Decision making is situations which are faced by a manager in organization almost every day. According to James Reason (1990), "decision making can be regarded as the mental processes (cognitive process) resulting in the selection of a course of action among several alternative scenarios. Every decision making process produces a finalÂ choice".Â So the result of decision making by the manager can be an action or also can be a choice. Decision making can also be described as a process to choose the best solution to solve a problem. It is a process to select a solution from many available list of option.
Manager is the people who are decision maker in his organization. As a decision maker, he needs to make a best decision or a rational decision. According from businessdictionary.com, rational decision making definition is "AÂ methodÂ for systematically selecting among possible choicesÂ that is based on reason andÂ facts. In a rational decision makingÂ process, aÂ businessÂ managerÂ will often employ a series of analytical steps toÂ reviewÂ relevantÂ facts, observations and possible outcomes before choosing a particularÂ course of action." But not all decision makers or a manager can make a rational decision. This is because of the limitation which is existing in environment or within the manager himself. The limitation in environment when making decision can be divided into three elements: Decision making in certain condition, decision making in uncertain condition and decision making in risky condition.
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According to businessdictionary.com , certainty mean "TheoreticalÂ conditionÂ in whichÂ decision makingÂ is withoutÂ risk, because theÂ decisionÂ makerÂ has all the informationÂ about the exact outcome of the decision, before he or she makes the decision." Making decision in this certain condition, manager can make a decision with a confidence and ease feeling. With complete information, manager can get a single solution to the problem or question. Manager able to predict the outcome of his decision based on complete information such as past experience result, financial detail information, or a research.
According to businessdictionary.com , decision making in uncertainty mean "Situation where theÂ current stateÂ ofÂ knowledgeÂ is such that (1) the order or nature of things is unknown, (2) the consequences, extent, orÂ magnitudeÂ of circumstances,Â conditions, orÂ eventsÂ is unpredictable, and (3) credibleÂ probabilitiesÂ to possible outcomes cannot be assigned. Although too much uncertainty is undesirable, manageable uncertaintyÂ providesÂ theÂ freedomÂ to makeÂ creativeÂ decisions." Decision maker didn't have any information at all in this condition. Because of this situation, any decision being made, the outcome is unpredictable. Decision maker or manager is required to have higher propensity towards risk when facing this situation. Risk propensity is "degreeÂ to which anÂ entityÂ is willing to takeÂ chancesÂ with respect toÂ risk of loss" according to businessdictionary.com.
Making decision in risky condition is another type in making decision environment. In this condition, manager only has a little bit of information which cannot help him at all to do a decision. Incomplete information makes the manager unable to make a confirmation about the outcome. The result can be predict, but not completely confirm because lack of information. Usually, the result on decision make in this condition is the percentage of probability.
DECISIONS MADE UNDER CERTAIN CONDITION
King Corporation Sdn.Bhd. is a company which sell product of mobile device. Manager of this company got an offer for finical loan from Bank Henrich and Bank Levin. Bank Henrich offer finical loan for RM500, 000 with interest rate 5% for 10 years. Bank Levin offers a finical loan for Rm500, 000 with interest rate 4.85% also for 10 years. Looking from the information, the manager of King Corporation Sdn.Bhd. is certain which decision he need to do. He absolutely choose offer from Bank Levin which interest for 10 years is lower than Bank Henrich. He can predict the outcome for the decision he made from the information he have.
Manager of Supreme Sdn.Bhd. want to find a people for a position as supervisor in his company. He got two candidates, Abu and Jamal. Abu work for a 6 years, he didn't have any bad discipline record and his work never got any problem. About Jamal, he works for 3 years, have a bit problem of discipline and work. Jamal sometime coming late to the office and his work quality not really good. From the report, manager is certain which person he need to choose for a position of supervisor. He would choose Abu because he can be certain that Abu will do a good job in that position.
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Silvia is a manager of Leno Sdn. Bhd. This month, her company got intake for a new employee. Silvia needs to do a decision about plan to buying new chair, table, and computer. By looking the situation, Silvia can be certain to make what is decision she should make. This is easy for Silvia to make her decision because the need of her employee. She can predict her employee need a table, chair and computer to do their work. So Silvia will choose to buy the need of her employee and certain about the decision she made.
Fresh Sdn.Bhd. want to import a fruits from Australia using a flight. It needs a transport and forwarding agent to manage their item at airport cargo. The manager got a two choice for the service, NHT Forwarding Agent Sdn.Bhd. and DMA Forwarding Agent Sdn.Bhd. Manager of Fresh Sdn.Bhd. got a friend from other company which using service from this two forwarding agent. According from his friend, NHT Forwarding doing their work with a good service, fast, high quality and price for the service a bit cheap. Compare to DMA Forwarding Agent, their work a bit slack and a bit expansive price for their service. From this information, manager of Fresh Sdn.Bhd. can be certain which decision he should make. By select NHT Forwarding Agent Sdn.Bhd. as their forwarding agent, the manager is certain to get a better service from them.
DECISIONS MADE UNDER UNCERTAIN CONDITION
Sensonic Sdn.Bhd. is a company located at Kuala Lumpur. This company provide a designer service to make a name card, company logo, and also a weeding card. The manager, Malek are planning to make a new branch of his company at Sabah. The question is, Malek didn't have any information about the new place, the need of service, price list from other company, and he didn't have any information at all. This makes Malek facing hard decision whether want to put a new branch there or not. The outcome of his decision is unpredictable because there is no information at all. Malek are facing a great risk if he continues with his plan to open that new branch there. If the branch success there, his company profit will rise by 20 - 30 %. So when make decision in this condition, Malek need high propensity towards risk. Whether to continue with his plan to rise of company profit and take the risk, or just cancel the plan with nothing gained.
Hitech Corporation is a business company which is develop and sell a laptop. Recently, there is appearance of many new faces get into the same industry. Hitech Corporation now is facing many competitors in this laptop industry. Hitech Corporation probably got a problem with their product as there are many competitors and there a probability customers change their taste to try other company products. Manager of Hitech Corporation is thinking a plan to publish new products, mobile device to variety and supports their company finical sources. But release a new products is risking the company. There don't have any experience and the manager not sure if their products can match with the other big company that develop mobile devices. The manager not sure if their new products can survive in the new challenging platform of mobile device, but if he didn't take a risk, they also facing a problem about the new competitors in their industry. The manager can't predict the outcome of his decision, because there is no information available about customer demand. If he wants to get a better return in profit, the manager should take the risk and make decision to make new products.
DECISIONS MADE UNDER RISKY CONDITION
Â Jay runs a small company that manufacturers drinking water, sold in a local area only. His company got a stabilize profit, this month the sales profit is RM250, 000. Jay is deciding to make investment trying selling their products outside local area. Jay knows that a newÂ plan investment will cost him around RM400, 000. Jay not sure whether thereÂ willÂ be sufficient demand for the drinking water to cover this large investment. If the plan goes well and the market is good, he thinks can sell 850,000 bottles of drinking water at aÂ profit of RM1 each, give return cash profit of RM850, 000. On the other hand, if the market for new area is poor, he think probably sell only 300,000 bottles drinking water, give return cash profit of RM300, 000. How should he make decision? Below are the table about the situation Jay facing:
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RM100,000 - RM250,000
Investment for outside local area + current sales cost
Good market sales profit return
Poor market sales profit return
By referring table above, If the market sales is good, Jay will got a profit return at RM850,000 - RM400,000 (cost investment) = RM450,000. He gained additional profit compare to their current sales at by RM200,000. By the way, if there is poor market sales, Jay will get loss of RM100,000 to cover for his investment. Decision made in this condition are risky, if it success, there will gain a big profit. But if it not success, they will face some loss.
Speedline Cyberwarrior is a shop of internet cybercafé which make their operation from 9.00 a.m. until 5.00 p.m. Each month, this shop profit is RM60,000 after minus the operation cost. As a manager of this shop, Felicia is deciding to add 30 more computers in her shop to invite more customers and raising their sales. This plan cost her RM75,000 including the operational cost. If there are many costumers, she might think to gain a profit return of RM90,000. But if there are no many customers, she is thinking to get only RM10, 000 which can't cover their cost of investment. Below are table about the situation:
High customers sales return prediction
RM 60,000 (current profit) + RM 90,000(prediction) - RM 75,000 (cost) = RM 75,000
Low customers sales return prediction
RM 60,000(current profit) + RM 10,000 (prediction) - RM 75,000 = -RM 5000
As shown in table above, Felicia will gain additional profit of RM 75,000 if there are more customers coming to their shop. But if there is only a little additional customer, she will face a loss of RM5000. To do this decision, she needs to face the risk about loss RM5000.
Making condition is a skill need for every manager or decision maker. It is important to make a right decision for the better future of organization. In certain condition to make decision, decision maker didn't have any problem to make decision because any decision made, decision maker know the outcome and future will occur for a single decision. In uncertain environment, the effect or outcome of decision cannot be predicted. This situation required the decision maker to use his skill, experience and rational to make a decision. In risky condition, there is probability to gain a profit or a loss. Here the decision maker need a higher propensity towards risk.