Decision Making

Introduction

 Managers make decisions dealing with

both problems and opportunities
 Managers are usually rewarded on the
basis of the importance and results of their
decisions
 Definition

 Decision making is defined as the

selection of a course of action from among
alternatives
 Significance

 Managers come up with high quality

solutions
 Have a clear understanding of alternative
courses of action
 The rational decision making aims at
deciding the best solution
Limited, or "Bounded," Rationality

 Limitations of information, time, and certainty

limit rationality, even though a manager tries
earnestly to be completely rational
 Satisficing is picking a course of action that is
satisfactory or good enough under the
circumstances
 Decision Making Process
1. Identify the problem

2. Identify the resources and constraints

3. Generate alternatives,

4. Evaluating alternatives in terms of the goal sought, and

5. Choosing an alternative, that is, making a decision

6. Implement the decision

7. Monitor the decision

 Identify the problem

 Scanning stage
 Categorization stage
 Diagnosis stage
Identify resources and constraints

 Resources in terms of people, money,

material, time, equipment, expertise,
information
 Constraints in terms political, economic,
social, technical, legal, environmental,
ethical
 Generating Alternatives

 Brainstorming – a group decision making

technique that encourages members of a
group to generate feasible ideas
 Evaluating the alternatives

 Criteria to evaluate the alternatives

 Feasibility
 Quality
 Acceptability
 Cost
 Ethics
 Selecting an Alternative: Three
Approaches

 When selecting from among alternatives,

managers can use:

1. Experience,

2. Experimentation, and

3. Research and analysis.

 Types of Decisions
 Programmed decisions
 Decisions that deal with simple, common, frequently
occurring problems that have well-established and
understood solutions

 Non-programmed decisions
 Decisions that deal with unusual or exceptional
problems
 Programmed Decisions
 These decisions are made in routine, repetitive,
well-structured situations, using predetermined
decision rules
 These decisions may be based on habit,
established policies and procedures or
computational techniques
 Programmed Decisions

 These can be made in less time, and are

consistent and inexpensive in nature
 These decisions limit the flexibility of
manager to certain extent
 Non-Programmed Decisions
 Non-programmed decisions involve situations
that are novel or ill structured
 Predetermined decision rules are impractical for
non-programmed decisions
 Decisions that involve strategies to deal with
various situations
 Non-Programmed Decisions

 Non-programmed decisions involve lot of

uncertainty, a condition where the
manager has to choose a course of action
without having complete knowledge of the
consequences that will follow its
implementation
 Nature of Problems and Decision
Making in organisation
Unstructured Problems
Top Non-programmed Decisions
Level
Managers

Middle Level
Managers

Structured First line Level Managers Programmed

Problems Decisions
 Certainty, Risk

● Certainty
● all the information the decision maker needs is fully
available
● Risk
● decision has clear-cut goals
● good information is available
● future outcomes associated with each alternative are
subject to chance
 Uncertainty, Ambiguity
● Uncertainty
● managers know which goals they wish to achieve
● information about alternatives and future events is incomplete
● managers may have to come up with creative approaches to
alternatives
● Ambiguity
● by far the most difficult decision situation
● goals to be achieved or the problem to be solved is unclear
● alternatives are difficult to define
● information about outcomes is unavailable
 Conditions that Affect the
Possibility of Decision Failure
Organizational
Problem

Low Possibility of Failure High

Certainty Risk Uncertainty Ambiguity

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution
 Group Decision Making
 Disadvantages of group decision making
 Groupthink—the tendency of the group to be
influenced collectively can negate the benefits
of group decision making.
 Empowerment—allowing more people in the
organization access to the decision-making
process may make for lower-quality decision.
Group Decision Making (cont’d)
 Disadvantages of group decision making
 Corporate governance - may dictate who can
be part of the decision-making process.
 Politics - may lead to decisions favoring the
dominant political coalition in the organization.
Group Decision Making (cont’d)
 Advantages of group decision making
 Establishing goals and objectives
 Groups are superior because of their greater
collective knowledge.

 Developing alternatives
 Groups can ensure a broad search in the various
functional areas of the organization.
Group Decision Making (cont’d)
 Advantages of group decision making
 Evaluating alternatives
 The collective judgment of the group benefits from
its wider range of viewpoints.
 Making a decision
 Groupinteraction and consensus results in the
acceptance of more risk.
Group Decision Making (cont’d)

 Advantages of group decision making

 Decision implementation
 Responsibility for effective implementation rests
with individual manager, not with group that made
decision.
Group Decision Making (cont’d)

 Creativity in group decision making

 Brainstorming
 Groups are expected to produce imaginative
solutions to organizational problems.
 No idea is too ridiculous.
 Each idea presented belongs to the group.
 No idea can be criticized.
Group Decision Making (cont’d)

 Creativity in group decision making

(cont’d)
 Delphi technique
 Involves achieving non-interactive consensus on a
topic through sequential questionnaires that are
summarized and used as feedback of opinions
from earlier responses.
 Group Decision Making (cont’d)
 Creativity in group decision making (cont’d)
 The Nominal Group Technique (NGT)
A process that brings about consensus through a
prescriptive method of group interaction:
 Individuals initially do not speak to one another.

 Each person writes ideas on a pad of paper.

 A structured sharing (listing) of ideas takes place.

 Group Decision Making (cont’d)
 Creativity in group decision making (cont’d)
 The Nominal Group Technique (NGT)
A process that brings about consensus through a
prescriptive method of group interaction:
 Each idea is discussed before a vote is taken.

 Ideas are prioritized by ranking or voting.

 The group decision is the mathematically pooled outcome

of the individual votes.
 Individual Vs. Group Decision
Making
 Nature of problem
 If the policy guidelines are provided then the
individual decisions will result in greater
creativity and efficiency
 If problem requires variety of expertise then
group decision is suitable
 Individual Vs. Group Decision
Making
 Time availability
 When there is short period of time to take
decisions individual decisions to be taken
 When time at the disposal is sufficient group
decisions can be taken
 Individual Vs. Group Decision
Making
 Climate of Decision Making
 Competitive climate induces individual decision
making
 Supportive climate leads to group decision making

 Legal Requirement
 Legal requirement for group decision will facilitate the
group decisions
 Effective Decision Making

 Categorical Interpretation
 Defining the problem properly

 Application of Limiting Factor

 Analysis of external environment and internal
strengths and weaknesses
 Effective Decision Making
 Adequate Information
 Sound and adequate information

 Considering others’ views

 All the alternatives are collected before arriving at a
decisions

 Timeliness
 Decisions must be made at proper time
 Decision Making Styles

 Analytical—seeks a rational decision and

has a high tolerance for ambiguity.
 Directive—seeks a rational decision and
has a low tolerance for ambiguity.
 Decision Making Styles

 Behavioral—seeks an intuitive decision

and has a low tolerance for ambiguity.
 Conceptual—seeks an intuitive decision
and has a high tolerance for ambiguity.
Factors That Influence Decisions (cont’d)