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lecture 14 decison making and problem solving

Lecture 14 : DECISION
MAKING AND
PROBLEM SOLVING
DECISION MAKING 2

lecture 14 decison making and problem solving

 Isthe act of choosing from set of
alternatives
 Decision–making process –this refers to
recognizing and defining the nature of a
decision situation , identifying the
alternatives, choosing the best
alternative and then determining how to
implement it.
Types of Decisions 3

 1. Programmed Decision – a decision that

lecture 14 decison making and problem solving

is fairly structured or recurs with some
frequency .
 Example; maintaining a level of inventory
of what is found to be adequate as a 30
day buffer for company’s requirement.
These are regarded as standard
organizational transactions thus they can
be programmed.
Types of Decisions ….. 4

lecture 14 decison making and problem solving

 2.Non – programmed decision- a decision
that is relatively unstructured and occurs
less often that a programmed decision.
 Example: intuition and experience
Decision making conditions 5
1.a state of certainty exists when the decision maker

lecture 14 decison making and problem solving

knows the alternatives and the conditions associated
with each alternative.
 This is no brainer because little judgment is required.
Low chance of making bad decisions .
2. Decision making under risk refers to the availability
of each alternative and its potential benefits and costs
being associated with probability estimates.
 Decisions are made in a situation of moderate
ambiguity, risking the chance of bad decision.
 Ex. 75% positive and 25% negative outcome from the
alternatives.
3. Decision making under 6

uncertainty

lecture 14 decison making and problem solving

 Refersto the decision maker not knowing all
the alternatives or the risks and consequences
that each alternatives is likely to have.
 When the decision maker does not know all
the alternatives, the risks associated with each
or the consequences each alternative is likely
to have.
Models of decision making 7

lecture 14 decison making and problem solving

1. Classical decision model- a prescriptive approach
to decision making that assumes decision makers
are logical, rational, and will make decisions in the
best interest of the organization .
1. With complete information, about the decision
situation and about possible alternatives, thereby
eliminating uncertainty to achieve certainty.
2. Decision makers weight all options and choose the
correct one or the most appropriate.
6 steps involved in classical 8

decision model

lecture 14 decison making and problem solving

 I. Recognize and define the decision situation.
 The decision maker has to ascertain whether a
decision is needed.
 What variables are needed for arriving at a decision in
terms of what information is relevant.
 Whether the person making the decision is the
appropriate person to do so.
 II. identify alternatives
 This refers to eliciting the standard options that are
available.
Principle of limiting factor 9

lecture 14 decison making and problem solving

 Only when we recognize and solve for those
factors that stand critically in our ways to our
goal can we select the best alternative course
of action.
III. Evaluate alternatives 10

lecture 14 decison making and problem solving

 Each alternative has to be evaluated in
terms of feasibility , the extent to which
it is satisfactory to those who are
involved, and the likely consequences of
its implementation.
 Feasibilityrefers to how well it meets the
conditions of the decision situation.
Evaluating alternative techniques 11
 1.Marginal analysis – comparing factors other

lecture 14 decison making and problem solving

than costs and revenues.
 Example. Finding the best output of a
machine , vary inputs against outputs until
additional inputs equals additional output=
maximum efficiency .
2. Cost effectiveness analysis- seeks the ratio
of benefits and costs, ex. Finding the least
costly way of reaching an objective ; getting
the greatest value for given expenditures.
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lecture 14 decison making and problem solving

 Itis a technique for choosing the best
plan when objectives are less specific
than sales, costs and profits
 Cost benefit analysis pertains to the ratio
of the benefits to the costs,
IV. SELECT THE BEST 13

ALTERNATIVE
 When selecting from the range of options , the

lecture 14 decison making and problem solving

manager should know the basis on which the
selection should be made.
 Choose an alternative that the best mix of a
feasibility, satisfactoriness and consequences.
 Another is select an alternative using a pre
determined weighted criteria.
 Whatever method is chosen, clarify the basis
on which the decision is being made, whether
the values set guiding the decision is
humanistic, economic, moral or religious.
Selecting an alternative 14

lecture 14 decison making and problem solving

 Three approaches:
 1.
experience- is the best teacher. Reliance on the
past experience plays a larger part in decision
making.
 2.experimentation –this is done through scientific
inquiry. This is the most expensive of all
techniques which requires expenditures in capital,
people and technologies .
 3.
research and development (R&D) most effective
technique. This means solving a problem by
comprehending it. Ex. Models and simulations.
v. Implement the chosen 15

alternative

lecture 14 decison making and problem solving

 Difficulty
in implementing decisions varies
across situations.
 Resistance is likely is to be encountered
because those affected may perceived that its
implementation will make them less secure or
take them into unfamiliar territory.
VI. Follow up and evaluate the 16

results

lecture 14 decison making and problem solving

 The final step in the rational approach
 Evaluate every part way through. If is
realized that an error has been made ,
corrective action can be taken.
Apost implementation evaluation review
may lead to learning of a different kind.
 Perhaps that all alternatives were not
sufficiently explored or adopted, or more
work needs to be done earlier next time
Behavioral aspects of decision 17

making

lecture 14 decison making and problem solving

 1. Administrative model
 It is decision making model that argues that
decision makers have
 1. incomplete and imperfect information
 2. Are constrained by bounded rationality
 3.
tend to satisfice when making decisions rather
than optimizing rather than optimizing outcomes.
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lecture 14 decison making and problem solving

 Bounded rationality –suggests that decision makers
are limited by their values, attitudes, skills, and habits.
 Theyare considering all options when their
knowledge is far from complete

 Bounded or legally Discretion – refers to that

notion that some solutions are not feasible
because they are ethically unacceptable or
legally prohibited.
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lecture 14 decison making and problem solving

 Concept of satisficing –refers to the
tendency to adopt the first alternative
that meets a standard of sufficiency .
This is more economical than trying to
exhaust every possible alternative.
Which model is best? 20
 Classical
model is prescriptive and

lecture 14 decison making and problem solving

explains how managers can at least
attempt to be more rational and logical in
making decisions.
 Administrativemodel- reminds us that
our decisions are sometimes or perhaps
often subject non-rational influences ,
biases and limitations.
Intuitions 21

lecture 14 decison making and problem solving

 Is an innate belief about something without
conscious consideration.
 Managers decide to do something because it
feels right or they have a hunch about it.
 It is not arbitrary but based on years of
experience in making decisions in similar
situations
 Managers specially in experienced should not
rely on intuition too heavily.
Heuristics 22
 Arerules of thumb that may simplify

lecture 14 decison making and problem solving

decision making
 Judgmental heuristics are strategies on
availability of objects or events which
people habitually rely and that they may
lead them to making wrong decisions.
 Availability
heuristics – reflect the
influences of the relative availability of
objects or event , their accessibility via
memory , perception or imagination.
Groupthink 23

lecture 14 decison making and problem solving

 Thisis a compromised decision making
situation that occurs when the group’s
desire for consensus and cohesiveness
overwhelm its desire to reach the most
rational decision.
Basic problem solving process 24

 1. Define the problem

lecture 14 decison making and problem solving

 The act of linking context specifics and the
future desired state in a way that assist with
idea generation and decision framing.
 Ex. In manufacturing division.
Defining problems requires an investigation of
possible factors that affect productivity.
Factors affecting productivity could include
deficient training, low morale, poor manufacturing
procedures, inadequate staffing, unreliable,
antiquated equipment, technology changes, etc.
How to reduce equipment faults by 50 % in the
next 3 months for less than $100000
Use SMART OBJECTIVES 25

SPECIFICATION

lecture 14 decison making and problem solving

 S-SPECIFIC
 M-MEASURABLE
 A-ACHIEVABLE
 R-REALISTIC
 T-TIME BOUND
2. PROPOSE IDEAS TO SOLVE THE 26

PROBLEM

lecture 14 decison making and problem solving

 This refers to idea generation , sometimes
ideas are best generated without immediate
criticism as in brainstorming .
 Brainstorming involves an individual or group
trying to list as many possible ideas in
response to an open ended questions. Ideas
are listed without judgement and even bizarre
ideas are encouraged.
 Another
approach is use SCAMPER FOR
GENERATING IDEAS
SCAMPER for idea generation 27

lecture 14 decison making and problem solving

 S- substitute
 C-combine
 A-adapt
 M-msgnify
 P-put to other users
 E-eliminate
 R-reverse or re arrange
III.SOLUTION IDENTIFICATION 28

lecture 14 decison making and problem solving

 This means evaluation of solutions should be based on the
context of the problem and related directly to problem definition
 Use cost benefit analysis –weighs the benefit of a [articular idea
against the costs.
 Factors to consider
 Reduction in systematic risk available from investing in multiple
projects
 The amount of capital requirement for each possible combination of
projects
 Perceived fit of the project with the organizations strengths,
weaknesses and objectives.
 Financial assessments in the project
IV. ACTION IMPLEMENTATION 29

lecture 14 decison making and problem solving

 ONCE THE MANAGER HAS DETERMNED THE PREFERRED
SOLUTIONS, THENEXT STEP IS IMPLEMENT THE SOLUTION.THE
PROBLEM SOLVER /MANAGER SHOULD NEED TO DECIDE ;
 The order of solution to be implemented.
 Whether some solutions need to be implemented sequentially
 Or parallel
 When actions are due for commencement and completion
 Who is responsible for implementation
 What quality of outcomes are required
 What resources can be use as inputs
 How results should be implemented
v. Results evaluation 30

lecture 14 decison making and problem solving

 An evaluation of results against the problem definition
 Changes may justify changes or amendment
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lecture 14 decison making and problem solving

Study questions
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lecture 14 decison making and problem solving

PO!!!!
SALAMAT