1. Principles of
Management
Learning Session # 18
Dr. A. Rashid Kausar

2. Re-cap of
Session # 17

3. Limits to Rational Decision Making
Bounded Rationality
Risk and Risky Decisions
Common
Decision-Making Mistakes

4. Four constraints on rational decision making
Bounded Rationality
Four constraints on rational decision making
1.Limited resources
2.Information overload
3.Memory problems
4.Expertise problems

5. Choosing the Optimal Solution
Maximizing decisions
1.Choosing the optimal solution
2.Requires fully rational decision conditions

6. Choosing the Optimal Solution
Bounded Rationality
1. Suppose that you are a BBA graduate. You wanted to work with a bank with a minimum salary of Rs.9000/- per month and within a 25 KM of your hometown.
2. You accepted a job offer in a retail store at 50 KM from your home as a credit officer at a starting salary of Rs. 10,000/- per month.
3. A more comprehensive job search would have revealed a job in a multinational bank only 10 KM from your home and a starting salary of Rs.12,000/- .
4.Because the first job offer was satisfactory (“Good Enough”), You behaved in a boundedly rational manner by accepting it, although according to perfect rationality, you did not maximize your decision by searching all possible alternatives and choosing the best!

7. Choosing the Optimal Solution
Satisficing Decisions
1.choosing the “good enough” solution
2.maximization is not possible due to constraints
3.fits with bounded rationality

8. Manager As Decision Maker
Bounded Rationality:
Behave rationally within the parameters of a simplified decision-making process that is limited by an individual’s ability to process information.

9. Manager As Decision Maker
Satisfice - accept solutions that are “good enough”
Escalation of Commitment - increased commitment to a previous decision despite evidence that it may have been wrong

10. Non-Rational Models 1.Satisficing Model
Managers seek alternatives only until they find one which looks satisfactory, rather than seeking an optimal decision.

11. Factors Influencing a Satisficing Decision
Limited
Search
Information
Processing
Bias
Inadequate
Information

12. understand all factors Poor perception of factors
Time constraints
Limited ability to
understand all factors
‘Satisficing’
Decision
Making
Inadequate base
of information
Limited memory of
decision-makers
Poor perception of factors
to be considered
in decision process

13. Non-Rational Models 2.Incremental model
Managers make the smallest response possible to reduce the problem to at least a tolerable level.

14. Non-Rational Models 3.Rubbish bin model
Managers behave in virtually a random way in making non-programmed decisions.

15. The MD’s Diary
I would like to think that most decisions in organization are made in the team environment. I say this while realising that there always remains the need for a final point of arbitration, and in this organization that rests with me.
However, generally decisions are not reached unilaterally, but through the broad involvement of all the stakeholders.

16. Group Decision Making Advantages Disadvantages
More information available
Time consuming
More
alternative solutions
Delays & ill feeling possible
Increases solution
understanding & acceptance
Domination by individuals
Risk of groupthink
Builds member
knowledge & skill base

17. Enhancing Creativity in Decision Making
1. Brainstorming
2. Nominal Group Technique
3. Delphi Technique
4. Scenario Analysis