1. The Decision Making Process Week 4 MGT 101 - Principles of Management and Business

2. Objectives ✤ To describe the decision making process ✤ To practice decision making

3. The Decision Making Process ✤ Definition: ✤ A set of eight steps that begins with identifying a problem; it moves through selecting an alternative that can alleviate the problem and concludes with evaluating the decision’s effectiveness ✤ This process can be used to describe both individual and group decisions.

4. The Decision Making Process Identification of a Problem Identification of Decision Criteria Allocation of Weights to Criteria Development of Alternatives Analysis of Alternatives Selection of an Alternative Implementation of the Alternative Evaluation of Decision Effectiveness

5. Step 1: Identification of a Problem ✤ A Problem: a discrepancy between an existing and a desired state of affairs ✤ In real world, most problems are not clear.. Thus, problem identification is not simple ✤ Also, problem identification is subjective ✤ Furthermore, managers who mistakenly solve the wrong problem are not different from those who don’t solve it!

6. How Can Managers Identify Problems? ✤ They need to make comparisons between current state of affairs AND some standard ✤ The standard can be: ✤ past performance ✤ previously set goals ✤ the performance of some other unit within the organization or some other organization

7. Step 2: Identification of Decision Criteria ✤ Here, we select specific criteria that we will use in making the decision. The criteria include: price, weight, size, number of employees, hours needed... etc. ✤ Decision Criteria (single is criterion): factors that are relevant in a decision ✤ Every decision making has a criteria whether explicitly stated or not ✤ If a factor is not included, it’s considered irrelevant

8. Step 3: Allocation of Weights to Criteria ✤ In this step, we give weights to the criteria identified in the previous step ✤ A simple approach: Give 10 to the highest important factor, and then assign weight the rest against that standard ✤ For example: if you give another criterion 5, the standard is twice as important ✤ Mainly, you use your personal preferences. In a more studied decisions, you will use data, statistics, studies, analysis, and research

9. Important Criteria and Weights in a Car-Buying Decision CriterionWeight Price10 Interior Comfort8 Durability5 Repair Record5 Performance3 Handling1

10. Step 4: Development of Alternatives ✤ Here, we list all the alternatives that could succeed in solving the problem ✤ We only list them, without evaluating them

11. Step 5: Analysis of Alternatives ✤ Each alternative is evaluated by appraising it against the criteria ✤ The strengths and weaknesses of each alternative become both evident as we compare them to the criteria and weights established in step 2 and step 3 ✤ The assessment is clearly a personal judgement

12. Assessment of Possible Car Alternatives Alternative Initial Price Interior Comfort Durability Repair Record PerformanceHandling Total Mazda C230 569107744 Isuzu Ascender 76865638 BMW 33597644737 Toyota Camry 6510 6643 VW Passat86657840

13. What if? ✤ If one alternative scored 10 on every criterion, we wouldn’t need to consider the weights ✤ Similarly, if the weights were all equal, you could evaluate each alternative merely by summing up the appropriate lines

14. Evaluation of Car Alternatives: Assessment Criteria x Criteria Weight Alternative Initial Price [10] Interior Comfort [8]Durability[5] Repair Record [5]Performance[3]Handling[1] Total Mazda C230 5 506 489 4510 507 217 221 Isuzu Ascender 7 706 488 406 305 156 209 BMW 3359 907 566 304 204 127 215 Toyota Camry 6 605 4010 50 6 186 224 VW Passat8 806 486 305 257 218 212

15. Step 6: Selection of an Alternative ✤ Here, we choose the best alternative among those assessed ✤ We merely choose the alternative that scored the highest score in step 5 ✤ In our example: Toyota Camry

16. Step 7: Implementation of the Alternative ✤ Decision implementation: putting a decision into action ✤ This includes conveying the decision to those affected and getting their commitment to it

17. Step 8: Evaluation of Decision Effictiveness ✤ Managers appraise the result of the decision to see whether it has corrected the problem; did the alternative chosen in step 6 and implemented in step 7 accomplish the desired result?

18. Learning Outcomes ✤ Decision making is a process of eight steps ✤ Managers use criteria to make decisions, whether they mention them or not ✤ Managers should make alternatives and evaluate them based on the criteria ✤ Managers need to evaluate their decisions to make sure they are solving the right problem