The Decision Making Process Week 4 MGT Principles of Management and Business

Objectives ✤ To describe the decision making process ✤ To practice decision making

The Decision Making Process ✤ Definition: ✤ A set of eight steps that begins with identifying a problem; it moves through selecting an alternative that can alleviate the problem and concludes with evaluating the decision’s effectiveness ✤ This process can be used to describe both individual and group decisions.

The Decision Making Process Identification of a Problem Identification of Decision Criteria Allocation of Weights to Criteria Development of Alternatives Analysis of Alternatives Selection of an Alternative Implementation of the Alternative Evaluation of Decision Effectiveness

Step 1: Identification of a Problem ✤ A Problem: a discrepancy between an existing and a desired state of affairs ✤ In real world, most problems are not clear.. Thus, problem identification is not simple ✤ Also, problem identification is subjective ✤ Furthermore, managers who mistakenly solve the wrong problem are not different from those who don’t solve it!

How Can Managers Identify Problems? ✤ They need to make comparisons between current state of affairs AND some standard ✤ The standard can be: ✤ past performance ✤ previously set goals ✤ the performance of some other unit within the organization or some other organization

Step 2: Identification of Decision Criteria ✤ Here, we select specific criteria that we will use in making the decision. The criteria include: price, weight, size, number of employees, hours needed... etc. ✤ Decision Criteria (single is criterion): factors that are relevant in a decision ✤ Every decision making has a criteria whether explicitly stated or not ✤ If a factor is not included, it’s considered irrelevant

Step 3: Allocation of Weights to Criteria ✤ In this step, we give weights to the criteria identified in the previous step ✤ A simple approach: Give 10 to the highest important factor, and then assign weight the rest against that standard ✤ For example: if you give another criterion 5, the standard is twice as important ✤ Mainly, you use your personal preferences. In a more studied decisions, you will use data, statistics, studies, analysis, and research

Important Criteria and Weights in a Car-Buying Decision CriterionWeight Price10 Interior Comfort8 Durability5 Repair Record5 Performance3 Handling1

Step 4: Development of Alternatives ✤ Here, we list all the alternatives that could succeed in solving the problem ✤ We only list them, without evaluating them

Step 5: Analysis of Alternatives ✤ Each alternative is evaluated by appraising it against the criteria ✤ The strengths and weaknesses of each alternative become both evident as we compare them to the criteria and weights established in step 2 and step 3 ✤ The assessment is clearly a personal judgement

Assessment of Possible Car Alternatives Alternative Initial Price Interior Comfort Durability Repair Record PerformanceHandling Total Mazda C Isuzu Ascender BMW Toyota Camry VW Passat

What if? ✤ If one alternative scored 10 on every criterion, we wouldn’t need to consider the weights ✤ Similarly, if the weights were all equal, you could evaluate each alternative merely by summing up the appropriate lines

Evaluation of Car Alternatives: Assessment Criteria x Criteria Weight Alternative Initial Price [10] Interior Comfort [8]Durability[5] Repair Record [5]Performance[3]Handling[1] Total Mazda C Isuzu Ascender BMW Toyota Camry VW Passat

Step 6: Selection of an Alternative ✤ Here, we choose the best alternative among those assessed ✤ We merely choose the alternative that scored the highest score in step 5 ✤ In our example: Toyota Camry

Step 7: Implementation of the Alternative ✤ Decision implementation: putting a decision into action ✤ This includes conveying the decision to those affected and getting their commitment to it

Step 8: Evaluation of Decision Effictiveness ✤ Managers appraise the result of the decision to see whether it has corrected the problem; did the alternative chosen in step 6 and implemented in step 7 accomplish the desired result?

Learning Outcomes ✤ Decision making is a process of eight steps ✤ Managers use criteria to make decisions, whether they mention them or not ✤ Managers should make alternatives and evaluate them based on the criteria ✤ Managers need to evaluate their decisions to make sure they are solving the right problem