Decision Making- An essence to problem solving

By: Udhaya Kumar.C

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Decision making

the process of choosing a course of action from among alternatives to achieve a desired goal. One of functions of management & a core process of planning Management executives take a number of decisions every day A direction to other to do or not to do-----means rational or irrational

Types of Problems and Decisions

There are basically two kinds of decision that managers called upon to make:
Programmed and non-programmed

Structured problems
* Involved goals that clear. *Are familiar(have occurred before) *Are easily and completely defined- information about the problem is available and complete.

Programmed decision
*A repetitive decision the can be handled by a routine approach.
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Problems and Decisions ( contd)

Unstructured problems
* Problems that are new or unusual and for which information is ambiguous or incomplete. * Problems that will require custom-made solutions.

Non-programmed decisions
* Decision that are unique and nonrecurring. * Decision that generate unique responses.
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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.
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Programmed vs. Non-programmed Decisions

Characteristics Type of problem Managerial level Frequency Information Time frame for solution Solution relies on Programmed decisions Structured Lower level Repetitive Readily available Short Procedures,rules, and policies Non-programmed decisions Unstructured Upper level New,unusual Ambiguous or incomplete Relatively long Judgment and creativity
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One more type of decision making

Organizational & personal : Organizational : taken by individual in official capacity to further the interest of organization Based on rationality, judgement and experience Example : introducing a new incentive system, transferring an employee, reallocation or redeployment of employee, etc ----affect functioning of organization directly

Features of Decision Making

Selection process Goal oriented process End process Human & rational process---involve intellectual ability Dynamic process Situational ---no.of decisions every day
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Features of Decision Making

Continuous or ongoing process Freedom to decision ---regarding final choice Positive or negative Happiness to endeavourwho takes various steps to collect all information, likely to affect a decision.
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The DecisionMaking Process

Define the Problem

Evaluate Alternatives

Implement the chosen Alternative

Gather facts and develop alternatives.

Select the best alternative.

Follow up and evaluate the chosen alternative.

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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 problem. Implemented and selected alternatives. Evaluating the decisions effectiveness.

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Step 1: Identifying the Problem

Problem
* A discrepancy between an existing and desired state of affairs.

Characteristics of Problems
* A 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. 12

Step 2: Identify the Decision Criteria

Decision criteria are factors that are important ( relevant) to resolving the problem. * Costs that will be incurred (investment required). * Risks likely to be encountered ( chance of failure). * Outcomes that are desired ( growth of the firm).
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Step 3: Allocating Weights to the Criteria

Decision criteria are not of equal importance: * Assigning a weight to each item. * Places the items in the correct priority order of their importance in the decision making process.

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Step 4: Developing Alternatives

Identifying viable alternatives. * Alternatives are listed ( without evaluation) that can resolve the problem. Step 5 :Analyzing alternatives Appraising each alternatives strengths and weaknesses * An alternatives appraisal is based on its ability to resolve the issues identified in step 2 and step 3. Following techniques useful: i. Quantitative & Qualitative analysis: ii. Marginal analysis---compare additional revenue with additional cost revenueincome received by an organization, or a state by taxes iii. Cost effectiveness analysis---alternatives evaluate based on costs & benefits
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Step 6: selecting the alternative Choosing the best alternative * The alternative with the highest total weight is chosen. Based on 1. Experiencesolved or faced similar problems 2. Experimentationtrial & error methodtrying or testing alternatives---most expensive of all techniques---does not yield optimum result & time consuming develop a test model limitationsinterrelationship b/w variables---theoretical approach---intangible factors not considereddifficult to collect data Step 7: Implementing the Alternative Putting the decision to and gaining comment from those whose will carry out the decision.
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Step 8: Evaluating the decisions effectiveness

The soundness of the decision is judged by its outcomes. * How effectively was the problem resolved by outcomes resulting from the chosen alternatives? * if the problem was not resolve, what went wrong?

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The decision making process-Example

Identification of a problem

My sales Reps need new computers!

Identification of Decision Criteria

Allocation of weights to criteria

Memory and Storage, Display Quality, Better Life,Warranty, Carrying weight Memory and Storage-10, Display Quality -8, Better Life -6,Warranty -4, Carrying weight-3
Toshiba, HP, Soni Vaio, Qosmio, Gateway, Apple iBook, Lenovo, Dell

Development of alternatives

Analyzing of alternatives

Selection of alternatives

Toshiba, HP, Soni Vaio, Qosmio, Gatewa Apple iBook, Lenovo, Dell Toshiba, HP, Soni Vaio, Qosmio, Gateway, Apple iBook, Lenovo, Dell Toshiba!
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Implementation of alternatives

Evaluation of decision alternatives

Rationality in Decision Making

Defined in terms of objective and intelligent action 2 contrasting views of models of decision making with each model using degree of rationality Economic model Bounded Rationality
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Rationality in Decision Making(Contd..)

Economic model Decision making tries to maximize values in a given situation by choosing most suitable course of action Effectively & Efficiently assures attainment of aims for which the means are selected
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Rationality in Decision Making(Contd..)

Bounded Rationality Normative approach based on following assumptions: Decision maker has clear & well defined goal that he tries to maximize He is objective & rational He can identify problem clearly & precisely
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Rationality in Decision Making(Contd..)

Clear understanding of alternative course of action Ability to analyse & evaluate alternatives Desire to come to best solution by alternative selection

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Rationality in Decision Making(Contd..)

Major implications of bounded rational decision making process: Decision maker forced to strike a balance b/w ideal & real situation No exhaustive search--- stop search in alternative when standard reached Human factors---value systems, prejudices, perceptions, social factors,etc.
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Rationality in Decision Making(Contd..)

Not search for best solution but for good solution-----aim at satisfying rather than maximizing Does not have complete knowledge of alternative & their consequences.

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