itmis decision making models

Decision Making

-Prof. Nishikant C. Warbhuwan

Research Scholar, S.R.T.M. University Nanded,

Asst. Professor, School of Management Sciences,

S.R.T.M. University, Sub centre, Latur, India.

Email: nishikant.warbhuwan@srtmun.ac.in

nishikant.warbhuwan@srtmun.ac.in

Decision Making

Decision making: A choice between two or more than two alternatives is called decision

the process by which managers respond to opportunities and threats by

analyzing options, and making decisions about goals and courses of action.

nishikant.warbhuwan@srtmun.ac.innishikant.warbhuwan@srtmun.ac.in

A Boy, Man and Donkey

Decision Making Process:

Decision Making steps”

Identify the Problem:

When making a decision a personfirst needs to identify and define the problem or conflict.

Decision Making steps:

Identify Decision Criteria:

When a problem identified, the decision criteria important to resolving the problem must be identified. That is, managers must determine what is relevant in making decision.

Decision Making steps: Allocation of Weights to criteria:

If the relevant criteria are not equally important, the decision maker must weight the items in order to give them the correct priority in the decision.

Development of Alternatives:

The fourth step in decision making process requires the decision maker to list viable alternative that could resolve. The problem this is the step where a decision maker needs to be creative.

Choose One alternative:

After making all the alternatives, the next step in planning or in decision making is to evaluate these alternatives. Evaluation is required in order to select the best alternative for implementation.

Decision Making steps: Implementation of the Alternative:

After choosing best alternative decision in to action by conveying it to those effected and getting their commitment to it.

Evaluation of Decision effectiveness:

The last step the decision making Process involve evaluating the outcome or result of the decision to see if the problem is resolve.

Types of Decision Making:

Programmed Decisions: routine, almost automatic process. Managers have made decision many times before. There are rules or guidelines to follow. Routine situations Decision rules can be developed and applied Managers formulate decision rules so subordinates can make decisions Example: Deciding to reorder office supplies.

Types of Decision Making:

Non-programmed Decisions: unusual situations that have not been

often addressed. No rules to follow since the decision is new. These decisions are made based on information, and a manger’s intuition, and

judgment. Poorly defined situations Decisions are complex Routine decision rules do not apply Trend is toward subordinates making more nonprogrammed decisions Example: Should the firm invest in a new technology?

Conditions that Affect the Possibility of Decision Failure

OrganizationalProblem

ProblemSolution

Low HighPossibility of Failure

Certainty Risk Uncertainty Ambiguity

ProgrammedDecisions

NonprogrammedDecisions

Decision Making Models:

1. Classical Model Or The Rational-Economic Model

2. Administrative Model Or Behavioral

3. Herbert Simon’s Model

Glossary

Rationality:

A type of decision making in which choices are logical consistent and

maximize value.

Bounded Rationality:

Decision making that's rational but limited(bounded) by an

individuals ability to process information.

Intuition:

Making decision on the basis of experience, and accumulated judgment.

Classical Model: (The Rational-Economic Model)

Classical decision theory assumes the manager faces a clearly defined problem,

knows all possible action alternatives and their consequences, and then chooses the

optimum solution

Administrative Model (Behavioral)

` Behavioral decision theory accepts the notion of bounded rationality. It assumes

the manager acts only in terms of what is perceived about a given situation, and

then chooses a satisfying solution.

Decision Making Models:

Assumptions Decision maker operates to accomplish goals that are known and agreed upon Decision maker strives for condition of certainty – gathers complete information Criteria for evaluating alternatives are known Decision maker is rational and uses logic The decision maker selects the optimum or best choice.

Facts: 1. Goals are known and agreed upon. Problems are precisely defined 2. All alternatives and outcomes are calculated 3. Criteria evaluated and decision made maximizing return (expected value) 4. Uses rationality and logic.

Classical Model: Assumptions

1. Problem clarity2. Known options3. Clear preferences4. Constant preferences5. No time or cost constraints6. Maximum payoff

Administrative Model (Behavioral)Administrative model describes how managers actually make decisions

including those that are:

Non-programmed

Uncertain

Ambiguous

Not Quantitative

Used due to “Bounded Rationality”

Decision goals often are vague, conflicting

Rational procedures are not always used

Managers’ searches for alternatives are limited

Administrative Model (Behavioral)

How Non-programmed decisions are made--uncertainty/ambiguity

hence it is risky to take decision.

Bounded rationality: There is a large number of alternatives and information is

vast so that managers cannot consider it all.

Decisions are limited by people’s cognitive abilities.

Incomplete information: most managers do not see all alternatives and decide

based on incomplete information.

The decision maker selects a satisfying alternative

Decision making proceeds sequentially: alternatives are examined one at a time

and the first satisfactory alternative that is found is selected.

Classical Vs Behavioral Decision Maker

The Herbert Simon’s Model

Intelligence

Raw data collected, processed and examined. Identifies a problem calling for a decision.

Design

Inventing, developing and analyzing the different decision alternatives and testing the

feasibility of implementation. Assess the value of the decision outcome.

Choice

Select one alternative as a decision, based on the selection criteria

Classical Vs Behavioral Decision Maker

QUESTIO

NS...?

itmis decision making models

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