Members that participated in the activity:

Learning Outcomes

1. Define decision-making and explain the role of the decision-making for managers and employees

2. Explain the conditions of certainty, uncertainty and risk under which decisions are made

3. Describe the characteristics of routine, adaptive and innovative decisions.

4. Explain how goals affect decision-making.

5. Compare and contrast the rational, bounded rationality and political models of decision-making.

 Learning Outcome 1

• Defining decision-making and explaining the role of decision-making for managers and employees

Decision-making is based on the fundamentals which include; defining problems, gathering information, generating alternatives and choosing a course of action.

Managers and employees can effectively come up with different types of decisions looking closely at the nature of the problem to be solved, possible solutions available and the magnitude of the risk involved.

The conditions that influence an organisation (managers and employees) into making decisions reflect the environmental forces (developments and events) that individuals cannot control, but in the long run influence the outcomes of their decisions.

Decisions are made based on the forces varying from new technologies, new competitors into the market, new laws or political turmoil’s. Besides attempting to measure the depth of these forces; managers must their potential impact. 

For example, if there is an increase in heat waves, an SPF containing lotion brand selling company may advertise the use of their lotion even in days where it's not as hot as expected. Only to find out in the future that their idea was correct because more people had ended up getting skin disorders for too much sun exposure without using the lotion as the sun has become harsher.

Managers face the problem of having to forecast and plan in order to identify events and their impact. Regardless that the impact may occur later rather sooner. Or vice versa.

However, in most cases there is limited information. Therefore, the amount of information available, accuracy of it, not forgetting depth of individuals' managerial competencies are important to efficient decision-making.

Learning outcome 2

• Certainty 

 A condition of certainty exists when the decision maker knows with reasonable certainty what the alternatives are, what conditions are associated with each alternative and the outcome. Under conditions of certainty accurate, measurable and reliable information of which base decisions is available. 

• Uncertainty 

Conditions of uncertainty exist when the future environment is unpredictable and everything is in a state of flux. The decision maker is not aware of all available alternatives, the risks associated with each consequence of each alternative of their probabilities. Managers need to make certain assumptions about the situation in order to provide a reasonable framework for decision making, they have to depend upon their judgement and experience for making decisions.

• Risk

Under a state of risk, the decision maker has incomplete information about available alternatives but has a good idea of the probability of outcomes for each alternative. Probability is the likelihood or chance of an event occurring.

Objective probability – refers to estimating the likelihood that something will happen by observations that have been recorded. We base objective probability on experiments, mathematical measurement and statistics rather than personal experiences.

Subjective probability – provides a quantitative way to express one’s beliefs and conviction about each outcome. So, in the real situation the business may assess the probability of the event happening or a combination of approaches depending upon the availability of historical data and decision maker’s personal judgement.

Learning outcome 3

• Routine Decisions

These are decisions made on a daily basis, they don't require a lot of time to think about nor effort. These are solutions that one uses when they face a usual or similar problem to the previous one (already know what to do because it is already programmed in their minds). An example of this is process in payroll vouchers or what to eat for breakfast.

• Adaptive Decisions

This occurs when the organization is faced with a new challenge that they have never come across before and need to adapt quickly by coming up with new solutions because the ones they have cannot be applied to this new and uncommon problem. Adaptive decisions are all about improving and adjusting your solutions in order to solve the uncommon problem being faced. Continuous improvements on solutions are crucial for total quality management in the organization. Continuous improvements require commitment throughout in order for it to be effective and efficient.

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• Innovative Decisions

These decisions usually focus on creating new, innovative and creative solutions in order to solve problems that might arise. To make a final decision small amounts of ideas a collected for years and are continuously adjusted over that period of time. To come to a final solution takes time.

Learning outcome 4

• Explain how goals affect decision making

Goals describe what a company expects or hopes to accomplish over a specific period of time, it is actually an idea of a desirable or future result that people envision, plan and commit to achieving. Goals are also called objectives, they can be long term and short term goals. Decision making is the process of providing appropriate solutions to some challenges or obstacles in life. Goals affect decision making both negatively and positively but in most cases it affects it negatively because the more you set relatively high goals it usually comes with riskier decisions.

• Goals should be SMART so that they affect decision making positively

Specific – the goal should have a clear definition of what you want to accomplish in the future.

Measurable – you must have measurable targets along the way that you can aim for, you should be able to measure your successes and failures.

Attainable – your goal should be reachable and realistic and not far fetched

Relevant – your goal should be something that is meaningful and important to you. It should be something that can be currently used by your target market for example using a landline is outdated so no one will want to buy that product from you so you must keep up with the latest trends for your goal to be relevant.

Time period – you must make sure you identify a specific period for reaching the goal for example wanting to reach the goal in 10 years’ time.

Operational goals are known as short term goals whose achievements brings an organization closer to its goals. There are also operational plans which are carried out by first line up managers. The purpose of it is to achieve the above mentioned operational goal.

General goals are big learning goals. Setting general goals stimulates the students self-regulatory learning and identifies areas for improvement, for example a student thinks about where she wants to be at the end of a school term/year.

• The role of stakeholders

Stakeholders consists of customers, suppliers, shareholders and government agencies and these stakeholders have a huge impact on the organization. Stakeholders have an influence in the formation of goals and adjustment of goals in the organization.

Learning outcome 5 

• Rational Model

Rational Model is a type of decision making where individuals use analysis facts and a step to step process to come to a decision making. It also permits the maximum achievement of goals within the limitations of the situation. Rational model consists of 7 steps where you firstly define and diagnose the problem, set goals, search for alternative solutions, compare and evaluate alternative solutions, choose from among alternative solutions, implement the selected solutions and lastly follow up and control 

Example: A business manager will often employ a series of analytical steps to review relevant facts, observations and possible outcomes before choosing a particular course of action.

• Bounded rationality model

Bounded rationality is a type of decision making where the idea of rationality is limited when individuals make decisions. It further explains why different individuals make different decisions when they have exactly the same information. Bounded rationality also assumes you that individuals settle for much less than the best goal and also engage in limited search for alternative solutions.

For example, individuals/managers will select the first alternative that is good enough due to the fact that costs in time and effort to look further are too great or demanding. Bounded rationality includes satisficing, limited search and information-processing biases.

• Political model of decision making

This type of model describes the decision-making process in terms of the particular interests and goals of powerful external (e.g. customers) and internal (e.g. employees) stakeholders.

For example, the aim of politicians is to win office, so they may support issues not for the sake of the issue itself but in order to win votes.

Three factors affect the political decision-making process, namely: stakeholders, choice of goals and alternative solutions. Power is the ability to be superior and have authority over people. When you have power you should be able to influence the definition of the problem, choice of the goal, consideration of alternative solutions, selection of the alternative solution to be applied and the actions and success of the business.