This topic will specifically discuss

on (1) the process of making

decision, (2) the Conditions in
making such decision, (3) the
basic types of decisions, (4) the
models of decision making & (5)
decision making traps

Sir, why did you give me low

marks? I deserve to get
higher than that. Hehehe!

What are the factors

you consider before
making a decision?

 All

of us make decisions everyday.

Decision

making includes defining

problem, gathering information, generating
alternatives, and choosing a course of
action.

Decision making is the cognitive process leading to

the selection of a course of action among alternatives.

Every decision making process produces a final

choice. It can be an action or an opinion.

Decision making is a reasoning process which can

be rational or irrational, and can be based on explicit
assumptions or tacit assumptions.

Examples:
Shopping, studying
What to eat, What to wear, when to sleep, etc..

Source: http://en.wikipedia.org/wiki/Decision_making

 Structured

problems

* Involved clear goals.

*Are familiar(have occurred before)
*Are easily and completely definedinformation about the problem is
available and complete.

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

 Identify

a problem and decision criteria and

allocate weights to the criteria.

Develope,

analyze, and select an

alternative that can resolve the problem.

Implement
Evaluate

the selected alternatives.

the decisions effectiveness.

 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.

 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 ( e.g. growth
of the firm).

 Decision

criteria are not equally important:

* Assign a weight to each item.
* Place the items in the correct priority
order of their importance in the decision
making process.

 Identifying

viable alternatives.
* Alternatives are listed ( without evaluation) that
can resolve the problem.

Step 5 :Analyze alternatives

Appraise

each alternatives strengths and

weaknesses
* The appraisal is based on its ability to resolve
the issues identified in step 2 and step 3.

* The alternative with the highest total

weight is chosen.

Step 7: Implement the Alternative

Put

the decision to and gain comment

from those whose carried out the
decision.

 The

soundness of the decision is

judged by its outcomes.
* How effective is the alternative to
solve the problem?
* If the problem is still not solved, what
is wrong actually?

 Programmed

decision
*A repetitive decision that can be handled
by a routine approach.

Non-programmed

decisions

* Decision that is unique and non-repetitive.

* Decision that generates unique responses.

Characteristics

Programmed
decisions

Non-programmed
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

solution

Short

Relatively long

Solution relies on

Procedures,rules, and
policies

Judgment and creativity

 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.
Regulation

* an explicit statement that limits what a

manager or employee can or cannot do.

 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.

 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 managers choice to
maximize the maximum payoff.
# Maximin: The pessimistic managers choice to
maximize the minimum payoff.
# Minimax: The managers choice to minimize
maximum regret.

Certainty

Objective
probabilities

Clear

Uncertainty

Risk

Subjective
probabilities

Intuition and judgment

 Dimensions

of decision-making styles
* Ways of thinking
* Rational, orderly, and consistent.
* Intuitive, creative, and unique.

 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.

Problem Types

Unusual and
ambiguous

Innovative
Decisions

Uncertainty

Adaptive
Decisions

Risk

Routine
Decisions

Certainty

Known and
well defined

Solution Types
(Alternative Solutions)

Untried and
ambiguous

 Standard choices made in response to relatively well-defined

and common problems and alternative solutions

Typically made under certainty and objective probability

Standards often used to set the framework for making routine

decisions

Reservations

Hotel Arrival

Phone service will be highly

The doorman (or first-contact
efficient, including: answered
employee) will actively greet
before the fourth ring; no hold
guests, smile, make eye contact,
longer than 15 seconds; or, in case
and speak clearly in a friendly
of longer holds, callmanner
Examples of
backs offered, then provided
decision rules
in less than three minutes
at Four
Seasons hotels
Messages and Paging
Hotel Departure
and resorts
No guest will wait longer
than five minutes for baggage
Phone service will be highly
assistance, once the bellman
efficient, including: answered
is called (eight minutes in
before the fourth ring; no
resorts)
longer than 15 seconds

 Adaptive Decisions
Choices made in response to a combination of moderately
unusual problems and alternative solutions
Convergencea business shift in which two
connections with the customer that were previously
viewed as competing or separate
(e.g., brick-and-mortar bookstores and Internet
bookstores) come to be seen as complementary
Continuous improvementa management
philosophy that approaches the challenge of
product and process enhancements as an ongoing
effort to increase the levels of quality and excellence

 Choices based on the discovery, identification, and diagnosis

of unusual and ambiguous problems and/or the development
of unique or creative alternative solutions
Three forms of innovation for economic progress:
1. Institutional innovation: includes the legal and institutional
framework for business, such as deregulation
2. Technological innovation: creates the possibility of new
products, services, and production methods
3. Management innovation: major changes in the way
organizations are structured and how managers perform
their functions

A GeneralDecision Making
Model

Environmental forces
1
Identify the
problem

2
Set
goals

3
Search for
alternative
solutions

4
Compare and
evaluate
alternative solutions

7
Regulatory
and Actions

6
Implement
the preferred
alternative solutions

Environmental forces

5
Make a Selection

The decision making process-Example

Identification of a problem

Identification of Decision Criteria

Allocation of weights to criteria

Development of alternatives

My sales Reps need new computers!

Memory and Storage, Display Quality, Bett

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

Analyzing of alternatives

Selection of alternatives

Implementation of alternatives

Evaluation of decision alternatives

Toshiba, HP, Soni Vaio, Qosmio, Gateway,

Apple iBook, Lenovo, Dell
Toshiba, HP, Sony Vaio, Qosmio,
Gateway, Apple iBook, Lenovo, Dell
Toshiba!

Overconfidence
Immediate
Gratification

Hindsight
Self-serving

Sunk costs

Decision-Making Errors
& Biases

Anchoring
Effect
Selective
Perception

Randomness
Confirmation
representation
Availability

framing

 When

considering a decision, the mind

gives disproportionate weight to the first
information it receives Anchor

In

business, the most common types of

anchors is a past event or trend. (sales
forecast issue)

 We

find the status quo comfortable, and

we avoid taking action that would upset it.
Ill rethink it later -> later is usually never.
Breaking from the status quo means taking action,

which means responsibility, thus opening

ourselves to criticism and to regret
Lets not rock the boat right now

 To

make decision in a way that justifies

past choices, even when the past choices
no longer seem valid.

Example:

we may have refused to sell a

stock or a mutual fund at a loss, forgoing
other, more attractive investments.

 Leads

us to seek out information that

supports our existing instinct or point of
view while avoiding information that
contradicts it.
It also affect how we interpret the evidence
we receive (too much weight to supporting
information and too little to conflicting
information)

 First

step in making decision is to frame

the question.
Frame as Gains vs. Losses
The way the problem is framed may
influence your choice.

 Plan

A: This plan will save the cargo of one

of the three barges, worth $200,000.

Plan

B: This plan has a one-third

probability of saving the cargo on all three
barges, worth $600,000, but has a twothirds probability of saving nothing.

 Plan

C: This plan will result in the loss of

two of three cargos, worth $400,000.

Plan

D: This plan has a two-thirds

probability of resulting in the loss of all
three cargoes and the entire $600,000,
but has a one-third probability of losing no
cargo.

 It
It
It

focuses on what is important

is logical and consistent.
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.

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

 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
Decisions
Values or ethics-based
Decisions

Subconscious mental
processing

Data from subconscious

mind

Feelings or emotions

Affect-Initiated Decisions
Intuition
Cognitive-Based Decisions

Skills,knowledge, and training

THE END
ANY
QUESTION?