Chapter 3

Problem-solving and decision-making

( 4 readings )
 Reading -1 Solving problems and making decisions
in organizations
• Solving problems and making decisions in organizations form a key
part of managerial activity. Decision-making can :-
1- Take place without investigation of a problem . Daily, managers
are exposed to identical problems that are known or have standard
solutions and thus no need to investigate but only to choose the
standard solution.
2- Be a process of deciding between options or solutions. Ex.:
a- Right now decision (as in crisis) needs to be made , a situation
which needs investigation and to which there are some obvious
solutions, but the ‘right’ solution will require investigation to ensure
that it ‘fits’ and work.
b- In other situations, solutions can’t be developed until the
problem is investigated .This is because the problem could be one of
several possible problems. Once the problem is investigated,
effective action can be taken.
 Ways of thinking about problems
• The term ‘problem’ often seems negative. Essentially a problem is simply a
gap between a situation that exists now and what is desired ( i.e. between
what is and what should be) . The word problem can mean:
1. Something has gone wrong.
2. Expectations have changed.
3. Something needs improving.
4. Something is needed that isn’t in place.
5. More than one of the above has happened.
• Not all problems and opportunities are straightforward and self-contained.
There may be many causes that are beyond manager’s control.
• An opportunity to make an improvement may have implications on other
organization parts and on other people beyond a manager’s influence.
• Before going far through the process of problem-solving we need to look
carefully at the kind of situation we are dealing with . There are several
ways of thinking about this. One is the degree to which a situation is part of
a related set of problems or situations , i.e. how ‘bounded’ a problem is.
• Characteristics of a bounded problem or
difficulty:-
1. Problem is known and identified.
2. Problem needs and elements are known.
3. Possible solution is known.
4. Priorities are clear.
5. There are limited implications.
6. Problem can be treated in isolation from other issues.
7. Few people are involved.
8. Timescale is limited.
• At the other end are unbounded problems with the following
features:-
1. Problem is unknown and unidentified.
2. You don’t know what needs to be known.
3. Possible solution is unknown.
4. Priorities are called into question and are unclear.
5. Problem cannot be isolated from other issues.
6. The implications are uncertain, may be great and
worrying.
7. Great number of people are involved .
8. Longer and uncertain timescale.
9. Resources are ill-defined and may alter over time.
10. It is not clear who are the significant players .
11.The situation may well be highly political too.
• Unbounded problems are more typical where
work is less routine ex. projects where there is a
great deal of risk, uncertainty and ambiguity.
A second way of viewing problems is to consider problems
and solutions as a matrix of known and unknown problems
and solutions.( figure 3.1)
• In known problem/unknown solution cell , the problem is likely to
require some further investigation so that a satisfactory resolving
solution can be found. Known problems are not necessarily fully
understood problems, which in turn makes finding a solution harder.
• In unknown problem/unknown solution cell , consider a situation in
which a manager wants to make an improvement to a system. The
ultimate goal is known – improvement – but any current problems
within the system are not known, so the solution that will improve
the system is not known.
• Unbounded problems have features of known problem/unknown
solution and of unknown problem/unknown solution.
• In known problem/known solution cell , problem is bounded .
However, this situation presents a challenge in the sense that while
deciding between options , there is a danger that the problem is not
quite ‘known’ as it is assumed.
• In unknown problem/known solution cell , a manager may have a
favored solution and actively seek a problem where it can be used.
For example, a manager may favor pay incentives as a way of
improving performance. This may be effective in some cases but not
if the person requires training or better resources to do the job.
 Reading -2 Problem solving framework
• Problem-solving is what we do when it would be
inappropriate to make a decision without investigating a
situation.
• Applying ‘rational’ models in complex situations is very
difficult. An alternative core model (basic framework) is :-
1. Analyze the problem.
2. Draw conclusions from your analysis.
3. Set the criteria for a solution.
4. Identify an appropriate solution.
5. Draw up an action plan.
• In practice, people frequently work through the steps in an
iterative way. This may involve working backwards, then
forwards, or on several steps at once.
Exploring the basic framework
1- Analysis: One way to decide if there is a problem and what kind it is ,
ask:
1- What is happening to make you think there is a problem that
needs dealing with?
2- How and when is it happening and to whom?
3- Why is it happening?
• By asking above questions it is likely to find that those involved in the
situation have different perspectives about describing the problem .
This can be useful in identifying misunderstandings and potential
conflicts and how problem is related to others.
• Normally a complex problem is the result of several related problems
(or just one deeper problem), so you may need to break it down into
its component parts. Diagrams are useful tools and help to reveal
the relationship between different aspects and components of a
problem and ( system maps, sign maps ,multiple cause diagrams ).
• In this step your and others assumptions should be checked after
which we can develop better solutions and argue for them in a more
convincing way.
2- Drawing conclusions: Conclusions are what you infer from your
analysis. They are judgments about the situation derived from
your analysis. They are not solutions but they help to clarify and
state your goals for a solution for the next stage in the problem-
solving process.
3- Set the criteria for a solution : A solution is an action or set of
actions that should solve the problem . Before identifying a
solution , set objectives , goals or criteria which the solution
needs to achieve.
4- Identify an appropriate solution: Develop solutions and choose
the best that matches set criteria . The solution must relate to
the problem and match what you are trying to achieve, keep or
eliminate.
• A solution to a problem is likely to be presented as a set of
recommendations especially when the participation and
involvement of others is necessary as part of the decision-
making process.
• Recommendations are proposals for action. They depend
on, or be constrained by, a number of factors in the
organization. The constraints might include other
objectives, current systems, personnel, costs, culture,
cooperation of others, availability of information and time
available to resolve the problem

• Recommendations should be as SMART as possible:-

A.Specific : Proposals or objectives must state clearly what is
to be achieved.
B. Measurable : They must state how success will be
measured.
C. Agreed : With the person who will carry out the proposals
and with anyone affected by the process or result.
D.Realistic : They must be achievable within the constraints
of the situation and in alignment with other objectives.
E. Timed: There must be a target time to achieve objectives.
5. Develop an action plan : After setting SMART recommendations
managers should:-
1- Turn them into an action plan.
2- Consider implementation steps , who will be involved, time , cost
and communication.
3- Consider how progress will be monitored to ensure that the
objectives are met since an action can result in unintended negative
consequences that could be avoided if considered early.
• Implications (advantages and disadvantages) of an action plan
should be handled . The consequences of proposals:-
a- Advantages are positive outcomes which will help to ‘sell’ it to
others. (Ex. new opportunities that might arise as a result of proposal
implementing ).
b- Disadvantages are the negative consequences of proposal. Setting
out the disadvantages of a solution .
• No one can be certain that every part of a solution will
work, or that circumstances will remain the same. Since
uncertainties cannot be removed, major ones should be
identified and level of risk taken should be aware of.
• Assessing risk amount is helpful to estimate the
probability of events happening as predicted. Various
techniques exist for assessment (For example, examine
past experience. If a similar event has happened
repeatedly in past, one may be able to use information
about it to predict the probable outcomes of future
events. Alternatively, subjective estimates can be made
that are based on past experience).
• If the disadvantages of a solution outweigh advantages,
you may need to rethink your solution to the problem!
6. Further steps in the problem-solving process: Identify markers
that need to be achieved at each implementation stage to
enable progress monitoring and to assess whether the solution
has been effective.
7. Communicating with and involving others : In a problem-
solving process other people will be involved( ex. who carry out
the work, or whose work is linked with yours ). Other people
inputs is helpful at every problem-solving process stage. (ex. If
one strongly opposes your solution, may let you decide to
investigate and define the problem without their knowledge)
• Once a solution to the problem has been decided on, or the
recommendations for resolving it, you need to communicate
the outcome to everyone who needs to know about it. This
mean that when a decision is communicated to them they are
not surprised since the decision will involve their ideas as well
as yours and is more likely to be acceptable.
• In reality the problem-solving process is messier
than what it looks , because:-
1- The process is iterative.
2- It is likely that a problem itself may not well-
defined than it seemed at first.
3- There may be an underlying problem.
4- Information about situation may be incomplete,
accordingly wrong assumptions are made
5- There are demands and constraints that limit
choices.
6- Since other people are considered at every stage,
many of them may not be willing to cooperate.
READING-3
MAKING DECISIONS: COMPARING OPTIONS AND
MAKING CHOICES

Decision is a commitment to do something. They vary

from small, routine, day-to-day, frequent and quick
decisions to those affecting entire organization. From
among various options (obvious ones or ones learnt
from senior managers) of doing something one has to
compare and choose one. Such choice may be easy or
tough & arrived at by following a framework.
 FRAMEWORK FOR COMPARING OPTIONS & MAKING CHOICES

Specify what you need to achieve. Ensure that Set objectives Step-1
desired outcome addresses the situation. Emphasis
more on right question rather than right answer.
Identify essential, desirable or unacceptable ones.
SMART criteria for successful outcome: Specific, Set decision Step-2
Measurable, Agreeable to those affected, Realistic & criteria
Timed
Assess each option against criteria established Compare options Step-3
Make decision Select preferred Step-4
option
Prepare a “SMART” action plan Plan Step-5
implementation
 EVALUATING OPTIONS AGAINST OBJECTIVES & CRITERIA
]eg. purchase of photocopiers[

OPTION-3 OPTION-2 OPTION-1 DECISION CRITERIA

1. ESSENTIAL:
Purchase cost
Ease of installation
Running costs
Quality of after-sales support
Ease of use
Specification
Sort facility
Stapler
Remote operation
Print facility
2. DESIRABLE: Binder facility
3. NOT ACCEPTABLE: Paper trays with a capacity
of less than 1000 sheets
4. OTHER FEATURES: A new model, 3 months or
less since introduction
5. UNCERTAINTIES: Availability of option-3
DECIDING BETWEEN OPTIONS: TOM’S EXAMPLE
TOM’S DECISION TREE
DECIDING BETWEEN OPTIONS WITH STRUCTURED APPROACH-
DECISION TREE

ADVANTAGES
* Shows relationship between options
* Help in identifying different levels of decision
* Appears rational and clear
* Simple technique applicable to low-level problems with several linked options
available

LIMITATIONS
* Collection of all necessary information, generating options & evaluation of
alternatives can be hard, time-consuming & expensive
* Clear objectives not easy and may involve compromises between conflicting
interests
* No time for creative thinking
* Uncertainty in predicting future outcomes may be high
* Supposedly ideal decisions may be rejected
ALTERNATIVES FOR DIFFICULT DECISION BETWEEN OPTIONS

* Choice of less than ideal acceptable option

* Intuitive choice with honesty on underlying reason and justifiability

* Negative approach of going for “least bad” option

* Choice of “best option despite change of circumstance from inaccurate forecast”

Clarity on objectives despite type of approach or subjective judgments

 Reading 4 - The problem with problem-solving and decision-making
• Herbert Simon identified what is known as “bounded rationality”
(Simon, 1960). He noted that organizational contexts, politics , time
and resource limitations mean that managers are often not able to
approach a problem or decision rationally.
• Problems and decisions, then, may not be addressed in an optimal
way: solutions and decisions may be simply ‘the best in the
circumstances’. This is known as “Satisficing”
• It is important to separate bounded rationality from irrationality. A
simple example of irrational thinking is continuing to pursue a
solution which will not solve the problem encountered.
• Another factor to consider is that managers seldom deal with one
issue at a time. Often, the importance attached to a problem or
decision-making will change as time progresses. What was important
to a manager yesterday may be overtaken by a more important issue
today . That is mangers focus on pressing problems
• Unexpected events are important factors in problem-solving and
decision making. The opportunities people have for problems and
solutions shape the way the problem is investigated and the possible
solutions to it.
• James March (1978, 1981) suggests that managers need to be
opportunistic , flexible , persistent and open to possibilities.
Flexibility will help overcome decisional bias ( of their own or that of
others ). Bias can result from the following:
(1)Preferring some approaches to a solution and problem rather than
considering equally possible alternatives.
(2) Previous experiences in similar situations.
(3)A simple view of uncertainty
(4) Misconceptions .
(5) Overconfidence.
• All this can be summarized as the difference between how problems
are solved and decisions are made in practice and how the
organizations believe they should be solved or made.