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DecisionMaking

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Decision-making is the process of identifying problems andopportunities and selecting a course of action to deal with aspecific problem or take advantage of an opportunity.

A Decision represents a course of action chosen from a number of possible alternatives.

As per Kreitner, Decision making is a process of identifying and

choosing alternative courses of action in a manner appropriate tothe demand of situation.

Defining Decision Making

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Characteristics of Decision Makingrocess.

!t is a human process involving to a great e"tent the applicationof !ntellectual abilities.

!t is a process of choosing a course of action from among the

alternative courses of action.!t is an end process preceded by deliberation and reasoning.

!t is always related to a situation.

!nvolves a certain commitment of the #rgani$ation for adoptinga specific course of action.Decision Making in business is always related to its #b%ectives.

&elp in solving problems' resolving crisis and tackling varioussituations.

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!nterdisciplinary (rameworkof Decision Making

)ehavioral disciplines

*uantitative disciplines)ehavioral+,uantitative fusion

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The Interdisciplinary Framework of Decision Making

The decision-makingprocess

Philosophy

Psychology

Mathematics

Sociology Social psychology

Economics Statistics

Values andethics Utility and

probability

Individualbehavior

roupbehavior

Models andsimulation Environment

!a" #nthropology Political science

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Decision-making Conditions

The decision makerfaces conditions of

Lower Moderate Higher

UncertaintyCertainty Risk

evel of ambiguity and chances of marking bad decision

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Certainty decision making condition in which managershave accurate ' measurable and reliable information aboutthe outcome of various alternatives under consideration.

!isk decision making condition in which managers knowthe probability a given alternative will lead to a desired goalor outcome.

"ncertainty decision making condition in which managersface unpredictable e"ternal condition or lack theinformation needed to establish the probability of certainevents.

#mbiguity by far the most difficult decision situation goals to be achieved or the problem to be solved is

unclear alternatives are difficult to define information about outcomes is unavailable

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Decision making under certainty

hen managers know with reasonable certaintywhat their alternatives are and what conditions areassociated with each alternative' a state ofcertainty e"ists.

!n organi$ational settings' few decisions are madeunder conditions of true certainty. /he comple"ityand turbulence of the contemporary business worldmake such situations rare. 0ven the airplane

purchase decision we %ust considered is notcompletely realistic.

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1nder a state of risk, the availability of eachalternative and its potential payoffs and costs areall associated with probability estimates.

Decision Making 1nder 2isk

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!n the state of uncertainty the decision maker does not know allthe alternatives' the risks associated with each' or theconse,uences each alternative is likely to have. /his uncertaintystems from the comple"ity and dynamism of contemporaryorgani$ations and their environments.

/he key to effective decision making in these circumstances isto ac,uire as much relevant information as possible and toapproach the situation from a logical and rational perspective.

!ntuition' %udgment' and e"perience always play ma%or roles inthe decision-making process under conditions of uncertainty.0ven so' this condition is the most ambiguous for managers andthe one most prone to error.

Decision Making 1nder 1ncertainty

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"nusual and

ambiguous

Known andwell defined

"ntried andambiguous

!nnovative Decisions

Adaptive Decisions

2outine Decisions

C o n d

i t i o n s

u n d e r w

h i c h d

e c i s i o

n s a r e

m a d e

1 n c e r t a i n t y

C e r t a i n t y

2 i s k

$olution Types

%#lternati&e $olutions'

(roblem Types

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3electing a Decision Making Model

Depends on the manager4s personal preference

hether the decision is programmed or non- programmed

0"tent to which the decision is characteri$ed byrisk' uncertainty' or ambiguity

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Primary Decision-MakingModel Criterion KeyIngredients Key Assumptions

Rational Maximized Objectives; specific states of nature; subjective Fixed objectives;unlimited information; no cog-(classical) outcome probabilities; quantified utilities (pa offs); -nitive limitations; no timeand cost constraints;

ex!austive alternatives; disregard of environment; quantifiable andtransitive alternatives; controlled

computational decision-ma"ing strateg ; s!ort- variables; closeds stem; quantitativel limited

term !orizon; !ig!l structured process outcomes

Organizational #atisficing Objectives; general states of nature;limited $ttainable objectives; limited information; cogni-(neoclassical) outcome subjective probabilities; partiallquantified tive limitations; time and cost constraints; par-

utilities (pa offs); no ex!austive alternatives; tiall quantifiable and

intransitive alternatives; sensitive environment; judgmental decision- open s stem; qualitativel-- and quantitativel --

ma"ing strateg ; s!ort-term !orizon; moderatel limited outcomesstructured process%

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Decision-Making Models

2ational model 5classical6

#rgani$ational model 5neoclassical6

olitical model 5adaptive6

rocess model 5managerial6

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)ounded rationality suggests that decision makers arelimited by their values and unconscious refle"es' skills' andhabits. /hey are also limited by information and knowledgethat are less than complete.

$atisficing suggests that rather than conducting ane"haustive search for the best possible alternative' decisionmakers tend to search only until they identify an alternativethat meets some minimum standard of sufficiency.

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Economic Man Model

The Economic Man Theory is closely related to the concept oforganizational rationality. It is a normative theory rather thana descriptive theory beca se it is concerned !ith !hat adecision maker sho ld do rather !hat he act ally does inreaching his concl sion.

"ecision making is characterized by the follo!ing feat res ## The decision making is completely rational in the means ends sense .

# To ma$imize some desired val e Economic man orders his vario spreferences according to his hierarchy of val es.

# There is complete a!areness of vario s alternatives and o tcome of eachalternative can be identified

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%dministrative Man Model

%dministrative Man Model is descriptive model ofdecision making. It describes the behavior ofdecision maker in the conte$t of !hat he act allydoes in reaching his concl sion. It provides a

more valid prediction of the o t come to bee$pected from a manager&s effort to decide pona co rse of action.

%ccording to Herbert Alexander Simon decision

makers do not have f ll kno!ledge of all alternativesand their conse' ences. There is a certain amo nt oflimit on rationality that is ( bounded rationality &.

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The Bounded Rational Decision Making Model: arealistic approach

&ere the assumption is to operate with bounded rationality rather than perfectrationality.

1nder bounded rationality' individuals seek the best solution to a problem' thedemands of processing all the information' generating all possible solutions andchoosing best alternative are beyond human capability.

Characteri$ed by7-

1se of procedures and rule of thumb 5 &euristics6- /hese are cognitive guides that people use intuitively.

3ub optimi$ing- knowingly accepting less than the best outcome.

3atisficing -e"amining alternatives only until a solution that meets minimalre,uirements is found and then ceasing to look for more.

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Decision

makingprocess

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Decision Making 3teps

3tep 8 - 2ecogni$e /he 9eed (or A Decision

Managers must first reali$e that a decision must be made.

: 3parked by an event such as environmental changes

3tep ; -

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3tep = - 0valuate the Alternatives7

what are the advantages and disadvantages of each alternative>

: !n most decisions' a manager will want to achieve several ob%ectivesor satisfy several criteria

: 0"amples of criteria for buying a car7 price' manufacturer' model'warranty' service' reliability' repair record' trade-in allowance

: Measure alternatives against previously determined and weightedcriteria

: !nvolves being able to forecast future events : 1nder perfectly rational conditions' a rational decision maker could

carefully assess potential conse,uences of each alternative

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ersonal Decision (ramework

(ersonal Decision$tyle

BDirectiveBAnalyticalBConceptualB)ehavioral

$ituationB rogrammed+non- programmedBClassical'administrative'

political

BDecision steps

DecisionChoice

B)est 3olutionto roblem

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!ntuition

An unconscious process of making decisions on the basis of e*perience and +udgment

!nvolves gut feeling

May also have rational basis

/he feeling arises from past e"perience and knowledge

!nvolves ,uicker response

Does not involve systematic analysis

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/ypes of decisions

3trategic and /actical Decisions.

rogrammed and 9on rogrammed.

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3trategic decisions

3trategic decisions is the ma%or choice of actionsconcerning allocation of resources and contribution tothe achievement of organi$ational ob%ectives.

!t may involve ma%or departure from earlier onesconcerning some organi$ational practices. (or0"ample7 change in product mi"' e"pansion of

business' change in personnel policies etc.

!t is normally a non programmed decision made underthe condition of partial ignorance.

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/actical decisions

/actical decisions are derived out of statistical decisionthat relates to day to day working of organi$ation.

!t has to be taken very fre,uently. /he decision is mostrepetitive. (or 0"ample7 purchase of raw material'assigning duties to employees etc.

!t is mostly a programmed one and its outcome is shortterm nature.

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rogrammed and 9on-programmeddecision

2#

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Decisions types in #rgani$ation structure

Organizational Levels

Nature o !roblems

Nature o Decision"making

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rogrammed vs. 9on-programmedDecisions

Characteristics rogrammeddecisions

9on-programmeddecisions

/ype of problem )tr ct red Unstr ct red

Managerial level *o!er level Upper level

(re,uency Repetitive +e!, n s al

!nformation Readily available %mbig o s orincomplete

/ime frame forsolution

)hort Relatively long

3olution relies on -roced res,r les,and policies

dgment andcreativity

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Decision Making 3tyles

Different people take decisions differently withrespect to how they perceive problems they face.

9ot all managers make decisions the same way 7

Directive style Analytical style Conceptual style )ehavioral style

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Directive style

eople who prefer simple' clear-cut solutions to problems

Make decisions ,uickly

May consider only one or two alternatives

0fficient and rational

refer rules or procedures

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Analytical 3tyle

Comple" solutions based on as much data as theycan gather

Carefully consider alternatives

)ase decision on ob%ective' rational data frommanagement control systems and other sources

3earch for best possible decision based oninformation available

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Conceptual 3tyle

Consider a broad amount of information

More socially oriented than analytical style

ike to talk to others about the problem and possible solutions

Consider many broad alternatives

2elay on information from people and systems3olve problems creatively

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)ehavioral 3tyle

&ave a deep concern for others as individuals

ike to talk to people one-on-one

1nderstand their feelings about the problem andthe effect of a given decision upon them

Concerned with the personal development ofothers

May make decisions to help others achieve theirgoals

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3ituational (actors for !ndividualDecision-making

3hort time1nimportant to group

Manager can take decision

Dominate the decision

Destructive conflict

Members hesitant

Confidential data

!ncapability of members

Manager4s dominance

!ndirect effect on group members

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3ituational (actors for

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!ndividual vs.

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Common decision-Making errors and )iases

-&erconfidenceImmediate

ratification

#nchoringffect

$electi&e(erception

Confirmation

framing#&ailability

representation

!andomness

$unk costs

$elf/ser&ing

0indsight

Decision/Makingrrors 1 )iases

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/echni,ues for improving DecisionMaking

/raditional /echni,ues.

Modern /echni,ues 7 : #2 /echni,ues.

: Delphi /echni,ue

: Decision /ree.

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/raditional /echni,ues.

!n 1nprogrammed Decisions

/raditionally managers bank on intuition' %udgment formaking up such decisions. udgments are based on paste"perience and intuition about the future.

!t is an 0conomic /echni,ue though the decisions taken may be wrong at times.

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!n rogrammed Decisions 7

/hey are routine and repetitive in nature.

3tandard #perating rocedures and #rgani$ation 3tructure areused.

3# s are 2outine ork rocedures already %otted down. Can bealtered with due course of time.

!n #rgani$ation 3tructure' 2esponsibility is assigned andade,uate authority is delegated to each manager to carry out

responsibilities. 9ecessary Managerial positions are created tosolve problems of varying nature.

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inear rogramming

!nvolves Minimi$ation and Ma"imi$ation of a inear(unction of some rimary ariable sub%ect to certain2estrictions known as Constraints.

is applicable in problem areas as roduction'/ransportation' arehouse ocation' 1tili$ation of

roduction 1nits.

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*ueuing /heory

Applied to any situation that creates a need to balance the Costof increasing 3ervices against the cost of letting the 1nits towait.

!n other words' we try to balance the cost of waiting lines asagainst the cost of preventing waiting lines by increasedservices.

0"ample 7 Additional line opened up to serve customers thatshould have been in ,ueue.

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2eplacement /heory

&elps in determination of the time when certainitems of Machinery need to be replaced.

2eplacement involves !nvestment' but saves

#perating Costs that might be high while using #ldMachinery.

roblem is that when should be a machinery bereplaced so that total costs are minimum.

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9etwork Analysis

1sed for lanning and Controlling the ro%ect activities.

ro%ect is broken down to small operations which areengaged in a logical cycle.

3e,uence of #perations is drawn and we get arelationship between various activities and it points outwhich activities should be completed before others areinitiated or can some activities be carried outsimultaneously.

0"amples 7 02/' C M

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Delphi /echni,ue

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Decision /ree

A

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&!at is our&!at is ournext step'next step'