1. Chapters 8 and 9 Fundamentals of Decision Making &
Planning and Decision Aids

2. OVERVIEW CHAPTER 8 What is Decision Making
Conditions that affect decision making
The Differences between decision types
Understanding how goals relate to decision making
Understanding the three models of decision making

3. What is Decision Making
The process of defining problems, gathering information, making sense of that information, generating alternatives, and choosing a course of action.

4. Conditions Under Which Decisions Are Made
Certainty vs. Uncertainty
Risk
Objective Probability vs. Subjective Probability

5. Certainty vs. Uncertainty
The condition under which individuals are fully informed about a problem, alternative solutions are obvious, and the possible results of each solution are clear.
Uncertainty
The condition under which an individual does not have the necessary information to assign probabilities to the outcome of alternative solutions.

6. Risk
The condition under which individuals can define a problem, specify the probability of certain events, identify alternative solutions, and state the probability of each solution leading to the desired results
Generally a risk falls somewhere between the extremes of certainty and uncertainty.

7. Objective vs Subjective Probability
Objective Probability
Determines the likelihood that a specific outcome will occur based on hard facts and numbers.
Example: examining past records
Subjective Probability
Determines the likelihood that a specific outcome will occur, based on personal judgments and beliefs
This varies between individuals based on expertise, intuition, etc.

8. Types of Decisions to be Made
Routine Decisions: choices made in response to relatively well-defined and common problems and alternative solutions.
Adaptive Decisions: choices made in response to a combination of moderately unusual and only partially known problems and alternative solutions
Continuous improvement: streams of adaptive decisions made over time in an organization that result in a large number of small, incremental improvements year after year.
Innovative decisions: choices based on the discovery, identification, and diagnosis of unusual and ambiguous problems and the development of unique or creative alternative solutions.

9. Goals affect decision making
Goals are results to be attained
Therefore, giving direction to decisions and actions.
When a goal is changed or modified, the individual is engaging in the decision making process.

10. General and Operational Goals
General Goals: provide broad direction for decision making in qualitative terms.
Operational goals state what is to be achieved in quantitative terms, for whom, and within what time period.

11. How do Stakeholders Affect Goal Setting?
Shape demands, contraints, and choices of alternatives that managers and employees face when setting goals.

12. Decision-Making Models
Rational
Bounded Rational
Political

13. Rational Model
A series of steps that individuals or teams should follow to increase the likelihood that their decisions will be logical and well founded
Permits maximum achievement of goals w/in limitations of the situation
Routine decisions or situations involving conditions of low risk

14. Rational Decision Making Model As A Seven Step Process
Define & diagnose the problem
Set goals
Search for Alternative Solutions
Compare & Evaluate Alternative Solutions
Choose among alternative solutions
Implement the solution selected
Follow up and control

15. Bounded Rationality Model
An individual’s tendency…
To select less than the best goal or alternative solution
To engage in a limited search for alternative solutions
To have inadequate information & control over external and internal environmental forces influencing the outcomes of decisions

16. Information Processing Biases
Availability Bias
Selective Perception Bias
Concrete Information Bias
Law of Small Numbers Bias
Gambler’s Fallacy Bias

17. Political Model
A description of the decision-making process in terms of the particular interests and goals of powerful external and internal stakeholders
Power – the ability to influence or control
Scapegoating – Casting blame for problems on innocent
Co-optation – means of averting threats

18. CHAPTER 9 OUTLINE Forecasting
3 Forecasting Aids: Scenario, Delphi, and Simulation
Brainstorming
Cause and Effect Relationships
TQM topics
Pert Network

19. FORECASTING
Is the projecting, predicting, or estimating future events or conditions in an organization’s environment.
Forecasting deals with conditions or external events beyond the organization’s control that are important to its survival.
EXAMPLES ????

20. Extrapolation: uses both the past and present to predict the future.

21. FOUR FORCASTING PITFALLS
1) Listening to the media.
2) Assuming things are going to return to the way they used to be.
3) Hearsay
4) Tunnel Vision

22. First forecasting aid: SCENARIO
Written description of a possible future.
3 scenarios are usually given for companies and they are for the best case, worst case, and most likely to occur.
Scenarios provide possibilities of what could happen and the business can plan strategies.
They give companies a broad vision of possible events.
Companies can identify patterns, interrelationships, and generalizations that help plan for the future.

23. Second forecasting aid: DELPHI TECHNIQUE
Based on a consensus of a group of experts.
This technique relies on opinions, so it is not foolproof, but it is usually more accurate than an opinion from one expert.

24. 3 BASIC STEPS OF THE DELPHI TECHNIQUE
STEP 1: Questionnaire is sent to a group of experts.
STEP 2: Summary of the first round is prepared.
STEP 3: Summary of the second round is prepared.

25. Third forecasting aid: SIMULATION
A representation of a real system.
Effects of environmental changes and internal management decisions can be forecasted by simulation.
The simulation goal is to test reality without actually experiencing it.
Downfalls: impossible to apply all aspects and it is expensive.

26. VIRTUAL REALITY Simulation by computer systems.
The user can “enter”, move around, and interact with objects.
Flight Simulators

27. BRAINSTORMING
Flow of ideas without restrictions or judgments.

28. 4 BASIC RULES OF BRAINSTORMING
Criticism is ruled out.
Freewheeling is welcomed.
Quantity is wanted.
Combination and improvement are sought.

29. Cause and Effect A then B, therefore A causes B
But what about C, D, E, F??
Cause and effect Diagram- helps back track a problem to its roots
Also known as fishbone diagrams

30. General Framework of Cause and Effect (Fishbone) Diagram
9.6
General Framework of Cause and Effect (Fishbone) Diagram
People
Materials
Effect
(or Problem Statement)
Equipment
Methods
Adapted from Figure 9.1

31. Cause and Effect Diagram
The cause and effect diagram helps team members display, categorize, and evaluate all the possible causes of an effect, which is generally expressed as a problem.

32. Cause and effect steps
Step 1: the team needs to agree on the effect, which should be stated in terms of the problem
Step 2: the team identifies all the general factors of categories that contribute to the problem, which will help the team organize the specific causes
Step 3: the team may also use brainstorming or other techniques to generate all the possible causes that contribute to the problem (or effect) in that category
Step 4: Involves reaching agreement on the top 3-5 root causes in each major category

33. TQM Topics Benchmarking- comparing self to the best in terms of:
*process, strategies, products, and
performance
Steps:
Define domain
Determine what is best
Collect information to create performance gap

34. The Benchmarking Process
1. Define the issue
2. Identify the best performers
3. Collect and analyze data to identify gaps
4. Set improvement goals
5. Develop and implement plans
6. Evaluate results
7. Repeat evaluation

35. Deming Cycle Developed by W. Edwards Demming
Also called the PDCA cycle:
Planning: goals, what to change, how to know
Doing: Pilot-testing
Check: look at results
Act: implement and perform
* Continuously repeated for improvement

36. Pareto Principle
States that a small number of causes (usually 20%) accounts for most of the impacts of the problems (80%) aka the rule
Pareto analysis separates the vital few from the trivial many, thus improving the analysts chances of getting the greatest results for the least amount of time and effort

37. Pareto Diagram: Data Categorized by Shift
9.10
Pareto Diagram: Data Categorized by Shift 35
Source: Adapted from E. S. Fine. Pareto diagrams get to the root of process problems. Quality, October 1996, available at (January 16, 1998). 9
Frequency 7 7 6 3 2 5 4
Mon Tue Mon Wed Thu Wed Tue Fri Thu Fri
Defect
Adapted from Figure 9.6

38. Pareto Diagram
A chart used to determine the relative priorities of issues, defects, or problems. They are arranged in descending order of magnitude of importance, indicating which problems to address first
Can also be used to compare before and after results of projects by comparing diagrams

39. PERT Program Evaluation and Review Technique
- Method of sequencing activities and estimating cost and time for project completion
First use: 1958 – Polaris missile
program

40. Commonly used for: One-of-a-kind projects – Disney World
Projects involving new production processes – robotic automobile plant
Projects with multiple/interlocking building processes – apartment complexes

41. PERT Network
Diagram showing the sequence and relationships of activities and events to finish a project
Critical Path – the path which takes the longest time to complete

42. A Basic PERT Network Event 3 Event 1 Event 4 Event 2 Activity B
9.12
A Basic PERT Network
Activity B
Activity E
Event 3
(8 weeks)
(6 weeks)
Activity C
Event 1
Event 4
(15 weeks)
Activity A
Activity D
Event 2
(8 weeks)
(12 weeks)
Adapted from Figure 9.8

43. Resources, Time, and Money
Resource availability influences time and cost for completion
Cost estimates must be provided
Time estimates must be provided
* “most likely time”
* “optimistic time”
* “pessimistic time”
* “expected time”

44. Purpose
Used as a control mechanism that allows project managers to monitor differences in actual and projected estimates, resulting in more efficient completion.

45. COURTESY OF THE PEANUT GALLERY
THE END
COURTESY OF THE PEANUT GALLERY