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decision- final.ppt

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  • Decision is the selection from among several alternative courses of action. The definition of decision involves following characteristics:

    Decision making is a process of selection and the aim is to select best alternative.

    2. Decision is aimed at achieving the objectives of the organization if it is made in organizational context.

  • It also involves the evaluation of available alternatives because only through this evaluation one can know the best alternative.

    Decision making is a mental process because the final selection is made after thoughtful consideration.

    Decision involves rationality because through decision one tries to better ones happiness.

    6. Decision making involves a certain commitment. This commitment may be for short run or long run depending upon the type of decision.

  • Steps in systematic decision making.Recognize and define the problem or opportunity.Identify and analyze alternative courses of action, and estimate their effects on the problem or opportunity.Choose a preferred course of action.Implement the preferred course of action.Evaluate the results and follow up as necessary.

  • Decision environments include:Certain environments.Risk environments.Uncertain environments.

  • 1. Certain environments exist when information is sufficient to predict the results of each alternative in advance of implementation.Certainty is the ideal problem solving and decision making environment.

    Risk environments exist when decision makers lack complete certainty regarding the outcomes of various courses of action, but they can assign probabilities of occurrence.Probabilities can be assigned through objective statistical procedures or personal intuition.

    3. Uncertain environments exist when managers have so little information that they cannot even assign probabilities to various alternatives and possible outcomes.ncertainty forces decision makers to rely on individual and group creativity to succeed in problem solving. Uncertain environments also characterized by rapidly changing:External conditions.Information technology requirements.Personnel influencing problem and choice definitions.These rapid changes are also called organized anarchy.

  • There are various ways of classifying decision in an organization. These bases give five sets of decisions.

  • Organizational Decision: In an organization when an individual takes decisions as an executive for the organization, these are known as organizational decisions. Personal Decision:

    An executive can take decisions about himself which are personal decisions. These decisions normally affect personal life of the decision-maker, though at many items they may affect organization also, such as, leaving of the organization by an individual.

  • Routine Decision Routine decisions are taken in the context of day-to-day operation of the organization. Mostly, they are of repetitive nature and related with the general functioning. They do not require much analysis and evaluation and can be made quickly. strategic decisions

    Strategic decisions are those which are taken during the current time period, but whose primary effect is felt during some future period. Strategic decisions affect organizational structure, objective, facilities, and finances. These decisions are mostly non-repetitive in nature. Since they have fundamental effects on the organization, they are taken after careful analysis and evaluation of various alternatives. These decisions are taken comparatively at higher level of management.

  • Policy Decisions Policy decisions are taken by top management in the organization which determines the basic policies. The policy decisions are very important and have long-term impact. These decisions provide help in establishing the business such as deciding location of plant, volume of production, sale and purchase decisions, policy decisions regarding the employees, etc. Policy decisions are sometimes published as policy manual which become the basis for other operative decisions. Operative Decisions

    Operative decisions are related with the day-to-day operation of the business. Middle and lower level managers who are more closely related with the supervision of actual operations take these generally. These decisions may be written or otherwise.

  • 4. Programmed or Non-Programmed Decisions: Such classification of decisions is made on the basis of the use of operations research. Programmed decisions are normally of repetitive nature and are taken within the broad policy structure. These generally have short-run impact and are taken by lower level managers, such as, granting leave to an employee, purchase of materials in normal routine, etc.

  • Individual and Group Decisions. This classification is based on the basis of persons involved in the decision-making process. i) Individual decisions are taken by a single individual. These are taken in the context of routine or programmed decisions where the analysis of various variables is simple and for which broad policies are already provided. Sometimes, important decisions are taken by single individuals also.

    ii) Group decisions are taken by a group constituted for this specific purpose or by a standing committee. These decisions are generally very important for the organization. Group decisions have certain positive value such as greater participation of individuals and quality in decisions, and certain negative values such as delay in decision-making process and difficulty in fixing the responsibility of decisions.

  • Arriving at a decision implies that a manager has gone though a series of systematically related steps. These steps of the decision making process include (1) determining the problem as related in objectives being sought; (2) identifying alternative solutions; (3) analyzing the possible outcomes of each alternative; and (4) selection of an alternative for subsequent implementation. Pictorially, this process is shown below.

  • * Different alternatives will lead to different possible outcomes orConsequences. This can be expressed symbolically as Y1A1; thus, the outcomeY1 if alternative A1 is followsDetermining the precise problem to be solved is the first and possibly most important step in the decisional process. Every decision is directly related to a problem. Time and effort should be expanded only in gathering data and information. One-way of zeroing in on the correct problem is to ask.

  • To be most meaningful only viable and realistic alternative should be included in the listing. There are also time and cost constraints that will restrict the number of reasonable alternatives to be selected. Psychological barriers may also restrict the number of alternatives that will be developed by a given manager.

  • Good managers are innovators who depend heavily on an ability to think creatively. All present and potential managers should involve into the mental and procedural aspects of creativity. The application of creative ideas to managerial operations is often difficult. Three reasons seem to be responsible for this difficulty:

  • The formal organization with its multiple levels of administrative authority may act as a barrier.

    The desire for security on the part of some managers may hinder the approval and implementation of new ideas.

    When it appear that an organization is operating successfully, managers may not be willing to

  • One creative technique used in identifying alternative courses of action is referred to as brainstorming. Basically, the approach seeks to elicit ideas by pooling the efforts of several people who either meet as a group, or work on a problem by themselves.

  • Managers can never be sure of the actual outcome of each alternative, uncertainty always exists. Consequently, this step is a real change requiring managers to call on present knowledge, past experience, foresight, and scientific acumen.

  • The acute decision maker must recognize the strategic or limiting factors creating a problem. Strategic factors refer to those that are most important in determining the action to be taken in solving a given problem. An organization of strategic factors is also important in analyzing alternative course of action. In this way, the probability of making a more rational selection from among alternative courses of action is increased.

  • There is no decisional problem until two or more alternative courses of action are available.

    Only one course of action can be selected. However, any combination of actions can be considered as a single action.

    A course of action is selected to either solve or alleviate a problem. In order to choose an action that will lead to a desirable solution, the problem must be specified as clearly as possible.

  • 4.A satisfactory decision implies that the decision makes analyzed the alternatives and judged a particular action to have the greatest probability of solving the problem in a desirable manner.5.The problem of measuring desirability has not been solved, particularly when there are several possible outcomes associated with each alternative.6.In facing some managerial problems, the monetary scale can be used to measure the values in a problem. However, this scale is not completely satisfactory and should be used with care.

  • Classical decision theory.Views the decision maker as acting in a world of complete certainty.The classical decision maker:Faces a clearly defined problem.Knows all possible action alternatives and their consequences.Chooses the optimum alternative.Is often used as a model of how managers should make decisions.Applicability of Classical decision theory:May not fit well in a chaotic world.Can be used toward the bottom of many firms, even most high-tech firms.Behavioral decision theory.Accepts a world with bounded rationality and views the decision maker as acting only in terms of what he/she perceives about a given situation.Recognizes that human beings operate with:Cognitive limitations.Bounded rationality.The behavioral decision maker:Faces a problem that is not clearly defined.Has limited knowledge of possible action alternatives and their consequences.Chooses a satisfactory alternative.Applicability of Behavioral decision theory:Fits with a chaotic world of uncertain conditions and limited information.Encourages satisficing decision making.

  • The garbage can model.A model of decision making that views problems, solutions, participants, and choice situations as mixed together in the garbage can of the organization.In stable settings, behavioral decision theory may be more appropriate.In dynamic settings, the garbage model may be more appropriate.Implications of the garbage can model.Choice making and implementation may be done by different individuals.Because of interpretation, there is a risk that the actual implementation does not exactly match the choice.Many problems go unsolved.

  • Managers face complex choice processes.Decision making information may not be available.Bounded rationality and cognitive limitations affect the way people define problems, identify alternatives, and choose preferred solutions.Most decision making in organizations goes beyond step-by-step rational choice.Most decision making in organizations falls somewhere between the highly rational and the highly chaotic.Decisions must be made under risk and uncertainty.Decisions must be made to solve nonroutine problems.Decisions must must be made under time pressures and information limitations.Decisions should be ethical.