Decision Making

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Lecture 2. Decision Making

PERSPECTIVE MANAGEMENT

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We try to you understand

1.That decision making as a rational process.

2. The development of alternative courses of action

3. The selection from among alternatives.

4. The differences between programmed and nonprogrammed decisions.

5. Decisions made under conditions of certainty, uncertainty, and risk.

6. The importance of creativity and innovation in managing.

7. The major principles, or guides, for planning

Decision

• Managers at all levels make decisions at all times

• All decisions will have some influence-large or small on performance

• Quality of decisions,number of decisions etc may affect manager’s individual performance

• Hence it important to develop decision making skills

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Decision Making

• Decision making is defined as the selection of a course of action from among alternatives followed by action to implement decision

• Decisions are a result of process-Decision making PROCESS can be equally or more important

• All managers must internalise decision process

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Decision Making Process

1. Stimulus (Trigger) Event

2. Problem definition

3. Gathering Information

4. Identifying alternatives,

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

6. Choosing an alternative, that is, making a decision while keeping second option alive

Stimulus/Trigger

• Any activity end point,event,information etc may serve as a stimulus to a decision making process.

• For example, Ratan Tata may come across information that Maruti-Suzuki is contemplating introducing a new model

• Another example:A news item stating that a new MBAschool is starting

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Stimulus

• What does MET do?

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Gap

• Stimulus event may reveal a GAP

• Either an opportunity gap

• Or a performance gap

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Problem Definition/identification

• Is not as easy as it may seem

• If the problem is incorrectly identified/defined, any decisions made may be directed toward solving the wrong problem

• Identifying exact problem is difficult:

1.Perceptual Problems:Negative information may be selectively perceived to distort true meaning

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Problem Identification

2 Defining problem by solutions :is a form of jumping to conclusions eg loss in profit is due to poor quality

3 Identifying symptom as problems: eg our problem is a 32%decline

Usually problems are of three types: Routine,crisis,oppotrunities

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Getting information

• Many sources of information exist

• Secondary information—magazines, business journals etc

• Primary information

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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

Developing alternatives

• Feasible alternatives (actual,potential solutions )to the problem should be developed

• Sufficient effort should be made to develop a wide range of alternatives

• Not generating enough detailed and varied alternatives can actually wind up costing both time, resources

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Development of Alternatives and the Limiting Factor

• A limiting factor is something that stands in the way of accomplishing a desired objective

• The principle of the limiting factor: By recognizing and overcoming those factors that stand critically in the way of a goal, the best alternative course of action can be selected

Evaluation of Alternatives

Once alternatives have been developed they need to be evaluated to select the one which produces the most favourable outcome and avoids the least favourable outcome.

Various aspects of this process are:

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Quantitative and Qualitative Factors

• Quantitative factors are factors that can be measured in numerical terms

• Qualitative, or intangible, factors are those that are difficult to measure numerically

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Marginal Analysis

• Marginal analysis is to compare additional revenues and the additional cost arising from increasing output

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Cost Effectiveness Analysis

• Cost effectiveness analysis seeks the best ratio of benefit and cost

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Selecting an Alternative: Three Approaches

When selecting from among alternatives, managers can use:

1. Experience,

2. Experimentation, and

3. Research and analysis.

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Decision process

1. Under Certainty• All information available and is reliable• Cause-Effect relationship known

2 Under Certainty• Data Meagre• Data reliability not known• Evaluation of relationship among variables

unknown

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Decision Making-Uncertainty

APPROACHESa) Risk Analysis: Make a best

Estimate.Data itself could be estimates.Estimate size of risk

b)Decision Tree:Probabilities of events ocurring in each alternative is estimated.Best estimate is accepted

c)Preference/utility theory

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Decsion Making-Under Risk

Factual Information available, but could be incomplete

Approaches• Complex mathematical methods• Subjective

probability-experience/judgementOther factors in decision making:Personal

Values,personality ,Organisation culture

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Decision Making

While taking decision make sure that• The IMPORTANCE of decision is realised

and taken care of.• The Impact on PEOPLEis carefully

considered• Whether decision leads to a desired course of

action is accounted• Don’t decide unconsciously first and then

search for alternatives

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Ideal Decision

• Should be correct

• As needed

• Economical

ALWAYS EXAMINE AND REEXAMINE ALTERNATE COURSE OF ACTION

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Programmed And Nonprogrammed Decisions

• Programmed decisions are used for structured or routine work

• Nonprogrammed decisions are used for unstructured, novel, and ill‑defined situations of a nonrecurring nature

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Decision Making

• Type of Problem:Structured or Non structured• Strategy Used: RATIONAL: Manager

examines a large number of options; weighs pros and cons of all e.g whether to introduce a new product

• OR Strategy used could be INCREMENTAL :alternatives are almost indistinguishable from one another

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What Type of Manager are You?

• Managers use two methods for COLLECTING information: Sensing(S) and Intuition(N)

• Managers use two methods of EVALUATING information: Thinking(T) and Feeling(F)

PROCASTINATORS

• DECISIONS are impeded by procastinators

• We should see how to proceed if you have to deal with a procastinator

• Also, try to understand how to deal with yourself, if you are a procastinator yourself

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TYPES OF PROCASTINATORS

• Perfectionists

• Dreamers

• Worriers

• Crisis Makers

• Defiers

• Overdoers

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How to deal with procastinators

• Prioritise and stick• Make &review ‘To do’ list/diary• Set specific time goals/dates• Reward self to get boring tasks done• Delegate where possible• Use the concept of ‘sunk time’• Evaluate alternatives-positives/negatives• Identify costs to you and others• What I must do VS what I like

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Criteria for Thoroughness

• Canvass wide range of alternatives• Survey full range of objectives and values

implicated by choice• Weigh cost/risk of consequences• Recognise limiting factor• Search new information• Assimilate new information,expert opinions• Re examine ALL alternatives• Make provision for implementation

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GROUP DECISION MAKING

ADVANTAGES• Knowledge/information pool• More alternatives• Participation,hence acceptanceDISADVANTAGES• Longer decision time• May evaluate fewer options• Domination by few• Members may expect participation in implementation• NO DECISION!

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GROUP DECISION MAKING TECHNIQUES

• Brainstorming

• Nominal Group Tachnique(NGT)

• Brainstorming Pool

• Collective note book

• Quality Circles

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Creativity and Innovation

• Creativity refers to the ability and power to develop new ideas

• Innovation means the use of new ideas

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The Creative Process• The creative process is seldom simple and

linear• It generally consists of four overlapping and

interacting phases:

1. Unconscious scanning

2. Intuition

3. Insight

4. Logical formulation or verification

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Rules for Brainstorming

1. No ideas are criticized

2. The more radical the ideas are, the better

3. The quantity of idea production is stressed

4. The improvement of ideas by others is encouraged