Decision Making- An essence to

problem solving

By: Sheeba Rehman

 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
* 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.
Problems and Decisions ( cont’d)
 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.
 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
Type of problem Structured Unstructured

Managerial level Lower level Upper level

Frequency Repetitive New,unusual

Information Readily available Ambiguous or

incomplete
Time frame for Short Relatively long
solution
Solution relies on Procedures,rules, and Judgment and creativity
policies
 The Decision-
Making Process

Implement the
Define the Evaluate
chosen
Problem Alternatives
Alternative

Gather facts and Select the best Follow up and

develop alternative. evaluate the chosen
alternatives. alternative.
 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 decision’s effectiveness.
 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.
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).
 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.
Step 4: Developing Alternatives
 Identifying viable alternatives.
* Alternatives are listed ( without evaluation) that
can resolve the problem.
Step 5 :Analyzing alternatives
 Appraising each alternative’s strengths and
weaknesses
* An alternative’s appraisal is based on its ability
to resolve the issues identified in step 2 and step
3.
Step 6: selecting the alternative

 Choosing the best alternative

* The alternative with the highest total
weight is chosen.
Step 7: Implementing the Alternative
 Putting the decision to and gaining
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
resolved by outcomes resulting from the
chosen alternatives?
* if the problem was not resolve, what
went wrong?
The decision making process-Example

Identification of a problem “My sales Reps need new computers!”

Identification of Decision Criteria Memory and Storage, Display Quality, Bett

Life,Warranty, Carrying weight
Allocation of weights to criteria Memory and Storage-10, Display Quality
-8, Better Life -6,Warranty -4, Carrying
weight-3
Development of alternatives
Toshiba, HP, Soni Vaio, Qosmio,
Gateway, 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,

Implementation of alternatives Gateway, Apple iBook, Lenovo, Dell

Evaluation of decision alternatives “ Toshiba!”

The role of intuition
 Intuitive decision making
* Making decisions on the basis of
experience, feelings, and accumulated
judgment.
 What is Intuition ?
Their past experiences

Ethical values
and culture Experience-based Feelings or emotions
Decisions
Values or ethics- Affect-Initiated
based Decisions intuition Decisions

Subconscious Cognitive-Based
mental processing Decisions

Data from Skills,knowledge, and

subconscious mind training
 Decision Making Conditions
 Certainty
* A situation in which a manager can make an
accurate decision because the outcome of every
alternative choice is known.
 Risk
* A situation in which the manager is able to
estimate the likelihood (probability) of outcomes
that result from the choice of particular
alternatives.
 Decision-making Conditions
 Uncertainty
* 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”.
# Maximax: The optimistic manager’s choice to
maximize the maximum payoff.
# Maximin: The pessimistic manager’s choice to
maximize the minimum payoff.
# Minimax: The manager’s choice to minimize
maximum regret.
 Decision-making styles
 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 Styles
(cont’d)
 Types of Decision Makers
* Directive
# Use minimal information and consider few
alternatives.
* Analytic
# Make careful decisions in unique situations.
* Conceptual
# Maintain a broad outlook and consider many
alternatives in making decisions.
* Behavioral
# Avoid conflict by working well with others
and being receptive to suggestions.
 Common decision-Making
errors and Biases
Overconfidence
Immediate
Hindsight Gratification

Self-serving Anchoring
Decision-Making Effect
Sunk costs Errors & Biases
Selective
Perception
Randomness
Confirmation
representation
framing
Availability
 Characteristics of an Effective
Decision-Making
 It focuses on what is important
 It is logical and consistent.
 It acknowledges both subjective and objective
thinking and blends analytical with 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.
A General-
Decision
Making
Model
A General Decision-Making model
 Improving the Flow of Knowledge
– The flow of constructive tacit knowledge
between coworkers is a priority.
– Knowing what you know, what you don’t
know, and how to find what you know yields
better and more timely decisions.
 (Cont’d)

 Knowledge Management (KM): A Tool for

Improving the Quality of Decisions
– Developing a system to improve the creation
and sharing of knowledge critical for decision
making.
– Tacit knowledge: personal, intuitive, and
undocumented private information.
– Explicit knowledge: readily sharable public
information in verbal, textual, visual, or
numerical form.
Rational (Logical) Decision Model
Steps
Scanning the situation—identifying 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 nonprogrammed,
begin comprehensive problem solving.
Monitor and follow-up as necessary.
Individual Models of Decision-Making
Cognitive style
Underlying personality dispositions 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 models of decision making
Models of decision making that take into account the
structural and political characteristics of an organization.
Organizational Models of Decision-Making

Bureaucratic models of decision making

where decisions are shaped by the organization’s standard
operating procedures(SOPs).

Political models of decision making

where decisions result from competition and bargaining
among the organization’s interest groups and key leaders.

“Garbage can” model

where states that organizations are not rational and that
decisions are solutions that become attached to problems
for accidental reasons.
 Challenges for Decision Makers

 Decision Making
– The process of identifying and choosing alternative courses
of action to meet the demands of a situation.
 Trends in Decision Making
– The pace 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 decision traps
 (Cont’d)

 Dealing with Complex Streams of Decisions

– Multiple criteria to be satisfied by a decision.
– Intangibles that often determine decision alternatives.
– Risk and uncertainty about decision alternatives.
– Long-term implications of the effects of the choice of a
particular alternative.
– Interdisciplinary input increases the number of persons
to be consulted before a decision is made.
 (Cont’d)

– Pooled decision making increases the number of

persons playing a part in the decision process.
– Value judgments by differing participants in
the process create disagreement over whether a decision
is right or wrong, good or bad, and ethical or unethical.
– Unintended consequences occur because the
results 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 models
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 factor 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 for 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 filled by the respondents.
 Consensus mapping- decision made on the basis of the
report presented by the representative of each group after