Decision Making: The Essence of Managers’ Job by Muhammad Iqbal Malik

Key Topics Introduction The Decision-making process Decision-making models Decision Styles A discussion on Group Decisions

Part I Introduction

Organizations Organizations are systems Involve people, structure and a common purpose Have limited resources Need to perform a series of functions to meet its objectives

Managers Managers are responsible for effective and efficient execution of these organizational functions. A typical manager performs a number of functions that are categorized as: Interpersonal Informational Decisional

Managers One of the key traits that distinguish managers from operatives is the ability to make independent decisions.

Part II Decision-making

What is decision-making? The word decision is defined as: “A choice between two or more alternatives”. Thus decision-making can be defined as: “the selection of a course of action from among alternatives ”.

Decision-making Process Identifying a problem Identifying decision criteria Allocating weights to criteria Developing alternatives Analyzing alternatives Selecting an alternative Implementing the alternative Evaluation (of decision effectiveness)

Problem Definition Problem is a discrepancy (difference) between an existing and a desired state. Example: “The manager has resigned, and we need another manager” Here the phrase “manager has resigned” reflects the current state while “need another manager” represents a desired state.

Identifying Decision Criteria The word criteria, is defined as “a standard by which something can be judged”. A decision criteria therefore, is the basis of a decision, which outlines the relevant and important factors for a decision. And implicitly, it also defines what is not important.

Decision Criteria: Example In the above-cited scenario, the decision criteria may include the following factors: Relevant qualifications Leadership skills Communication skills Planning and analytical skills Professional experience

Allocating Weights to Criteria The next step in the decision making process is prioritization. Prioritization is achieved by assigning quantitative weights to each criteria element. The weightage defines the relative significance of each element.

Allocating Weights: Example

Developing Alternatives Involves defining the possible alternatives (or choices) that would resolve the problem. In our case, the alternatives would be a list of candidates or job applicants.

Analyzing Alternatives Alternatives are rated and analyzed on the basis of the criteria The rating can be based on a specified scale, say 1 – 5 etc. Rating may be subjective in nature and thus,may depend on the judgment of the individual(s)

Criteria Rating: Example

Analyzing & Assessment: Example

Selecting an alternative Involves choosing the best alternative, based on the above rating and analysis Generally implies selecting the alternative with the highest score.

Implementing the Alternative Putting the decision into action Involves clear communication of the decision to all concerned and obtaining their commitment

Evaluation Evaluation forms an integral part of any process Involves evaluation of the outcome based on the desired goal and criteria Involves assessing the effectiveness and efficiency of the outcome (or the entire process) In case of any undesired results, each step of the process is carefully reviewed to trace the root causes

Decision-making Models “A simplified representation or description of a system or complex entity” Examples A model of a building A globe (Earth model)

Rational/Bounded Rational So Rational and Bounded Rational Models are cognitive models that describe how managers make rational decisions

The Rational Model 1. Define and diagnose the problem 2. Set goals 7. Follow up and control External and internal Environ. forces 3. Search for alternative solutions 6. Implement the solution selected 5. Choose among alternative solutions 4. Compare and evaluate solution

Rational Model: Assumptions Clear and unambiguous problem Single, well-defined goal All alternatives are known Clear preferences (ranking criteria) Constant/stable preferences No time or cost constraints Decision will maximize payoff

Rational Model: Criticism Not all decisions made on rational basis Most problems, goals and preferences are not clear or well defined Not practical to know all possible alternatives Time and cost constraints exist in all practical problems Result not maximized in most cases

Bounded Rational: Assumptions Limited set of criteria Self-interest influences ratings Limited no. of alternatives Alternatives are assessed one at a time till a satisficing (or good enough) alternative is found Politics influences acceptance and commitment of decision

Intuition An unconscious process of making decisions on the basis of experience and judgment

Intuition Involves gut feeling May also have rational basis The “feeling” arises from past experience and knowledge Involves quicker response Does not involve systematic analysis

Decision Types Effective managers make various kinds of decisions. In general, these decisions are either Programmed decisions Non-programmed decisions

Programmed Decisions A decision that is repetitive and routine A definite method for its solution can be established Does not have to be treated a new each time it occurs Procedures are often already laid out Examples: pricing standard customer orders, determining billing dates, recording office supplies etc.

Non-programmed Decisions A decision that is novel (new or unique) or Ill structured No established methods exist, because it has never occurred before or because It is too complex

Non-programmed Decisions Organizational Levels Nature of Problems Nature of Decision-making Organizational hierarchy

Non-programmed Decisions Are “tough” decisions that involve risk and uncertainty and call for entrepreneurial abilities Such decisions draw heavily on the analytical abilities of the manager Examples: Moving into a new market, investing in a new unproven technology, changing strategic direction

Decision Styles Decision-making, though a rational process does include some subjective elements Thus in real organizational settings, the quality of decision does depend on the ability, style and approach of the manager

Decision Styles: Directive Represents low tolerance for ambiguity and uncertainty Reflects rational thinking of the manager Such decision styles are more suitable for routine procedural tasks

Decision Styles: Analytic Analytical style is also a rational style of thinking Involves a very high tolerance for ambiguity and uncertainty Such managers generally seek detailed information before making a decision

Decision Styles: Behavioural Represents a creative way of thinking Involves a low tolerance for ambiguity or uncertainty Managers with a behavioural style introduce “new” ways of doing things

Decision Styles: Conceptual Conceptual style also reflects a creative and intuitive way of thinking Conceptual style managers have a very broad vision and generally look at numerous alternatives for decision-making Focused on the long run and often result in creative outcomes or alternatives

Vroom and Yetton Model Vroom and Yetton have identified five decision styles for managers, and are classified as follows: Autocratic AI The decision is made individually, using the information available to the individual only

Vroom and Yetton Model AII The manager obtains information from subordinates and himself makes the decision May or may not share with subordinates, the purpose of questions or the nature of problem Subordinates do not play any role in problem definition or selection of alternatives

Vroom and Yetton Model Consultative CI The manager shares the problem with relevant subordinates individually Getting their input individually and not as a group. The manager then makes the decision independently, and may or may not be influenced by the subordinates’ suggestions

Vroom and Yetton Model CII The problem is shared to subordinates in a group Their ideas and suggestions are sought in a group meeting The decision is then made by the manager which May or may not reflect the subordinates’ influence

Vroom and Yetton Model Group Consensus GI The problem is shared to subordinates as a group Alternatives are generated and evaluated collectively Effort is made to reach a consensus

Vroom and Yetton Model GI (Contd.) The decision is made collectively and the manager functions as a coordinator Does not “press” the group in adopting the manager’s “solution” The manager is willing to accept and implement the decision of the group

Group Decision-making The factors requiring group decisions include: Involving sensitive issues High cost alternatives Involving very high risk factor Strategic impact

Group Decisions: Advantages Acceptance of group members Coordination is easier Communication is easier Existence of large alternatives More information can be processed Diversity of experience and perspectives

Group Decisions: Disadvantages Take longer time Group can be indecisive Groups can compromise Groups can be dominated Groups can “play games” Victim to Groupthink

Situational Factors for Individual Decision-making Short time Unimportant to group Manager can take decision Dominate the decision Destructive conflict Members hesitant

Situational Factors for Individual Decision-making Confidential data Incapability of members Manager’s dominance Indirect effect on group members

Situational Factors for Group Decision-making Need for innovation and creativity Data collection Importance of acceptance Importance of solution Complex problem Democratic process

Situational Factors for Group Decision-making Risk taking solution needed Better understanding Whole responsibility Feedback required

Improving Group Decision-making Brainstorming Nominal group techniques Electronic meeting