DECISION-MAKING APPROACH

k.R.pande
CDPA, T.U.
Introduction

 Decision making is an essence to problem

solving.
Organizational 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 organizational 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
– Involved goals that clear.
– Are familiar (have occurred before)
– Are easily and completely defined - information
about the problems is available and complete
 Programmed Decision
– A repetitive problem that can be handle by a
routine approach.
Problems and Decision (cont’d)
 Unstructured Problems
– Problems that are new or unusual and for which
information is ambiguous and incomplete.
– Problems that will require custom- made solution.

 Non-programmed Decisions
– Decision that are unique and nonrecurring
– Decisions that generate unique responses.
Types of Programmed Decisions
 Policy
 A general guideline for making a decision about a structured
problem.
 Procedure

 A series of interrelated steps that a manager can use to

respond (applying a policy) to a structured problem.
 Rule
 An explicit statement that limits what a manager or
employee can or cannot do
Programmed vs. Non-programmed
Decisions
Characteristics Programmed Non-Programmed
Decisions Decisions
Types of problems Structured Unstructured
Managerial Level Lower Level Upper Level
Frequency Repetitive New, unusual
Information Readily available Ambiguous or
incomplete
Time frame for solution Short Relatively long
Solution relies on Procedures, rules, and Judgment and
policies creativity
The Decision Making Process

Evaluate Implement the

chosen alternatives
alternatives
Follow up and
Select the best
evaluate the chosen
alternatives alternatives
Decision Making Process
 Identify a problem and decision criteria and allocating weights to
the criteria.
 Developing, analyzing, and selecting an alternative that can
resolve the problems
 Implemented and selected the alternatives.
 Evaluating the decision’s effectiveness.
Steps -1, Identifying the Problems

 Problem
– An inconsistency between existing and desired state of
affairs.

 Characteristics of the Problems

– A problem become a problems 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 the solve the problems.
Step-2, Identify the Decision Criteria

 Decision criteria are the factors that are important (relevant) to

solve the problem.
– Cost that will be incurred ( investment required)
– Risk likely to be encountered ( chance of failure).
– Outcomes that are desired (growth of the firm).
Step-3, Allocating weights of the
Criteria.

 Decision criteria are not of equal importance:

– Assigning the weight to each item,
– Places the items in the correct priority order of their importance of
the decision making processes.
–
Step-4: Developing Alternatives

 Identifying viable alternatives.

– Alternatives are listed (without evaluation) that
can resolve the problems.
Step-5: Analyzing Alternatives

 Appraising each alternative’s strengths and

weakness.
– An alternative’s appraisal is based on its ability to
resolve the issues identify in step-2 and syep-3.
Step-6: Selecting the Alternatives

 Choosing the best alternatives

– The alternative with the highest total weight is
chosen.
 Step-7: Implementing the
Alternative
 Putting the decision to and gaining the comment
from those whose will carry out the decision.
 Step-8: Evaluating the decision’s
effectiveness

 The soundness of the decision is judged by

its outcomes.
– How effectively was the problem resolve by
outcomes resulting from the chosen alternatives?
– If problem was not resolve, what went wrong?
Decision making process-Example
Identification of problem My sales reps new computers
Identification of new Memory and Storage, Display Quality, Better
criteria Life, Warranty, Carrying weight
Allocation of weigh to Memory and Storage-10, Display Quality-8,
criteria Better Life-6, Warranty -4, Carrying weight-3.

Development of Toshiba, HP, Soni Vaio, Qosmio, Gateway,

alternatives Apple iBook, Lenovo, Dell
Analyzing of alternatives Toshiba, HP, Soni Vaio, Qosmio, Gateway,
Apple iBook, Lenovo, Dell
Selection of alternatives Toshiba, HP, Soni Vaio, Qosmio, Gateway,
Apple iBook, Lenovo, Dell
Implementation of ‘Toshiba’ !
alternatives
The role of intuition

 Intuitive decision making

– Making decision on the basis of experience,
feelings, and accumulated judgment.
What is intuition?

Their past
experiences
Ethical Feelings
values and or
culture emotions
Experience-
based decisions
Affect-Initiated
Values or ethics- Decisions
based decisions Intuition
Cognitive-
Subconscious
mental processing
Based Decision

Skills,
Data from
subconscious knowledge,
mind and training
Decision Making Conditions
 Certainty
– A situation in which a manager can make an accurate decision because the
outcomes of every alternative choice is known.
 Risks
– A situation in which a manager is able to estimate the likelihood (probability) of
outcomes that result from the choice of particular alternatives
 Uncertainty
– Limited information prevents estimation of outcome probabilities for alternatives
associated for problem and many force managers or rely on intuition, hunches, and
“gut feeling”.
 Maximax: the optimistic manager’s choice to maximize the maximum payoff.
 Maximini: the pessimistic manager’s choice to maximize the maximum payoff.
 Minimax: the manager’s choice to minimize maximum regret .
Decision Making Style

 Dimensions of decision making styles

 Ways of thinking
 Rational, orderly, and consistent.
 Intuitive, Creative, and Unique

 Tolerance of ambiguity
 Low tolerance: require consistency and order.
 High tolerance: multiple thoughts simultaneously.
Decision Making Style (cont’d)
 Types of decision makers
 Directive
 Use minimal information and considers few alternatives.
 Analytic
 Make careful decision in unique situations.
 Conceptual
 Maintain a broad outlook and consider many alternatives in making
decision.
 Behavioral
 Avoid conflict by working well with others and being receptive to
suggestions
Common Decision making error
and Biases

Error and Bias

Overconfidence Immediate
Gratification
Hindsight
Anchoring
Self-serving
Effect
Decision-making
Errors and Biases Selective
Sunk costs
Perception

Randomness Confirmation

Representation Framing
Availability
Characteristics of an Effective
Decision Making
 It focuses on what is an important
 It is logical and consistent
 It acknowledges both subjective and objective thinking
and blends analytical intuitive thinking.
 It requires only as much information and analysis as is
necessary to resolve a particular dilemma.
 It encourages and guides the gathering of relevant
information and informed opinion.
 It is straightforward, reliable, easy to use, and flexible.
Scan internal and
external situation

Is a decision No
required ?

Yes

Is it a routine
decision ? NO

Yes

Followed existing Generate a non-programmed

programmed rules decisions through problem
solving

Monitor results
A General Decision Making Model

 Improving the follow of knowledge

– The flow of constructive tacit knowledge between
coworkers is priority.
– Knowing what you know, what you don’t know,
and how to find what you know yields better and
more timely decision.
A General Decision Making Model (cont’d)

 Knowledge management (KM) : A tool for

improving the quality of decisions.
– Developing the system to improve the creation and
sharing of knowledge critical for decision making.
– Tacit knowledge: personal, intuitive, and
undocumented private information.
– Explicit knowledge: readily shareable public
information in verbal, textual, visual, or numerical
form.
Rational (Logical) Decision Model Steps

 Scanning the Situation: identify a signal that a decision should

be made.
 Receipt of authoritative communications from superiors.
 Cases referred for decision by subordinates.
 Cases originating from the manager.
 Classify the Decision: as routine, apply the appropriate decision
rule; as non-programmed, being comprehensive problem
solving.
 Monitor and Follow up: as necessary.
Individual Model of Decision-
Making
 Cognitive Style
Underlying personality disposition toward the treatment of information,
selection of alternatives, and evaluation of consequences.
 Systematic Decision Makers
People who approach a problem by structuring it in terms of some formal
method.
 Intuitive Decision Makers
People who approach a problem with multiple methods in an unstructured
manner, using trail and error, to find a solution.
 Organizational Model of Decision Making
Model of decision making that take into account the structural and political
characteristics of an organization.
Organizational Model of Decision-
Making
 Bureaucratic models of decision making
where decision are shaped by the organization’s standards
operating procedures (SOPs).
 Political models of decision making
where decision’s result from competition and bargaining among
the organization’s interest groups and key leaders.
 “Garbage can” model
where states the organizations are not rational and that
decisions are solutions that become attached to problems for
accidental reasons.
Challenges for Decision Makers

Decision making
The processes of identifying and choosing alternative
courses of action to meet the demands if a situation.
Trends in decision making
The processes of decision making is accelerating:
managers report making more decisions and having
less time to make them.
 Complex streams of decisions
 Sources of decision complexity
 Perceptual and behavioral decisions traps
Challenges for Decision Makers (cont’d)

Dealing with Complex Streams of Decisions

 Multiple criteria to be satisfied by a decision.
 Intangibles that often determine decision alternatives.
 Risks and uncertainty about decision alternatives.
 Long-term implications of the effects of the choice of a particular
alternatives.
 Interdisciplinary input increases the number of persons to be consulted
before a decision is made.
 Pooled decision making increases the number of persons playing a part in
the decision process.
 Value judgment by differing participants in process create disagreement
over whether a decision is wrong or right, good or bad, ethical or unethical.
 Unintended consequences occur because the result of purposeful actions
cannot always be predicted.
Managers and Decision-Making

Classical model of management

Traditional description of management that focused
on its formal functions of planning, organizing,
coordinating, deciding, and controlling.
Behavioral model of management
Descriptions of management based on behavioral
scientists observations of what managers actually do
in their jobs.
Guideline for making decision
more effective
 Categorical interpretation- the problem should be defined
properly.
 Application of limiting factor- limiting factors should be
taken into account in order to analyze the external S&W.
 Adequate information- more quantity of reliable
information leads to effective decision making.
 Considering other views - various views at the same point
are taken into account quality decision.
 Timeliness - decision should be made at proper time to
meet the competitive advantages.
Techniques for improving decision
making
 Brainstorming – idea generation for decision making.
 Nominal group technique (NGT) – problem outlined,
presentation of solution in written form, discussion
over written solutions, and final decision.
 Delphi Technique – decision made on the basis of
questionnaire filed by the respondents.
 Consensus mapping - decision made on the basis of
the report presented by the representative of each
group after.
Decision making process-Example