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DECISION – MAKING CONCEPT

 Decision is a task of choosing the best alternative from
the available alternatives set considering the
environment in which the decision is being taken and
the influence of the available information.
 According to George R. Terry,
“ decision making is the selection based on certain
criteria from two or more alternatives.”
Information Requirement in Management
 Semi-
Structured
Structured

Unstructured
Structured Decisions
 Structured decisions, are repetitive and routine, and
they involve a definite procedure for handling them so
that they do not have to be treated each time as if they
were new.
Semistructured Decisions
 Many decisions have elements of both types of
decisions and are semistructured, where only part of
the problem has a clear-cut answer provided by an
accepted procedure.
Unstructured Decisions
 The decision maker must provide judgment,
evaluation, and insight to solve the problem.
 Each of these decisions is novel, important, and
nonroutine, and there is no well-understood or
agreed-on procedure for making them.
Process of Decision Making
Step 1 Step 2 Step 3
Develop
Define Collection of potential
problem data alternatives

Step 6 Step 5 Step 4

Implement Select the best Analyze the
the decision alternative alternatives

Step 7
Establish a control
and evaluation
system
 Classification Of Decisions

Based On Based On Based On Based On Levels Based On

Goals Time Structure Of Management Conditions

Strategic
Individual Structured Decision under
Basic decisions planning
Decisions decisions certainty
decisions

Management
Group Routine Unstructured Decision under
control
Decisions decisions decisions uncertainty
decisions

Semi - Operational
Organizational Decision under
structured control
Decisions risk
decisions decisions
1. Herbert Simon Model on
Decision Making
Herbert Simon, the Nobel Prize winning researcher, showed
that humans went through three essential stages in the act
of problem solving. He called these the Intelligence,
Design, and Choice stages.
• Intelligence which deals with the problem identification
and the data collection on the problem.
• Design which deals with the generation of alternative
solutions to the problem at hand.
• Choice which is selecting the ‘best’ solution from amongst
the alternative solutions using some criterion.
Intelligence
Phase
Design
Phase
Choice
Phase
1. Intelligence Phase
 Decision making can also be considered as a type of
problem solving.
 In the first stage, that of intelligence, they collect
information about the issue from the environment and the
surrounding context.
 For example, if a person is faced with the problem of
traveling from Bangalore to New Delhi, a distance of about
2000 km, then in the intelligence stage the person will seek
all possible information of how to travel – by air, by train,
by bus, or by a personal vehicle. This inquiry is open-ended
and will involve searching for all possible avenues by which
the problem can be solved.
2. Design Phase
 Design is the process of designing solution outlines for the
problem.
 Alternative solutions are designed to solve the same problem.
 Each alternative solution is evaluated after gathering data
about the solution.
 The evaluation is done on the basic of criteria to identify the
positive and negative aspects of each solution.
 Quantitative tools and models are used to arrive at these
solutions.
 At this stage the solutions are only outlines of actual solutions
and are meant for analysis of their suitability alone.
 A lot of creativity and innovation is required to design
solutions.
3. Choice Phase
 It is the stage in which the possible solutions are
compared against one another to find out the most
suitable solution.
 The ‘best’ solution may be identified using
quantitative tools like decision tree analysis or
qualitative tools like the six thinking hats technique,
force field analysis, etc.
2. The Rational/Classical Model.
 The rational model is the first attempt to know the
decision-making-process. It is considered by some as
the classical approach to understand the decision-
making process.
 A classical decision model is a prescriptive approach
that guides management on how it should make a
decision. It rests on the assumption that managers are
logical and rational and that they make decisions that
are in the best interest of the organization.
Features of Classical Model
1. Problems are clear.
2. Objectives are clear.
3. People agree on criteria and weights.
4. All alternatives are known.
5. All consequences can be anticipated.
6. Decision makes are rational.
i. They are not biased in recognizing problems.
ii. They are capable of processing ail relevant information
iii. They anticipate present and future consequences of decisions.
iv. They search for all alternatives that maximizes the desired results.
Decision-Making Process:
i) Decision-makers have complete information about
the decision situation and possible alternatives,
ii) They can effectively eliminate uncertainty to achieve
a decision condition of certainty,
iii) They evaluate all aspects of the decision situation
logically and rationally.
3. Bounded Rationality Model or
Administrative Model
 Herbert A. Simon was of the first few scholars to recognize
that decisions are not always made with rationality and
logic.
 Bounded Rationality model is based on the concept
developed by Herbert Simon. This model does not assume
individual rationality in the decision process.
 Decision-making involve the achievement of a goal.
Rationality demands that the decision-maker should
properly understand the alternative courses of action for
reaching the goals.
• It assumes that people, while they may seek the best solution, normally settle
for much less, because the decisions they confront typically demand greater
information, time, processing capabilities than they possess. They settle for
“bounded rationality or limited rationality in decisions. This model is based on
certain basic concepts.
a. Sequential Attention to alternative solution: Normally it is the tendency
for people to examine possible solution one at a time instead of identifying all
possible solutions and stop searching once an acceptable (though not necessarily
the best) solution is found.
b. Heuristic: These are the assumptions that guide the search for alternatives
into areas that have a high probability for yielding success.
c. Satisficing: Herbert Simon called this “satisficing” that is picking a course of
action that is satisfactory or “good enough” under the circumstances. It is the
tendency for decision makers to accept the first alternative that meets their
minimally acceptable requirements rather than pushing them further for an
alternative that produces the best results.
 CASE 1
Dave is a web developer. He gets a client call stating they would like to discuss the
work details in 5 minutes. This is a big company that has heavily funded for the
project. He cannot let them go, stating he does not have time to quote a price for
his services. As a web developer, he has to discuss many details on the call. He has
to look into the input into the website and customize it according to the taste and
preferences of the interested parties.
He has to optimize the details in the content to make it the best for users.
Developers usually quote based on the work done. However, Dave now has less
time and does not have the luxury of comparing and deciding the price. He
obviously would quote a higher price than his previous assignment to make a
quick decision. It is not that he has no experience in his field or does not know
how to price the services he offers. It is the time that presses him to make a quick
decision. In short, the decision may not be rational, as this assignment may
demand more work from him.
 CASE 2
Dan wants to have a cup of coffee before starting work.
He goes intending to get a coffee to his liking. However,
the place was already overf lowing when he arrived. He
had to make a hasty decision to choose the coffee. He
did not know different types of coffee because he had to
get to work fast. So the most logical thing a person could
do is to choose whatever was on the menu. This was not
a ra t i o n a l d e c i s i o n b u t o n e t h a t wa s b o u n d b y
constraints.
Decision Support Systems
(DSS)
 A system that supports the process of decision-making
is known as Decision Support Systems (DSS) .
 DSS are interactive computer-based systems and
subsystems intended to help decision makers use
communications technologies, data, documents,
knowledge and/or models to complete decision
process tasks.
 A decision support system may present information
graphically and may include an expert system or
artificial intelligence (AI). It may be aimed at business
executives or some other group of knowledge workers.
Features of DSS Advantages of Disadvantages
• Provides rapid access to DSS of DSS
information
• Improving personal • Difficult
• Handles large amount
of data from different
efficiency • Limited storage
sources • Improving problem capability
• Provides report and solving skills • Limited information
presentation flexibility • Facilitating sharing
• Offers both technical communication • Confliction
and graphical
• Promoting learning • Require extensive
orientation
or trainings knowledge
• Supports drill down
analysis • Increasing
organizational
control
Functions/Roles of DSS in Business
What –if Graphical
Goal Oriented Risk Analysis Model Building
Analysis Analysis

• In this activity, • This activity • DSS helps in • DSS aids in the • It provide large
an end user refers to the assessment of decision making volume of data
will make procedures of risks of various process by in graphical
changes to determining the alternatives by identifying the format to
variables value of input mangers in a most visualize it
that is required business appropriate easily and
among them to
to succeed a enterprise which model for quickly.
notice the
particular goal. helps in making solving • The use of graph
resulting decisions. problems.
• Ex: while recommended
changes in
deciding to buy • Decisions can be • Ex: a TV when:
other variables. a house, a low, medium manufacturing • A quick
• Ex: if adv. Cost person first and high risk. co. has given the summary of data
is cut by 10%, calculate the responsibility to is required
what would be EMIs that he its marketing • Forecasting
the impact on can afford. manager to
• Detecting trends
sales? develop a sales
over time, etc.
forecasting
model for smart
T.V. sets.
Components of DSS Model
There are 3 main fundamental architectural components which are as follows:
v The Users
The main component of the Decision Support System is the user. As DSS uses are
normally managers, policymakers, etc., who may not qualified computer
expert; hence DSS should provide easy to use interfaces and some guidance for
using DSS and also interaction with the model, such as getting
recommendations from it.
The main goal of DSS is to make sure that the users are utilizing and get
benefitted from DSS.
v Database Management System (DBMS)
A DBMS acts as a data bank for the DSS. It stores large quantities of data collected
from different sources. It provides logical data structures for user interaction.
Inputs and outputs are stored in the database. All the processing is done in the
database. DBMS should inform the system user about how to access the
database and the different types of data available.
v Model-based Management System (MBMS)
This system’s function is to fetch the data from DBMS and transform that data
into information that helps for proper decision making. It should also provide
proper assistance to the user for model development
Types of Decision Support System
1. Data-driven
Decision Support System includes file drawer systems, data analytics
systems, analytical information systems, data storage systems and
emphasizes access and manipulation of large structured data databases.
2. Model-driven
Decision Support System model comes from a variety of fields or
specialties and could include accounting models, financial models,
representative models, optimization models, etc.
3. Knowledge-driven
This Knowledge-driven focuses on knowledge and advise managers to
take action on the basis of a certain knowledge base analysis.
Predefined facts, Stored procedures, rules, and limitations are also
referred to solve problems. It also has special expertise in problem-
solving and is closely associated with data mining.
4. Document-driven
This system helps managers obtain a nd mana ge
unstructured documents and web pages by integrating
a range of storage and processing technologies to
provide a complete review of documents and analysis.
5. Communication -driven
This is also called group decision support systems
(GDSS). Communication driven DSS includes more
than one person working to solve complex problems. It
helps executives and managers work together to come
to the final solution to solve problems. Technology can
b e u s e d f o r Co m m u n i c a t i o n d r i ve n D S S l i ke
Microsoft’s NetMeeting, Groove, etc.
Application of DSS:
Independent Inter-related Organizational
problems Problems Problems
• Whose solutions do • If the problems are • All the departments
not have any inter related, their of the organization
dependence on other solutions are also are considered if the
problems. inter related. problem is an
• The prime target is • This helps in finding organizational one.
to discover the best the best solution for • For ex: TQM
solution for the the whole set of • To make the effort
problem in problems that are more effective, it is
consideration. inter related. necessary for every
• A team generally unit or department
works together to to apply joint effort.
solve such problems.
What DSS can do for you: Classification
of DSS
The principal classes of DSS are those that provide:

1. Data access systems

2. Data analysis systems
3. Forecast-oriented data analysis systems
4. Systems based on accounting models
5. Systems based on representational models
6. Systems based on optimization models
7. Systems with suggestion models
Group Decision Support System
(GDSS)
 A group decision suppo rt system (GDSS) is an
interactive computer-based system that facilitates a
number of decision-makers (working together in a
group) in finding solutions to problems that are
unstructured in nature.
 They are designed in such a way that they take input
from multiple users interacting simultaneously with
the systems to arrive at a decision as a group.
 The tools and techniques provided by the group
decision support system improve the quality and
effectiveness of the group meetings.
Components of Group Decision
Support System (GDSS)
Hardware: Software Tools:
It includes electronic hardware like the It includes various tools and techniques,
computer, equipment used for networking, such as electronic questionnaires, electronic
electronic display boards and audiovisual brainstorming tools, idea organizers, tools
equipment. for setting priority, policy formation tool, etc.

People:
It compromises the members participating in
the meeting, a trained facilitator who helps
with the proceedings of the meeting, and an
expert staff to support the hardware and
software.
Features
 Ease of Use
 Better Decision Making
 Emphasis on Semi-structured and Unstructured
Decisions
 Specific and General Support
 Supports all Phases of the Decision Making
 Supports Positive Group Behavior
Techniques in Group Decision Making

Brainstorming Synectics

Nominal
Delphi
Group
Technique
Technique
 Brainstorming
 Developed by Alex Osborn.
 Brainstorming is a group technique by which efforts are made
to find a conclusion for a specific problem by gathering a list
of ideas spontaneously contributed by its member.
 Brainstorming is built on the following lines:

a. Generate as many ideas as possible.

b. Be creative, free-wheeling and imaginative.
c. Build upon (piggy back), extend or combine earlier ideas and
d. Withhold criticism of others’ ideas.
 Synectics
 This technique developed in 1944, by William J.J.Gordon.
 Its purpose is to increase the creative output of individuals and groups.
 The synaptic process involves:
(a) making the strange familiar, and
(b) making the familiar strange.
 It is an approach to creative thinking that depends on understanding together,
that which is apparently different.
 In this process, the leader has to play a vital role in forcing members to be away
from the routine and encourage them to offer solutions after analysing the
problem.
 Methods like role play, analogies and paradoxes are employed to generate
creative ideas.
Nominal Group Technique
 Developed by Andre Delbecq and Andrew Van de Ven at the university of
Wisconsin.
 This technique is similar to brainstorming except that this approach is more
structured. It motivates individual creativity. Members form the group for
namesake and operate independently, originate ideas for solving the problem
on their own, in silence and in writing. Members do not communicate well
with each other so that strong personality domination is evaded.
 The idea with the highest cumulative ranking is selected as the final solution to
the problem.
 Individuals silently list their ideas.
 Ideas are written on a chart one at a time until all ideas are listed.
 Discussion is permitted but only to clarify the ideas. No criticism allowed.
 A written vote is taken.
 Delphi Technique
 Members with expertise and relevant information
concerning an issue are selected to make the decision
regarding that issue. Questionnaires are sent to the
group members who record their answers in writing.

 The group members do not meet face-to-face. Replies

of a l l t h e m e m b e r s to t h e q u e s t i o n n a i re s a re
summarised and feedback to them are sent for review.
They are asked to make the decisions again in view of
the additional information. This process is repeated
until a satisfactory decision is made.
EXECUTIVE SUPPORT SYSTEM
 An Executive Support System (ESS) is software that allows
users to transform enterprise data into quickly accessible
and executive-level reports, such as those used by billing,
accounting and staffing departments. An ESS enhances
decision making for executives.
 ESS is also known as Executive Information System
(EIS).
 Executive support systems are intended to be used by the
senior managers directly to provide support to non-
programmed decisions in strategic management.
Features of Executive Information
System
1. EIS provide immediate and easy access to information
reflecting the key success factors the company and of its units.
2. A User-seductive interfaces, presenting information through
color graphics or video, allow an EIS user to grasp trends at a
glance.
3. EIS provide access to a variety of databases, both internal and
external, through a uniform interface.
4. Both current status and projections should be available from
EIS.
5. An EIS should allow easy tailoring to the preferences of the
particular users or group of users.
6. EIS should offer the capability to drill down into the data.
Components of ESS
Hardware

Software

User interface

Telecommunications
Advantages of ESS Disadvantages of ESS

 Easy for upper level executive to  Functions are limited

use
 Hard to quantify benefits
 Ability to analyze trends
 Enhance personal thinking and  Executive may encounter
decision-making information overload
 Contribution to strategic control  System may become slow
flexibility
 Difficult to keep current data
 Enhance organizational
competitiveness in the market  May lead to less reliable and
place insecure data
 Better reporting system  Excessive cost for small
 Better understanding company
 Time management
 Increased communication
capacity and quality