Process of Decision Making

8/22/2019 Process of Decision Making

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Management Information Systems

MANAGERS AS DECISION MAKERS


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Presentation by Prof. Nitin Kamat

8/8/2013 2Copyright Finesse Learning Consultant


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Decide first, then act

How do managers use information to make decisions and solve

problems?

What are the steps in the decision-making process?

What are some practicalities of managerial decision making?

There are many processes in

decision making. In general, the

more we use our full capability, the

better the decision is likely to be.



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Managers deal with problems posing threats andoffering opportunities.

Managers can be problem avoiders, problem solvers, orproblem seekers.

Managers display systematic and intuitive problem-solving styles.

Managers make decisions under conditions ofcertainty, risk, and uncertainty.

Managers solve problems with programmed andnonprogrammed decisions.



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Problem Solving Identifying and taking action to solve problems

Information Competency The ability to gather and use information to solve

problems.

Performance Threat A situation where something is wrong or likely to be

wrong.

Performance Opportunity A situation that offers the possibility of a better future,

if the right steps are taken.



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Systematic Thinking Approaches problems in a rational and analytical fashion.

Intuitive Thinking Approaches problems in a flexible and spontaneous fashion.



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Certain Environment offers complete information on possible action

alternatives and their consequences.

Risk Environment lacks complete information but offers probabilities of

the likely outcomes for possible action alternatives.

Uncertain Environment lacks so much information that it is difficult to assign

probabilities to the likely outcomes of alternatives.



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Decision a choice among possible alternative courses of

action.

Programmed Decision applies a solution from past experience to a routine

problem.

Nonprogrammed Decision applies a specific solution crafted for a unique

problem.



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Classical model:

The classical model of decision making is based oneconomic assumptions.

This model has arisen within the management literaturebecause managers are expected to make decisions that areeconomically sensible and fit the organizations besteconomic interests.

This model considered to be normative, which means itdefines how a decision maker should make decisions.

It does not describe how managers actually make decisionsso much as it provides guidelines or how to reach an idealout come for organization.

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This model of decision making describe how managersactually make decision in difficult situations, such as those

characterized by none programmed decisions, uncertaintyand ambiguity.

Many management decisions are not sufficientlyprogrammable to lend themselves to any degree ofquantification.

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Managers are unable to make economically rationaldecision even if they want to.

None programmed decisions: are used for unstructured,novel, and ill-defined situations of a nonrecurring nature.Example is the developing of the four-wheel-drivepassenger car by Audi.

In fact strategic decisions, in general, are noneprogrammed decisions. Most decisions are neither

completely programmed nor completely noneprogrammed: they are a combination of both. [Heinz

Weihrich et al 2005].



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The administrative model of decision making is based on the

work of Herbert Simon. Simon proposed two concepts that were

instrumental in shaping the administrative model: bounded

rationality and satisfying.

According to the administrative model:

Decision goals often are vague conflicting and lack consensus

among managers.

Managers often are unaware of problems or opportunities that

exist in the organization. Rational procedures are not always

used, and, when they are, they are confined to a simplistic view

of the problem that does not capture the complexity of real

organization view.



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Managers searches for alternatives are limited, because of

human, information andect. Most managers settle for a

satisfying rather than a maximizing solution. The administrative

model is considered to be descriptive, meaning that it describes

how managers actually make decision in complex situations

rather than dictating how they should make

decisions according to a theoretical ideal. This model recognizes

the human and environmental limitations that affect the degree to

which managers can pursue a rational decision-making process.



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The third model of decision making is used for making none

programmed decisions when conditions are uncertain,

information is limited and there is disagreement among managers

about what goals to pursue or what course of action to take.

The political model closely resembles the real environment in

which most managers and decision makers operate.

Decisions are complex and involve many people, information is

often ambiguous, and disagreement and conflict over problems

and solutions are normal.



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There are four basic assumptions of the political model.

Organizations are made of groups with diverse interests, goals,

and values. Information is ambiguous and incomplete. Managers

do not have the time, resources, or mental capacity to identify all

dimensions of the problem and process all relevant information.

Managers engage in the push and pull of debate to decide goals

and discuss alternatives. Decisions are the result of bargaining

and discussion among coalition members. [Richard L. Daft 2005]



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Step 1 is to identify and define the problem. Step 2 is to generate and evaluate alternative courses of action. Step 3 is to decide on a preferred course of action. Step 4 is to implement the decision. Step 5 is to evaluate results.



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Decision Making A process that begins with identification of the

problem and ends with evaluation of implementedsolutions.

Common Mistakes When Identifying Problems

1. Defining problem too broadly or too narrowly 2. Dealing with symptoms, not real causes

3. Focusing on wrong problem to begin with



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Cost-benefit Analysis

Comparing the costs and benefits of each potential course ofaction.

Criteria for Evaluating Alternatives Cost and benefits:

Are expected benefits greater than costs?

Timeliness: How long before the benefits occur?

Acceptability: Is it acceptable to key stakeholders?

Ethical soundness: Does it satisfy ethical standards?



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Two Different Outcomes Optimizing Decision

chooses the alternative giving the absolute best solution to a problem.

Satisfying Decision chooses the first satisfactory alternative that presents itself.



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Criteria for Implementing the Decision

Lack of participation error

Errors made because of failure to include the right

quantity and quality of people in the decision making

process

Criteria for Evaluating the Results

Results must be evaluated against objectives set at

the beginning of the process



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Judgmental heuristics and other biases maycause decision-making errors.

Group decision making has both advantagesand disadvantages.

Managers must be prepared for crisis decisionmaking.

Managers should always check the ethics oftheir decisions.



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Heuristics Simplifying strategies or rules of thumb

Availability Heuristic occurs when people use information readily available as a

basis for assessing a current event or situation. Representative Heuristic

occurs when people assess the likelihood of somethingoccurring based on its similarity to a stereotyped set ofoccurrences.

Anchoring and Adjustment Heuristic involves making decisions based on adjustments to a

previously existing value, or starting point.



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Framing Error

Solving a problem in the context perceived

Escalating Commitment

The continuing of a course of action even though it isnot working



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How to avoid the escalation trap Set advance limits on your involvement and commitment to a

particular course of action; stick with these limits.

Make your own decisions; dont follow the lead of others, sincethey are also prone to escalation.

Carefully determine just why you are continuing a course ofaction; if there are insufficient reasons to continue, dont.

Remind yourself of the costs of a course of action; considersaving these costs as a reason to discontinue.

Watch for escalation tendencies; be on guard against their

influence on both you and others involved in the course ofaction.



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Potential Advantages and Disadvantages of Group DecisionMaking

Why group decisions are often good:

More information, expertise, and viewpoints areavailable to help solve problems.

More alternatives More alternatives are generated andconsidered during decision making.

Increased understanding There is increasedunderstanding and greater acceptance of decision bygroup members.

Greater commitment There is increased commitment ofgroup members to work hard and support the decision.



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Potential Advantages and Disadvantages of Group DecisionMaking

Why group decisions can be bad:

Conformity with social pressures Some members feelintimidated by others and give in to social pressures toconform.

Domination by a few members A minority dominates;some members get railroaded by small coalition ofothers.

Time delays More time is required to make decisionswhen many people try to work together.

A crisis is an unexpected problem that can lead todisaster if not resolved quickly and appropriately.



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