Decisionmaking

TOPIC 4 :

DECISION MAKING

Decision Making

4.1 The Decision Making Process

4.2 Decision Making: The Rationality Model

4.3 Decision Making: Amendment to the Rationality Model 4.3.1 Bounded Rationality 4.3.2 Differences in Decisions Made Under the Rationality and Bounded Rationality Models 4.3.3 General Mistakes Made in the Decision Making Process

4.4 Decision Making: Contingency Approach 4.4.1 Non-programmed Decisions 4.4.2 Programmed Decisions 4.4.3 Procedures, Rules and Policies

4.5 Group Decision Making 4.5.1 What are the Advantages of Group Decision Making? 4.5.2 What are the Disadvantages of Group Decision Making? 4.5.3 Group Think 4.5.4 How to Improve Group Decision Making?

LEARNING OUTCOMESBy the end of this topic, you should be able to:

○ Describe the decision making process;

○ Discuss the limits to making rational decisions;

○ Reviews people’s behaviour in bounded decision making;

○ Identify some general mistakes in decision making;

○ Analyse the strengths and weaknesses of group decision making

○ Illustrate the techniques for improving group decision making.

Introduction

A concrete decision must

be made

For example, after planning for a holiday, a

decision to go sight-seeing must be made.

We must decide on the destination

How many days for the tour ?

The package tour to subscribe to ?

Managers are expected to possess the skills to make an

informed decision that is precise,

constructive and impartial.

A decision made by a manager, regardless of

the level, will bring about positive or harmful effects to the unit, department and

respective divisions and in fact, the entire

organisation.

Making a decision?

THE DECISION MAKING PROCESSDefined as choosing from alternatives but this assumption is too simple as decision making is a process that involves eight stages.

1 - Identifying the Problem

2 - Identifying Decision Criteria

3 - Assigning Weightage for

the Criteria

4 - Developing Alternatives

5 - Analysis of Alternatives

6 -Choosing from

Alternatives

7 -Implementation of Alternative

8 - Evaluation of the

Effectiveness of the Decision

STEP 1

1 - Identifying the Problem

A subjective process

A manager can become aware by

comparing the present situation

against the standard.

Example: a decision to

buy a new car.

You are currently facing a car engine

breakdown and have already spent about

RM7,000.00 on repairs over the last few years.

Your mechanic makes an estimate and finds that the cost of repairing your car is not economical.

To add to this, the current public transportation

system does not facilitate your

mobility.

We now have a problem!!!

STEP 2

2 - Identifying Decision Criteria

Could it be the price of

the car?

Safety?

Type of car?What are the considerations to be

looked into before making a

choice?

Every decision made has criteria which will assist in the decision making.

STEP 3

ASSIGNING WEIGHTAGE FOR THE CRITERIA

PriceInternal comfortDurabilityRepair recordsPerformanceMaintenance

☺It will help prioritise the criteria.

☺It represents the simplest approach whereby a weight of 10 is given to the most important criteria and a lower weight for less important criteria.

10

85

5

3 1

STEP 4

Developing Alternatives

Use his/her personal

knowledge and experiences to develop ideas.

Solicit ideas from peers, employees,

vendor and customers or refer to books and reference materials.

Viewing problems from varying

perspectives.

Group discussions, brainstorming sessions and meetings.

It is very important to keep in mind the goals and objectives to be achieved throughout these process!!!

STEP 5

AlternativesInitial Price

Internal Comfort

DurabilityRecord of repairs

Performance Maintenance Total

Kembara

Mercedes

BMW

Honda

Volvo

Jaguar

Mazda

Perdana

Nissan

Audi

Toyota

GTi

2

9

8

9

5

10

4

7

9

5

6

8

10

6

5

5

6

5

8

6

7

8

5

6

8

5

6

6

9

6

7

8

4

5

10

6

7

6

6

7

10

4

6

6

4

4

10

5

5

8

4

6

7

3

8

5

4

10

6

7

5

6

6

5

7

3

9

6

5

10

6

8

37

40

35

38

44

31

42

38

33

42

43

40

Analysis of Alternatives

You have to assess the cars by giving marks on a scale of 1 – 10 after test-driving the cars.

STEP 6

Kembara

Mercedes

BMW

Honda

Volvo

Jaguar

Mazda

Perdana

Nissan

Audi

Toyota

GTI

20

90

80

90

50

100

40

70

90

50

60

80

80

48

40

40

48

40

64

48

56

64

40

48

40

25

30

30

45

30

35

40

20

25

50

30

35

30

30

35

50

20

30

30

20

20

50

25

15

24

12

18

21

9

24

15

12

30

18

21

5

6

6

5

7

3

9

6

5

10

6

8

195

223

198

218

221

202

202

209

203

199

224

212

Choosing from Alternatives

CRITICAL

STEP!

Make a selection based on the highest score!

STEP 7 & 8

STEP 7

•Implementation of Alternative

•Decision ► Action

•This step involves conveying the decision to those involved and getting their full commitment.

STEP 8

•Evaluation of the Effectiveness of the Decision

•To evaluate whether the decision has solved the problem.

8 STEPS!

Identifying the Problem

Identifying Decision Criteria

Assigning Weightage for the

Criteria

Developing Alternatives

Analysis of Alternatives

Choosing from Alternatives

Implementation of Alternative

Evaluation of the Effectiveness of

the Decision

DECISION MAKING: THE RATIONALITY MODEL

A rational decision maker is one who makes decisions that are objective

and logical

A consistent decision making process will provide direction for the selection of an alternative that optimises the

goals.

The rationality

model

assumption is

inaccurate

If a manager makes a decision based on limited information, he is said to be in a position of uncertainty!

DECISION MAKING: AMENDMENT TO THE RATIONALITY MODEL

Many of us make decisions based on incomplete information.

As in the example of buying a car, do you know which parts of the car are made from metals, alloy, plastic or rubber?

Do you know the car lights’ intensity of illumination and what is the level considered safe for road conditions?

When we are faced with complicated problems, we tend to take steps to reduce the problems to that level with which we can cope.

As such, managers are involved in a process called satisfice which is the process of seeking solutions which are merely satisfactory and sufficient – or in other words a satisfactory decision.

Bounded Rationality

According to Herbert Simon, an economist and management intellectual, in certain scenarios, managers act rationally.

Due to the fact that man is incapable of analysing, interpreting and understanding all the information that is required, he tends to develop simple

models by selecting the important characteristics of a problem.

The rational action taken by a manager, in formulating a simple or rational model is called bounded rationality.

The decision is “a satisficing” or a “satisfactory” solution.

Differences in Decisions Made Under the Rationality and Bounded Rationality Models

General Mistakes Made in the Decision Making Process

General mistakes

Escalation of commitment

Occurs when managers decide to increase capital or commitment to

pursue a course of action even though negative data exists that does not

support that decision.

This could come about because of overwhelming stress of losing the job,

performance, colleagues and ego.

Heuristics

The behaviour which expedites

the decision making process or the behaviour of seeking a speedy

process for consideration.

Availability Heuristics

Representative Heuristics

Availability Heuristics

The likelihood of man forming a judgement based on available or existing information, emotional experiences or on

something which has just happened which leaves a strong perception.

EXAMPLE :Fear of flying. People are more confident to drive than fly even though the airplane accident rate is far lower than road accidents. Air accidents gain more attention.

Airplane accidents receive greater media coverage and this increases perception that there is greater risk of flying than the risk of

road accidents.

Representative Heuristics

Causes individuals to inter-relate the probability of an occurrence

with an event they are accustomed to.

EXAMPLE : The ambition of students to become an F1

champion, whereas the probability of becoming a doctor is greater.

This happens because when they watch the race, they imagine they

can drive in the same way.

DECISION MAKING: CONTINGENCY APPROACH

Problems can take various forms

However, often times, problems are

complicated.

The causes of such problems

are less clear or ambiguous.

It could be new problems or

problems which are out of the norm.

The decision making aim is clear, the problem is routine and the information about the problem can be interpreted

easily and precisely.

There are simple and straightforward problems

Non-programmed Decisions

•For complicated problem!•Examples : to acquire a new firm, selecting an architect to design a new office headquarters and decision to shut down a division that is not raking in profits. Programmed Decisions

•For Simple problem!•Example : When the Federal Highway is jammed, an alternative solution that is almost always resorted to is the use of the LDP- Puchong or KESAS highways.

Procedures, Rules and Policies

•A set of inter-related measures that can be utilised by managers when faced with simple and straightforward problems.

•Once the problem has been identified, the solution is straightforward.

•Rules are explicit or open statements that inform managers about the do’s and don’ts. (To solve simple problems)

•Policies provide guidelines that channels the managers’ thoughts in a particular direction.

=)

POLICIES provides guidelines which channels the managers’ thoughts in a particular direction. It outlines parameters to make decisions and not provide information on what can be done and what is prohibited. Whereas RULES are explicit statements that inform managers on what should and should not be done. Meanwhile, PROCEDURES are a series of inter-related measures that can be used by managers when confronted with routine problems.

GROUP DECISION MAKING

Many decisions which are made by an

organisation,particularly important decisions which

have an overall effect on the organisation and the

staff are made in groups.

In most cases, it is made by the group which has

to face the outcome of the said decisions.

THE ADVANTAGEG AND THE DISADVANTAGES

Provide more complete information compared to individual decisions.

Various experiences and differing perspectives can be integrated.

Capable of generating greater alternatives.

Support acceptance of the solution. This is because the decisions have been made together, particularly by those involved directly in the outcome of the decision.

This process will enhance its implementation.

The Advantages!

It is time consuming as group consensus is required.

May become a victim of circumstances when there is minority group power. The minority group in power often gets to influence the final decision.

Pressure to agree. There may be social pressure to agree.

Unclear responsibility. In group decisions, the responsibility of each member is diluted.

The Disadvantages !

GROUP THINK!

Group think refers to situations whereby the ability of groups to evaluate alternatives objectively to reach a quality decision is affected. Since there is pressure to agree, members will prevent individuals from making critical evaluations on abnormal or unpopular views. This will adversely affect the efficiency of thinking and moral judgements.

How to Improve Group Decision Making?

• A process of generating ideas.

• A simplified method of reducing stress for consensus.

• Used as a straightforward process to come up with alternatives.

• 6 – 12 members

• The head of the group will present a problem and explain it clearly to the members.

• Members are given the opportunity to come up with as many suggestions as possible within a given time.

• No criticism is made and every suggestion is recorded.

Brainstorming

• Prohibits any discussion among members when suggestions are generated.

• Members must be present but they function individually

• Each of them writes down the problems faced and suggests possible solutions that can be taken.

• It allows a formal meeting without obstructing individual thinking.

Nominal Group Techniques • Group nominal technique + computer technology.

• 50 members

• Arranged in an “U” shape with a computer terminal on each desk.

• The main advantage of this technique is that it provides anonymity and honesty

• A disadvantage to members who are not so efficient in typing.

Electronic Meeting

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