“A wise man makes his own decisions; an ignorant man follows the public opinion.” Learning Outcomes 1. Analyse the difference between problems, problem solving and decjgiokmaNge. 2, Contrast the different types of managerial decisions and decision jitions that exist in a business. 3. Explain and apply the different decision-making models to 4. Evaluate group decision making and make recommeniigtic improved. 5. Discuss the tools for decision making undathe valor isi Introduction In performing the four fundament: seMent, managers are constantly ldressed and decisions that need to hake a decision about goals and when, where, and how they will be lies that managers are faced with threats, a problem or an offportur ssful managers out-decide their competitors in at least three ways; 1. They er, and! 3. TheljmplemenRpese decisions more. Relationshi icen Problems, Problem Solving, & Decision Makin; A PROBLEM exists whenever managers have perceived a difference between what has actually happened and what they have planned to happen, PROBLEM SOLVING is the process of taking corrective action that will solve the problem and that will realign the organization with its goals. DECISION MAKING is process of selecting an alternative course of action that will solve the problem. Managers need to make a decision each time there is a problem. Lecturer. Mr®.T. Chirango 0735 697 941 0774 376 975tWhatsay On5)TYPES OF MANAGERIAL DECISIONS No matter what decision a manager makes, the decision-making process is either programmed or non-programmed. 1, Programmed Decision These are repetitive and routine to the extent that systematic procedures can be devised so that each decision does not have to be treated as a unique case. Fagjggxample the processing of graduation candidates at university. Managers usually decision by way of policies, standards operating procedures and rules| 2. Non-Programmed Decision These are decisions made on new probleme that (Ns encoutetd before. Managers at all levels make these ey . rn DECISION-MAKING CONDITION: different ions: 1agers\make decisions under each condition, but ‘omplex and unstructured problems faced Outcomes of options Onteomes of options predictable ‘unpredictable coring Wai) are made under the condition of certainty when available options and the benefitf costs associated with each are know in advance and the manager has perfect knowledge of all the information needed to make a decision. ‘The decision is a sure thing. No element of change intervenes between the option and its outcome. Under conditions of certainty managers are simply faced with identifying the consequences of available options and selecting the outcome with the greatest potential benefit. Lecturer Mr ®.T. Chirango 0735 697 941 0774 376 975tKatspp On5)Risk — When a decision is made under the condition of risk the manager does not know the outcome of each alternative in advance, but can assign a probability to cach outcome. Decisions under the condition of risk are the most common., Probability has two categories namely objective and subjective. Objective Probability is based on historical evidence. It refers to the likelihood that a particular state of events will occur, based on hard facts and figures. Managers cannot be sure that that certain events will occur, but, by examining past records, they can determine the likely outcome of an event. In subjective probability the manager relies on personalgmggimates and belief of the situation outcome. The decision is a gamble Uncertainty — Decisions are made under conditions of uncertain, wl information. Here the outcome of each alternative is unpredi determine probabilities. Decisions made under | c unquestionably the most difficult. Is guch ses which to base an estimate of the likeli jes. No historical data is available from which to infer p iMumstances are so novel and complex that it is impossible to judgements. Although managerial intelligence and competenke are wi , the ability to deal with uncertainty is rare, The most common of ions of uncertainty are those involving the intraguctio technology or new markets, where management has to 1g recessions and stock market crashes. 2. Physical crises eg supply breakdowns and product failures, 3. Personnel crises eg strikes or work place violence, 4, Criminal crises eg theft and product tampering. 5. Information crises eg theft of information and tampering with company records. 6. Reputation crises may be caused by rumour mongering. 7. Natural disaster eg earth quake and floods. Lecturer: Mr®.T. Chirango 0735 697 941 f 0774 376 97 5t%stsspp OnG)DECISION MAKING MODELS There are basically two types of models that a manager should consider; rational model and bounded-rational model. Managers need to know which model to use and when. 1. Rational model — a manager should select the best possible solution, this is known as optimizing. Managers should optimize when they are making non-programmed, high risk decisions in conditions of uncertainty 2. In bounded-rationality — the manager uses satisficing, ic. the first oftiMghat meets the minimal criteria. When managers are making programrfey | or fon that certain decisions they should satisfice, that is, they should se t pI meets the minimal criteria, e THE DECISION MAKING PROCES AN phiiées or steps that individual in “o increase the probability that Il lead to maximum achievement of ig situations, managers go through a numbers of stages that hel solutions. The diam Jgh the problem and develop alternative in the normal progression that leads Lecturer Mr®.T. Chirango 0735 697 941 0774 376 975tWatsipp Onf)‘THE DECISION MAKING PROCESS Note that these steps are more applicable to non-programmed decisions than to programmed decisions. Problems that occur infrequently with a great deal of uncertainty require the manager to utilise the entire process. By contrast, problems that occur frequently with a great deal of certainty are often handled by policies, standard operating procedures and rules, making it unnecessary to develop and evaluate alternatives each time these situations arise. Lecturer. Mr ®. T. Chirango 0735 697 941 Fiage....9 0774 376 975tW%stsrn Ons)Stage 1 Recognize, classify, and define the problem The first step in the decision making process is recognizing that there is a problem/threat or an opportunity. The problem or opportunity may be classified in term of the type of the: 1. Decision (programmed or non programmed) that need to be made, 2. Decision making condition (certainty, risk or uncertainty), 3. Decision making model (rational or bounded-rationality model) from the cause of the problem. If the situatign isi ai ined, any decision made will be directed towards ygiving the done if decisions are repet joals for non-programmed decisions and the criteria. Critegja are to be met in order to accomplish the anager or a team setting the goals. Group decision set, the next step is to identify various courses of action to deal with the situation. Many courses of action needed are identified to solve the problem. Innovation, creativity, groups, and technology should be used. The number of options identified is limited by time and money constraints. Managers should decide whether to use the rational or the bounded rational model. Lecturer. Mr®.¥.Chirango 0735 697 941 om 0774 376 97-s1Whstsspp Ons)Stage 4 Eyaluate alternative courses of action Once the various courses of action have been identified, the next step is to evaluate the options. Each option should be evaluated in terms of its strengths and weaknesses, advantages and disadvantages, benefits and costs. Because each option is likely to have both positive and negative features, most evaluations involve balancing anticipated consequences. The evaluation of options may be intuitive or may follow a scientific approach. ranking the options in order of priori. In pr ‘an option is subjective, Stage 5 Select the best course of action Here the manager selects the best option. This step requi i\s ate each option carefully against the goals and cyjterif®set ip the tee, with the view of ed h manager's experience, values, internglagol Wu choice. Stage 6 e damaged by poor implementation, while a poor entation, Therefore, implementation may be just as impdptant as th¥gctNjjy of selecting an option. Decisions Sgyld bd explained in such a way that all the relevant parties understand them. The decisions should be clearly communicated to the relevant parties. Those concerned should understand not only the logic behind a decision, but also what they are supposed to do. A suitable organizational structure, good leadership, a strong organizational culture, and a fair reward system will enhance the implementation of decision. Lecturer. Mr ®.T. Chirango 0735 697 941 om 0774 376 97 5t%atssp9 On6)Stage 7 Conduct follow-up evaluation Once a decision has been set in motion, evaluation is necessary to provide feedback on its outcome. Adjustments are invariably needed to ensure that actual results compare favourably with planned results. The process of evaluation closes the feedback loop. The soundness of a decision may be evaluated against planned results. If necessary modifications can be made and further options identified and evaluated. This should be seen as an opportunity for acquiring new knowledge in order to improve future decisions ;-ROUP DECISIO! KIN Stage 2 and 3 of the decision-making process rely heavily on creatij vation. Group decision making can enhance this process, especial ff non- programmed decision where there is likely a great deal of unggrft ge outcome. ‘The complexity of many of these decision-making Jj knowledge from many fields. The group dynamic sti ro matter how outrageous, can generate jdeas Whether groups make better decision extensive discussion, Groups are subjec Advantages* + Groups providg a by participated in the decision making process 5. Participation in problem solving and decision making will improve the morale and motivation of employees ted and aligned. 7. Allowing participation in problem solving and decision making trains people to work Beliefs and values can be transi in groups through developing group process skills Lecturer, Mr®.T. Chirango 0735 697 941 0774 376 975tWisispp Ons)Disadvantages* 1. It may be more time-consuming and lead to slower decision making. 2. Groups are more likely to satisfice than an individual, especially when group ‘meetings are not run effectively - The decision reached could be a compromise rather than the optimal solution. 3. Individuals become guilty of groupthink — the tendency of members of a group to conform to the prevailing opinions of the group. 4, One group member or sub group may dominate and nullify the gro, s. 5. It may inhibit creativity and lead to group conformity and ‘groupt *See also Chirango's Communication Study Pack ‘TECHNIQUES FOR IMPROVING GROUg DE In order to overcome the disadvantagegf#nd to cap} decision making, various techniques hag been more creative. The following are the pa) isadvantages of group ce group decision making rn a for improving group decision making: 1, Brainstorming 2. Nominal group tecifftque 3. Delphi technique 4, Group decision supp&ggpystem¥GDSS} Delphi E Brain- storming Lecturer, Mr®.T. Chirango 0735 697 941 = 0774 376 975tWatapp OnG)1, Brainstorming Brainstorming is a technique used to stimulate creative or imaginative solutions to problems. Group participants informally generate as many ideas as possible without evaluation by others. This prohibition should encourage contributions from members who are particularly shy, have divergent ideas, or have low status within the group. During idea generation, group members are encouraged to build on, but not criticise, g synergistic ideas produced by others. This cross fertilization is assumed to produc effect. The object is to generate as many ideas as possible in the bi ideas conceived, the greater will be the likelihood of one outstanding Brainstorming is merely a process of generating ideas. NN Rules governing brainstorming; e The following rules govern brainstormir@sessiong: 1, Criticism is prohibited. The judgm’ reMye or imaginative solutions to organizational problems shoufi DS Wyph 1 all the solutions have been generated. 2. No. ‘Yes but. > Aunments Me allow’ 3. Imaginative solutions argM@portant. ater the number of solutions, the greater an outstanding one, 4 the number of solutions, the greater the likelihood 5 jnproving various solutions and the improvement of suggested 2. Nominal group technique This technique is a structured group decision-making technique. ‘The nominal group technique restricts discussion or interpersonal communication during the decision-making process. Group members are all physically present, as in a traditional committee meeting ‘but members operate independently. Lecturer Mr ®.T. Chirango 0735 697 941 Pose. 0774 376 975t*%atsspp Onb)This method involves the use of a highly structured meeting, complete with an agenda, and restricts discussion or interpersonal communication during the decision-making process. The group members are physical present, as in a traditional committee meeting, but, members operate independently. This avoids some of the pitfalls, such as pressure to conform, group dominance, hostility, and conflict. Step 1 - seven to ten members meet as a group. Before any discussion takggplace, each ‘member independently writes down his or her ideas on the problem, Step 2 - The group leader collects a single idea from each membe Yc leader systematically gathers information from all participants, Eac| ts one idea to the group. No discussion takes place until all the ideas n Step 3 - The ideas are clarified through a guide! discuffi Step 4—The group leader then instructsfMarticipagist MQ ot ir preferred solution Step 5 - Each member independently ran lution ich groups may be affected by a aficipants. This technique involves using a series of confidential questionnaires to refine a solution, In this technique groups’ members never meet face to face. The following steps characterize the Delphi technique 1, The problem is identified and members provide potential solutions through a series of carefully designed questionnaires 2. Each member anonymously and independently completes the first questionnaire. Lecturer’ Mr®.. Chirango 0735 697 941 0774 376 975¢Wistane Ont)3. The results of the first questionnaire are compiled at a central location, transcribed and reproduced, 4, Bach member receives a copy of the results, 5. Afler viewing the results members are again asked for solutions. The results may typically trigger new solutions or cause changes in the original position 6. The last two steps are repeated as often as necessary until consensus is reached. Brainstorming, the nominal technique, and the Delphi technique shoulgn nas competing choices, but as complementary techniques. GROUP DECISION SUPPORT SYSTEMS NN i to valves kinds of fost GDSSs can be used to A cate through electronic media. sophisticated computers, called electronic brainstorming. their disposal networked IM. Inste\d of contributing their ideas in a round robin fashion, they simply other group other group CANS ISS is an electronic meeting. This technique blends the nominal cated computer technology. Group members sit around a presented to the participants and they type their responses onto a computer screen. Individual comments as well as aggregate votes, are displayed on a projection screen in the room. Electronic meetings can be as much as 55% faster than traditional face to face meetings. In general, senior managers use Delphi while middle managers use nominal and lower manager's use brainstorming techniques. Lecturer; Mr®.T. Chirango 0735 697 941 0774 376 97st hstspp On5)‘TOOLS FOR DECISION MAKING Various tools are available to assist managers in performing stage 4 of the decision making process (the evaluation of alternative courses of action) and stage 5 (the selection of the best option). uantitative tools for decision These have their roots in mathematics “~ ditions of certai Is a quantitative tool for optimally allocating scarce resources among competing uses to maximize benefits or minimizes losses. These resources could be human, financial, physical or informational, There are many applications of Linear programming, The so called ‘travelling salesman problem’ is a classic linear programming application. Lecturer: Mr ®.. Chirango 0735 697 941 Foage..14 0774 376 975tfetary Ons)The problem is to determine the shortest or least costly route for a salesperson to travel visit a set of list cities. The salesperson must visit each city only once, never retrace any steps, and return to the starting city. Linear programming is capable of determining which route is the shortest or least costly to follow 2. Queuing theory It is a tool for analyzing the costs of waiting lines. The objective is to achieve an optimal balance between costs of increasing service and the amount of time individuals, machines, and material must wait for service. De jon making tools 1, Probability analysis ‘This tool estimates the likelihood that an outcome wil Neh 1s to the estimated likelihood, expressed as a percegtage tft will Sedir. There are two complementary approaches @Pusing ity gah Bis namely: a. decision trees \ b._ pay-off matrices. (a) Decision tree: It conditions of uncertainty and risk hicallyQustrate) the alternatives available to a manager lem. Reig gFigned to estimate the outcome of a series uence of the major decision is drawn, the resulting ith branches, Decision trees assists in the careful f action. Decision trees are valuable because they 2. Break-even analysis This technique involves the calculation of the volume of sales that will result in a profit. It requires a forecast of the sales volume and the cost of production. The break-even point is then calculated as the level of sales where no profit or loss results. Company may calculate how many customers it needs to break even. Lecturer Mr ®.T. Chirango (0735 697 941 m7 0774 376 975hsterp On6)3. Capital Budgeting: is a technique used to evaluate alternative investments. Capital budgeting is a technique by which each alternative is analysed in financial terms and placed on the capital budget. There are various capital budgeting methods, eg a. Payback period can be used to calculate the years it will take to recover the initial cash invested. The alternative that offers the shortest payback period is then preferred. b. Another method selects the investment with the highest gygrage rate of return, 4. Simulation Simulation is a quantitative technique for imitating a 1 Ahi that the ese meedls involve cely outcomes of various courses of acticg can b constructing and testing a model of eal wor 5. Kepner-Fourie method It combines the obj subjectivity comes fron value weights gom th ‘Step 5 — Seleet the alternative with the highest total weighted score as the solution to the problem 6. Cost-benefit Analysis It compares the costs and benefits of each alternative course of action using subjective intuition and judgement. 3 IBBHOY 13GB H VG 18GWVVQ_IIBHVVIQ Lecturer; | Mr®.T. Chirango 0735 697 941 0774 376 975tWietsppOn6)Case Study Questions ‘Read the case study on from page 185 to 187 and answer the following questions During 2009, Standard Bank faced many problems that they needed to solve. Management needed to go through a number of stages that helped them think through the problem and make optimal decisions. Discuss the stages in the decision-making process that Standard Bank needed to follow. In your discussion, you need to apply each stage of the decision-making process to Standard Bank 2. Group decision making can enhance the decision making processespf that you have discussed in the previous question, Defend the st better decisions than individuals working alone’, 3. Various techniques exist that can improve group decisy Which of these techniques would you recommend Bank, given the problems and oppo ‘ Substantiate your answer. 4, Most of the de . Explain the eonditions under which decisions are made in an organization. [lustrate your answer by means of practical examples from the business environment, 4, Compare the various techniques that an organization can use to enhance group decision making. 5. Various tools are available to assist managers in especially two stages of the decision making process, namely the evaluation of alternative courses of action and the Lecturer: Mr ®.T. Chirango ‘0735 697 941 0774 376 975hetssrn Onb)selection of the best option. Discuss these tools for decision making and distinguish between the tools that are most appropriate for use by top, middle and lower management of an organisation 6. Discuss the seven steps in the decision making process, 7. Discuss the decisions that an owner/manager will have to make before opening a restaurant, 8. What decision-making techniques would you use to select a good business proposition? 9. Conditions under which decisions are made vary. Explain this statg 10. Analyse the various alternatives in purchasing a small car ( se the “Kepner-Fourie’ method and identify the ‘must’ and “fbt yourself. Which car meets your criteria? Explain. (Use the grifPMgovit different criteria and follow the specigc prMeduy }itline the e unication lanagement 1, 2 and 3 0735 497 941 0774 376 975 (Woice (Whatsapp) % 3869S 9G 19D Oy 33D IQ Lecturer, Mr®.T. Chirango 0735 697 941 oa 0774 376 9751atsspp On)