1. D ECISION M AKING Technology Management 1

2. FUNDAMENTALS OF DECISION MAKING Problem A discrepancy between an existing and a desired state of affairs 2

3. PROBLEM 3

4. FUNDAMENTALS OF DECISION MAKING Types of Problems Crisis Problem A situation that urgently requires an immediate action. Non-crisis Problem A problem that requires resolution but less urgently than a crises problem. Opportunity Problem A situation that can be dealt in a way that has a positive effect on the organization and its performance. Opportunity for organizational gain IF appropriate action taken 4

5. FUNDAMENTALS OF DECISION MAKING Decision Making a choice from two or more alternatives All organizational members make decisions. A Decision is not allowing events to take their course (route) willy-nilly. If you don’t decide, an outcome would still occur BUT? 5

6. FUNDAMENTALS OF DECISION MAKING Types of Decisions Programmed decisions A decision made when the situation occurred frequently enough or is sufficiently solved by applying predetermined decision rules. Non-Programmed decisions A decision made in a situation where predetermined decision rules cannot be applied because the situation is less structured, occurs rarely, or is unique. 6

7. CONDITIONS UNDER WHICH DECISIONS ARE MADE Certainty A situation in which a manager(decision maker) can make accurate decisions because he has complete information about the problem,the alternatives and the outcome of every alternative is known. Risk A situation in which the manager understands the problem and the alternatives and has only enough information to estimate the probability that the available alternatives will lead to the desired outcome. 7

8. C ONDITIONS U NDER WHICH DECISIONS ARE MADE Uncertainty A situation in which the manager understands the problem but has incomplete information about the alternatives and the probable consequences of each alternative. may force managers to rely on intuition, and “gut feelings” 8

9. E FFECTIVE D ECISION MAKING Decision Making ‘ The process by which managers identifies organizational problems and try to resolve them.’ Decision Taking ‘ The process by which managers take actions to effect the decision.’ Unless this step is taken, no real decision has been made and it has been an exercise in futility. 9

10. T HE D ECISION -M AKING P ROCESS It is a process of: Identifying a problem and decision criteria and allocating weights to the criteria Developing, analyzing, and selecting an alternative that can resolve the problem Implementing the selected alternative Evaluating the decision’s effectiveness 10

11. T HE D ECISION - M AKING P ROCESS 11 Identify a Problem Identify Decision Criteria Allocate Weights to Criteria Develop Alternatives Analyze Alternatives Select an Alternative Implement the Alternative Evaluate Decision Effectiveness

12. S TEP 1: I DENTIFICATION OF A P ROBLEM Problem A situation in which the existing circumstances differ significantly from the preferred situation. Characteristics of Problems A problem becomes a problem when a manager becomes aware of it There is pressure to solve the problem The manager must have the authority, information, or resources needed to solve the problem 12

13. S TEP 2: I DENTIFICATION OF D ECISION C RITERIA Decision criteria are factors that are important (relevant) to resolving the problem: Costs that will be incurred (investments required) Risks likely to be encountered (chance of failure) Outcomes that are desired (growth of the firm) 13 Step 3: Allocation of Weights to 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

14. S TEP 4: D EVELOPMENT OF A LTERNATIVES Identifying possible alternatives Alternatives are listed (without evaluation) that can resolve the problem 14 Step 5: Analysis of Alternatives Assessing each alternative’s strengths and weaknesses –An alternative’s assessment is based on its ability to resolve the issues identified in steps 2 and 3.

15. S TEP 6: S ELECTION OF AN A LTERNATIVE Choosing the best alternative The alternative with the highest total weight is chosen 15 STEP 7: IMPLEMENTATION OF THE ALTERNATIVE Putting the chosen alternative into action –Conveying the decision to and gaining commitment from those who will carry out the decision

16. S TEP 8: E VALUATION OF D ECISION E FFECTIVENESS 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 resolved, what went wrong? 16

17. THE DECISION-MAKING PROCESS Identifying a Problem Identifying the Decision Criteria Allocating Weights To Criteria Reliability Service Warranty Period On-site Service Price Case Style Reliability Service Warranty Period On-site Service Price Case Style 10 8 5 4 3 My sales representatives need new computers.

18. Developing Alternatives Fujitsu AST Sharp IBMHPTI NEC Analyzing Alternatives NEC AST HP Fujitsu IBM Sharp TI Selecting an Alternative Implementing Decision Evaluation of Decision Effectivenes s Reliability Service Warranty Period On-site Service Price Case Style The Fujitsu is the best. Compaq

19. D ECISIONS IN M ANAGEMENT F UNCTIONS 19

20. M AKING D ECISIONS Decisions are made on the basis of: Rationality Bounded Rationality Intuition 20 RationalityIntuition Bounded Rationality

21. M AKING D ECISIONS Rationality Managers make consistent, value-maximizing choices within specified constraints. 21

22. A SSUMPTIONS OF R ATIONALITY 22 The problem is clear and unambiguous. A single, well-defined goal is to be achieved. All alternatives and consequences are known. Preferences are clear. Preferences are constant and stable. No time or cost constraints exist. Final choice will have maximize payoff. Lead to Rational Decision Making

23. ...D ECISIONS A RE N OT A LWAYS “R ATIONAL ”

24. M AKING D ECISIONS ( CONT ’ D ) Bounded Rationality Managers make decisions rationally, but are limited (bounded) by their ability to process information Assumes decision makers: Will not seek out or have knowledge of all alternatives Will satisfice Can be influenced by escalation of commitment 24

25. M AKING D ECISIONS ( CONT ’ D ) Bounded Rationality Satisficing Acceptance of solutions that are “good enough” Escalation of Commitment An increased commitment to a previous decision despite evidence that it may have been wrong. 25

26. M AKING D ECISIONS ( CONT ’ D ) Bounded Rationality Four constraint on rational decision making 1. Limited Resources 2. Information overload 3. Memory problem 4. Expertise problem 26

27. M AKING D ECISIONS ( CONT ’ D ) Role of Intuition Intuitive decision making Making decisions on the basis of experience, feelings, and accumulated judgment One-third of managers and other employees said they emphasized “gut feeling” over cognitive problem solving 27

28. W HAT I S I NTUITION ? 28 Source: Based on L.A. Burke and M.K. Miller. “Taking the Mystery Out of Intuitive Decision Making.” Academy of Management Executive. October 1999. pp. 91–99. Intuition Experience-based decisions Subconscious mental processing Values- or ethics- based decisions Cognitive-based decisions Affect-initiated decisions Managers make decisions based on ethical values or culture Managers use data from subconscious mind to help them make decisions Managers make decisions based on feelings or emotions Managers make decisions based on skills, knowledge, and training Managers make decisions based on their past experiences

29. D ECISION -M AKING S TYLES Dimensions of Decision-Making Styles Ways of thinking Rational, orderly, and consistent versus Intuitive, creative, and unique Tolerance for ambiguity Low tolerance: require consistency and order versus High tolerance: multiple thoughts simultaneously 29

30. D ECISION -M AKING S TYLES 30 Source: S.P. Robbins and D.A. DeCenzo, Supervision Today. 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 1998), p. 166. High Low Way of Thinking RationalIntuitive Tolerance For Ambiguity Directive AnalyticConceptual Behavioural

31. D ECISION -M AKING S TYLES ( 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 long-term decisions Behavioural Avoid conflict by working well with others and being receptive to suggestions 31

32. O VERVIEW OF M ANAGERIAL D ECISION M AKING 32 Decision Choosing best alternative - maximizing - satisficing Implementing Evaluating Types of Problems and Decisions Well structured—programmed Unstructured—nonprogrammed Decision-Making Conditions Certainty Risk Uncertainty Decision-Making Approach Rationality Bounded rationality Intuition Decision Maker’s Style Directive Analytic Conceptual Behavioural Decision-Making Process Decision-Making Errors and Biases

33. Enough for today... 33