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
!nvolved goals that clear.
"re familiar#have occurred before$
"re easily and completely defined% information
about the problem is available and complete.

Programmed decision
" repetitive decision the can be handled by a
routine approach.
Problems and Decisions # cont&d$

'nstructured problems
Problems that are new or unusual and for which
information is ambiguous or incomplete.
Problems that will re(uire custom%made
solutions.

)on%programmed decisions
Decision that are uni(ue and nonrecurring.
Decision that generate uni(ue responses.
Types of Programmed Decisions

Policy
a general guideline for making a decision about a
structured problem.

Procedure
" series of interrelated steps that a manager can
use to respond # applying a policy$ to a structured
problem.

*ule
an e+plicit statement that limits what a manager
or employee can or cannot do.
Programmed vs. Non-programmed
Decisions
Characteristics Programmed
decisions
Non-programmed
decisions
Type of problem Structured 'nstructured
Managerial level ,ower level 'pper level
re!"ency *epetitive )ew-unusual
#nformation *eadily available "mbiguous or
incomplete
Time frame for
sol"tion
Short *elatively long
$ol"tion relies on Procedures-rules- and
policies
.udgment and creativity
The Decision-
Making Process
Define the
Problem
Evaluate
Alternatives
Implement
the chosen
Alternative
/ather facts and
develop
alternatives.
Select the best
alternative.
0ollow up and
evaluate the chosen
alternative.
Decision 1aking Process

!dentify a problem and decision criteria

and allocating weights to the criteria.

Developing- analy2ing- and selecting an

alternative that can resolve the problem.

!mplemented and selected alternatives.

3valuating the decision&s effectiveness.

Step 4: !dentifying the Problem

Problem
" discrepancy between an e+isting and desired
state of affairs.

5haracteristics of Problems
" 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 6: !dentify the Decision
5riteria

Decision criteria are factors that are

important # relevant$ to resolving the
problem.
5osts that will be incurred #investment
re(uired$.
*isks likely to be encountered # chance
of failure$.
7utcomes that are desired # growth of the
firm$.
Step 8: "llocating 9eights to
the 5riteria

Decision criteria are not of e(ual

importance:
"ssigning a weight to each item.
Places the items in the correct priority
order of their importance in the decision
making process.
Step :: Developing "lternatives

!dentifying viable alternatives.

"lternatives are listed # without evaluation$ that
can resolve the problem.
Step ; :"naly2ing alternatives

"ppraising each alternative&s strengths and

weaknesses
"n alternative&s appraisal is based on its ability
to resolve the issues identified in step 6 and step
8.
Step <: selecting the alternative

5hoosing the best alternative

The alternative with the highest total
weight is chosen.
Step =: !mplementing the "lternative

Putting the decision to and gaining

comment from those whose will carry out
the decision.
Step >: 3valuating the
decision&s effectiveness

The soundness of the decision is ?udged by

its outcomes.
@ow effectively was the problem
resolved by outcomes resulting from the
chosen alternativesA
if the problem was not resolve- what
went wrongA
The decision making process-%&ample
!dentification of a problem
!dentification of Decision 5riteria
"llocation of weights to criteria
Development of alternatives
"naly2ing of alternatives
Selection of alternatives
!mplementation of alternatives
3valuation of decision alternatives
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The role of intuition

!ntuitive decision making

1aking decisions on the basis of
e+perience- feelings- and accumulated
?udgment.
int"ition
3+perience%based
Decisions
"ffect%!nitiated
Decisions
5ognitive%Based
Decisions
Subconscious
mental processing
Calues or ethics%
based Decisions
Their past e+periences
0eelings or emotions
Skills-knowledge- and
training
Data from
subconscious mind
3thical values
and culture
0hat is #nt"ition :
Decision 1aking 5onditions

5ertainty
" situation in which a manager can make an
accurate decision because the outcome of every
alternative choice is known.

*isk
" situation in which the manager is able to
estimate the likelihood #probability$ of outcomes
that result from the choice of particular
alternatives.
Decision%making 5onditions

'ncertainty
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.
; 1a+ima+: The optimistic manager&s choice to
ma+imi2e the ma+imum payoff.
D 1a+imin: The pessimistic manager&s choice to
ma+imi2e the minimum payoff.
D 1inima+: The manager&s choice to minimi2e
ma+imum regret.
Decision%making styles

Dimensions of decision%making styles

9ays of thinking
*ational-orderly- and consistent.
!ntuitive- creative- and uni(ue.

Tolerance of ambiguity
,ow tolerance:re(uire consistency and order.
@igh tolerance: multiple thoughts simultaneously.
Decision%1aking Styles
#cont&d$

Types of Decision 1akers

Directive
D 'se minimal information and consider few
alternatives.
"nalytic
D 1ake careful decisions in uni(ue situations.
5onceptual
D 1aintain a broad outlook and consider many
alternatives in making decisions.
Behavioral
D "void conflict by working well with others
and being receptive to suggestions.
5ommon decision%1aking
errors and Biases
Overconfidence
#mmediate
9ratification
Anchoring
%ffect
$elective
Perception
Confirmation
framing
Availabilit
y
representation
(andomness
$"nk costs
$elf-serving
7indsight
Decision-Making
%rrors < .iases
5haracteristics of an 3ffective
Decision%1aking

!t focuses on what is important

!t is logical and consistent.

!t acknowledges both sub?ective and ob?ective

thinking and blends analytical with intuitive
thinking.

!t re(uires only as much information and analysis

as is necessary to resolve a particular dilemma.

!t encourages and guides the gathering of

relevant information and informed opinion.

!t is straightforward-reliable- easy to use- and

fle+ible.
A 9eneral-
Decision
Making
Model
A 9eneral Decision-Making model

!mproving the 0low of Enowledge

F
The flow of constructive tacit knowledge
between coworkers is a priority.
F
Enowing what you know- what you don&t
know- and how to find what you know yields
better and more timely decisions.

Enowledge 1anagement #E1$: " Tool for

!mproving the Guality of Decisions
F
Developing a system to improve the creation
and sharing of knowledge critical for decision
making.
F
Tacit kno)ledge= personal- intuitive- and
undocumented private information.
F
%&plicit kno)ledge= readily sharable public
information in verbal- te+tual- visual- or
numerical form.
>Cont?d@

$canning the sit"ationHidentifying a signal that a

decision should be made.

*eceipt of authoritative communications from

superiors.

5ases referred for decision by subordinates.

5ases originating from the manager.

Classify the decision as routine- apply the

appropriate decision ruleI as nonprogrammed-
begin comprehensive problem solving.

Monitor and follo)-"p as necessary.

*ational #,ogical$ Decision 1odel
Steps
#ndivid"al Models of Decision-Making
Cognitive style
'nderlying personality dispositions toward the treatment of
information- selection of alternatives- and evaluation of
conse(uences.
$ystematic decision makers
people who approach a problem by structuring it in terms of
some formal method.
#nt"itive decision makers
people who approach a problem with multiple methods in an
unstructured manner- using trail and error to find a solution.
OrganiAational models of decision making
1odels of decision making that take into account the
structural and political characteristics of an organi2ation.
."rea"cratic models of decision making
where decisions are shaped by the organi2ation&s standard
operating procedures#S7Ps$.
Political models of decision making
where decisions result from competition and bargaining
among the organi2ation&s interest groups and key leaders.
'9arbage can+ model
where states that organi2ations are not rational and that
decisions are solutions that become attached to problems
for accidental reasons.
OrganiAational Models of Decision-Making
Challenges for Decision Makers

Decision 1aking
F
The process of identifying and choosing alternative courses
of action to meet the demands of a situation.

Trends in Decision 1aking

F
The pace of decision making is accelerating: managers
report making more decisions and having less time to make
them.
J
Comple& streams of decisions
J
$o"rces of decision comple&ity
J
Percept"al and behavioral decision traps

Dealing with 5omple+ Streams of Decisions

F
M"ltiple criteria to be satisfied by a decision.
F
#ntangibles that often determine decision alternatives.
F
(isk and "ncertainty about decision alternatives.
F
/ong-term implications of the effects of the choice of
a particular alternative.
F
#nterdisciplinary inp"t increases the number of
persons to be consulted before a decision is made.
>Cont?d@
F
Pooled decision making increases the number of
persons playing a part in the decision process.
F
Calue ?udgments by differing participants in
the process create disagreement over whether a decision
is right or wrong- good or bad- and ethical or unethical.
F
'nintended conse(uences occur because the
results of purposeful actions cannot always be predicted.
>Cont?d@
5lassical model of management
Traditional description of management that focused on
its formal functions of planning- organi2ing-
coordinating- deciding and controlling.
Behavioral models
Descriptions of management based on behavioral
scientists observations of what managers actually do in
their ?obs.
Managers and Decision-Making
9"ideline for making decision more effective

5ategorical interpretation% the problem should be

defined properly.

"pplication of limiting factor% limiting factor should

be taken into account in order to analy2e the e+ternal S K
9.

"de(uate information% more (uantity of reliable

information leads to effective decision making.

5onsidering other views% various views at the same

point are taken into account for (uality decision.

Timeliness% decision should be -made at proper time to

meet the competitive advantages.
Techni!"es for improving decision making

Brainstorming F idea generation for decision making.

)ominal group techni(ue #)/T$% problem outlined-

presentation of solution in written form- discussion over
written solutions- and final decision.

Delphi techni(ue% decision made on the basis of

(uestionnaire filled by the respondents.

5onsensus mapping% decision made on the basis of the

report presented by the representative of each group after