Decision-Making Process and Its Implementation. Decision Making. Decisions are processes by which a manager seeks to achieve some desired state. They

DecisionDecision-Making -Making Process and Its Process and Its ImplementationImplementation

Decision Making.Decision Making.Decisions are processes by which a manager seeks Decisions are processes by which a manager seeks

to achieve some desired state. They are means to achieve some desired state. They are means rather than ends. Making a decision involves rather than ends. Making a decision involves making a choice between the alternatives. making a choice between the alternatives. Decisions could be a) engineering or scientific or Decisions could be a) engineering or scientific or b) management b) management

Decision making is the sequential process of thought Decision making is the sequential process of thought and deliberation that results in a decision. and deliberation that results in a decision.

The process of decision making is same in both the The process of decision making is same in both the types of decisions and involves a) defining the types of decisions and involves a) defining the problem b) gathering facts related to the problem problem b) gathering facts related to the problem c) comparing these with right or wrong criteria c) comparing these with right or wrong criteria based on knowledge and experience and then based on knowledge and experience and then taking the best course of actiontaking the best course of action

Management decision making a more of an art than Management decision making a more of an art than a science. a science.

Management decisions are tough because Management decisions are tough because management problems are wider in scope and management problems are wider in scope and they are related to human behavior which is they are related to human behavior which is most unpredictable. most unpredictable.

Management decisions could be either a) Management decisions could be either a) programmed or b) Non programmed. programmed or b) Non programmed.

While Programmed decisions are repetitive and While Programmed decisions are repetitive and routine in nature and provide solutions to routine in nature and provide solutions to structured problems the Non programmed structured problems the Non programmed decisions are of non routine or unique in decisions are of non routine or unique in nature and attempt to provide solutions to nature and attempt to provide solutions to complex and unstructured problems complex and unstructured problems

Top Broad, unstructured, infrequent, uncertaintyMiddle Both structured and unstructured

Lower Frequent, structured, repetitive, routine, certainty

Programmed decisions Un Programmed decisions

Management

Level

A Categorization of Decision A Categorization of Decision CharacteristicsCharacteristics

Category 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 origin of decision theory is The origin of decision theory is derived from economics by using the derived from economics by using the utility function of payoffs. It suggests utility function of payoffs. It suggests that decisions be made by computing that decisions be made by computing the utility and probability, the ranges the utility and probability, the ranges of options, and also lays down of options, and also lays down strategies for good decisions: strategies for good decisions:

The Decision ProcessThe Decision Process

The decision processThe decision processIdentify & define

The problem

Develop alternatives

Evaluate alternatives

Select alternatives

Evaluate & control

Implement decision

Certainty Risk Uncertainty

Gather Information

Rev

ise

The Decision Making The Decision Making Process MapProcess Map

The following map briefly describes The following map briefly describes each phase of the decision making each phase of the decision making process and the difficulties that process and the difficulties that decision makers have in that phase. decision makers have in that phase.

Decision makers, who are used to Decision makers, who are used to depending on their past experiences, depending on their past experiences, must make decisions and take must make decisions and take actions in the rapidly actions in the rapidly changing worldchanging world we face today. we face today.



In this turbulent environment, the In this turbulent environment, the ability to successfully view the ability to successfully view the current current situationsituation through the traditional "good through the traditional "good judgment" viewpoint is weakened judgment" viewpoint is weakened through increasing through increasing external noiseexternal noise (a (a multitude of information sources on multitude of information sources on multiple topics) and changing multiple topics) and changing paradigms of how we think about paradigms of how we think about social, cultural, organizational and social, cultural, organizational and economic issues, creating economic issues, creating internal noiseinternal noise within our prevailing mental models. within our prevailing mental models.


These noises skew our These noises skew our perceptionperception of what of what is really happening in the world. is really happening in the world.

In addition to facing this constant flux, In addition to facing this constant flux, leaders are being asked to choose the leaders are being asked to choose the path to the future as well as to explain path to the future as well as to explain exactly how they plan to get there. exactly how they plan to get there.

Before putting a stake in the sand, leaders Before putting a stake in the sand, leaders begin by developing and begin by developing and testing testing hypotheseshypotheses about possible scenarios, and about possible scenarios, and then eliminate numerous courses of action then eliminate numerous courses of action until a small set of viable choices remain. until a small set of viable choices remain.


Once the Once the decisiondecision to act is made, the to act is made, the communicationcommunication of the new initiatives of the new initiatives begins. begins.

The results of these initiatives The results of these initiatives usually produce some usually produce some expected expected behaviorbehavior, but almost always, much to , but almost always, much to our surprise, our actions produce our surprise, our actions produce unexpected behaviorunexpected behavior as well, that as well, that once again changes our situation. once again changes our situation. And so it goes… And so it goes…

The Evaluation of AlternativesThe Evaluation of AlternativesThe evaluation of alternatives is based on The evaluation of alternatives is based on

alternative outcome relationship. The alternative outcome relationship. The three possible conditions are 1. Certainty three possible conditions are 1. Certainty 2. Risk and 3. Uncertainty2. Risk and 3. Uncertainty

1.1. Certainty : The decision maker has a Certainty : The decision maker has a complete knowledge of the outcome of complete knowledge of the outcome of each alternative. each alternative.

2.2. Risk : The decision maker has some Risk : The decision maker has some probabilistic estimate of the outcome of probabilistic estimate of the outcome of each decision. Condition of risk occurs each decision. Condition of risk occurs when the decision maker has enough when the decision maker has enough information to allow the use of probability information to allow the use of probability in evaluating the alternatives. in evaluating the alternatives. Probability of occurrence of an is event is Probability of occurrence of an is event is the expectancy of event happening.the expectancy of event happening.

Decisions with riskDecisions with risk Probability can be assigned based onProbability can be assigned based on

a.a. Logic or deduction: This is Objective Logic or deduction: This is Objective probability. This reflects the historical probability. This reflects the historical evidence. Ex. Getting head/tail for a evidence. Ex. Getting head/tail for a tossed coin. Or getting a number on rolling tossed coin. Or getting a number on rolling dice etc.dice etc.

b.b. Past experience is with empirical evidence.Past experience is with empirical evidence.

c.c. Subjective estimate due to intelligence or Subjective estimate due to intelligence or intuition.intuition.

When the decision maker has access to When the decision maker has access to probability information, the criterion for probability information, the criterion for decision making is to maximize s the decision making is to maximize s the expected value of the decision.expected value of the decision.

Decisions under uncertaintyDecisions under uncertainty3. 3. Uncertainty : The decision maker (dm) has Uncertainty : The decision maker (dm) has

absolutely no knowledge of the probability absolutely no knowledge of the probability of outcome of each alternative. of outcome of each alternative.

When no information exists the personality When no information exists the personality characteristics of the decision maker characteristics of the decision maker become more important for determining become more important for determining which decision is made. The following five which decision is made. The following five characteristics describe what most of the characteristics describe what most of the dm’s do.dm’s do.

a.a. Optimistic DecisionsOptimistic Decisions

b.b. Pessimistic DecisionsPessimistic Decisions

c.c. Realistic decisions.Realistic decisions.

d.d. Regret minimizing Decisions.Regret minimizing Decisions.

e.e. Insufficient Reasoner Insufficient Reasoner

Criteria of Decision makingCriteria of Decision makinga.a. Optimistic DecisionsOptimistic Decisions The DM think optimistically The DM think optimistically

about the event that influence decisions. They choose about the event that influence decisions. They choose the alternative that maximizes the outcomethe alternative that maximizes the outcome

b.b. Pessimistic DecisionsPessimistic Decisions They believe that worst They believe that worst possible outcome will occur no matter what they do. possible outcome will occur no matter what they do. They estimate the worst outcomes associated with each They estimate the worst outcomes associated with each alternative and select the best of these worst outcomes. alternative and select the best of these worst outcomes.

c.c. Realistic Decisions.Realistic Decisions. They take the middle path They take the middle path neither optimistic nor pessimistic.neither optimistic nor pessimistic.

d.d. Regret minimizing Decisions.Regret minimizing Decisions. They want to They want to minimize the dissonance they experience after the fact. minimize the dissonance they experience after the fact.

e.e. Insufficient Reason Decisions. Insufficient Reason Decisions. These are also These are also

called called eqi-probableeqi-probable decision maker. They assume that decision maker. They assume that all the possible outcomes have equal chance of all the possible outcomes have equal chance of occurring.occurring.

Factors influencing decision Factors influencing decision makingmakingIndividual differences influence the decision making Individual differences influence the decision making

process. The four individual differences which process. The four individual differences which have a significant impact of the decision making have a significant impact of the decision making process are process are

1.1. Values: Values: Values are the guidelines that a person uses Values are the guidelines that a person uses when confronted with a situation in which a choice has to when confronted with a situation in which a choice has to be made. Values are acquired early in life and are a basic be made. Values are acquired early in life and are a basic part of individual’s thought. Value judgment is involved at part of individual’s thought. Value judgment is involved at every stage in the process of decision making. They are every stage in the process of decision making. They are reflected in the decision maker’s behavior before making reflected in the decision maker’s behavior before making the decision, in making the decision and in putting the the decision, in making the decision and in putting the decision into effect.decision into effect.

2.2. PersonalityPersonality : : Decision makers are influenced by many Decision makers are influenced by many psychological forces both conscious and subconscious. psychological forces both conscious and subconscious. These are strongly reflected in decision making under These are strongly reflected in decision making under uncertainty. Personality traits of the decision maker uncertainty. Personality traits of the decision maker combine with situational and interact ional variables combine with situational and interact ional variables influence the decision making process..influence the decision making process..

3.3. Propensity for riskPropensity for risk : (Risk taking capacity ) This is a : (Risk taking capacity ) This is a specific aspect of personality which strongly influences the specific aspect of personality which strongly influences the process of making decision. process of making decision.

4.4. Potential for dissonancePotential for dissonance : Traditionally researchers : Traditionally researchers have focused much of their attention on the forces and have focused much of their attention on the forces and influences on the decision maker before a decision is influences on the decision maker before a decision is made. made.

Utility of the alternatives is the criterion for decision Utility of the alternatives is the criterion for decision making. Value of the decision is dependent on the utility. making. Value of the decision is dependent on the utility. Recently Behavioral scientists have focused their Recently Behavioral scientists have focused their attention on post decision anxiety or cognitive dissonance attention on post decision anxiety or cognitive dissonance experienced by the decision maker. Such anxiety is related experienced by the decision maker. Such anxiety is related to lack of consistency or harmony among individual’s to lack of consistency or harmony among individual’s various cognitions (attitudes, beliefs and so on) various cognitions (attitudes, beliefs and so on) Individuals are likely to use one or more of the following to Individuals are likely to use one or more of the following to reduce their dissonancereduce their dissonancea. Seek information that supports their decision.a. Seek information that supports their decision.b. selectively perceive information that supports the b. selectively perceive information that supports the decision decision c. adopt a less favorable view of the foregone alternatives.c. adopt a less favorable view of the foregone alternatives.d. Exaggerate the importance of positive aspects of the d. Exaggerate the importance of positive aspects of the decision decision

The Scope of Decision The Scope of Decision MakingMaking

Group

Organization

Metaorganization

Individual

DecisionalOutputs(Actions transactions,outcomes)

Decisional Inputs(Objectives,information,resources, energy)

PermeableBoundaries

Interactional Levels

External Environment

Individual Models of Individual Models of Decision-MakingDecision-Making

Cognitive styleCognitive style Underlying personality dispositions toward the treatment of Underlying personality dispositions toward the treatment of information, information,

selection of alternatives, and evaluation of consequences.selection of alternatives, and evaluation of consequences.

Systematic decision makersSystematic decision makers cognitive style that describes people who approach a problem bycognitive style that describes people who approach a problem by

structuring it in terms of some formal method.structuring it in terms of some formal method.

Intuitive decision makersIntuitive decision makers Cognitive style that describes people who approach a problem with Cognitive style that describes people who approach a problem with

multiple methods in an unstructured manner, using trail and error to find multiple methods in an unstructured manner, using trail and error to find a solution.a solution.

Organizational models of decision makingOrganizational models of decision making Models of decision making that take into account the structural and Models of decision making that take into account the structural and

political characteristics of an organization.political characteristics of an organization.

Organizational Models of Organizational Models of Decision-MakingDecision-Making

Bureaucratic models of decision makingBureaucratic models of decision making Models of decision making where decisions are shaped by Models of decision making where decisions are shaped by

the organization’s standard operating procedures(SOPs).the organization’s standard operating procedures(SOPs).

Political models of decision makingPolitical models of decision making Models of decision making where decisions result from Models of decision making where decisions result from

competition and bargaining among the organization’s competition and bargaining among the organization’s interest groups and key leaders.interest groups and key leaders.

““Garbage can” modelGarbage can” model Model of decision making that states that organizations are Model of decision making that states that organizations are

not rational and that decisions are solutions that become not rational and that decisions are solutions that become attached to problems for accidental reasons. attached to problems for accidental reasons.

Steps for decision Steps for decision implementationimplementation

A decision making process can be definedA decision making process can be defined as consisting as consisting of a set of four major steps: theof a set of four major steps: the problem definition; the problem definition; the identification of solutions;identification of solutions; the selection of the best the selection of the best option; and the decisionoption; and the decision implementation plan. implementation plan.

People participating in the first three phases of aPeople participating in the first three phases of a decision making process will probably be the samedecision making process will probably be the same (except perhaps for a few advisors or observers(except perhaps for a few advisors or observers who who may participate just in one of the phases).may participate just in one of the phases).

OnOn the other hand, people working in the post-decisionthe other hand, people working in the post-decision phase are implementers, most probably differentphase are implementers, most probably different from from the decision makers participating inthe decision makers participating in the previous phases. the previous phases.

Steps for decision Steps for decision implementationimplementation

Document decision making steps Document decision making steps Allocate resources Allocate resources Determine tasks and activities Determine tasks and activities Develop a timeline Develop a timeline Assign responsibility to specific individualsAssign responsibility to specific individuals Consider likely obstacles and alternate courses of Consider likely obstacles and alternate courses of

action.action. For SvensonFor Svenson,, the follow-up of the decision the follow-up of the decision

implementation is fundamental to the evaluationimplementation is fundamental to the evaluation of of the quality of past decisions and asthe quality of past decisions and as background background knowledge for present and futureknowledge for present and future decisions. decisions.

Evaluation of Strategic Evaluation of Strategic Decision SuccessDecision Success

1.1. Compatibility withCompatibility with 1.1. Conflict of interest.Conflict of interest.operating constraints.operating constraints.

2.2. Timeliness.Timeliness. 2.2. Risk-reward factor.Risk-reward factor.

3.3. Optimum amount ofOptimum amount of 3.3. Understanding theUnderstanding theinformation.information. decision.decision.

4.4. Influence of theInfluence of thedecision maker.decision maker.

StrategicStrategicDecisionDecisionQualityQuality

StrategicStrategicDecisionDecisionSuccessSuccess

= = ff + + ff Strategic Strategic DecisionDecision

ImplementatioImplementationn

Follow-Up and ControlFollow-Up and Control

Follow-up and control is essential Follow-up and control is essential to ensure that an implemented to ensure that an implemented decision meets its objective.decision meets its objective.

Performance is measured by Performance is measured by observing the implemented observing the implemented decision in relation to its decision in relation to its standard derived from the standard derived from the objective.objective.

Decision Making in Foreign Decision Making in Foreign PolicyPolicy

Margaret Hermann, Charles Hermann, and Joe Margaret Hermann, Charles Hermann, and Joe Hagan have incorporatedHagan have incorporated various models of various models of foreign policy decisionforeign policy decision making into a contingency making into a contingency modelmodel and called it the “decision-units” and called it the “decision-units” framework. The main purpose of a contingency framework. The main purpose of a contingency model is to formulate middle-range theories that model is to formulate middle-range theories that suggest under whatsuggest under what conditions certain types of conditions certain types of foreign policy behaviors take place. The decision-foreign policy behaviors take place. The decision-units framework builds upon a growing body of units framework builds upon a growing body of research on foreignresearch on foreign policy decisionpolicy decision making, making, focusing on bureaucratic politics, group focusing on bureaucratic politics, group dynamics,dynamics, governmental politics, leadership governmental politics, leadership styles, coalition politics, and the strategies with styles, coalition politics, and the strategies with domestic opposition.domestic opposition.


This framework suggests that previousThis framework suggests that previous decisiondecision making approaches—such as bureaucratic politics, making approaches—such as bureaucratic politics, groupthink—have wanted to declare a “winner” at groupthink—have wanted to declare a “winner” at the expense of seeing all as complementary. It also the expense of seeing all as complementary. It also suggests that the literature has been very US-suggests that the literature has been very US-centric,centric, making it almost impossible to generalize making it almost impossible to generalize findings across nations.findings across nations.

Thus,Thus, the main aim of the decision-units framework the main aim of the decision-units framework has been to incorporate thesehas been to incorporate these previously existing previously existing decisiondecision making approaches in a more making approaches in a more comprehensivecomprehensive and contingent manner, to build and contingent manner, to build middle-range theories that are applicablemiddle-range theories that are applicable in non-US in non-US settings as well, and finally, to further open up the settings as well, and finally, to further open up the ‘black box’‘black box’ of the foreign policy decisionof the foreign policy decision making making process.process.


One of the key components of the One of the key components of the decision-units framework is that,decision-units framework is that, “there is “there is within anywithin any government an individual or a government an individual or a set of individuals withset of individuals with the ability to the ability to commit the resources of the society and, commit the resources of the society and, when faced with awhen faced with a problem, the authority problem, the authority to make a decision that cannot be readily to make a decision that cannot be readily reversed.”reversed.” This set of decisionmakers is This set of decisionmakers is called the authoritative decision unit. called the authoritative decision unit. ThereThere are three types of authoritative are three types of authoritative decision units:decision units:


1. predominant leader,1. predominant leader, 2. single group, and2. single group, and 3. coalition of multiple autonomous actors.3. coalition of multiple autonomous actors.

The framework suggests that each The framework suggests that each decision unit “sets into motion alternative decision unit “sets into motion alternative decision processes,”16 resulting in decision processes,”16 resulting in different process outcomes. Adifferent process outcomes. A predominant leader is the decision unit predominant leader is the decision unit seen when a single individual hasseen when a single individual has the the power to make a decision alone.power to make a decision alone.


A single group is the case when aA single group is the case when a number of number of individuals collectively choose an action individuals collectively choose an action consulting with eachconsulting with each other. other.

A coalition of autonomous actors is the relevant A coalition of autonomous actors is the relevant decision unitdecision unit description when separate description when separate individuals, representatives of organizations,individuals, representatives of organizations, groups and so on come together to decide upon groups and so on come together to decide upon an action. an action.

In this last case,In this last case, no single component within this no single component within this group of actors has sufficient power togroup of actors has sufficient power to make a make a binding decision on its own, yet each has the binding decision on its own, yet each has the resources and capability to block the decision or resources and capability to block the decision or withdraw the resources needed for the withdraw the resources needed for the implementation of the decision if not satisfied.implementation of the decision if not satisfied.


This fThis figure summarizes the three igure summarizes the three stages of foreign policymaking stages of foreign policymaking according to the decision-units according to the decision-units framework. It also illustrates the framework. It also illustrates the place of the decision units within the place of the decision units within the foreign policy decisionmaking foreign policy decisionmaking process.process.


Foreign Policy Problem

Occasion for Decision

INPUTS

Emergence of Authoritative Decision-Unit

Predominant Leader

Single Group

Coalition

DECISION UNITS DYNAMICS

Process Outcomes

OUTPUTS

Foreign Policy Action


The first stageThe first stage occurs whenever a foreign occurs whenever a foreign policy problem emerges. The “inputs” policy problem emerges. The “inputs” (occasion(occasion for decisions18 and the for decisions18 and the emergence of the authoritative decision emergence of the authoritative decision unit) lead theunit) lead the way to the “decisionmaking way to the “decisionmaking dynamics” that are determined by which dynamics” that are determined by which unitunit is authoritative and which key is authoritative and which key contingencies are at play. These dynamicscontingencies are at play. These dynamics result in the “outputs” that are the result in the “outputs” that are the outcomes of the decisionoutcomes of the decision makingmaking processes processes and the foreign policy action.and the foreign policy action.

LiteratureLiterature

Borges, M.R.S., Pino, J.A., Valle, C., “On the Implementation Borges, M.R.S., Pino, J.A., Valle, C., “On the Implementation and Fand Follow-upollow-up of Decisions”, in of Decisions”, in In Proc.of the DSIAge -In Proc.of the DSIAge -International Conference on Decision Making and Decision International Conference on Decision Making and Decision Support in the Internet Age, Cork, Ireland, July 2002, p. 366-Support in the Internet Age, Cork, Ireland, July 2002, p. 366-375. 375.

Harrison, E.F., The Managerial Decision- Making Process, Fifth Harrison, E.F., The Managerial Decision- Making Process, Fifth Edition, Houghton Mifflin Company, 1999.Edition, Houghton Mifflin Company, 1999.

White, D.J., Decision Theory, Aldine Pub.Co., 2006.White, D.J., Decision Theory, Aldine Pub.Co., 2006.

Factors that can Factors that can Influence a DecisionInfluence a Decision

Factors that can Influence a Factors that can Influence a DecisionDecision

Values– What is important to your family, others

in your culture? Peers

– People you know– Pressure for positive or negative

behaviours Habits

– You are accustomed to doing it this way


Feelings (love, anger, frustration, ambivalence, rejection)– If you do make a certain decision– If you don’t make a certain decision

Family– Your family’s preference– Decisions other family members have

made


Risks and consequences– What (or how much) you stand to win– What (or how much) you stand to lose

Age– Minor– Adult

Decision Making Decision Making StrategiesStrategies

Decision Making StrategiesDecision Making Strategies

agonizing– Accumulating so much information that

analyzing the options becomes overwhelming.

avoidance– Choosing the option that is most likely

to avoid the worst possible result. compliance

– Going along with family, school, work, or peer expectations.

Decision Making StrategiesDecision Making Strategies desire

– Choosing the option that might achieve the best result, regardless of the risk involved.

destiny– Letting outside forces decide; leaving the

decision up to fate. inspiration

– Doing something because “it feels right” or because “it just seems like the right thing to do.”

Decision Making StrategiesDecision Making Strategies intention

– Choosing an option that will be both intellectually and emotionally satisfying.

procrastination– Postponing thought and action until

options are limited. security

– Choosing the option that will bring some success, offend the fewest people, and pose the least risk.


spontaneity– Choosing the first option that comes to

mind; giving little or no consideration to the consequences of the choice.

synthesis– Choosing the option that has a good

chance to succeed and which you like the best.


AgonizingAgonizing AvoidanceAvoidance ComplianceCompliance DesireDesire DestinyDestiny

InspirationInspiration IntentionIntention ProcrastinationProcrastination SecuritySecurity SpontaneitySpontaneity SynthesisSynthesis

Decision Making Decision Making ProcessProcess

Decision MakingDecision Making Definition:Definition:

““ Process of identifying and solving problems”Process of identifying and solving problems”

1.Problem identification stage:1.Problem identification stage:

Information about environmental and Information about environmental and organizationalorganizational conditions is monitored to conditions is monitored to determine if performance is satisfactory and to determine if performance is satisfactory and to diagnose the cause of shortcomingsdiagnose the cause of shortcomings

2.The problem solution stage:2.The problem solution stage:

Alternative courses of action are considered Alternative courses of action are considered and one alternative is selected and and one alternative is selected and implementedimplemented

Programmed Vs. Non-programmed Programmed Vs. Non-programmed decisionsdecisions

Programmed decisions

• Repetitive, well defined

•Procedures exist for resolving problems

•Criteria for performance clear

•Good information available for current performance

•Alternatives well specified

•Relative certainty that chosen alternative will be successful

Non programmed decisions

•Novel & poorly defined

•No procedure exist for solving the problem

•Clear cut decision criteria do not exist

•Alternatives are fuzzy

•Uncertainty whether a problem solution will solve the problem

•Few alternatives can be developed

•A single solution is custom-tailored to the problem

Steps in the Rational Approach Steps in the Rational Approach to Decision-Makingto Decision-Making

MonitorDecision

Environment

ImplementChosen

AlternativeDefine

DecisionProblem

Specify Decision

Objectives

DiagnoseProblem

DevelopAlternativeSolutions

EvaluateAlternatives

ChooseBest

Alternative1

2

345

6

78

Today’s Today’s Business EnvironmentBusiness Environment

New strategiesNew strategies ReengineeringReengineering RestructuringRestructuring Mergers/AcquisitionsMergers/Acquisitions DownsizingDownsizing New product/market developmentNew product/market development . . . Etc.. . . Etc.

Decisions Made Inside the Decisions Made Inside the OrganizationOrganization

Complex, emotionally charged issuesComplex, emotionally charged issues More rapid decisionsMore rapid decisions Less certain environmentLess certain environment Less clarity about means/outcomesLess clarity about means/outcomes Requires more cooperationRequires more cooperation

A New Decision-Making A New Decision-Making ProcessProcess

Required becauseRequired because– no one person has enough info to make no one person has enough info to make

all major decisionsall major decisions– No one person has enough time and No one person has enough time and

credibility to convince manycredibility to convince many Relies less on hard dataRelies less on hard data Guided by powerful coalitionGuided by powerful coalition Permits trial and error approachPermits trial and error approach

Bounded RationalityBounded Rationality In choosing between alternatives, In choosing between alternatives,

mangers attempt to “satisfice,” or look mangers attempt to “satisfice,” or look for the one that is satisfactory or “ good for the one that is satisfactory or “ good enough”enough”

Because they satisfice rather than Because they satisfice rather than maximize, they can make their choices maximize, they can make their choices without first determining all possible without first determining all possible alternatives and without ascertaining alternatives and without ascertaining that these are in fact all the alternativesthat these are in fact all the alternatives

Decision makers end up satisficing Decision makers end up satisficing because they do not have ability to because they do not have ability to maximize maximize

Bounded RationalityBounded Rationality Reasons for Satisficing DecisionsReasons for Satisficing Decisions Objectives are dynamic rather than staticObjectives are dynamic rather than static Information is seldom perfectInformation is seldom perfect Time and cost constraintsTime and cost constraints Alternatives seldom lend themselves to Alternatives seldom lend themselves to

quantified preference orderingquantified preference ordering Effects of environmental forces cannot be Effects of environmental forces cannot be

disregardeddisregardedo The difference between rational and bonded The difference between rational and bonded

rationality is one of degree, because under rationality is one of degree, because under some condition, satisficing approaches are some condition, satisficing approaches are maximizing, whereas in other conditions, maximizing, whereas in other conditions, satisficing and maximizing are very far apartsatisficing and maximizing are very far apart

Intuitive decision makingIntuitive decision making Bounded rationality perspective is often Bounded rationality perspective is often

associated with intuitive decision makingassociated with intuitive decision making Experience and judgment rather than Experience and judgment rather than

sequential logic or explicit reasoning is used to sequential logic or explicit reasoning is used to make decisionsmake decisions

Intuition are not arbitrary or irrational because Intuition are not arbitrary or irrational because it is based on years of experience and practiceit is based on years of experience and practice

In situations of greater complexity or In situations of greater complexity or ambiguity previous experience are needed to ambiguity previous experience are needed to incorporate intangible elements at both the incorporate intangible elements at both the problem identification and problem solution problem identification and problem solution stagesstages

Bonded rationality perspective and intuition Bonded rationality perspective and intuition applies to non programmed decisions applies to non programmed decisions

Trade-off

Trade-off

Trade-off

Constraints and Trade-offs Constraints and Trade-offs During Non-programmed Decision-During Non-programmed Decision-

MakingMaking

Personal Constraints:Desire for prestige, success;personal decision style; and

the need to satisfy emotional needs, cope with pressure,

maintain self-concept

Organizational Constraints:Need for agreement, sharedperspective, cooperation,

support, corporate culture and structure, ethical values

Bounded Rationality:Limited time, information,

resources to deal with complex,

multidimensional issues

Decision/Choice:

Search fora high-quality

decisionalternative

Trade-off

Trade-off

Sources: Adapted from Irving L. Janis, Crucial Decisions(New York: Free Press, 1989); and A. L. George, PresidentialDecision Making in Foreign Policy: The Effective Use ofInformation and Advice (Boulder, Colo.: Westview Press, 1980).

Organizational Decision MakingOrganizational Decision Making

Management science ApproachManagement science Approach Used when problems are analyzable and Used when problems are analyzable and

variables could be identified and variables could be identified and measuredmeasured

Mathematical models can contain Mathematical models can contain thousands or more variables, each thousands or more variables, each relevant in some way to the ultimate relevant in some way to the ultimate outcomeoutcome

The system is at its best when applied The system is at its best when applied to problems that are analyzable, are to problems that are analyzable, are measurable, and can be structured in a measurable, and can be structured in a logical waylogical way

Carnegie ModelCarnegie Model Organization-level decisions involve many Organization-level decisions involve many

managers and final choice is based on managers and final choice is based on coalition among these managerscoalition among these managers

Reasons for management coalition:Reasons for management coalition:1.1. Organization goals are often ambiguous and Organization goals are often ambiguous and

inconsistent, and operative goals of the inconsistent, and operative goals of the department are often inconsistent. This results department are often inconsistent. This results in disagreement about problem priorities. They in disagreement about problem priorities. They must bargain about problems and build must bargain about problems and build coalition regarding which problem to solvecoalition regarding which problem to solve

2.2. Individual managers intend to be rational but Individual managers intend to be rational but work with limitation cognitive limitations and work with limitation cognitive limitations and other constraints. These limitation leads to other constraints. These limitation leads to coalition building.coalition building.

Carnegie ModelCarnegie Model Implication for organizational decision Implication for organizational decision

behaviorbehavior1.1. Decisions are made to satisfice rather than Decisions are made to satisfice rather than

optimize problem solutionoptimize problem solution2.2. Managers are concerned with immediate Managers are concerned with immediate

problems and short run solutions. They problems and short run solutions. They engage in problematic search( look around in engage in problematic search( look around in the immediate environment for a solution to the immediate environment for a solution to quickly resolve a problemquickly resolve a problem

3.3. Discussion and bargaining are especially Discussion and bargaining are especially important in the problem identification stage important in the problem identification stage of decision making. Unless coalition of decision making. Unless coalition members perceive a problem, action will not members perceive a problem, action will not be takenbe taken

Choice Processes in the Carnegie ModelChoice Processes in the Carnegie Model

Hold joint discussionand interpret goals and problems

Share opinions

Establish problem priorities

Obtain social supportfor problem, solution Adopt the first

alternativethat is acceptableto the coalition

Conduct a simple,local search

Use established procedures ifappropriate

Create a solutionif needed

Managers havediverse goals,opinions, values,experience

Information is limitedManagers havemany constraints

Uncertainty Coalition Formation Search

Satisficing

Conflict

The Incremental Decision Process ModelThe Incremental Decision Process Model

· · Identification PhaseIdentification Phase– RecognitionRecognition– DiagnosisDiagnosis

Development PhaseDevelopment Phase– SearchSearch– ScreenScreen– DesignDesign

Selection PhaseSelection Phase– Judgment (evaluation – choice)Judgment (evaluation – choice)– Analysis (evaluation)Analysis (evaluation)– Bargaining (evaluation – choice)Bargaining (evaluation – choice)– AuthorizationAuthorizationDynamic FactorsDynamic Factors

Learning Organization Decision Process Learning Organization Decision Process When Problem Identification and Problem When Problem Identification and Problem

Solution Are UncertainSolution Are Uncertain

When problem identification isuncertain, Carnegie model applies

Political and social process isneeded

Build coalition, seek agreement,and resolve conflict about goalsand problem priorities

When problem solution is uncertain, Incremental process model applies

Incremental, trial-and-errorprocess is needed

Solve big problems in little steps

Recycle and try again when blocked

PROBLEM IDENTIFICATION PROBLEM SOLUTION

Garbage Can ModelGarbage Can Model Considers the whole organization and frequent decisions Considers the whole organization and frequent decisions

being made by managers through outbeing made by managers through out Describes decision making under highly uncertain Describes decision making under highly uncertain

conditions, “ organized anarchy” an extremely organic conditions, “ organized anarchy” an extremely organic organizationorganization

Characteristics of Organized AnarchyCharacteristics of Organized Anarchy1.1. Problematic Preferences:Problematic Preferences: Goals, problems, alternatives, and solutions are ill defined. Goals, problems, alternatives, and solutions are ill defined.

Ambiguity characterize each step of decision makingAmbiguity characterize each step of decision making2.2. Unclear, poorly understood technology: cause and effect Unclear, poorly understood technology: cause and effect

relationship within the organization are difficult to identify. relationship within the organization are difficult to identify. Explicit database that applies to decisions is not availableExplicit database that applies to decisions is not available

3.3. Turnover: Turnover: Organizational positions experience turnover of Organizational positions experience turnover of participantsparticipantsEmployees are busy and have only limited time to allocate Employees are busy and have only limited time to allocate to any one problem or decision to any one problem or decision

Garbage Can ModelGarbage Can Model Streams of Events:Streams of Events:1.Problems1.Problems

Problems are perceived to require attentionProblems are perceived to require attentionThey are distinct from solution and choicesThey are distinct from solution and choicesA problem may lead to proposed solution or it may notA problem may lead to proposed solution or it may notProblems may not be solved when solution are adoptedProblems may not be solved when solution are adopted

2. Potential solutions2. Potential solutionsSolution exist independent of problemsSolution exist independent of problemsparticipants may be simply attracted to certain ideas participants may be simply attracted to certain ideas and push them as logical choice regardless of problemsand push them as logical choice regardless of problemsAttraction to an idea may cause an employee to look for Attraction to an idea may cause an employee to look for a problem to which it could be attached and hence a problem to which it could be attached and hence justifiedjustified

Garbage Can ModelGarbage Can Model Streams of Events:Streams of Events:3.3. ParticipantsParticipants

Employees who come and go through out the Employees who come and go through out the organizationorganizationParticipants vary in their ideas, perceptions, Participants vary in their ideas, perceptions, experiences and trainingexperiences and trainingThe problem and solution recognized by one The problem and solution recognized by one participant may be different from otherparticipant may be different from other

4.4. Choice opportunitiesChoice opportunitiesWhen an organization usually makes a decisionWhen an organization usually makes a decisionWhen right mix of participants, solution, and problems When right mix of participants, solution, and problems existsexistsMatch up of problems and solution results in decisions Match up of problems and solution results in decisions

Garbage Can ModelGarbage Can Model With the concept of four streams, the overall With the concept of four streams, the overall

organizational decision making takes on organizational decision making takes on random qualityrandom quality

When a problem, solution, and participant When a problem, solution, and participant happen to connect at one point, a decision happen to connect at one point, a decision may be made and problem may be solved.may be made and problem may be solved.

Organization decisions are disorderly and not Organization decisions are disorderly and not the result of logical, step by step sequencethe result of logical, step by step sequence

Events may be well defined and complex that Events may be well defined and complex that decisions, problems and solutions act as decisions, problems and solutions act as independent eventsindependent events

Illustration of Independent Streams of Illustration of Independent Streams of Events in the Garbage Can Model of Events in the Garbage Can Model of

Decision-MakingDecision-Making

ProblemsSolutionsChoice

OpportunitiesParticipants





Choice OpportunitiesChoice Opportunities

Participants

Participants

Middle Management

Problems Solutions

Solutions

Participants

ProblemsProblems

SolutionsChoice

OpportunitiesProblems

Participants

Participants

Solutions

Department A Department B

Certain Uncertain

Contingency Framework for Contingency Framework for Using Decision ModelsUsing Decision Models

ProblemConsensus

Individual: Rational Approach ComputationOrganization: Management Science

Individual: Bargaining, Coalition FormationOrganization: Carnegie Model

Individual: Judgment Trial-and-error

Organization: Incremental Decision Process Model

Individual: Bargaining and Judgment Inspiration and ImitationLearning Organization: Carnegie and Incremental Decision Process Models, Evolving to Garbage Can

SolutionKnowledge

Certain

Uncertain

4

21

3

Special Decision Special Decision CircumstancesCircumstances

High-Velocity EnvironmentsHigh-Velocity Environments

Decision Mistakes and LearningDecision Mistakes and Learning

Escalating CommitmentEscalating Commitment

Documents

Decision-Making Process and Its Implementation. Decision Making. Decisions are processes by which a manager seeks to achieve some desired state. They