Decision Making

Nature of Decision Making

Decision Making process :i) It is either a specific act or a general process ii) Recognizing and defining the nature of a decision situation iii) Identifying alternatives iv) Choosing the best alternative v) Putting it into practice

Types of Decisions

1. 2.

Programmed Decision Nonprogrammed Decision

Decision Making Conditions

Decision Making Conditions

Certainty

Risk

Uncertainty

Level of Ambiguity and chances of making a bad decision Lower Moderate Higher

Perspectives on Decision Making Rational Perspectives 1. The Classical Model of Decision Making Managers should obtain complete and perfect information Eliminate uncertainty evaluate everything rationally and logically. This model rarely exists, though, but managers can still approach decision making with rationality. Behavioral Aspects 2. The Administrative Model Use of incomplete and imperfect information Are constrained by bounded rationality Tend to satisfice when making decisions 3. 4. 5. 6. Political Forces in Decision Making Intuition and Escalation of Commitment Risk Propensity and Decision Making Ethics and Decision Making

Rational Decision Making

By following these steps, managers ensure that they are learning as much as possible about the decision situation and its alternatives

Step
1. Recognizing and defining the decision situation 2. Identifying alternatives

Detail
Some stimulus indicates that a decision must be made. The stimulus may be positive or negative Both obvious and creative alternatives are desired. In general, the more important the decision, the more alternatives should be generated. Each alternative is evaluated to determine its feasibility, its satisfactoriness, and its consequences Consider all situational factors and choose the alternative that best fits the situation

Example
A plant manager sees that employee turnover has increased by 5% The plant manager can increase wages, increase benefits, or change hiring standards Increasing benefits may not be feasible. Increasing wages and changing hiring standards may satisfy all conditions Changing hiring standards will take an extended period of time to cut turnover, so increase wages

3. Evaluating alternatives

4. Selecting the best alternative

5. Implementing the chosen alternative

The chosen alternative is implemented into the organizational system

The plant manager may need permission from corporate headquarters. The HR department establishes a new wage structure
The plant manager notes that, six months later, turnover dropped to its previous level

6. Following up and evaluating the results

At some time in the future, the manager should ascertain the extent to which alternative chosen and implemented has worked

The Ethical Decision Tree

YES

Do it

Is It Ethical?
(To answer, weigh the effect on customers, Employees, the community, the environment and suppliers against the benefit to the Shareholders.)

YES

NO

Dont do it

YES

Does it maximize shareholder value

YES

Dont do it

Is the proposed action legal

NO

Would it be ethical not to take action?

( To answer, weigh the harm or cost that would be imposed on shareholders against the costs or benefits to other stockholders.)

NO

Dont Do It
NO

Do it but disclose
the effect of the action to shareholders

General Decision-Making Styles

High

Tolerance for Ambiguity

ANALYTICAL -overanalyze a situation - careful decision maker - responds well to new or uncertain situations - take longer time for decision making DIRECTIVE -Efficient, systematic -Logical, practical -Action oriented - focus on facts -Autocratic

CONCEPTUAL -Rely on intuition -Rely on discussions -Risk takers -Good at creative solutions - indecisive approach BEHAVIORAL -They work well with others - supportive -Receptive to suggestions -Avoids conflict People & Social Concerns

Low Task & Technical Concerns

Value orientation

Limited Procrastination Style/ Analytical Not to be confused with never wanting to make a decision, this style involves the delaying of a decision until enough factors have been evaluated and/or enough time has gone by for the situation to stabilize.
Intuitive Style/ Conceptual Some people are spontaneous by nature and like to decide on the spot. Experience and circumstances may sometimes support this type of problem solving approach. However, those who consistently use this style are admittedly comfortable with the trial and error, or hit and miss approach. Systematic Style/ Directive Involves identifying and evaluating each possible course of action. Of all the decision making styles, this is obviously the most likely candidate for computer based decision making tools. By Consensus Style/ Behavioral Applies to decisions that have to, or should preferably, be arrived at as a group. Individualistic Style Some individuals prefer to research and arrive at a decision on their own, without any active input from others.

Forms of Group and Team Decision Making

1.

Interacting Groups and Teams Adv interaction among people brings in new ideas Disadv politics can seep in between

2. 3.

Delphi Groups Adv experts from various fields can bring in breakthrough decisions Disadv lengthy and time consuming process and also costly Used in - major breakthrough decisions Nominal Groups Adv effective expert decision Disadv - time consuming and also limited discussion

Advantages and Disadvantages of Team Decision

Advantages 1. More information and knowledge are available 2. More alternatives are likely to be generated 3. More acceptance of the final decision is likely 4. Better decisions generally emerge 5. Enhanced communication of the decision may result

Disadvantages 1. The process takes longer than individual decision making, so it is costlier 2. Compromise decisions resulting from indecisiveness may emerge 3.One person may dominate the group 4. Groupthink may occur