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Week 4Week 4

Decision Making:Decision Making:The essence of a manager’s The essence of a manager’s

job.job.

Malaysian Institute of Aviation Technology

a. Decision making processb. Three Approaches Managers Use in Making

Decisionc. Decision Problemsd. Decision conditions of certainty, risk and

uncertaintye. Decision making stylesf. Case Application - Assignments

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Contents:


Personal decision makingWhy do you think to take BAVM program?Why you decided to marry someone?What makes you buy something that is branded?

Organisational decision makingWhat makes manager decided to recruit someone?Why setting up new project?Why cut cost?

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Decision Making


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Why Malaysia Airlines decided to never use larger aircraft in domestic route?

- discussion


Most domestic routes are operated by 737s , A330 Due to the airport limitations and also the

fluctuating demand which varies from day to day and season to season.

Able to control with ease and given the exceptionally low domestic fares at very economical fares too.

Fuel Easy operating Wide-body is much more comfortable as they are

designed for longer flights unlike the 737 which is designed for short trips with quick turnaround times 5

Reasons?? - Discussion


Decision making is typically described as

choosing among alternatives. It is a process begins with identifying the

problems. Problem is a discrepancy between an

existing and a desired state of affairs Example: car breakdown – identify

problem either blown engine or burst radiator horse

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Definition of decision making


Once a manager has identified a problem that needs attention, the decision criteria that will be important in solving the problem must be identified.

Example: Project manager – decision in – buying vehicle.

Product manager has to assess those factors that are relevant in her decision. These might include ctiteria such as price, model (2 or 4 door), size (compact / intermediate), manufacturer (French, German, American), optional equipment (automatic-transmission, side-protection, leather interior), repair records etc).

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What is relevant in decision making process


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A set of eight steps including identifying a problem, selecting alternatives and evaluating the decision’s effectiveness.

Step 1:Identifying a ProblemA discrepancy between an existing and a

desired state of affairs.

be aware of the problem compare existing state with desired state need for attention.

THE DECISION-MAKING PROCESS


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Step 2: Identifying Decision CriteriaCriteria that define what is relevant in a decision.

determine what is relevant in making decision

Step 3: Allocating weights to the criteria

How? e.g. most important criterion a weight of 10, least important a weight of 1

Why? To prioritise the criteria you identified in Step 2

THE DECISION-MAKING PROCESS.


Example: Criteria and Weight in Car Buying

(Scale 1 to 10)

Criteria WeightPrice 10Interior Comfort 8Durability 5Repair record 5Performance 3

Allocating Weights

10


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Step 4: Developing alternatives

How? List the viable alternatives that could resolve the problem No attempt is made in this step to appraise these alternatives, only to

list them

Step 5: Analysing alternatives

Critically analyse each alternative Evaluate each alternative and appraise it against

established criteria in Step 2 Listing of strength and weaknesses – rate each alternative. Judgment



Analysing alternatives

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Alternatives

Initial Price (10)

Interior Comfort ( 8)

Durability (5)

Repair Record (5)

Performance (3)

Handling (1)

Total

Jeep 2 10 8 7 6 6 39

Ford 9 6 5 6 7 5 38

Mercedes

8 5 6 10 9 5 43

Volvo 10 5 6 5 8 6 40

BMW 5 6 8 7 8 5 39

Isuzu 6 8 7 5 7 7 40


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Step 6: Selecting an alternative

Is the critical act of choosing the best alternative How? Choose the alternative(s) with the highest score. Assessment criteria x criteria weight

Step 7: Implementing the alternative

Implementation i.e. putting decision into action. Decision implementation includes conveying a decision to

those affected and getting their commitment to it

Discuss. The importance of proper implementation (group or

committee s can help a manager achieve commitment) Communication (meeting and send to procurement

department)



Step 8: Evaluating decision effectiveness

Appraising the outcome of the decision.

Discussion

Why? To see if the problem has been resolved What if not? (control function)

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THE DECISION-MAKING PROCESS


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Decisions in the Management Functions• PLANNING

• What are the organisation’s long term objectives?• What strategies will best achieve those objectives?• What should the organisation’s short term objectives be?• How difficult should individual goals be?

• ORGANISING• How many employees should I have report directly to me?• How much centralisation should there be in the organisation?• How should jobs be designed?• When should the organisation implement a different structure?

• LEADING• How do I handle employee who appear to be low in motivation?• What is the most effective leadership style in a given situation?• How will a specific change affect worker productivity?• When is the right time to stimulate conflict?

• CONTROLLING• What activities in the organisation need to be controlled?• How should those activities be controlled?• When is a performance deviation significant?• What type of management information system should the organisation have?


Manager as decision makers. Discussion with the whole class. Brainstorm.

Managerial decision making is assumed to be rational in that managers make consistent, value maximizing-choices within specified constraint

A decision maker who was perfectly rational would be fully objective and logical. He or she would define a problem carefully and would have a clear and specific goal.

Moreover, the steps in decision making would consistently lead toward selecting the alternatives that summarizes that goal (assumptions of rationality)

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1. Rationality Assumptions2. Bounded Rationality3. Role of Intuition

Three Approaches Managers Use in Making Decision

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Rationality assumptions• Rational decision making: Describes choices that are consistent and value

maximising within specified constraints.

• Perfectly rational decision makers would be fully objective and logical. Carefully defines problem, have a clear and specific goal. Decision would consistently lead towards selecting the alternative that maximise the likely hood of achieving that goal.

RationalDecision Making

• Final choiceWill maximise

Pay off.

• Problem is clear& non ambiguous.

• Single.Well defined, Goal to beAchieved.

• AllAlternatives &Consequencesknown.

• PreferencesAre clear.

• PreferencesConstant &

stable.

• No time &Cost constraints

existed.

Lead to

• Rational managerial decision making assumes that decisions are made in the best economic interest of the Organisation.


Rational decision maker needs creativity: the ability to produce novel and useful ideas

These are ideas that are different from what’s been done before but that are also appropriate to the problem or opportunity presented

Why is creativity is important to decision making?

It allows the decision maker to appraise and understand more fully, including seeing problems others can’t see. 19


Management theory is built on the premise that individuals act rationally and that managerial jobs revolve around the rational decision making process. Few people actually behave rationally. Given this fact, how do managers make decisions if it is unlikely that they are perfectly rational?

Herbert Simon, an economist and management scholar. Found that within certain constraint, managers do act rationally. Because it is impossible for human beings to process and understand all the information necessary to meet the test of rationality, what they do is construct simplified models that extract the essential features from problems without capturing all of their complexities.

SIMON CALLED THIS DECISION_MAKING PROCESSS BOUNDED RATIONALITY

Bounded Rationality

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Bounded Rationality• Behaviour that is rational within the parameters of a simplified decision making process, which is limited (bounded) by an individual’s ability to process information.• Correct decision making behaviour.• Reflect competent through intelligent and rational deliberation.• However, certain aspects of making decision are unrealistic. • Therefore rational decision making happen with the assumption of limited rationality of simplified decision making process.• This resulted in “Satisfice” rather than “maximise”.• Satisficing is acceptance of solutions that are good enough.•DECISION MAKING PROCESS ARE STRONGLY INFLUENCED BY THE DECISION MAKER’S SELF INTEREST, THE ORGANISATION CULTURE, INTERNAL POLITICS AND POWER CONSIDERATIONS

• Escalation of commitment – increase commitment to previous decision despite negative information.


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Role of intuition.• Intuition Decision Making:

• A subconscious process of making decisions on the basis of experience and accumulated judgment.

IntuitionSubconscious

MentalProcessing.

CognitiveBased

decisions

Values or ethicsBased

Decisions.

Affect- initiateddecisions

Experience Based

decisions

Decisions basedOn feelings &emotions

Use data fromSubconsciousMind to makeDecisions.

Decisions onEthical values orCulture.

Decisions basedOn pastExperiences.

Decisions basedOn skills, knowledge& training.


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Types of Problems and Programmed decisions

Well structured problems & Programmed decision

Straightforward, familiar, easily defined problems.

A repetitive decision that can be handled by a routine approach.

Procedure:

A series of interrelated sequential steps that can be used to respond to a well structured problems.

Rule:

An explicit statement that tells managers what they can or cannot do.

Policy:

A guideline that establishes parameters for making decisions.


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Types of Problems and Decisions (cont’d)

Poorly structured problems & Non Programmed Decisions

• Problems that are new or unusual and for which information is ambiguous or incomplete.

• Unique decision that requires a custom made solutions.


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Well-Structured

ILL-Structured

LOWER Level

TOP Level

Type ofProblem

LevelIn

Organisation

Programmed Decisions

Non Programmed Decisions

SOP to reduce Discretion.

Type of Problems, Types of Decisions and Level in Organisation


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Decision Making Conditions.

• Certainty:• A situation in which a manager can make accurate decisions because all outcomes are known.

• RISK:• Those conditions in which the decision maker is able to estimate the likelihood of certain outcomes.

• Uncertainty:• A situation in which a decision maker has neither certainty nor reasonable probability estimates available.•A Condition in which managers do not have full knowledge of the Problem they face and cannot determine even a reasonableProbability of alternatives outcomes


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Decision Making Styles.

• Directive Style:• Characterised by low tolerance for ambiguity and a rational way of thinking

• Analytic Style:• Characterised by a high tolerance for ambiguity and a rational way of thinking.

• Conceptual Style:• Characterised by a high tolerance for ambiguity and an intuitive way of thinking.

• Behavioural Style: • Characterised by a low tolerance for ambiguity and an intuitive way of thinking.


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Analytical

Directive Behavioural

Conceptual

WAY of THINKING

TO

LE

RA

NC

E f

or

AM

BIG

UIT

Y

HIGH

LOW

RATIONAL INTUITIVE / spontaneous

Decision Making Styles


04th February 2009 Bachelor of Aviation Management 29

ManagerialDecision Making

DECISION.• Choosing Best Alternative

Maximising. Satisficing.

• Implementing.

• Evaluating.

Types of Problems & Decisions.• Well structured - Programmed.

• Poorly structured - non programmed

Decisions Making Conditions.• Certainty.

• Risk.• Uncertainty.

Decision Making Approach.

• Rationality.• Bounded Rationality.

• Intuition.

Decision Maker’s Styles.• Directive.• Analytical.

• Conceptual.• Behavioural.

Overview of Managerial Decision Making.


Group discussion: My decision making

experience. Break into three (3) groups. Brainstorm on members experience on

decision making. Choose one good decision and one bad

decision. Discuss what make them good and bad. Conclude by recommending list of

suggestion toward making good decision.30


Eight (8) steps process of decision making .. Decision making in the management

process.. The rational decision maker.. The perfect rational approach to decision

making.. The bounded rational approach to decision

making… Intuition in decision making… The decision making conditions… Decision making style… Current trend and issues. 31

Summary:

Presentation slides and reportPresentation slides and report

Dateline: 19Dateline: 19thth February 2013 (Tuesday) February 2013 (Tuesday)

1. Why do you think the top management of

Malaysia Airlines (MAS) decided to close its route to Manchester from Kuala Lumpur. Discuss.

2. Air Asia has closed its services at Stansted Airport London and moved to Gatewick Airport, London. After a couple of months, Air Asia made a decision to stop its’route to London. Why do you think this happened? Discuss.

Questions – Choose 1

Business

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