Decision Making

Fundamentals of Management (MGT-102)

Mohammed Rafiqul Islam

Assistant Professor

Department of Management

Jatiya Kabi Kazi Nazrul Islam University

Trishal, Mymensingh, Bangladesh.
Decision Making

Decision-making is the process of identifying and

choosing alternatives based on the values, preferences
and beliefs of the decision-maker.


When trying to make a good decision, a person must
weight the positives and negatives of each option, and
consider all the alternatives. For effective decision
making, a person must be able to forecast the outcome of
each option as well, and based on all these items,
determine which option is the best for that particular
s i t u a t i o n .







The Decision-Making Process

► Step 1: Identify a Problem: Problem is an obstacle that makes it difficult to achieve a

desired goal or purpose. Every decision starts with a problem, a discrepancy
between an existing and a desired condition Example - Amanda is a sales manager
whose reps need new laptops.
► Step 2: Identify Decision Criteria: Decision criteria are factors that are important
(relevant) to resolving the problem Example - Amanda decides that memory and
storage capabilities, display quality, battery life, warranty, and carrying weight are the
relevant criteria in her decision.
► Step 3: Allocate Weights to the Criteria: If the relevant criteria aren’t equally
important, the decision maker must weight the items in order to give them the
correct priority in the decision.
► Step 4: Develop Alternatives: List viable alternatives that could resolve the problem
Example - Amanda, identifies eight laptops as possible choices.
The Decision-Making Process

► Step 5: Analyze Alternatives: Appraising each alternative’s strengths and

weaknesses An alternative’s appraisal is based on its ability to resolve the issues
related to the criteria and criteria weight.
► Step 6: Select an Alternative-Choosing the best alternative: The alternative with
the highest total weight is chosen.
► Step 7: Implement the Alternative: Putting the chosen alternative into action -
Conveying the decision to and gaining commitment from those who will carry
out the alternative.
► Step 8: Evaluate Decision Effectiveness: The soundness of the decision is
judged by its outcomes. How effectively was the problem resolved by outcomes
resulting from the chosen alternatives? If the problem was not resolved, what
went wrong?
Decision-Making Conditions

Certainty - a situation in which a manager can make accurate decisions because all
outcomes are known.
Risk - a situation in which the decision maker is able to estimate the likelihood of
certain outcomes.
Uncertainty - a situation in which a decision maker has neither certainty nor
reasonable probability estimates available
Decision-Making Styles

Linear Thinking Style - a person’s tendency to use external data/facts; the habit of
processing information through rational, logical thinking.

Nonlinear Thinking Style - a person’s preference for internal sources of information;

a method of processing this information with internal insights, feelings, and
hunches.
Decision-Making Biases and
Errors


Heuristics - using “rules of thumb” to simplify decision
making.
Overconf idence Bias - holding unrealistically positive
views of oneself and one’s performance.
Immediate Gratification Bias - choosing alternatives that
offer immediate rewards and avoid immediate costs.
Selective Perception Bias - selecting, organizing and
interpreting events based on the decision maker’s
biased perceptions.
Decision-Making Biases and
Errors
Conf irmation Bias - seeking out information that reaf firms past choices while discounting
contradictory information.
Framing Bias - selecting and highlighting certain aspects of a situation while ignoring
other aspects.
Availability Bias - losing decision-making objectivity by focusing on the most recent events.
Representation Bias - drawing analogies and seeing identical situations when none exist.
Randomness Bias - creating unfounded meaning out of random events.
Sunk Costs Errors - forgetting that current actions cannot inf luence past events and relate
only to future consequences.
Self-Serving Bias - taking quick credit for successes and blaming outside factors for
failures.
Hindsight Bias - mistakenly believing that an event could have been predicted once the
actual outcome is known (after-the-fact).
Structured Problems vs. Programmed
Decisions
► Structured Problems - straightforward, familiar, and easily defined problems.

► Programmed Decision – a repetitive decision that can be handled by a routine

approach
Unstructured Problems vs. Non-programmed
Decisions


Unstructured Problems - problems that are new or unusual and for which
information is ambiguous or incomplete.

Non-programmed Decisions - unique and nonrecurring and involve custom made

solutions.
Guidelines for Making Effective Decisions

► Understand cultural differences,

► Create standards for good decision making,
► Know when it’s time to call it quits,
► Use an effective decision making process,
► Build an organization that can spot the unexpected and quickly adapt
to the changed environment.
Decision Making Models

► Classical Model of Decision Making

► Administrative Model of Decision Making
Classical Model of Decision
Making

► A n appro ac h to d e c i si o n maki ng t hat t e l l s
managers how they should make decisions.
► Approach assumes that managers are logical and
rational.
► Approach assumes that managers’ decisions will
be in the best interests of the organization.
► Conditions suggested in this approach rarely, if
ever, exist.
Classical Model of Decision
Making

Administrative Model of Decision Making

► Herbert A Simon, a Nobel Prize winner in Economics,

developed the model to describe how decisions are often
made rather than to prescribe how they should be made.
► A rgues that d ec isio n makers have inc o mplete and
imperfect information, are constrained by ‘bounded
rationality’ and tend to ‘satisfice’ when making decisions.
Administrative Model of Decision Making

► Bounded rationality suggests that decision makers are

limited by their values and unconscious ref lexes, skills and
habits. [American vs foreign automakers]
Administrative Model of Decision Making


Classical VS Administrative

The Classical and Administrative Models paint quite a different

picture of decision making. However, each may be used to better
understand how managers make decisions.
► The Classical Model attempts to explain how managers can at
least attempt to be more rational and logical in their approach to
decisions.
► The Administrative Model can be used by managers to develop a
better understanding of their inherent biases and limitations.


Forces Influencing Decisions

► Political Forces
► Intuition
► Escalation of commitment
► Risk Propensity
► Ethics
Political Forces

► Coalition is an informal alliance of individuals or groups

formed to achieve a common goal [stockholders,
directors, parliament blocs, etc.]
► Impact of a coalition may be positive or negative.
► Managers must recognize when to use coalitions, how
to assess if they are acting in the best interest of the
organization and how to control their negative effects.
Intuition

► Intuition is an innate belief about something, without

conscious consideration.
► Deciding to do something because it ‘feels right’ or one has
a ‘hunch’.
► Feeling is based on years of experience and practice in
making decisions in similar situations; may help managers
make occasional decisions without going through an a-to-z
process.
Risk Propensity

► Risk Propensity – the extent to which a decision maker is

willing to gamble when making a decision.
► Organizational culture is a prime ingredient in encouraging
different levels of risk.
Ethics

Managerial ethics involves a wide variety of decisions:

► Relationships of the f irm to its employees [closing a dept.

to save money]
► Relationships of the employees to the firm
► Relationships of the firm to other economic agents
Group Decision Making in Organization

► Brainstorming
► Nominal Group
► Delphi Technique
► Put it to a vote
Brainstorming
► Use of "the brain to storm a problem”

► Brainstorming is a group creativity technique by which

efforts are made to f ind a conclusion for a specif ic problem
by gathering a list of ideas spontaneously contributed by its
members.
► People are able to think more freely and they suggest as
many spontaneous new ideas as possible. All the ideas are
noted down without criticism and after the brainstorming
session the ideas are evaluated.
Nominal Group

► Manager assembles a group of knowledgeable people and outlines the

problem to them.
► Group members are asked to write down as many alternatives as they
can think of individually.
► Then the members take turns stating their ideas which are recorded on
a flip chart.
► Discussion is limited to simple clarification.
► Group members then vote usually by rank ordering the various
alternatives.
► The highest ranking alternative represents the decision of the group.
Delphi Technique

► Delphi is a form of group decision making in which a group

is used to achieve a consensus of expert opinion.
► Research scientists, University teachers, executives from
relevant discipline etc.
► Explanation may be relayed to the other experts.
► The average prediction is taken to represent the decision of
the group of experts.
Put it to a Vote

► In situations where the decision will be the direct result of a basic

yes or no answer, a straightforward vote may be the simplest
solution. This tactic can be an easy way to resolve small issues or
determine the best course of action for basic questions. As the
team manager, it will be up to you to decide when a basic vote is
all that will be needed.
► This type of decision can be done without the need for a
scheduled meeting. To save time, simply request a vote via an
email poll or use the communication features in organizations’
project management software to get everyone’s response.
Case Study
"I expect all the managers in my department to act completely
rationally in every decision they make", declared Eleanor Johnson,
Vice President for marketing for the Olympic Toy Company. "Every one
of us, no matter what his or her position, is hired to be a professional
rationalist, and I expect all of us not only to know what they are doing
and why but to be right in their decisions. I know that someone has
said that a good manager needs only to be right in more than half of
his or her decisions. But that is not good enough for me. I would agree
that you may be excused for occasionally making a mistake,
especially if it is a matter beyond your control, but I can never excuse
you for not acting rationally."
"I agree with your idea, Eleanor", said Jill Goldberg, her advertising
manager, "and I always try to be rational and logical in my decisions.
But would you mind helping me be sure of this by explaining just what
'acting rationally' is?"
Questions
1. Explain how the Vice President for marketing might describe what
is involved in making rational decisions.