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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