Decision Making

Introduction

Managers make decisions dealing with both problems and opportunities

Managers are usually rewarded on the basis of the importance and results of their decisions

Definition

Decision making is defined as the selection of a course of action from among alternatives

Significance

Managers come up with high quality solutions

Have a clear understanding of alternative courses of action

The rational decision making aims at deciding the best solution

Limited, or "Bounded," Rationality

Limitations of information, time, and certainty limit rationality, even though a manager tries earnestly to be completely rational

Satisficing is picking a course of action that is

satisfactory or good enough under the

circumstances

Decision Making Process

1. 2. 3.

Identify the problem Identify the resources and constraints Generate alternatives,

4.
5. 6. 7.

Evaluating alternatives in terms of the goal sought, and

Choosing an alternative, that is, making a decision Implement the decision Monitor the decision

Identify the problem

Scanning stage Categorization stage Diagnosis stage

Identify resources and constraints

Resources in terms of people, money, material, time, equipment, expertise, information

Constraints in terms political, economic, social, technical, legal, environmental, ethical

Generating Alternatives

Brainstorming a group decision making technique that encourages members of a group to generate feasible ideas

Evaluating the alternatives

Criteria to evaluate the alternatives

Feasibility Quality Acceptability Cost Ethics

Selecting an Alternative: Three Approaches

When selecting from among alternatives, managers can use:

1. 2. 3.

Experience, Experimentation, and

Research and analysis.

Types of Decisions

Programmed decisions

Decisions that deal with simple, common, frequently occurring problems that have well-established and

understood solutions

Non-programmed decisions

Decisions that deal with unusual or exceptional problems

Programmed Decisions

These decisions are made in routine, repetitive, well-structured situations, using predetermined decision rules

These decisions may be based on habit,

established policies and procedures or

computational techniques

Programmed Decisions

These can be made in less time, and are consistent and inexpensive in nature

These decisions limit the flexibility of manager to certain extent

Non-Programmed Decisions

Non-programmed decisions involve situations that are novel or ill structured

Predetermined decision rules are impractical for non-programmed decisions

Decisions that involve strategies to deal with

various situations

Non-Programmed Decisions

Non-programmed decisions involve lot of uncertainty, a condition where the manager has to choose a course of action without having complete knowledge of the consequences that will follow its implementation

Nature of Problems and Decision Making in organisation

Unstructured Problems
Top Non-programmed Decisions Level Managers Middle Level Managers

Structured Problems

First line Level Managers

Programmed Decisions

Certainty, Risk

Certainty

all the information the decision maker needs is fully available

Risk

decision has clear-cut goals good information is available future outcomes associated with each alternative are subject to chance

Uncertainty, Ambiguity

Uncertainty

managers know which goals they wish to achieve information about alternatives and future events is incomplete managers may have to come up with creative approaches to alternatives

Ambiguity

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

Conditions that Affect the Possibility of Decision Failure

Organizational Problem
Low Certainty Possibility of Failure Risk Uncertainty High Ambiguity

Programmed Decisions Problem Solution

Nonprogrammed Decisions

Group Decision Making

Disadvantages of group decision making

Groupthinkthe tendency of the group to be

influenced collectively can negate the benefits of group decision making.

Empowermentallowing more people in the organization access to the decision-making process may make for lower-quality decision.

Group Decision Making (contd)

Disadvantages of group decision making

Corporate governance - may dictate who can

be part of the decision-making process.

Politics - may lead to decisions favoring the

dominant political coalition in the organization.

Group Decision Making (contd)

Advantages of group decision making

Establishing goals and objectives

Groups

are superior because of their greater

collective knowledge.

Developing alternatives
Groups

can ensure a broad search in the various

functional areas of the organization.

Group Decision Making (contd)

Advantages of group decision making

Evaluating alternatives
The

collective judgment of the group benefits from

its wider range of viewpoints.

Making a decision
Group

interaction and consensus results in the acceptance of more risk.

Group Decision Making (contd)

Advantages of group decision making

Decision implementation
Responsibility

for effective implementation rests

with individual manager, not with group that made decision.

Group Decision Making (contd)

Creativity in group decision making

Brainstorming
Groups

are expected to produce imaginative

solutions to organizational problems.

No idea is too ridiculous. Each idea presented belongs to the group. No idea can be criticized.

Group Decision Making (contd)

Creativity in group decision making (contd)

Delphi technique
Involves

achieving non-interactive consensus on a

topic through sequential questionnaires that are

summarized and used as feedback of opinions

from earlier responses.

Group Decision Making (contd)

Creativity in group decision making (contd)

The Nominal Group Technique (NGT)

A

process that brings about consensus through a

prescriptive method of group interaction:

Individuals initially do not speak to one another. Each person writes ideas on a pad of paper. A structured sharing (listing) of ideas takes place.

Group Decision Making (contd)

Creativity in group decision making (contd)

The Nominal Group Technique (NGT)

A

process that brings about consensus through a

prescriptive method of group interaction:

Each idea is discussed before a vote is taken. Ideas are prioritized by ranking or voting. The group decision is the mathematically pooled outcome of the individual votes.

Individual Vs. Group Decision Making

Nature of problem

If the policy guidelines are provided then the individual decisions will result in greater creativity and efficiency

If problem requires variety of expertise then group decision is suitable

Individual Vs. Group Decision Making

Time availability

When there is short period of time to take decisions individual decisions to be taken

When time at the disposal is sufficient group decisions can be taken

Individual Vs. Group Decision Making

Climate of Decision Making

Competitive climate induces individual decision making

Supportive climate leads to group decision making

Legal Requirement

Legal requirement for group decision will facilitate the

group decisions

Effective Decision Making

Categorical Interpretation

Defining the problem properly

Application of Limiting Factor

Analysis of external environment and internal strengths and weaknesses

Effective Decision Making

Adequate Information

Sound and adequate information

Considering others views

All the alternatives are collected before arriving at a decisions

Timeliness

Decisions must be made at proper time

Decision Making Styles

Analyticalseeks a rational decision and has a high tolerance for ambiguity.

Directiveseeks a rational decision and has a low tolerance for ambiguity.

Decision Making Styles

Behavioralseeks an intuitive decision and has a low tolerance for ambiguity.

Conceptualseeks an intuitive decision and has a high tolerance for ambiguity.

Factors That Influence Decisions (contd)