Decision Making & Organizing

Ir. Dr. Shafishuhaza Sahlan

SHAS 4542 Sem1 Session 2022/23 - Chap 4
References:
Morse & Babcock
Chap 4 & 5

Robbins & Coulter

Chap 2 & 11
Part A: Decision Making

Part B: Organizing

3
 Decision Making
Decision making is a process of identifying problems and opportunities
and choosing the best option among alternative courses of action for
resolving them successfully. Different conditions under which decisions are
made include:

Interpersonal
Alternatives Uncertainty
issues

High Risk
Complexity
Consequences
Decision Making for Engineers
Decision-making is commonly thought of as the cognitive process one
undergoes before choosing a particular course of action.
Engineers are trained to approach problems from a relatively more
pragmatic (sensible) and logical perspective.
Engineers value efficiency, utility, and minimizing cost over aesthetics and
flair.
Understanding how the engineering mind internalizes information and
reacts accordingly can provide insight on how the human mind makes
decisions and how one can make better decisions.

A key to success in engineering management and

Be A Better
in your career is knowing how to be an effective
Decision Maker decision maker.
 Decision Theory
Decision
a choice among
two or more
alternatives

Decision-making is one of the most fundamentals yet complex

psychological processes performed regularly by human beings.
– no exact MODEL & THEORY

TWO different ways to understand how decisions are made.

1. Rational perspective - decisions are made to maximize
utility.
2. Naturalistic perspective - decisions are made with less
practicality but more influence from personal beliefs and prior
experiences.
 Decision Theory
Decisions are made under three
types of circumstances (Roth,
2007):
1. Risk: the information is
unavailable, but probabilistic
models can be used because the
distributions of random variables
are known.
2. Uncertainty: the probability
distributions are unavailable, but
other obstacles are known (such as
radiation affecting transmission
from an antenna)
3. Ambiguity: functional form is
unknown, and trial-and-error
testing may be needed even to
determine inputs and outputs
All decisions can be sorted into one
of four categories (Yates &
Tschihart, 2006):
1. Choices: selection of a subset from
a larger set of alternatives
2. Acceptances/rejections: the
binary decision
3. Evaluations: assigning worth to an
option
4. Constructions: attempting to create
an ideal solution given available
resources
 Decision Model Examples
Created to shed light how an individual commits to A decision

Normative Models
Assume that individuals are perfectly
rational and seek to optimize resources
The individual identifies a set of options,
determines the criteria (usually quantitative) for
Rational Choice Models evaluating the options, weighs each option, and
selects the option with the highest score
Used by corporations and governments, this type of
Cost-benefit Analysis decision-making is used when weighing business
decisions and new policies. Attempts to quantify
values associated with each decision
Using probability to analyze games of chance.
Risk Assessment Models Evaluating expected values while considering the
consequences of both false positives and false
negatives
An ill patient may have the weigh the risk and benefits of the two following
treatments:
Treatment A has a projected 20% chance of death and 80% chance of 35
years of normal life after the treatment.
Treatment B has a 100% chance of survival with a certainty of 18 years of
normal life.
 Decision-Making Process (DMP)

2. 3.
Generate all Predict the
possible outcome of
solutions. each
solution
1. Typical 4.
engineering
Define clearly the Determine the best
decision
objectives of solving solution by balancing
making
a specific problem the pros and cons
process
along with cost and
benefit
Decision-
Making Process
(DMP)
Eight steps in the
decision-making
process.
This process is as
relevant to personal
decisions as it is to
corporate decisions.
Robins p47
 Decision-Making Process (DMP)
DMP Step 1 : Identify a Problem
▪ Problem: an obstacle that makes it
difficult to achieve a desired goal or
purpose.
▪ Every decision starts with a problem, a
discrepancy between an existing and a
desired condition.
▪ Example: Sarah is a sales manager whose
reps need new laptops.
DMP2: Identify the Decision Criteria
▪ Decision criteria are factors that are
important to resolving the problem.
▪ Example: Sarah decides that memory and
storage capabilities, display quality, battery
Effectively identifying problems life, warranty, and carrying weight are the
relevant criteria in her decision.
is important, but not easy.
Decision-Making Process (DMP)
DMP3: Allocate Weights to the Criteria
• If the relevant criteria aren’t equally important, the decision maker must
weight the items in order to give them the correct priority in the decision.
• Example: The weighted criteria for Sarah’s computer purchase are shown
below.

Criterion Weight
Memory and storage 10
Battery life 8
Carrying weight 6
Warranty 4
Display quality 3

Important Decision Criteria

Decision-Making Process (DMP)
DMP4: Develop Alternatives
Possible Alternatives
Laptop Memory Battery Carrying Warranty Display
• List viable alternatives and Storage Life Weight Quality
that could solve the
problem. Acer Aspire E 10 3 10 8 5
Apple MacBook 8 5 7 10 10
• Example: Sarah Pro
identifies eight laptops
as possible choices Dell XPS 13 8 7 7 8 7
Lenovo 7 8 7 8 7
ThinkPad
Lenovo Yoga 8 3 6 10 8

Microsoft 10 7 8 6 7
Surface Book
Razer Blade 4 10 4 8 10
Stealth
Decision-Making Process (DMP) Criterion
Memory and storage
Weight
10
Battery life 8
Carrying weight 6
Warranty 4
Display quality 3

DMP5: Analyze Alternatives - Identify the alternatives to analyze them using the criteria
established DMP2.
DMP6: Select an Alternative - Choose the alternative that generates the highest total in DMP5.

Laptop Memory Battery Carrying Warranty Display Total

and Storage Life Weight Quality
Acer Aspire E 100 24 60 32 15 231

Apple MacBook Pro 80 40 42 40 30 232

Dell XPS 13 80 56 42 32 21 231

Lenovo ThinkPad 70 64 42 32 21 229

Lenovo Yoga 80 24 36 40 24 204

Microsoft Surface 100 56 48 24 21 249

Book
Razer Blade Stealth 40 80 24 32 30 206
Decision-Making Process (DMP)

DMP Step 1 : Implement the

Alternative
▪ Put the chosen alternative into action.
▪ Convey the decision to those affected
and get their commitment to it.

DMP8: Evaluate Decision Effectiveness

▪ Evaluate the result or outcome of the
decision to see if the problem was
resolved.
▪ If it wasn’t resolved, what went wrong?
Decisions Managers -
options
Rationality in Making Decisions

Rational Decision Making:

choices that are logical and
consistent and maximize value

Assumptions of rationality:
• Rational decision maker is logical and objective
• Problem faced is clear and unambiguous
• Decision maker would have clear, specific goal and be aware of all
alternatives and consequences
• The alternative that maximizes achieving this goal will be selected
• Decisions are made in the best interest of the organization
Intuition in Making Decision
Managers make decision based on their experience - intuition

Intuitive Decision:
making decisions on
the basis of experience,
feelings, and
accumulated judgment
Types of Decisions

Unstructured Problems
Structured problems Programmed decisions and Non-programmed
Decisions
• straightforward, familiar, • repetitive decisions that • Unstructured
and easily defined can be handled by a problems: problems
problems routine approach that are new or unusual
• Procedure: a series of and for which
sequential steps used to information is
respond to a well- ambiguous or
structured problem incomplete
• Rule: an explicit • Nonprogrammed
statement that tells decisions: unique and
managers what can or nonrecurring and
cannot be done involve custom-made
• Policy: a guideline for solutions
making decisions
Types of Decisions
Programmed vs. Nonprogrammed Decisions
Characteristic Programmed Decisions Nonprogrammed
Decisions
Type of problem Structured Unstructured
Managerial level Lower levels Upper levels
Frequency Repetitive, routine New, unusual
Information Readily available Ambiguous or incomplete

Goals Clear, specific Vague

Time frame for solution Short Relatively long

Solution relies on… Procedures, rules, policies Judgment and creativity

Decision-Making Styles
FOUR different individual decision-making styles
based on 2 dimensions:
1. An individual’s way of thinking
2. An individual’s tolerance for ambiguity
Directive style: low
tolerance for ambiguity
and seek rationality
Conceptual style:
intuitive decision
makers with a high
tolerance for
ambiguity Analytic style: seek
rationality but have a
higher tolerance for
ambiguity
Behavioral style:
intuitive decision
makers with a low
tolerance for
ambiguity 2
Decision-Style Model

Decision-style model from A. J. Rowe and J. D.

Boulgarides, Managerial Decision Making (Upper
Saddler River, NJ: Prentice Hall, 1992), p. 29.
Common Decision-Making Biases
Identifies 12 common decision errors of managers and biases they may have.

Immediate Anchoring
Overconfidence
Gratification Effect

Selective
Confirmation Framing
Perception

Availability Representation Randomness

Sunk Costs Self-serving Hindsight

 Common Decision-Making Biases
Identifies 12 common decision errors of managers and biases they may have.

Immediate Anchoring
Overconfidence
Gratification Effect
Cognitive bias-
Quick / immediate tendency to rely
rewards heavily on first piece of
Selective information offered
Confirmation Framing
Perception
Tendency to rely on Indicative situation of a Tendency to see a
information that comes greater tendency - pattern instead of data
Based
or on argument
information
readily
See to mind
situation / issue stereotyping
Cherry-picking/ favor – was presented instead
from a chosen to win an argument of facts
Availability
perspective Representation Randomness
Taking credit for Accurately predict an
Making Decisions that
positive outcomes but event before it
are irrational and lead
blaming others for occurred – lead to
to suboptimal outcome
negative events unnecessary risks
Sunk Costs Self-serving Hindsight
Cutting-Edge Decision Making

Two technology driven cutting-edge aides to decision making are :

1. Big Data
• The vast amount of quantifiable data that can be analyzed by highly sophisticated
data processing.
• Big data has opened the door to widespread use of artificial intelligence (AI)
• Can be a powerful tool in decision making, but collecting and analyzing data for
data’s sake is wasted effort
2. Artificial Intelligence (AI)
• uses computing power to solve complex problems
• AI systems has the ability to learn and have facilitated the use of new tools such
as:
• Machine learning
• Deep learning
• Analytics
Cutting-Edge Decision Making
1. Machine Learning: A method of
data analysis that automates
analytical model building.
2. Deep Learning: A subset of
machine learning that use
algorithms to create a hierarchical
level of artificial neural networks
that simulate the function of the
human brain.
3. Analytics: The use of
mathematics, statistics, predictive
modeling, and machine learning to
find meaningful patterns in a data
set.
Part B: Organizing
 Elements of Organizational Design
• Organizing: management function that
involves arranging and structuring work
to accomplish the organization’s goals
• Organizational structure: the formal
arrangement of jobs within an
organization
• Organizational chart: the visual
representation of an organization’s
structure
• Organizational design: creating or
changing an organization’s structure
Purposes of Organizing
1. Divides work to be done into specific jobs and
departments.
2. Assigns tasks and responsibilities associated with
individual jobs.
3. Coordinates diverse organizational tasks.
4. Clusters jobs into units.
5. Establishes relationships among individuals,
groups, and departments. Establishes formal lines
of authority.
6. Allocates and deploys organizational resources.
Work Specialization
Work specialization: dividing work activities into separate job tasks
Productivity
Chapter 11 Robbins p348
decreases over time

Individual employee Boredom, fatigue,

‘specialize’ in doing stress, low quality ..
part of an activity

To increase work
output & quality

Division of labor

Makes efficient use

of the diversity of
skills that workers
have
Most demanding and
least demanding job the economies and
done by different set diseconomies of work
specialization
of workers
Departmentalization the basis by which jobs are
grouped together
Functional Departmentalization – Group Jobs According to Function

Plant Manager

Manager Manager Manager Manager

Manager HR
Engineering Accounting Manufacturing Purchasing

Pro Efficiency on putting Cons Poor communication across

together similar specialties functional area
common knowledge and Limited view of
orientation working together organizational goals
Coordination within
functional area
In-depth specialization
Departmentalization the basis by which jobs are
grouped together
Geographical Departmentalization – Group Jobs According to Geographic Region

VP for Sales

Sales
Sales Director Sales Director Sales Director
Director,
Southern Midwestern Eastern
Western
Region Region Region
Region

Pro More effective and efficient Cons Duplication of functions

handling of specific regional
issues that arise
Can feel isolated from other
Serve needs of unique organizational areas
geographic markets better
Departmentalization the basis by which jobs are
grouped together
Process Departmentalization – Group Jobs on the basis of Product or Customer Flow

Plant
Superintende
nt

Planning & Finishing

Sawing Assembling
Milling Department
manager Manager
Manager Manager

Pro More efficient flow of Cons Can only be used for certain
activities types of products
Departmentalization the basis by which jobs are
grouped together
Customer Departmentalization – Group Jobs on the basis of specific and unique customers
with common needs

Director of
Sales

Manager, Manager, Manager

Retail Wholesale Government
accounts accounts account

Pro Customers’ needs and Cons Duplication of functions

problem can be met by
specialists
Today’s View on Departmentalization

• Two trends are:

• Cross-functional teams: a work
team composed of individuals
from various functional
specialties. This has become more
popular as tasks become more
complex.
• Customer departmentalization:
emphasizes monitoring and
responding to customers’ needs
Chain of Command & Authority
• Chain of command: the line of authority extending from
upper organizational levels to the lowest levels, which
clarifies who reports to whom
• Authority: the line of authority extending from upper
organizational levels to the lowest levels, which clarifies
who reports to whom
• Line authority: authority that entitles a manager to
direct the work of an employee
• Staff authority: positions with some authority that have
been created to support, assist, and advise those holding
line authority
 Responsibility & Span of Control
• Responsibility: the obligation or expectation to perform
any assigned duties

• Unity of command: the management principle that each

person should report to only one manager

• Span of control: the number of employees a manager can

efficiently and effectively manage
Span of Control
Highest Span of 4 Span of 8

1 1 1

2 4 8

3 16 64

4 64 512

5 256 4,096

6 1,024 Fewer levels &

fewer staffs
7 4,096
 Centralization and Decentralization
• Centralization: More Centralization More Decentralization
the degree to Environment is stable. Environment is complex, uncertain.
which decision Lower-level managers are not as Lower-level managers are capable and
making is capable or experienced at making experienced at making decisions.
concentrated at decisions as upper-level managers.
upper levels of the Lower-level managers do not want a Lower-level managers want a voice in
organization say in decisions. decisions.
Decisions are relatively minor. Decisions are significant.
• Decentralization: Organization is facing a crisis or the Corporate culture is open to allowing
the degree to risk of company failure. managers a say in what happens.
which lower-level Company is large. Company is geographically dispersed.
employees provide
Effective implementation of company Effective implementation of company
input or actually strategies depends on managers strategies depends on managers
make decisions retaining say over what happens. having involvement and flexibility to
make decisions.
 Employee Empowerment
• Employee
empowerment: giving
employees more
authority (power) to
make decisions.
• Formalization: how
standardized an
organization’s jobs are
and the extent to which
employee behavior is
guided by rules and
procedures.
Mechanistic and Organic Structures
Mechanistic
organization: an
organizational
design that’s rigid
and tightly
controlled
Organic
organization: an
organizational
design that’s
highly adaptive
and flexible
Mechanistic vs Organic Organizations
Strategy and Structure

• An organization’s structure should

facilitate goal achievement.
• Goals are an important part of the
organization’s strategies, it’s only
logical that strategy and structure are
closely linked.
• There’s considerable evidence that an
organization’s size affects its structure,
but once an organization grows past a
certain size, size has less influence on
structure
Technology and Structure
• Unit production: the production of items in units or small batches
• Mass production: the production of items in large batches
• Process production: the production of items in continuous processes
blank Unit Production Mass Production Process
Production
Structural Low vertical Moderate vertical High vertical
characteristics: differentiation differentiation differentiation
blank Low horizontal High horizontal Low horizontal
differentiation differentiation differentiation
blank Low formalization High formalization Low
formalization Woodward’s
Findings on
Most effective Organic Mechanistic Organic Technology and
structure: Structure
Traditional Organizational Design Options
• Simple structure: an organizational design with little
departmentalization, wide spans of control, centralized
authority, and little formalization
• Functional structure: an organizational design that
groups together similar or related occupational
specialties
• Divisional structure: an organizational structure made
up of separate, semiautonomous units or divisions

Coulter p359
Traditional Organizational Design
Options
Matrix and Project Structures
• Matrix structure: an organizational structure that assigns specialists
from different functional departments to work on one or more projects
• Project structure: an organizational structure in which employees
continuously work on projects
The Virtual Organization
• Virtual organization: an
organization that consists of a
small core of full-time
employees and outside
specialists temporarily hired as
needed to work on projects
• Sometimes called “Network” or
“Modular” organization
• Telecommuting: a work
arrangement in which
employees work at home and
are linked to the workplace by
computer
 Compressed Workweeks, Flextime & Job Sharing
• Compressed workweek: a workweek
where employees work longer hours
per day but fewer days per week
• Flextime (or flexible work hours): a
scheduling system in which employees
are required to work a specific number
of hours a week but are free to vary
those hours within certain limits
• Job sharing: the practice of having two
or more people split a full-time job
• Contingent workers: temporary,
freelance, or contract workers whose
employment is contingent on demand
for their services
51