Decision Making

Decision means to cut off. Decision is the settlement, a fixed intention bringing to a conclusive result, a judgment and a resolution. A decision is the choice out of several option made by the decision maker to achieve some objective in a given situation.

Characteristics of Decision Making

Sequential in nature. Exceedingly complex due to risks and trade offs. Influenced by personal values. Made in institutional settings and business environment.

Decision making

Decisions are not isolated event. Each of them has a relation to some other decision or situation. The decision making process is a complex process in the hierarchy of management. The complexity is the result of many factor, such as inter-relationship among the experts or decision maker, a job responsibility, a question of feasibility, the codes of morals and ethics and a probable impact on business.

Decision making

A decision otherwise being very sound on the business principal and economic rationality may be rejected on the basis of the personal values which are defeated if such a decision is implemented. There are definite method of arriving at a decision; and it can be put in the form of decision process model. The decision process requires creativity, imagination and a deep understanding of human behaviour Process covers number of tangible and intangible factors affecting the decision process.

Rational Decision Making

Rational decision making ensures the achievement of the goal for which the decision is made. The quantity of decision-making is to be judged on the rationality and not necessarily on the result it produces. The rationality of the decision made will vary with the organization, the situation and the individuals view of the business situation.

Types of rationality

Objectively rational if it maximizes the value of the

objective.

Subjectively rational if it maximizes the attainment

of value within limitation of the knowledge and awareness of the subject.

Consciously rational to extent the process of the

decision-making is deliberate and a conscious one. Organizationally rational to the degree of the orientation towards the organization.

Personally rational to the extent it achieves an individuals personal goals.

Dimensions of Rationality

First dimension:- The degree of satisfaction of human interest. Second dimension:- The degree of feasibility in achieving the objectives. Third dimension:- Consistency in decision making. If decision maker shows a consistent behaviour in the process of decision making, the test of rationality can happens.

Problems in Rational Decision Making

Ascertaining the problem:

The most common mistake in management is the emphasis on finding the right answers rather that the right question. Main task is to define the right problem in clear term. The management defines the problem as sales are declining.

Problems in Rational Decision Making

Insufficient Knowledge:

For perfect rationality, total information leading to complete knowledge is necessary. Important function of a manager is to determine whether the dividing line is reached between insufficient knowledge and the enough information to make a decision. The decision maker is under pressure to make decision. If time is limited, he make a hasty decision which may not satisfy the test of rationality of the decision.

Not enough time to be rational:

Problems in Rational Decision Making

The environment may not cooperate:

Sometimes, the timing of the decision is such that one is forced to make a decision but the environment is not conductive for it. The decision may fail the test of rationality as the environmental factors considered in the decision-making turn out to be untrue.

Other Limitations:

Other limitations are the need for a compromise among the different positions, misjudging the motives and values of people, poor communications, misappraisal of uncertainties and risks and inability to handle the available knowledge and human behavior.

Decision making process/ Herbert Simon Model

Herbert Simon model is related to the Decision Making Process. Decision-making is a process which the decision maker uses to arrive at a decision. Process model is in 3 phases:

Intelligence Phase Design Phase Choice Phase

The three phases are interrelated as there is a flow of activities from the intelligence.

Herbert Simon model

Intelligence Design Choice

Intelligence Phase

It consist of problem finding activities related to searching of the operating/ business environment for identifying conditions calling for decisions. Raw data collected, processed and examined. The intelligence phase requires extensive and comprehensive database. It therefore invoice searching or scanning of the environment- both internal as well as external for condition which indicate or suggest problem or opportunity.

The activity of search for problem can be illustrated as follows:Societal Environment Competitive Environment Organizational Environment

Intelligence

Problem . Risk .Performance .Demand for product

Oppertunities .Risk reduction .Profit .Societal Service

Intelligence Phase

The environment of Intelligence phase is divided into 3 broad categories:

Societal Environment Competitive Environment Organizational Environment

Societal Environment:

The societal environment would include the economic, legal and social environment in which the organization operates.

Intelligence Phase

The Competitive Environment:

The competitive environment would include understanding and analyzing the characteristics, trends and behavior of the market place and the market players in which the organization operates.
The Organizational environment would include the capabilities, strengths, weaknesses, constraints and other factors affecting the ability of the organization to carry out perform its functions. The search/scanning of the environment leads to identification/ recognition of the problem/ opportunity which then leads to the next phase.

The Organizational Environment:

The Limitations of Simon Model

While the Simon model provides the core of the decision-making process, it must be noted that it does not beyond the choice phase. The Simon model thereby excludes or does not take importance of the implementations and the feedback aspects which are inseparable part of the decision making process.

Design

Assess the value of the decision outcome. The manager develops a model of the problem situation on which he can generate and test the different decisions to facilitate its implementation. If the model developed is useful in generating the decision alternatives, then further moves into phase of selection called as Choice.

Choice

Select one alternative as decision based on the selection criteria. In the Choice phase, the manager evolves a selection criterion such as maximum profit, least cost, minimum waste, least time taken and highest utility. The criterion is applied to the various decision alternatives and the one which satisfies the most is selected.