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DECISIONDECISION MAKING: AnMAKING: An
essence to problem solvingessence to problem solvingMeaning of a Decision
Types of Decisions
Steps in Rational Decision-Making Models of Decision-Making
Behavior Environment of Decision-Making
Common Difficulties in Decision-Making
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DECISIONDECISION:: DMDM isis processprocess byby whichwhich individualsindividuals selectselect aa coursecourse ofof actionaction amongamong alternativesalternatives toto
produceproduce resultsresults..
ItIt isis aa processprocess ofof usingusing inputsinputs effectivelyeffectively inin thethe solutionsolution ofof selectedselected problemsproblems && creationcreation
ofof outputsoutputs thatthat havehave utilityutility..
AA choicechoice mademade fromfrom availableavailable alternatives,alternatives, ChoiceChoice betweenbetween twotwo oror moremore alternativesalternatives..
ItIt isis aa keykey partpart ofof managersmanagers activity,activity, toto allocateallocate resourcesresources && accomplishesaccomplishes goalsgoals..
ToTo decidedecide whatwhat toto dodo onon thethe basisbasis ofof somesome consciousconscious && deliberatedeliberate logiclogic oror judgmentjudgment..
DecisionDecision requiresrequires wisdomwisdom && experienceexperience toto evaluateevaluate alternativesalternatives..
ManagersManagers havehave somesome purposepurpose inin mindmind toto makemake decisionsdecisions..
GoodGood DD MM isis vitalvital forfor goodgood managementmanagement..
Characteristics of DecisionCharacteristics of Decision--MakingMaking::1. Goal-oriented
2. Alternatives
3. Analytical-intellectual
4. Dynamic process
5. Pervasive function
6. Continuous activity7. Commitment of time, effort &
money.
8. Human & social process
9. Integral part of planning
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TYPES OF DECISIONTYPES OF DECISION::
Programmed decisions-
Solutions are made in accordance with some policy, rule, procedures.
Problems are routine & repetitive
Conditions are highly certain
Made by lower-level people
1. Programmed & Non-Programmed Decisions
Non-Programmed decisions-
Problems are novel & non-repetitive, unique
No pre-established policies or procedures, each problem needs creativesolution
Conditions are highly uncertain.
Top management responsibility
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2. Major & Minor Decisions
Relative significance of a decision in four ways:
1. Degree of Futurity of Decision2. Impact of the Decision on Other Functional Areas
3. Qualitative Factors that Enter the Decision
4. Recurrence of Decision
3. Routine & Strategic Decisions Routine
Which are supportive, repetitive
Concerned with short-termcommitment
Central to companies operations
Relate to present
Primary purpose to achieve highdegree of efficiency
Require little deliberation & money
Strategic
Concerning unique problems
Demanding large investments
Creativeness & good judgment onthe part of higher level managers
Affect the future of theorganization
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4. Individual & Group Decisions Individual Decisions
Taken by individual in their individual capacity.
These cant be delegated
Affect the organization in indirect way
Definite procedure to deal with the problem
Analysis of variable is simple
Group Decisions
Taken by managers as in their formal or official capacity as allocators &controllers, can be delegated
Aimed at furthering the interests of the organization
These are strategic & important decisions, result into change in org.
Result of decisions open for public view.
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Advantages:Increased acceptance bythose affected
Easier coordinationEasier communicationMore information processed
Disadvantages:Group decisions take longerGroups can be indecisive
Groups can compromiseGroups can be dominated
Approaches to Group Decision Making:Discussion or Interacting GroupNominal Group TechniqueDelphi TechniqueDialectic Method
Devils Advocacy
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STEPS IN RATIONAL DECISION MAKINGSTEPS IN RATIONAL DECISION MAKING::
(1)
Recognizing problems
(2)
Deciding priorities
(3)
Diagnosing theproblem
(4)
Developing AlternativeSolutiuons
(5)
Measuring & ComparingConsequences
(6)
Decision Implementation& Follow up
Flow diagram ofthe rationaldecision-making process
External Environment
feedback
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1. RECOGNISINGPROBLEMS
1st search the environment for existence of problem
When Deviation from past experience
When Deviation from plans
When Other people bring problems
When competitors outerperform
2. DECIDINGPRIORITIES
Find some of the problems which can be best solved by subordinates asthey are close to them
Find problems that need to be referred upward
Some problems allowed to be solved without any efforts
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3. DIAGNOSING THE PROBLEM
What is the problem?
Which problem to solve?
What is the real cause of problem? symptoms
4. DEVELOPINGALTERNATIVE SOLUTIONS
- Review the past experiences
- Scrutinize the practice of others
Inventors & scientist indicate 5 stages of creative process:
Must make familiar with the problem- Saturation
Think problem from several view points- Deliberation
No fruitful solution, turn-off conscious search & relax- Incubation
Flash of insight take place & get new ideas- Illumination
Refines ideas into a usable proposal- Accommodation
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5. MEASURING & COMPARING CONSEQUENCES
Comparison of the quality & acceptability of various solutions
Taking in consideration all the consequences
If information is not available about quality & acceptability advisable toexperiment on small scale i.e. Pilot-testing
6. DECISION IMPLEMENTATION & FOLLOW UP
Translate the decision into action
Requires communication of decisions
Secure acceptance of decision
Associate employees in DM to get whole hearted participation & improvequality.
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MODELS OF DECISION-MAKING BEHAVIOUR
Dev. by classical economist, believed that man is rational being.
Make search for best alternative for achieving optimum solution to aproblem in planned, orderly & logical manner.
Gather all necessary information for decision.
Mentally store the information
Accurately recall the information
Do series of complex calculations
Rank all consequences
Criticism: lacks realism, not portray how decisions actually made.
Mgmt. decisions in all areas can be made rationally.
I. ECONOMIC MAN MODEL
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Assumptions of Rational Decision Making:
Decision-making is a goal-oriented process
All choices are known
Order of preference
Maximum advantage
Factors effecting in being perfectly rational:
Impossible to state the problem accurately
Not fully aware about problems
Imperfect knowledge Limited time & resources
Cognitive limits
Politics
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II. ADMINISTRATIVE MAN MODEL
Dev. By Herbert Simon, more realistic description
Man uses limited rationality because of limited information processingskills.
Look for the one which is good enough (may promote paralysis byanalysis)
Administrative man satisfies rather than maximizes
Not required to search& evaluate to initiate search to find possiblealternative solutions.
search feasible alternatives one by one, if 1stdo not work search for
another.
as soon as workable alternative found, discontinues search
Search for alternatives is guided by experiences & past records.
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Eight steps in Bounded Rationality Model :
1. Set the goal , define the problem
2. Establish criteria to judge the acceptability of a solution
3. use heuristics & identify a feasible solution
4. If no feasible solution identified, lower the criteria to judge a7 beginthe search, repeating the step 3.
5. If feasible solution identified, to determine acceptability
6. If solution found acceptable, implement it
7. If solution found unacceptable, initiate search for new solution ,repeating steps 3to 5.
8. Following implementation, evaluate degree of difficulty, set thecriteria to judge for future decisions of this type
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I. SOCIAL MAN/ POLICAL MODEL
Dev. by Classical psychologist
Freud says That man being a bundle of feelings, emotions, instincts isguided by his unconscious desires.
Decisions also subject to social pressures & influences.
Strong social pressures forces to choose wrong alternatives
Decisions cannot be termed as organizationally rational
Decisions may be sometimes personally rational.
Useful for non-programmed decisions-
when conditions are uncertain
Information is limited
disagreement among managers about goals & course of actions.
When the outcomes are not clear, gain support throughnegotiation, discussions & bargaining.
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ENVIRONMENT OF DECISION-MAKING
The condition of knowledge is referred to as the environment of decision-making
CERTAINITY-
- Consequences of particular decision are specified.
- Conditions associated with alternatives are known to the decision-maker.
RISK-
- Consequences not specified with certainty.
- Decisions has clear goals, incomplete but reliable & factual informationavailable.
- Future outcomes associated with each outcomes are subject to chance.
- Evaluation by calculating expected value of the pay off.
- Objective probabilities derived mathematically from historical data.
- Subjective probabilities estimated from past experience & judgments.
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UNCERTAINITY-
- Not known with the probabilities of possible outcomes.
- Conditions of complete ignorance.
Three basis that can be used
Maximin- pessimistic or cautious approach. Choose that decision act thatmaximizes the minimum.
Minimax- optimistic , choose that decision act which maximizes themaximum
MinimaxRegret- neither optimistic nor pessimistic.
AMBIGUITY-
- Goals & problems are unclear
- Alternatives are not properly defined
- Information about outcomes is not available
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COMMON DIFFICULTIES IN DECISION-MAKING
Incomplete Information
Unsupporting Environment
Non-Acceptance by Subordinates
Ineffective Communication
Incorrect Timing
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It is better to light a candle, than tocurse the darkness.
Be a part of solution not a part of problem