L11-ECONOM

• Decision-making


  The study of identifying and choosing alternatives based on the values and preferences of decision-makers
• Decision-making


  The process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them
• Concept of Decision Making

  • Information
  • Value
  • Alternatives
  • Preference
  • Criteria
  • Decision Quality
  • Goals
  • Acceptance
• Types of decision making

  • Programmed Decisions
  • Non-programmed Decisions
  • Strategic Decisions
  • Tactical Decisions
  • Operational Decisions
• Programmed decision


  One that is fairly structured or recurs with some frequency (or both)
• Nonprogrammed decision


  One that is unstructured and occurs much less often than a programmed decision
• Kinds of Decision


  • Decisions Whether
  • Decisions Which
  • Contingent Decisions
• Decision Whether


  Yes/no, either/or decision that must be made before we proceed with the selection of an alternative
• Decision Which


  Involve a choice of one (1) or alternatives from among a set of possibilities
• Contingent Decisions


  Decisions that have been made but put on hold until some conditions are met
• Do's of Decision Making

  • Be honest
  • Accept the responsibility
  • Use time wisely
  • Have confidence
• Don'ts of Decision Making

  • Have unrealistic expectations
  • Make "snap" decisions
  • Take unnecessary action
  • Fool yourself
• Quality of Decision Making


  • Continuous training and development of managers in decision-making skills
  • Complete good information about the problems and alternatives
  • Management skills in analyzing information and handling its shortcomings
  • Experience and natural ability in decision-making
  • Risks and attitudes to risk
  • Human factors
• Internal Constraints on Decision-Making

  • Availability of funds and resources
  • Existing Business Policy
  • People's Abilities and Feelings
• External Constraints on Decision-Making

  • Constitutional mandate, laws, rules and regulations
  • Competitors
  • Lack of technology
  • Economic climate / condition
  • Legislations
  • Lack of supplies (material and manpower)
  • Lack of manpower
• Steps in Decision Making

  • Define the Problem
  • Re-evaluate the Situation
  • Gathering Information
  • Think of Alternatives
  • Choose an Alternative
  • Put your Decision to Work
• Approaches to Decision-Making


  • Authoritarian Method
  • Group Method
• The Decision-making Process


  • Recognize the problem
  • Analyze the problem
  • Consider your goals
  • Look for alternative
  • Select the best alternative
  • Put your decision into action
• To improve your ability as a decision maker

  • Become aware of your own and your family's values
  • Develop sensitivity to the individual responses of persons affected by the decision
  • Be objective in viewing the problem that demands a decision
• Two kinds of Decision

  • Decision that is REVERSIBLE
  • Decision that is NOT REVERSIBLE
• Benefits of Planning for Decision Making

  • Planning allows the establishment of independent goals
  • Planning provides a standard of measurement
  • Planning converts values to action
  • Planning allows limited resources to be committed in an orderly way
• Only the risk-takers are truly free
• There is really no such thing as permanent security in anything on earth
• You are supposed to be afraid when you risk
• Risk-taking normally involves a degree of separation anxiety
• Guidelines On Risk Taking (accdg. to Robert Harris)

  • Decide whether the risk is necessary or desirable
  • Risk for the right reasons and when you are calm and thoughtful
  • Have a goal
  • Determine the possible loss as well as the gain
  • Try to make an accurate estimate of the probability of each case
  • When possible, take one risk at a time
  • Use imaginary role-playing
  • Use a plan
  • Act decisively
  • Don't expect complete success
• Guidelines On Risk Taking (accdg. to Robert Harris)


  • Dismissing extremely remote or unrealistic possibilities
  • Insofar as possible, avoid catastrophes
  • Recognize the tradeoffs
  • Maximize expected values
• Trade-off


  A situational decision that involves diminishing or losing one quality, quantity, or property of a set or design in return for gains in other aspects
• Expected Monetary Value (EMV)


  An integral part of risk management and is used in the Perform Quantitative risk analysis process
• Probability


  The likelihood that any event will occur
• The formula to calculate the probability is: Probability of an event happening = Number of favorable events that can occur / Total number of events
• Impact


  The amount that you will spend if any identified risk occurs
• Expected Monetary Value (EMV)

  A statistical technique in risk management used to quantify risks and calculate the contingency reserve
• EMV = Probability * Impact
• The sum of the EMV of all events is the contingency reserve
• EMV analysis helps in selecting the best risk response strategy
• Benefits of EMV Analysis

  • Gives an average outcome of all identified uncertain events
  • Helps to calculate the contingency reserve
  • Helps in selecting the best choice in a decision tree analysis
  • Does not require costly resources, only experts' opinions
  • Helps with a make-or-buy decision during the procurement process
• Drawbacks of EMV Analysis

  • Usually not used in small and small-medium-sized projects
  • Involves expert opinions which may be biased
  • Works well when you have many risks
  • Misses positive risks will affect the outcome
• Risk Management


  The continuing process to identify, analyze, evaluate, and treat loss exposures and monitor risk control and financial resources to mitigate the adverse effects of loss
• Five Essential Steps in Risk Management

  1. Identify the Risk

  2. Analyze the Risk

  3. Evaluate or Rank the Risk

  4. Treat the Risk

  5. Monitor and Review the Risk