 At all levels of management

 Effectiveness of a manager is judged by

the decisions he/she takes.
 Choice about a “course of action”
-- Simon

 Choice leading to “a certain desired

objective”
-- Churchman

 Knowledge indicating the nature of a

commitment to action
-- Holsapple and Whinston
 Decision-making consists of three major
phases

 intelligence,
 design, and
 choice
◦ Problem Identification and Definition
 What's the problem?
 Why is it a problem?
 Whose problem is it?
Problem Structuring
 Generate alternatives
 Set criteria and objectives
 Develop models and scenarios to
evaluate alternatives
 Solve models to evaluate alternatives
Solution

 Determine the outcome of chosen

alternatives
 Select the/an outcome consistent with
the decision strategy
Decision Making steps
 Identify the problem
 Gather information
 Generate alternatives
 Analyse the alternatives
 Select an alternative
 Implement
 maintain
 Programmed Vs Non Programmed

 Strategic Vs Operational
 Certainty
All possible alternatives are known and the cost
and benefit associated with each is also known
 Risk
Here we know the probability associated with
each state of nature
 Uncertainty
No estimate about the probability are available.
 Ambiguity
 Rational Man Model

 Administrative Man Model

 Political Man Model

 Strategies:
◦ Optimizing
◦ Satisficing
◦ Quasi-satisficing
◦ Sole decision rule
◦ Selection by elimination
◦ Incrementalism and muddling through
 Goal: select the course of action with the
highest payoff
◦ estimation of costs and benefits of every viable
course of action
◦ simultaneous or joint comparison of costs and
benefits of all alternatives
◦ high information processing load on humans
◦ people do not have the wits to
maximize
 Decision-makers satisfice rather than
maximize. They choose courses of action
that are good enough that meet a certain
minimal set of requirements
 Theory of bounded rationality: human beings
have limited information processing
capabilities
 Optimization may not be practical, particularly
in a multi-objective problem, yet knowing the
optimal solution for each objective and under
various scenarios can provide insight to make
a good satisficing choice
 Tell a qualified expert about your problem
and do whatever he (she) says---that will
be good enough
 Rely upon a single formula as the sole

decision rule
 Use only one criterion for a suitable choice
 Impulsive decision-making usually falls

under this category

 Eliminate alternatives that do not meet the
most important criterion (screening;
elimination by aspects)
 Repeat process for the next important

criterion, and so on
 Decision-making becomes a sequential

narrowing down process

 Better alternatives might be eliminated
early on---improper weights assigned to
criteria
 Decision-maker might run out of
alternatives
 For complex problems, this process might
still leave decision maker with large
number of alternatives
 Often, decision-makers have no real
awareness of arriving at a new policy or
decision
 decision-making is an ongoing process
 the satisficing criteria themselves might

change over time

 Make incremental improvements over

current situation and aim to reach an

optimal situation over time
 Heuristics are “rules of thumb” that can
make a search process more efficient.
 Most common biases in the use of

heuristics
◦ Availability
◦ Adjustment and anchoring
◦ Representativeness
◦ Motivational