a three-phase
model as shown in Figure I.
Figure I: Mintzberg's empirically based phases
of decision making in organizations
• 1. The identification phase, during which
recognition of a problem or opportunity arises
and a diagnosis is made. It was found that
severe immediate problems did not have a very
systematic, extensive diagnosis but that milder
problems did have.
2. The development phase, during which there may be a
search for existing standard procedures, ready-made
solutions or the design of a new, tailormade solution. It
was found that the design process was a grouping, trial
and error process in which the decision-makers had only
a vague idea of the ideal SOLUTION.
• 3. The selection phase, during which the choice of a
solution is made. There are three ways of making this
selection: by the
• judgment of the decision maker, on the basis of
experience or intuition rather than logical analysis
• by analysis of the alternatives on a logical, systematic
basis; and by bargaining when the selection involves a
group of decision makers.

• Once the decision is formally accepted, an

authorization is made.
 MANAGERIAL DECISION MAKING

• OBJECTIVES
• 1. Establishing …objectives/goals
• 2. Identifying /defining/ …problem
• ALTERNATIVES
• 1. Identifying…. Alternatives
• 2.Evaluating or assessing...Alternatives
• CHOICES
• 1 Selecting or choosing…….alternatives
• 2.Implementing the…. Decision or choice
 TYPES OF MANAGERIAL DECISIONS

• There are many types of decisions which you

would be required to make as a
• manager. Three most widely recognised
classifications are:
• 1. Personal and Organisational Decisions
• 2. Basic and Routine Decisions
• 3. Programmed and Non-programmed Decisions.
• Personal and Organisational : suggested by Chester
Barnard, In his opinion, the basic difference between the
two decisions is that "personal decisions cannot
ordinarily be delegated to others, whereas organisational
decisions can often if not always be delegated”.
• Thus, the manager makes organisational decisions that
attempt to achieve organisational goals and personal
decisions that attempt to achieve personal goals. Note
that personal decisions can affect the organisation, as in
the case of a senior manager deciding to resign.
• basic or routine:
• Basic decisions are those which are unique, one-time decisions
involving long-range commitments of permanence , or those
involving large investments. Examples of basic decisions in a
business firm include plant location, organisation structure, wage
negotiations, product line, etc. In other words, most top
management policy decisions can be considered as basic decisions.
• Routine decisions are at the opposite extreme from basic decisions.
They are the everyday, highly repetitive, management decisions
which by themselves have little impact on the overall organisation
• Examples of, routine‘ decisions are an accountant's decision on a
new entry, a production supervisor’s decision to appoint a new
worker, and a salesperson's decision on what territory to
cover.
• A first-line supervisor makes practically all the routine decisions
whereas the chairperson of the board makes very few routine
decisions but many basic decisions.
• Programmed (routine, repetitive) decisions and
Non-programmed (unique, one-shot) decisions:

- While programmed decisions are typically handled

through structured or bureaucratic techniques
(standard operating procedures),
- non-programmed decisions must be made by
managers using available information and their own
judgement.
• An important principle of organisation design
that relates to managerial decision making is
Gresham's Law of Planning.

• This law states that there is a general tendency for programmed

activities to overshadow non-programmed activities. Hence, if
you have a series of decisions to make, those that are more
routine and repetitive will tend to be made before the ones that
are unique and require considerable thought. This happens
presumably because you attempt to clear your desk so that you
can get down.
General
decision
making
model
• LIMITATIONS OF THIS CLASSIFICATION-
This classification has ignored two important problem-related
dimensions:
(1) How Complex is the Problem in terms of number of factors
associated with it
(2) How much certainty can be placed with the outcome of a
decision

Based on these two dimensions, four kinds of decision modes

• can be identified: Mechanistic, Analytical, Judgmental, and
Adaptive (See Figure Ill).
• Mechanistic Decisions( routine and repetitive)
• It usually occurs in a situation involving a limited
number of decision variables where the outcomes of
each alternative are known.
• For example,the manager of a bicycle shop may know
from experience when and how many bicycles are to be
ordered; or the decision may have been reached
already, so the delivery is made routinely.
• Analytical Decisions:
• An analytical decision involves a problem with a
large number of decision variables, where the
outcomes of each decision alternative can be
computed. Many complex production and
engineering problems are like this. They may be
complex, but solutions can be found ,
• Ex – Statistical analysis, linear programming
• Judgemental Decisions:

A judgemental decision involves a problem with a

limited number of decision variables, but the
outcomes of decision -alternatives are unknown.
• 4. Adaptive Decisions: An adaptive decision involves a
problem with a large number of decision variables,
where outcomes are not predictable. Because of the
• complexity and uncertainty of such problems, decision
makers are not able to agree on their nature or. on
decision strategies. Such ill-structured problems usually
require the contributions of many people with diverse
technical backgrounds. In such a case,
• decision and. implementation strategies have to be
frequently modified to accommodate new developments
in technology and the environment.
Figure III: Types of Managerial Decisions
 DECISION MAKING UNDER DIFFERENT STATES
OF NATURE
• 1 Decisions under Certainty.
• 2 Decisions under Risk
• 3 Decisions under Uncertainty

• Decision making under certainty: A decision is made under

conditions of certainty when a manager knows the precise
outcome associated with each possible alternative or course of
action. In such situations, there is perfect knowledge about
alternatives and their consequences.
• For example, as per the assurance
• provided by Government of India, Rs. 1,000 invested
in a 6-year National Savings
• Certificate will bring a fixed sum of Rs. 2,015 after six
complete years of investment.
• It should still be realised, however, that the
Government defaulting on its obligations
• is an unlikely probability, but the possibility still exists.
• on making under risk:In such situations, alternatives are
recognised, but their resulting consequences are doubtful.

• As an illustration, if you bet on number 6 for a single roll of a

dice, you have a 1/6 probability of winning in that there is only
one chance in six of rolling a 6. While the alternatives are clear,
the consequence is doubtful. Thus, a condition of risk may be
said to exist.
• Decision making under uncertainty: A decision is made under
conditions of uncertainty when a single action may result in more
than one potential outcome, but the relative probability of each
outcome is unknown.

• Selection of a new advertising programme from among several

alternatives might be one such example. The number of factors
to be considered and the large number of uncontrollable
variables vital to the success of such a venture can be mind-
boggling
• On a personal level, the selection of a job from among
alternatives is a career decision that incorporates a great
deal of uncertainty.
• The number of factors to be weighed and evaluated,
often without comparable standards, can be
overwhelming.
 MODELS OF DECISION MAKING PROCESS
• Now, you are going to examine three suggested
models of the decision making process which will
help you to understand how decisions are made and
should be made.
• (I) the econologic model, or the economic man,
• (2) the bounded rationality model or the administrative man;
• (3) the implicit favourite model or the gameman
• The econologic model represents the earliest attempt to model
decision process.
• Briefly, this model rests on two assumptions:
• (1) It assumes people' are economically rational;
• and
• (2) that 'people attempt to maximise outcomes in an
• orderly and sequential process.
• Economic rationality, exists when people attempt to maximise
money or units of goods produced.
• That is, it is assumed that people will select the decision or
course of action that has the greatest advantage.
An Econologic Model of Decision-making
• A basic econologic decision model suggests the following orderly
steps in the decision process:
• 1 Discover the symptoms of the problem or difficulty ;

• 2 Determine the goal to be achieved or define the problem to be

solved;

• 3 Develop a criterion against which alternative solutions can be

evaluated;

• 4 Identify all alternative courses of action;

• 5 Consider the consequences of each alternatives as well as the

likelihood of
• 6 Choose the best alternative by, comparing the consequences of
each. alternative
• (step 5) with the decision criterion (step 3); and
• 7 Act or implement the decision.
 ii) Bounded Rationality Model or Administrative Man Model
• DEVELOPED BY SIMON
• NOT BOUNDED BY ASSUMPTIONS
• ALSO KNOWN AS ADMINISTRATIVE MAN MODEL

• The concept of bounded rationality attempts to describe decision

processes in terms of three mechanisms:
• Sequential attention to alternative solutions:
• People examine possible solutions to a problem
sequentially. Instead of identifying all possible
solutions and selecting the best (as suggested in
the econologic model), the various alternatives are
identified and evaluated one at a time. If the first
solution fails to work it is discarded and the next
solution is considered. When an acceptable (that is,
`Good enough' and not necessarily the best')
solution is found, the search is discontinued.
• Use of heuristics: A heuristic is a rule which guides the
search for alternatives into areas that have a high
probability for yielding satisfactory solutions. For
instance, some companies continually select
Management graduates from certain institutions because
in the past such graduates have performed well for the
company
• Satisfying:An alternative is satisfactory if:
• there exists a set of criteria that describes minimally
• satisfactory alternatives
A Bounded Rationality Model of Decision Making
1 Set the goal to be pursued or define the problem to be
solved.
2 Establish an appropriate level of aspiration or criterion
level (that is, when do you know that a solution is
sufficiently positive to be acceptable even if it is not
perfect'?)
3 Employ heuristics to narrow problem space to a single
promising alternative.
4 If no feasible alternative is identified (a) lower the
aspiration level, and (b) begin the search for a new
alternative solution (repeat steps 2 and 3).
5 After identifying a feasible alternative (a), evaluate it to
determine its acceptability (b).
6 If the identified alternative is unacceptable, initiate search
for a new alternative solution
(repeat steps 3-5).
7 If the identified alternative is acceptable (a) implement the
solution (b).
8 Following implementation, evaluate the ease with which
goal was (or was not) attained (a),
 iii) Implicit Favourite Model or Gamesman Model
• This model deals primarily with non-programmed.
decisions. You will recall that non-programmed decisions
are decisions that are novel or unstructured, like seeking
one's first job.
• Programmed decisions, in contrast, are more routine or
repetitious in nature, like the procedures for admitting
students to a secondary school.
Figure VII: An Implicit Favourite Model of
Decision Making
• DEVELOPED BY Soelberg (1967)
• when he observed the job choice process of
graduating business students and noted that, in
• many cases, the students identified implicit;
favourites very early in the recruiting and choice
process.
• However, they continued their search for
additional alternatives and quickly selected the
best alternative candidate, known as the
confirmation candidate.
• Next, the students attempted to develop decision
rules the demonstrated
• unequivocally that the implicit favourite was
superior to the alternative confirmation
• candidate. This was done through perceptual
distortion of information about the two
• alternatives and through weighing systems
designed to highlight the positive features
• of the implicit favourite
• Finally, after a decision rule was derived that
clearly favoured the implicit favourite, the
decision was announced. ironically, Soelberg
noted that the implicit favourite was typically
superior to the confirmation candidate on only or
or two dimensions. Even so, the decision
makers generally characterised their decision
rules as being multi-dimensional in nature.