Decision Making- An essence to

problem solving
rganisational Decision making
' the process oI responding to a problem by searching Ior
and selecting a solution or course oI action that will
create value Ior organisational stakeholders.
There are basically two kinds oI decision that managers
called upon to make:
!rogrammed and non-programmed
Types oI Problems and Decisions
Structured problems
* Involved goals that clear.
*Are Iamiliar(have occurred beIore)
*Are easily and completely deIined- inIormation
about the problem is available and complete.
Programmed decision
*A repetitive decision the can be handled by a
routine approach.
Problems and Decisions ( cont`d)
Unstructured problems
* Problems that are new or unusual and Ior which
inIormation is ambiguous or incomplete.
* Problems that will require custom-made
solutions.
Non-programmed decisions
* Decision that are unique and nonrecurring.
* Decision that generate unique responses.
Types oI Programmed Decisions
Policy
* a general guideline Ior making a decision about a
structured problem.
Procedure
* A series oI interrelated steps that a manager can
use to respond ( applying a policy) to a structured
problem.
Rule
* an explicit statement that limits what a manager
or employee can or cannot do.
!rogrammed vs. Non-programmed
Decisions
Characteristics !rogrammed
decisions
Non-programmed
decisions
Type of problem Structured Unstructured
Managerial level Lower level Upper level
Frequency Repetitive New,unusual
Information Readily available Ambiguous or
incomplete
Time frame for
solution
Short Relatively long
Solution relies on Procedures,rules, and
policies
Judgment and creativity
The Decision-
Making !rocess
Define the
ProbIem
EvaIuate
AIternatives
ImpIement
the chosen
AIternative
ather Iacts and
develop
alternatives.
Select the best
alternative.
Follow up and
evaluate the chosen
alternative.
Decision Making Process
IdentiIy a problem and decision criteria
and allocating weights to the criteria.
Developing, analyzing, and selecting an
alternative that can resolve the problem.
Implemented and selected alternatives.
Evaluating the decision`s eIIectiveness.
Step 1: IdentiIying the Problem
Problem
* A discrepancy between an existing and desired
state oI aIIairs.
Characteristics oI Problems
* A problem becomes a problem when a manager
becomes aware oI it.
* there is a pressure to solve the problem.
* the manager must have the authority,
inIormation, or resources needed to solve the
problem.
Step 2: IdentiIy the Decision
Criteria
Decision criteria are Iactors that are
important ( relevant) to resolving the
problem.
* Costs that will be incurred (investment
required).
* Risks likely to be encountered ( chance
oI Iailure).
* Outcomes that are desired ( growth oI the
Iirm).
Step 3: Allocating Weights to
the Criteria
Decision criteria are not oI equal
importance:
* Assigning a weight to each item.
* Places the items in the correct priority
order oI their importance in the decision
making process.
Step 4: Developing Alternatives
IdentiIying viable alternatives.
* Alternatives are listed ( without evaluation) that
can resolve the problem.
Step 5 :Analyzing alternatives
Appraising each alternative`s strengths and
weaknesses
* An alternative`s appraisal is based on its ability
to resolve the issues identiIied in step 2 and step
3.
Step 6: selecting the alternative
Choosing the best alternative
* The alternative with the highest total
weight is chosen.
Step 7: Implementing the Alternative
Putting the decision to and gaining
comment Irom those whose will carry out
the decision.
Step 8: Evaluating the decision`s
eIIectiveness
The soundness oI the decision is judged by
its outcomes.
* How eIIectively was the problem
resolved by outcomes resulting Irom the
chosen alternatives?
* iI the problem was not resolve, what
went wrong?
The decision making process-Example
IdentiIication oI a problem
IdentiIication oI Decision Criteria
Allocation oI weights to criteria
Development oI alternatives
Analyzing oI alternatives
Selection oI alternatives
Implementation oI alternatives
Evaluation oI decision alternatives
~My sales Reps need new computers!
Memory and Storage, Display Quality,
Better Life,Warranty, Carrying weight
Memory and Storage-10, Display
Quality -8, Better Life -6,Warranty -4,
Carrying weight-3
Toshiba, H!, Soni Vaio, Qosmio,
Gateway, Apple iBook, Lenovo, Dell
Toshiba, H!, Soni Vaio, Qosmio, Gateway
Apple iBook, Lenovo, Dell
Toshiba, H!, Soni Vaio, Qosmio,
Gateway, Apple iBook, Lenovo, Dell
~ Toshiba!
The role oI intuition
Intuitive decision making
* Making decisions on the basis oI
experience, Ieelings, and accumulated
judgment.
intuition
Experience-based
Decisions
AIIect-Initiated
Decisions
Cognitive-Based
Decisions
Subconscious
mental processing
Values or ethics-
based Decisions
Their past experiences
Feelings or emotions
Skills,knowledge, and
training
Data Irom
subconscious mind
Ethical values
and culture
What is Intuition ?
Decision Making Conditions
Certainty
* A situation in which a manager can make an
accurate decision because the outcome oI every
alternative choice is known.
Risk
* A situation in which the manager is able to
estimate the likelihood (probability) oI outcomes
that result Irom the choice oI particular
alternatives.
Decision-making Conditions
Uncertainty
* limited inIormation prevents estimation oI
outcome probabilities Ior alternatives associated
with the problem and may Iorce managers or rely
on intuition, hunches, and 'gut Ieelings.
Maximax: The optimistic manager`s choice to
maximize the maximum payoII.
# Maximin: The pessimistic manager`s choice to
maximize the minimum payoII.
# Minimax: The manager`s choice to minimize
maximum regret.
Decision-making styles
Dimensions oI decision-making styles
* Ways oI thinking
* Rational,orderly, and consistent.
* Intuitive, creative, and unique.
Tolerance oI ambiguity
*Low tolerance:require consistency and order.
*High tolerance: multiple thoughts simultaneously.
Decision-Making Styles (cont`d)
Types oI Decision Makers
* Directive
# Use minimal inIormation and consider Iew
alternatives.
* Analytic
# Make careIul decisions in unique situations.
* Conceptual
# Maintain a broad outlook and consider many
alternatives in making decisions.
* Behavioral
# Avoid conIlict by working well with others
and being receptive to suggestions.
Common decision-Making
errors and Biases
verconfidence
Immediate
Gratification
Anchoring
Effect
Selective
!erception
Confirmation
framing
Availability
representation
Randomness
Sunk costs
Self-serving
Hindsight
Decision-Making
Errors & Biases
Characteristics oI an EIIective
Decision-Making
It Iocuses on what is important
It is logical and consistent.
It acknowledges both subjective and objective
thinking and blends analytical with intuitive
thinking.
It requires only as much inIormation and analysis
as is necessary to resolve a particular dilemma.
It encourages and guides the gathering oI relevant
inIormation and inIormed opinion.
It is straightIorward,reliable, easy to use, and
Ilexible.
A General-
Decision
Making
Model
A General Decision-Making model
Improving the Flow oI Knowledge
The Ilow oI constructive tacit knowledge
between coworkers is a priority.
Knowing what you know, what you don`t
know, and how to Iind what you know yields
better and more timely decisions.
Knowledge Management (KM): A Tool Ior
Improving the Quality oI Decisions
Developing a system to improve the creation
and sharing oI knowledge critical Ior decision
making.
Tacit knowledge: personal, intuitive, and
undocumented private inIormation.
Explicit knowledge: readily sharable public
inIormation in verbal, textual, visual, or
numerical Iorm.
(Cont`d)
Scanning the situationidentiIying a signal that a
decision should be made.
Receipt oI authoritative communications Irom
superiors.
Cases reIerred Ior decision by subordinates.
Cases originating Irom the manager.
Classify the decision as routine, apply the
appropriate decision rule; as nonprogrammed,
begin comprehensive problem solving.
Monitor and follow-up as necessary.
Rational (Logical) Decision Model
Steps
Individual Models of Decision-Making
Cognitive style
Underlying personality dispositions toward the treatment oI
inIormation, selection oI alternatives, and evaluation oI
consequences.
Systematic decision makers
people who approach a problem by structuring it in terms oI
some Iormal method.
Intuitive decision makers
people who approach a problem with multiple methods in an
unstructured manner, using trail and error to Iind a solution.
rganizational models of decision making
Models oI decision making that take into account the
structural and political characteristics oI an organization.
Bureaucratic models of decision making
where decisions are shaped by the organization`s standard
operating procedures(SOPs).
!olitical models of decision making
where decisions result Irom competition and bargaining
among the organization`s interest groups and key leaders.
~Garbage can model
where states that organizations are not rational and that
decisions are solutions that become attached to problems
Ior accidental reasons.
rganizational Models of Decision-Making
Challenges for Decision Makers
Decision Making
The process oI identiIying and choosing alternative courses
oI action to meet the demands oI a situation.
Trends in Decision Making
The pace oI decision making is accelerating: managers
report making 2470 /0.8438 and having 088 920 to make
them.
Complex streams of decisions
Sources of decision complexity
!erceptual and behavioral decision traps
Dealing with Complex Streams oI Decisions
Multiple criteria to be satisIied by a decision.
Intangibles that oIten determine decision alternatives.
Risk and uncertainty about decision alternatives.
Long-term implications oI the eIIects oI the choice oI a
particular alternative.
Interdisciplinary input increases the number oI
persons to be consulted beIore a decision is made.
(Cont`d)
Pooled decision making increases the number oI
persons playing a part in the decision process.
Value judgments by diIIering participants in the
process create disagreement over whether a decision is
right or wrong, good or bad, and ethical or unethical.
Unintended consequences occur because the
results oI purposeIul actions cannot always be predicted.
(Cont`d)
Classical model oI management
Traditional description oI management that Iocused on its
Iormal Iunctions oI planning, organizing, coordinating,
deciding and controlling.
Behavioral models
Descriptions oI management based on behavioral
scientists observations oI what managers actually do in
their jobs.
Managers and Decision-Making
Guideline for making decision more effective
Categorical interpretation- the problem should be
deIined properly.
Application oI limiting Iactor- limiting Iactor should
be taken into account in order to analyze the external S &
W.
Adequate inIormation- more quantity oI reliable
inIormation leads to eIIective decision making.
Considering other views- various views at the same
point are taken into account Ior quality decision.
Timeliness- decision should be ,made at proper time to
meet the competitive advantages.
Techniques for improving decision making
Brainstorming idea generation Ior decision making.
Nominal group technique (NT)- problem outlined,
presentation oI solution in written Iorm, discussion over
written solutions, and Iinal decision.
Delphi technique- decision made on the basis oI
questionnaire Iilled by the respondents.
Consensus mapping- decision made on the basis oI the
report presented by the representative oI each group aIter