DECISION MAKING A managerial focus

Management decision making “Managerial decision making is synonymous with the whole process of management” (Simon 1977) Three phases of decision making: Intelligence Design Choice

Simon’s Three Phases INTELLIGENCE PHASE: Problem identification and ownership Problem definition Data collection/ search DESIGN PHASE: Formulation of a means to analyse the options Identification of criteria and constraints for the choice Evaluation of the alternatives CHOICE: Selection of the best or appropriate option Plan for implementation

Computerised Support INTELLIGENCE PHASE: data search and collection Reporting systems Demand and exception reports Monitoring/ tracking facilities DESIGN PHASE: method formulation Modelling software (mathematical, statistical) e.g. linear programming packages (optimisation problems) project management; forecasting packages (“what if”; “goal seeking” analysis) CHOICE PHASE: selection of appropriate option understanding the solution offered selecting the appropriate course of action

Decision Support Framework (Gorry and Scott Morton 1971) Matrix combines Simon’s decision making steps and Anthony’s taxonomy of levels of information requirements STRUCTURED DECISIONS- more likely to be operational ‘programmed’, repetitive, routine, clearly defined problem, standard solution(s) apply UNSTRUCTURED- more likely to be strategic ‘unprogrammed’ ad hoc, one-off, ‘fuzzy’, not clearly defined, no objective right solution, intuition required SEMI-STRUCTURED- tactical/ middle managers? in between the two extremes, most business problems are not purely structured or unstructured

Later additions to the framework NOVELTY DIMENSION:- first time decisions vs familiar decisions SPECIFICITY DIMENSION:- specific, targeted decisions vs general, wide reaching decisions OUTCOME STATE:- Certainty vs Uncertainty (how much ‘risk’)

Characteristics of rational decision making: Clear, Unambiguous objective e.g minimise the cost Objective can be quantified Outcomes and alternatives are known Alternatives expressed in terms of objectives Alternatives ranked Best is chosen i.e the cheapest option

Human Decision Making Usually there are Multiple objectives, priorities. Also: Objective versus Subjective rationality? Selective perception memory bias Stereotyping-understanding how representative is your own experience Seeing ‘correlations’ where limited observations Interpretation of probability and risk Self-fulfilling prophesies Pressure for consistency Accepting the ‘Problem statement’ as given Hindsight affect Simon’s concept of ‘Bounded Rationality’, ‘Satisficing’

Decision styles: Autocratic vs Democratic Heuristic vs Analytic Heuristic: action oriented, trial and error, intuitive, spontaneous, waits for feedback Analytic: theory oriented, planned systematic approach, uses formal analysis to test the outcomes What affects our personal style? The way we think, perceive Our values The types of information we prefer How reliable is our own ‘personal style’?