Decision Making & Solv

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Copyright Houghton Mifflin Company. All rights reserved. 9 - 1

Managing Decision Making and Problem

Solving


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The Nature of Decision Making

Decision making:

The act of choosing one alternative from among a set ofalternatives.

e.g. Bharti could have selected any business for expansionbut they have selected businesses that are in line with their

existing businesses i.e. DTH, 3G

Decision-making process:

Recognizing and defining the nature of a decision situation,identifying alternatives, choosing the best alternative, and

putting it into practice

e.g. Maggi Pasta is a new product that Nestle has come outwith as this product category is growing at 70%.


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A View of Decision-Making Conditions

Certainty Risk Uncertainty

Level of ambiguity and chances of making a bad decision

Lower Moderate Higher

The decisionmaker faces

conditions of:


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Decision-Making Conditions

State of certainty:

A condition in which the decision maker knowswith reasonable certainty what the alternativesare and what conditions are associated witheach alternative.

State of risk:

A condition in which the availability of each

alternative and its potential payoffs and costsare all associated with probability estimates.


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State of Uncertainty

A condition in which the decision makerdoes not know all the alternatives, therisks associated with each, or the likely

consequences of each alternative.


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Obtain complete andperfect information.

Eliminate uncertainty.Evaluate everything

rationally and logically

The Classical Model of Decision Making

When faced with adecision situation,

managersshould

and end up with adecision that best

serves the interestsof the organization.



Rational Perspectives on Decision Making

Classical model:

A prescriptive approach to decision making that

tells managers how they should make decisions.

It assumes that managers are logical and rationaland that they make decisions that are in the best

interests of the organization.



Steps in Rational Decision Making

STEP

Recognize and definesituation.

Identify alternatives. Evaluate alternatives.

Select alternative.

Implement alternative.

Follow up and evaluateresults.

DETAIL

Stimulus may bepositive or negative.

Alternatives must begenerated.

Feasibility check.

Choose best fit

alternative. Implementation.

Does it work?


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Evaluating Alternatives in the Decision-Making Process



Behavioral Aspects of Decision Making

The Administrative Model: A decision making model showing that

managers:

1. Have incomplete and imperfectinformation.

2. Are constrained by bounded rationality.

3. Tend to satisfice when making decisions.



Different Types Of Personalities

1. Sanguine:Party types, Love to be centre of attraction,

Enthusiastic, Low on details

2 Melancholy: Lonely, depressed, high on details lowon enthusiasm, Will carry notebook for writing for any

seminar

3 Choleric: Convert every situation in to competition,Always want to win, Ruthless, want to lead but

sometimes ignore feeling of their people

4 Phlegmatic:Peace at all costs,do not want to get intoany confrontation, can keep people in teams together



...and end up with adecision that may or

may not serve theinterests of theorganization.

The Administrative Model of Decision Making

Use incomplete andimperfect Information.

Are constrained bybounded rationality.Tend to satisfice

When faced with adecision situation

managersactually



Bounded Rationality

A concept suggesting that decisionmakers are limited by their values andunconscious:

A. Values.

B. Unconscious reflexes.

C. Skills.

D. Habits.



Satisficing

The tendency to searchfor alternatives only untilone is found that meetssome minimum standardof sufficiency.



Political Forces in Decision Making

Coalition:

An informal alliance of

groups formed to achievea common goal.



Intuition and Escalation of Commitment

Intuition:

An innate belief aboutsomething withoutconscious consideration.

Escalation of commitment:

A decision makers staying

with a decision even whenit appears to be wrong.



Risk Propensity and Decision Making

Risk propensity:

The extent to which a

decision maker iswilling to gamble whenmaking a decision.


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Group and Team Decision Making in OrganizationsForms of Group and Team Decision Making: Interacting group or team:

A decision making group or team in which members openlydiscuss, argue about, and agree on the best alternative.

Delphi group: A form of group decision making in which a group solicits

input from a panel of experts who contribute individually;their opinions are combined and, in effect,

averaged.

Nominal group:

A structured technique, in which the group members arebrought face to face to generate:

Creativity.

Innovative alternatives.

Ideas.


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Advantages and Disadvantages of Group andTeam Decision Making

ADVANTAGES

More informationand knowledgeavailable.

More alternativesgenerated.

More acceptance.

Enhancedcommunication.

Better discussions.

DISADVANTAGES

The process takeslonger.

Compromiseddecisions result fromindecisiveness.

One person maydominate.

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Decision Making & Solv