DECISION MAKING

Prof. Jayashree SadriManagement Consultant

AndVisiting Professor of HR

and Business Ethics

UNDERSTANDING DECISION MAKING A decision is a choice from among

the available alternatives. Decision-making is the process of developing and analyzing alternatives and making a choice.

Most decisions are prompted by problems. A problem is a discrepancy between a desirable and an actual situation.

DECISIONS AND THE MANAGEMENT FUNCTIONS. Planning What are the organization’s long-term

objectives? What strategies will best achieve these

objectives? What should the organization’s short

term objectives be? How difficult should individual goals be?

Organizing How many subordinates should I have report

directly to me? How much centralization should there be in

the organization? How should jobs be designed? When should the organization implement a

different structure?.

Leading How do I handle employees who appear to be

low in motivation? What is the most effective leadership style in

a given situation? How will a specific change affect worker

productivity? When is the right time to stimulate conflict?

Controlling What activities in the organization need to be

controlled? How should these activities be controlled? When is a performance deviation significant? What type of management information system

should the organization have?

SOME DECISIONS BUSINESS-TEAM MANAGERS MAKE Examples of decisions different managers

face Accounting manager what accounting firm should we use? Who should process our payroll? Should we give that customer credit?

Finance manager what bank should we use? should we sell bonds or stocks? should we buy back some of our company’s stock?

Human Resource Manager

From where should we recruit our employees? Should we set up a testing program? should I advice settling the

employment complaint?

Production Manager

Which supplier should be use? Should we build the new plant? Should we buy the new machine?

Sales Manager

Which sales representative should we use

in this district? Should we start this advertising

campaign? Should we lower prices in response to

our competitor’s doing so?

PROGRAMMED/NON PROGRAMMED DECISIONS The two differ in the extent to which the

decision must be handled as a completely new situation.

Programmed decisions are decisions that are repetitive and routine and that can be solved through mechanical procedures such as by applying rules.

Up to 90 percent of management decisions are of the programmed variety.(Koonz)

NON-PROGRAMMED DECISIONS

These are unique, and mechanical procedures are not available for making them.

Crisis decisions- like managing the rescue work of a plane crash- are one example.

Generally speaking , non-programmed decisions rely heavily on judgment and focus on the firm’s long-term strategic development and survival.

THE RATIONAL DECISION MAKING PROCESS

SIX STEPS OF RATIONAL DECISION MAKING PROCESS

HOW MANAGERS MAKE DECISIONS: LIMITS TO RATIONALITY

DECISION MAKING IN PRACTICE: BOUNDED RATIONALITY

HOW TO MAKE BETTER DECISIONS Overcoming the many decision-making barriers

identified can lead to better decisions by almost anyone.

Increase your knowledge:

- Many bad decisions stem from the decision

maker’s lack of experience with the

problem at hand.

- Through a lack of experience you make a questionable

decision and through over confidence you blindly stick

to it.

De-bias your judgment :

These biases include overconfidence, the tendency to seek confirmatory information, and escalation of commitment. At least four steps needed:

1. understand that the possibility of bias exists;

2. understand how the bias can affect your judgment;

3. analyze previous decisions made to get feedback on

whether and how bias has influenced your judgment;

4. accept the fact that such biases exist but can be

reduced/eliminated through your diligent efforts.

Be creative :

Creativity is the process of developing original, new responses to a problem.

Creativity is essential for decision-making activities like developing new alternatives and correctly defining the problem.

Use your intuition:

- Many behavioral scientists argue that overemphasizing rationality and

logical can actually backfire by blocking you from using your intuition.

Don’t overstress the finality of your decision.

- Do not get frozen in the finality of

your decision.

Make sure the timing is right:

- Managers should not let their decisions be

swayed by passing moods.

USING GROUPS TO MAKE BETTER DECISIONS Whether they are called work

groups, teams or committees, groups accomplish much of the work in organizations.

A group is defined as two or more persons who interact together for some purpose and in such a manner that each person influences and is influenced by each other person.

Groups are important at work in part because of the effect they have on their members. For example, pressure by other group members can cause a member to raise or lower his or her output.

In turn, the extent to which a group can influence its members depends on several things, including

- the cohesiveness of the group- the

attraction of the group or its members – and

- on the group’s norms – the informal rules that groups adopt to regulate and regularize group members’ behavior.

PROS AND CONS OF GROUP DECISION MAKING

TOOLS FOR IMPROVING GROUP DECISION MAKING Brainstorming

- Brainstorming is a way to simplify the creative energies of a group.

- It is defined as a group problem-solving technique whereby group members introduce all possible solutions before evaluating any of them.

- The technique is aimed at encouraging everyone to introduce solutions without fear of criticism.

TOOLS FOR IMPROVING GROUP DECISION MAKING

The Delphi Technique

a. A problem is identified.

b. Expert’s opinions are solicited anonymously and individually through questionnaires.

c. The expert’s opinions are then analyzed and resubmitted to other experts for a second round of options.

d. This process is continued for several more rounds until a consensus is reached.

THE NOMINAL GROUP TECHNIQUE Another process for reducing group decision-

making barriers like group think.

It can be defined as a group decision-making process in which participants do not attempt to agree as a group on any solution, but rather meet face to face and vote on all the solutions proposed after privately ranking the proposals in order of their preference.

STEPS IN THE NOMINAL GROUP TECHNIQUE

1. Each group member writes down ideas.

2. Each member presents ideas which are written on a board for the other participants to see.

3. After all ideas have been presented, the entire group discusses all ideas simultaneously.

4. Group members individually and secretly vote on each proposed solution; and

5. Participants do not try face-to-face consensus; solution with the most individual votes wins.

HOW TO LEAD A GROUP DECISION-MAKING DISCUSSION

The person leading the group discussion can have a big effect on whether the group’s decision is useful or not.

An effective discussion leader therefore has a responsibility to do the following:

- see that all group members participate.

- distinguish between idea getting and idea evaluation.

- do not respond to each participant or dominate the

discussion.

- see that the effort is directed toward overcoming

surmountable obstacles.

SUMMARY1. A decision is a choice from among available

alternatives. Decision making is the process of developing and analyzing alternatives and making a choice.

2. Decisions can be either programmed (repetitive and routine) or nonprogrammed (unique and new). Nonprogrammed decisions require more intuition and judgment of decision-making.

3. Rational decision-making assumes ideal conditions such as accurate definition of the problem and complete knowledge about all relevant alternatives and their values.

4. Decision making in reality is bounded by differences in managers’ ability to process information.

5. Bounded rationality describes decision making in reality and often implies satisficing alternatives.

6. Guidelines for making better decisions include: increase your knowledge, de-bias your judgment, use creativity, use intuition, don’t overstress finality, and make sure the timing is right.

7. Group decision-making can result in the pooling of resources and strengthened commitment to the decision, but it can also be flawed by group think, or an overwhelming desire for unanimity.

8. Tools for better group decisions include brainstorming, the Delphi and nominal group techniques.

THANK YOU