Decision Making

Decision Making
• Decision making is defined as the
selection of a course of action from
among alternatives
• DM process includes recognizing &
defining the nature of a decision
situation, identifying alternatives,
choosing the best i.e. effective
alternative and putting it into practice.
 Programmed And Nonprogrammed
Decisions
• Programmed decisions are used for
structured or routine work . Eg – inventory
system.
• Nonprogrammed decisions are used for
unstructured, novel, and ill-defined situations
of a nonrecurring nature .
eg – decisions related to new facilities, new
products, labour contracts, legal issues.
-Intuition & experience are major factors in
nonprogrammed decision.
Types of Problems, Types of Decisions,
and Level in the Organization
The Decision-Making Process
 Decision-making (cont’d)
• Decision implementation
– Putting a decision into action; includes
conveying the decision to the persons who
will be affected by it and getting their
commitment to it.
 Making Decisions: The
Rational Model
• Certainty
– The implication that the outcome of every
possible alternative is known.
• Uncertainty
– A condition under which there is not full
knowledge of the problem and reasonable
probabilities for alternative outcomes cannot be
determined.
• Risk
– The probability that a particular outcome will
result from a given decision.
© 2004 H. Weihrich Chap. 6. Decision Making 7
Assumptions of Rationality
 Three Elements of Creativity
• Creativity
The ability to produce novel and useful ideas
 What Is Creative Potential?
• Expertise
– Understanding, abilities, knowledge,
proficiencies, necessary in the field of creative
endeavor.
• Creative-thinking skills
– The personality characteristics associated with
creativity, the ability to use analogies, as well as
the talent to see the familiar in a different light.
• Intrinsic task motivation
– The desire to work on something because it’s
interesting, involving, exciting, satisfying, or
personally challenging.
© 2004 H. Weihrich Chap. 6. Decision Making 10
 Making Decisions: The Rational Model
• Rational
– Describes choices that are consistent and value-
maximizing within specified constraints.
• Bounded rationality (Herbert Simon)
– Behavior that is rational within the parameters of
a simplified model that captures the essential
features of a problem.
• Satisfice
– Making a “good enough” decision: choosing the
first-identified alternative that satisfactorily and
sufficiently solves the problem.
 Development of Alternatives and the
Limiting Factor

• A limiting factor is something that

stands in the way of accomplishing a
desired objective
• The principle of the limiting factor: By
recognizing and overcoming those
factors that stand critically in the way of
a goal, the best alternative course of
action can be selected
 Quantitative and Qualitative
Factors
• Quantitative factors are factors that
can be measured in numerical terms
• Qualitative, or intangible, factors are
those that are difficult to measure
numerically
 Selecting an Alternative: Three
Approaches
When selecting from among alternatives,
managers can use:
1. Experience,
2. Experimentation, and
3. Research and analysis.
 Decision Making: Styles
• Directive style
– Characterizes the low tolerance for ambiguity
and a rational way of thinking of individuals who
are logical and efficient and typically make fast
decisions that focus on the short term.
• Analytic style
– Characterizes the high tolerance for ambiguity
combined with a rational way of thinking of
individuals who prefer to have complete
information before making a decision.
 Decision Making: Styles
(cont’d)
• Conceptual style
– Individuals who tend to be very broad in outlook,
to look at many alternatives, and to focus on the
long run and often look for creative solutions.
• Behavioral style
– Individuals who think intuitively but have a low
tolerance for uncertainty; they work well with
others, are open to suggestions, and are
concerned about the individuals who work for
them.
Decision-Making Styles
 Common Decision-making Errors
• Heuristics: Using judgmental shortcuts
– Availability heuristic
• The tendency to base judgments on information that is
readily available.
– Representative heuristic
• The tendency to base judgments of probability on
things (objects or events) that are familiar
– Escalation of commitment
• An increased commitment to a previous decision
despite negative information about the decision’s
present outcomes.
 Group Decision Making
• Advantages
– Make more accurate decisions
– Provides more complete information
– Offers a greater diversity of experiences and perspectives
– Generates more alternatives
– Increases acceptance of a solution
– Increases the legitimacy of a decision.

• Disadvantages
– Is more time-consuming and less efficient
– Minority domination can influence decision process
– Increased pressures to conform to the group’s mindset
(groupthink)
– Ambiguous responsibility for the outcomes of decisions
 When Are Groups Most Effective?
• Creativity
– Groups tend to be more creative than
individuals.
• Acceptance of the final solution
– Groups help increase the acceptance of
decisions.
• Effectiveness of group decision making
– Groups of five to seven members are optimal for
decision process speed and quality.
 Group Decision Making Techniques

• Brainstorming
– An idea-generating process that encourages
alternatives while withholding criticism.
• Nominal group technique
– A decision-making technique in which group
members are physically present but operate
independently.
• Electronic meeting
– A type of nominal group technique in which
participants are linked by computer.
Delphi Techinique- No face to face interaction
among group menbers
 Rules for Brainstorming
1. No ideas are criticized
2. The more radical the ideas are, the
better
3. The quantity of idea production is
stressed
4. The improvement of ideas by others is
encouraged