Decision Making- An essence to problem solving

Organisational Decision making  “ the process of responding to a problem by searching for and selecting a solution or course of action that will create value for organisational stakeholders”.  There are basically two kinds of decision that managers called upon to make: Programmed and non-programmed

Types of Problems and Decisions  Structured problems * Involved goals that clear. *Are familiar(have occurred before) *Are easily and completely defined- information about the problem is available and complete.  Programmed decision *A repetitive decision the can be handled by a routine approach.

Problems and Decisions ( cont’d)  Unstructured problems * Problems that are new or unusual and for which information is ambiguous or incomplete. * Problems that will require custom-made solutions.  Non-programmed decisions * Decision that are unique and nonrecurring. * Decision that generate unique responses.

Types of Programmed Decisions  Policy * a general guideline for making a decision about a structured problem.  Procedure * A series of interrelated steps that a manager can use to respond ( applying a policy) to a structured problem.  Rule * an explicit statement that limits what a manager or employee can or cannot do.

Programmed vs. Non-programmed Decisions CharacteristicsProgrammed decisions Non-programmed decisions Type of problemStructuredUnstructured Managerial levelLower levelUpper level FrequencyRepetitiveNew,unusual InformationReadily availableAmbiguous or incomplete Time frame for solution ShortRelatively long Solution relies onProcedures,rules, and policies Judgment and creativity

The Decision- Making Process Define the Problem Evaluate Alternatives Implement the chosen Alternative Gather facts and develop alternatives. Select the best alternative. Follow up and evaluate the chosen alternative.

Decision Making Process  Identify a problem and decision criteria and allocating weights to the criteria.  Developing, analyzing, and selecting an alternative that can resolve the problem.  Implemented and selected alternatives.  Evaluating the decision’s effectiveness.

Step 1: Identifying the Problem  Problem * A discrepancy between an existing and desired state of affairs.  Characteristics of Problems * A problem becomes a problem when a manager becomes aware of it. * there is a pressure to solve the problem. * the manager must have the authority, information, or resources needed to solve the problem.

Step 2: Identify the Decision Criteria  Decision criteria are factors that are important ( relevant) to resolving the problem. * Costs that will be incurred (investment required). * Risks likely to be encountered ( chance of failure). * Outcomes that are desired ( growth of the firm).

Step 3: Allocating Weights to the Criteria  Decision criteria are not of equal importance: * Assigning a weight to each item. * Places the items in the correct priority order of their importance in the decision making process.

Step 4: Developing Alternatives  Identifying viable alternatives. * Alternatives are listed ( without evaluation) that can resolve the problem. Step 5 :Analyzing alternatives  Appraising each alternative’s strengths and weaknesses * An alternative’s appraisal is based on its ability to resolve the issues identified in step 2 and step 3.

Step 6: selecting the alternative  Choosing the best alternative * The alternative with the highest total weight is chosen. Step 7: Implementing the Alternative  Putting the decision to and gaining comment from those whose will carry out the decision.

Step 8: Evaluating the decision’s effectiveness  The soundness of the decision is judged by its outcomes. * How effectively was the problem resolved by outcomes resulting from the chosen alternatives? * if the problem was not resolve, what went wrong?

The decision making process-Example Identification of a problem Identification of Decision Criteria Allocation of weights to criteria Development of alternatives Analyzing of alternatives Selection of alternatives Implementation of alternatives Evaluation of decision alternatives “My sales Reps need new computers!” Memory and Storage, Display Quality, Better Life,Warranty, Carrying weight Memory and Storage-10, Display Quality -8, Better Life -6,Warranty -4, Carrying weight-3 Toshiba, HP, Soni Vaio, Qosmio, Gateway, Apple iBook, Lenovo, Dell “ Toshiba!”

The role of intuition  Intuitive decision making * Making decisions on the basis of experience, feelings, and accumulated judgment.

intuition Experience-based Decisions Affect-Initiated Decisions Cognitive-Based Decisions Subconscious mental processing Values or ethics- based Decisions Their past experiences Feelings or emotions Skills,knowledge, and training Data from subconscious mind Ethical values and culture What is Intuition ?

Decision Making Conditions  Certainty * A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known.  Risk * A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives.

Decision-making Conditions  Uncertainty * limited information prevents estimation of outcome probabilities for alternatives associated with the problem and may force managers or rely on intuition, hunches, and “gut feelings”. # Maximax: The optimistic manager’s choice to maximize the maximum payoff. # Maximin: The pessimistic manager’s choice to maximize the minimum payoff. # Minimax: The manager’s choice to minimize maximum regret.

Decision-making styles  Dimensions of decision-making styles * Ways of thinking * Rational,orderly, and consistent. * Intuitive, creative, and unique.  Tolerance of ambiguity *Low tolerance:require consistency and order. *High tolerance: multiple thoughts simultaneously.

Decision-Making Styles (cont’d)  Types of Decision Makers * Directive # Use minimal information and consider few alternatives. * Analytic # Make careful decisions in unique situations. * Conceptual # Maintain a broad outlook and consider many alternatives in making decisions. * Behavioral # Avoid conflict by working well with others and being receptive to suggestions.

Common decision-Making errors and Biases Overconfidence Immediate Gratification Anchoring Effect Selective Perception Confirmation framing Availability representation Randomness Sunk costs Self-serving Hindsight Decision-Making Errors & Biases

Characteristics of an Effective Decision-Making  It focuses on what is important  It is logical and consistent.  It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking.  It requires only as much information and analysis as is necessary to resolve a particular dilemma.  It encourages and guides the gathering of relevant information and informed opinion.  It is straightforward,reliable, easy to use, and flexible.

A General- Decision Making Model

A General Decision-Making model  Improving the Flow of Knowledge – The flow of constructive tacit knowledge between coworkers is a priority. – Knowing what you know, what you don’t know, and how to find what you know yields better and more timely decisions.

 Knowledge Management (KM): A Tool for Improving the Quality of Decisions – Developing a system to improve the creation and sharing of knowledge critical for decision making. – Tacit knowledge: personal, intuitive, and undocumented private information. – Explicit knowledge: readily sharable public information in verbal, textual, visual, or numerical form. (Cont’d)

 Scanning the situation—identifying a signal that a decision should be made. Receipt of authoritative communications from superiors. Cases referred for decision by subordinates. Cases originating from the manager.  Classify the decision as routine, apply the appropriate decision rule; as nonprogrammed, begin comprehensive problem solving.  Monitor and follow-up as necessary. Rational (Logical) Decision Model Steps

Individual Models of Decision-Making Cognitive style Underlying personality dispositions toward the treatment of information, selection of alternatives, and evaluation of consequences. Systematic decision makers people who approach a problem by structuring it in terms of some formal method. Intuitive decision makers people who approach a problem with multiple methods in an unstructured manner, using trail and error to find a solution. Organizational models of decision making Models of decision making that take into account the structural and political characteristics of an organization.

Bureaucratic models of decision making where decisions are shaped by the organization’s standard operating procedures(SOPs). Political models of decision making where decisions result from competition and bargaining among the organization’s interest groups and key leaders. “Garbage can” model where states that organizations are not rational and that decisions are solutions that become attached to problems for accidental reasons. Organizational Models of Decision-Making

Challenges for Decision Makers  Decision Making – The process of identifying and choosing alternative courses of action to meet the demands of a situation.  Trends in Decision Making – The pace of decision making is accelerating: managers report making more decisions and having less time to make them. Complex streams of decisions Sources of decision complexity Perceptual and behavioral decision traps

 Dealing with Complex Streams of Decisions – Multiple criteria to be satisfied by a decision. – Intangibles that often determine decision alternatives. – Risk and uncertainty about decision alternatives. – Long-term implications of the effects of the choice of a particular alternative. – Interdisciplinary input increases the number of persons to be consulted before a decision is made. (Cont’d)

– Pooled decision making increases the number of persons playing a part in the decision process. – Value judgments by differing participants in the process create disagreement over whether a decision is right or wrong, good or bad, and ethical or unethical. – Unintended consequences occur because the results of purposeful actions cannot always be predicted. (Cont’d)

Classical model of management Traditional description of management that focused on its formal functions of planning, organizing, coordinating, deciding and controlling. Behavioral models Descriptions of management based on behavioral scientists observations of what managers actually do in their jobs. Managers and Decision-Making

Guideline for making decision more effective  Categorical interpretation - the problem should be defined properly.  Application of limiting factor - limiting factor should be taken into account in order to analyze the external S & W.  Adequate information - more quantity of reliable information leads to effective decision making.  Considering other views - various views at the same point are taken into account for quality decision.  Timeliness - decision should be,made at proper time to meet the competitive advantages.

Techniques for improving decision making  Brainstorming – idea generation for decision making.  Nominal group technique (NGT)- problem outlined, presentation of solution in written form, discussion over written solutions, and final decision.  Delphi technique - decision made on the basis of questionnaire filled by the respondents.  Consensus mapping - decision made on the basis of the report presented by the representative of each group after