1 Decision making – The process of making a choice between alternatives Problem solving - the process of producing alternative solutions to a recognized problem

2 Types of decisions Programmed decisions Programmed decisions Decisions are programmed to the extent that they are repetitive and routine and a definite procedure has been developed for handling them Nonprogrammer decisions Nonprogrammer decisions Decisions are nonprogrammed when they are novel and unstructured. There is no established procedure for handling the problem

3 Types of decisions Programmed Decisions Nonprogrammed Decisions Type Of problem Frequent,routine, much certainty regarding cause- and-effect relationships Novel,unstructured,much uncertainty regarding cause- and-effect relationships procedure Dependence on policies,rules,&definite procedures Necessity for creativity intuition,tolerance for ambiguity examples Periodic reorder of inventory Merit system for promotion of state employees Necessary grade-point average for good academic standing Diversification into new products & markets Reorganization of state government agencies Construction on new classroom facilities

4 Best vs. Satisfactory decision Best decision - a chosen solution produced with full information and in adequate time to resolve a well-defined problem Best decision - a chosen solution produced with full information and in adequate time to resolve a well-defined problem Satisfactory decision - a partially or temporary chosen solution with partial information taken in limited time to resolve an ill-defined problem Satisfactory decision - a partially or temporary chosen solution with partial information taken in limited time to resolve an ill-defined problem

5 Rational Decision Making Rational Model of Decision Making Rational Model of Decision Making also called the classical model explains how managers should make decisions; it assumes managers will make logical decisions that will be optimum in furthering the organization’s best interests also called the classical model explains how managers should make decisions; it assumes managers will make logical decisions that will be optimum in furthering the organization’s best interests The Rational Model is based on unrealistic assumptions: The Rational Model is based on unrealistic assumptions: Complete information, no uncertainty Complete information, no uncertainty Logical, unemotional analysis, Logical, unemotional analysis, Best Decision for the organization Best Decision for the organization

6 Nonrational Decision Making Nonrational models of decision making Nonrational models of decision making explain how managers do make decisions; they assume the decision making is nearly always uncertain and risky, making it difficult for managers to make the optimum decisions explain how managers do make decisions; they assume the decision making is nearly always uncertain and risky, making it difficult for managers to make the optimum decisions Five Nonrational Models are: Five Nonrational Models are: Satisficing Satisficing Incremental Incremental Coalitional Coalitional Garbage can Garbage can Intuitional Intuitional

7 Nonrational Models 1. Satisficing Model managers seek alternatives until they find one that is satisfactory, not optimal 2. Incremental Model managers take small, short-term steps to alleviate a problem 3. Coalitional Model managers band together in groups favoring different alternatives, and the groups bargain, negotiate, and compromise on a particular problem 4. Garbage Can Model managers virtually make random decisions 5. Intuitive Model consists of a manager’s quickly sizing up a situation and making a decision based on his or her experience or practice

8 Some Hindrances to Perfectly Rational Decision Making Complexity Complexity Time and money constraints Time and money constraints Different cognitive capacity, values, skills, habits, and unconscious reflexes Different cognitive capacity, values, skills, habits, and unconscious reflexes Imperfect information Imperfect information Information overload Information overload Different priorities Different priorities Conflicting goals Conflicting goals Panel 7.2

9 The Decision Making Process  Establishing specific goals and objectives and measuring results  Problem identification and definition  Consideration of causes  Development of alternative solutions  Evaluation of alternative solutions  Solution selection  Implementation  Follow-up

10 Evaluation What should you do if the solution is not working? Give it more time Give it more time Change it slightly Change it slightly Try another alternative Try another alternative Start over Start over

11 Factors influencing problem identification Perceptual problems Perceptual problems Defining the problem in terms of solutions Defining the problem in terms of solutions Identifying symptoms as Identifying symptoms asproblems

12 Establishing Priorities Prioritizing depends on : Urgency Urgency Relate to time. How critical is time pressure? Impact Impact Describes the seriousness of the problem’s effects. problem’s effects. Growth tendency Growth tendency Addresses future considerations.

13 Evaluation of Alternative Solutions The alternative-outcome relationship is based on 3 possible conditions:  Certainty the decision maker has complete knowledge of the probability of the outcome of each alternative  Uncertainty the decision maker has no knowledge of the probability of the outcome of each alternative  Risk the decision maker has some probabilistic estimate of of the outcome of each alternative

14 Behavioural Influenced on Decision Making Values Values Propensity for risk Propensity for risk Potential for dissonance Potential for dissonance Escalation of commitment Escalation of commitment

15 Values are guidelines in making a choice In establishing objectives In developing alternatives In choosing and alternative In implementing a decision In evaluating and control phase (when corrective action is taken)

16 Potential for Dissonance There is often lack of consistency among individual’s various attitudes, beliefs after a decision has been made There is often lack of consistency among individual’s various attitudes, beliefs after a decision has been made The decision is an important one psychologically or financially The decision is an important one psychologically or financially There are a number of foregone alternatives There are a number of foregone alternatives The forgone alternative have many favorable features The forgone alternative have many favorable features

17 Methods,used to reduce dissonance: Seek information that supports the wisdom of the decision Seek information that supports the wisdom of the decision Selectively perceive information in a way that supports the decision Selectively perceive information in a way that supports the decision Adopt a less favorable view of the foregone alternatives Adopt a less favorable view of the foregone alternatives Minimize the importance of the negative aspects of the decision and exaggerate the importance of the positive aspects Minimize the importance of the negative aspects of the decision and exaggerate the importance of the positive aspects

18 Escalation of Commitment is the tendency to persist in an ineffective course of action when evidence reveals that the project cannot succeed

19 Individual/Group Decisions In establishing goals grouper are probably superior to individuals In establishing goals grouper are probably superior to individuals In identifying causes and developing alternatives efforts of group members are necessary In identifying causes and developing alternatives efforts of group members are necessary In evaluating alternative solutions judgment if the group seems superior to that of an individual In evaluating alternative solutions judgment if the group seems superior to that of an individual In solution selection group tends to take more risky decisions In solution selection group tends to take more risky decisions Implementation and follow-up is usually accomplished by individual managers Implementation and follow-up is usually accomplished by individual managers

20 Group Decisions Advantages More information and knowledge are available More information and knowledge are available More alternatives are likely to be generates More alternatives are likely to be generates More acceptance of the final decision is likely More acceptance of the final decision is likely Better decisions generally emerge Better decisions generally emerge Disadvantages Disadvantages The process takes longer that individual decision making, so it is costlier The process takes longer that individual decision making, so it is costlier Social pressures to those who disagree Social pressures to those who disagree One person may dominate the group One person may dominate the group Groupthink may occur Groupthink may occur

21 When to use groups in decision making When it can increase quality When it can increase quality When it can increase acceptance When it can increase acceptance When it can increase development Panel When it can increase development Panel

22 Techniques for Stimulating Creativity Brainstorming Brainstorming The Delphi Technique The Delphi Technique The Nominal Group Technique The Nominal Group Technique

23 Summary Decisions can be classified as programmed or nonprogrammed depending on the type of the problem Decisions can be classified as programmed or nonprogrammed depending on the type of the problem there are several types of decision making process there are several types of decision making process The decision-making process entails a number of steps The decision-making process entails a number of steps Problems are of different importance and it’s necessary to prioritize them ( urgency, impact and growth tendency) Problems are of different importance and it’s necessary to prioritize them ( urgency, impact and growth tendency)

24 Summary The relationship between alternatives and outcomes is based on three possible conditions: certainty, uncertainty & risk The relationship between alternatives and outcomes is based on three possible conditions: certainty, uncertainty & risk The decision-making process is influenced by behavioral factors: values, propensity for risk, potential for dissonance, and escalation of commitment The decision-making process is influenced by behavioral factors: values, propensity for risk, potential for dissonance, and escalation of commitment Research suggests that decisions made by group are superior to those made individual. However there are aspects of group decision making that have negative effects. Research suggests that decisions made by group are superior to those made individual. However there are aspects of group decision making that have negative effects.