An Overview of

Decision Making

Topic 1Topic 1

Four Force Model(Rowe and Boulgarides)

Role of the manager in decision-making process is crucial, since the manager is the decision-maker.

4 driving forces on managers ( i.e. managers have to respond to 4 driving forces)

1. Environment: competition, government, public, etc.

2. Organizational: interactions, personality, commitment, etc.

3. Task demands: functions, responsibilities ( e.g. decision makers)

4. Personal needs: individuals’ needs of decision makers

The Wharton School

Hoch and KunreutherHoch and Kunreuther

A Complex Web of DecisionsA Complex Web of Decisions

As a manager, every day you face a myriad of decisions from the time you wake up in the morning until the time you go to sleep at night. Some of these decisions are fairly mundane, but others have a significant impact on the future of your life, your organization, and your career. Making the right choices is crucial. While the impact of anyone’s decisions is far-reaching, manager’s decisions have particular significance because they affect all the people who report to them and the businesses they manage. For this reason, making better decisions is a key concern of managers and their organizations.

Most of us do not make great decisions, and few of us are aware of this fact. We think we are making excellent decisions, and as long as the results are good, we don’t look too closely at our decision process. For long periods, we may be fortunate that the world is forgiving and some poorly made decisions lead to positive outcomes. We congratulate ourselves for walking along the cliff’s edge and not falling, but do not fully appreciate how close we may have come to disaster. It is usually only when we have a spectacular failure that we sit back and look at our decision processes. We then ask the questions we should be asking every day: What are my goals and objectives? What are my assumptions? What are the potential pitfalls? How could I make better decisions? It is usually only when we look at our failures that we actually improve our decision making.

Why do decisions that on the surface seem the same, work in one organization but fail miserably in another?

How can managers be more effective in the way they make decisions?

Decision makers need to understand how to use decision-aiding methodology.

The effectiveness of a decision must be viewed in its totality from the initial idea, the assumptions made, the methods used for analysis, the basis for choice, the gaining of acceptance of the solution, and the implementation and evaluation of results.

Decision makers do not all act in the same manner with respect to their level of interaction, use of information, and maintaining control.

Many managers use intuition in their decisions. This often is useful; however, decision support tools and quantitative approaches can also be helpful in finding solutions to problems.

To be effective, the decision maker must deal with both the behavioral and the technical aspects of a problem.

It is the decision maker, in the final analysis, who determines the organization’s ability to perform smoothly by knowing how to make effective decisions and how to motivate members of the organization to ensure implementation of the decisions.

Most decisions are arrived at after going through a number of stages, called the decision process.

Decision-Making is synonymous with managing and leading

Decision-Making differentiates the effective manager from the non-effective one

Managers are paid to make decisions, and if Formal Organizations are to fulfill their missions, decisions must be made on a timely and cost-effective basis

Bennis Our perceptions of organizational decision-

making…tend to emphasize the product of decision-making – never (or rarely) the process. Those elements of chance, ignorance, stupidity, recklessness, and amiable confusion are simply not reckoned with. They are selectively tableaux, the little dramas, that result in a policy statement or a bit of strategy. It sees only the move or hears only the statement, and it not unreasonably assumes that such an action is the result of a dispassionate , almost mechanical process in which problems are perceived, alternative solutions weighed, and rational decisions made.

Profile of a Decision(3 Key Components in Decision Making)

The Decision-Making ProcessThe Decision MakerThe Decision

Decision-Making

Herbert Simon

“Decision-making can be defined as a process that is synonymous with the whole process of management.”

In his view, decision making involves: (1) finding occasions for making a decision, (2) finding possible courses of action, and (3) choosing among courses of action.

Summary DefinitionDecision making is the process by which

managers respond to opportunities and threats by analyzing options and making determinations about specific organizational goals and courses of action.

The Significance of Decision MakingDecision making is the most significant

activity engaged in by managers in all types of organizations and at any level at the heart of what managers do.

Decision making is the one truly distinctive characteristic of managers.

Decisions made by top managers commit the total organization toward particular courses of action.

Decision TheoryDecision theory as an academic discipline is

relatively young. It is only since World War II that operations research, statistical analysis, and computer programming have given the process of choice a scientific aura, and only within the last twenty-five or thirty years have the behavioral sciences – sociology, psychology, and social psychology – begun to contribute to the body of knowledge making up decision theory.

Decision Theory (cont’d)The literature in the field of decision

theory is skewed heavily toward the quantitative aspects of decision making.

Decision theory is generally regarded as a quantitative discipline.

Behavioral Decision Theory

The Behavioral Decision Theory looks at how decision-makers actually behave.

A Typology of Decisions

Category I - routine, recurring,

certainty with regard to the outcome

Category II - nonroutine,

nonrecurring, uncertainty with regard to the outcome

•Thompson’s 4 Decision-Making Strategies yield 2 basic decision categories

•Decision categories

Table 1.1 A Categorization of Decision CharacteristicsCategory I Decisions Category II Decisions

Classifications Programmable; routine; Nonprogrammable; unique;generic; computational; judgmental; creative;negotiated; compromise adaptive; innovative; inspirational

Structure Procedural; predictable; Novel, unstructured,certainty regarding consequential, elusive, andcause/effect relationships; complex; uncertain cause/recurring; within existing effect relationships; non-technologies; well-defined recurring; informationinformation channels; channels undefined, incom-definite decision criteria; plete information; decisionoutcome preferences may criteria may be unknown;be certain or uncertain outcome preferences may

be certain or uncertain

Strategy Reliance upon rules and Reliance on judgment,principles; habitual intuition, and creativity;reactions; prefabricated individual processing;response; uniform heuristic problem-solvingprocessing; computational techniques; rules of thumb;techniques; accepted general problem-solvingmethods for handling processes

The Locus of ChoiceTop management makes Category II

decisions. (individually or in groups)Operating management makes Category

I decisions. (In some cases, even non-managers)

Middle management supervises the making of Category I decisions and supports the making of Category II decisions.

Category I / Category IIManagers should not treat category I decisions as though they were category II decisions. To do so is to waste valuable time and energy on routine and recurring decisions that can be handled with considerable certainty. Similarly, managers should not neglect the complexity and significance of category II decisions by treating them as though they were category I decisions.

Category II Summary Comment

Managerial decision making normally results in: (a) a change in organizational form or process, or (b) a commitment of fiscal, physical, or human resources.

Art or Science

Is Decision-Making an art or a science?

Art or Science

It is an art with some scientific overtones.