DECISION THEORY AND PROJECT

RISK MANAGEMENT
MPM 631

HARAMBEE UNIVERITY

BY: Mulachew Haile 1

 CHAPTER ONE

Introduction to Quantitative analysis to

Decision Making

BY: Mulachew Haile 2

Introduction
• Decision-making in today’s social and business environment has
become a complex task.
• The uncertainty of the future and the nature of competition and
social interaction greatly increase the difficulty of managerial
decision-making.
• Decision-makers can not afford to make decisions by simply
applying their personal experiences, guesswork or intuition, because
the consequences of the wrong markets, producing the wrong
products, providing inappropriate services, etc., will have major,
often disastrous consequences for organizations.

BY: Mulachew Haile 3

Cont’d…
• Quantitative analysis helps the decision maker by providing quantitative
techniques to evaluate alternative courses of action to improve quality
of decision.
• Quantitative Analysis to Decision Making is coined from two Major
concepts:
i) Quantitative Analysis
ii) Decision Making
• Each of these are separately discussed in the subsequent sections for the
sake of convenience.

BY: Mulachew Haile 4

 Introduction cont’d…
• Quantitative analysis is the scientific approach to managerial decision
making. It uses various quantitative techniques.
• Whim, emotions, and guesswork are not part of the quantitative analysis
approach.
• The approach starts with data and the data are manipulated or processed into
meaningful information that is valuable to people making decisions.
• This processing and manipulating of raw data into meaningful information is
the heart of quantitative analysis.

Quantitative Meaningful
Raw Data
Analysis Information
BY: Mulachew Haile 5
 Cont’d…
• Computers have been instrumental in the increasing use of quantitative
analysis.
• A variety of names exists for the body of knowledge involving quantitative
approaches to decision making: Decision Theory, management science,
operations research, and decision science are used interchangeably today.
• Quantitative analysis is used an aid to the decision-making process.
• The results of quantitative analysis will be combined with other
(qualitative) information in making decisions.

BY: Mulachew Haile 6

 Cont’d…
• Quantitative techniques are used to make better decisions, operate more
efficiently and generate more profits.
• Is used by organizations for better forecasting of demand and better
scheduling of employees and Project management; used to increase
advertising revenue by using a model to help develop sales plans for
advertisers and more
• other examples of how companies use quantitative analysis or operations
research methods to operate better and more efficiently, go to the website
www.scienceofbetter.org

BY: Mulachew Haile 7

Quantitative Techniques:
• Quantitative techniques are those Mathematical, statistical and
programming techniques, which help decision makers in solving problems,
especially those concerning business and industry.
• Are those techniques that provide decision makers with systematic and
powerful means of analysis, based on quantitative data, for achieving
predetermined goals.
• Quantitative techniques could be Mathematical, Statistical techniques and
Programming techniques.
Quantitative
Techniques
Mathematical Programming
Quantitative Techniques
Statistical Techniques
Techniques
BY: Mulachew Haile 8
 Cont’d…
• Mathematical Quantitative Techniques: A technique in which
quantitative data are used along with the principles of mathematics is
known as mathematical quantitative techniques. Mathematical
quantitative techniques involve: Matrices, Determinants,
differentiations, Integration, Set theory, Combinations, Permutations…

BY: Mulachew Haile 9

 Cont’d…
• Statistical Techniques are those techniques which are used in
conducting statistical enquiry concerning a certain phenomena.
• It included all statistical methods from collection of data to interpretation
of collected data, including collection, classification, summarizing,
analyzing and interpretation of data.
• The methods of collection of statistical data, techniques of classification
and tabulation of collected data, calculations of central tendencies(mean,
mode, median), dispersions(standard deviation, variance), coefficient of
correlation and regression techniques of analysis and interpretation and
deriving inference and judging their reliability come under statistical
techniques.
BY: Mulachew Haile 10
 Cont’d…
• Programming Techniques is a quantitative approaches to decision
making based on scientific method of problem solving. It provides
techniques for taking wise decisions and arriving at optimal solution.
• It includes variety of techniques including Linear programming, Net work
Analysis, Transportation and Assignment Models, Decision Theory, Game
theory, Simulation models…
• Most of the models to be covered in this course are Programming
Quantitative techniques, which are mainly of Operations Research
concern.

BY: Mulachew Haile 11

 Quantitative Techniques
Mathematical Statistical Techniques: Programming Techniques
Techniques • Methods of Collecting data • Linear Programming
• Matrices, • Collection and classification of • Transportation and
data Assignment models
• Determinants • Probability theory and Sampling • Decision Theory
• Differentiation Analysis • Simulation
• Correlation and Regression • Net work Analysis
• Integration • Index numbers • Queuing Theory
• Time series Analysis
• Sets Theory • Survey Techniques and Methods
• Theory of Game
• Integrated production models
• Combination • Analysis of Variance
• Statistical interpretation and • Inventory Planning
• Permutation inference • Replacement Theory
• Break even analysis….
BY: Mulachew Haile 12
Functions of Quantitative Techniques
• To facilitate decision making process
• To provide tools for scientific research
• To help in choosing an optimal strategy
• To enable in proper deployment of resources
• To help minimizing costs
• To help in minimizing the total processing time required for
performing a set of jobs

BY: Mulachew Haile 13

Historical development of QA/OR
• The scientific management revolution of the early 1900s, initiated by
Frederic W. Taylor, provided the foundation for the use of quantitative
methods in management.
• But modern management science research( often used interchangeably
with Quantitative analysis or Operations Research) is generally
considered to have originated during the World War II period, when
teams were formed to deal with strategic and tactical problems faced by
the military.
• These teams, formed by Britain, which often consisted of people with
diverse specialties (e.g., mathematicians, engineers, and behavioral
scientists), were joined together to solve a common problem by
utilizing the scientific method.
BY: Mulachew Haile 14
 Cont’d…
• The war was culminated by those who used resources wisely using scientific
methods.
• After the war, many of these team members continued their research in the
field of management science.
• Application of operational research to operational problems was surprisingly
successful in both the British and American military, partly because members
of the professional class who had not previously "dirtied their hands" had
their first opportunity to apply their training to operational problems.
• Their success attracted attention, and operations research spread to industry
during the fifties.

BY: Mulachew Haile 15

Contributing Factors for fast growth of OR
• Three developments that occurred during the post–World War II period
led to the growth and use of management science in nonmilitary
applications ( Business and Industry).
i. Continued research resulted in numerous methodological
developments.
• Probably the most significant development was the discovery by George
Dantzig, in 1947, of the simplex method for solving linear programming
problems.
• Other similar discoveries were Inventory Models(EOQ), Statistical
Process Control(SPC), dynamic Programming and other which
motivated them to do more.
BY: Mulachew Haile 16
Cont’d..
ii. Invention of digital computers with high analytical power computers
prompted a virtual explosion in computing power during similar time of
methodological development.
 Computers enabled practitioners to use the methodological advances to
solve a large variety of problems.
iii. The economic and industrial boom after World War II
• This resulted in continuous mechanization, automation, decentralization of
operations and division of management factors.
• This industrialization also resulted in complex managerial problems, and
therefore application of operations research to managerial decision-making
become popular.
BY: Mulachew Haile 17
Cont’d..
• After its first few years, operations research focused almost exclusively
on mathematical modelling.
• There is little communication between people in quantitative fields and
those in such "soft" fields as organizational science and general
management.
• Though there is no single theory coined to accommodate both, the
aspects should be considered in decision making process.
• Despite the limitations of the quantitative methods discussed , in many
specific areas they are quite useful.

BY: Mulachew Haile 18

Significance of QA/OR
• There is a conflicting interests in various organizational units though
they are working for the same organization.
• The major significance of QA/OR is balancing conflicting interest of
different organizational units by finding global optimum solution than
sub optimum, by following systems approach.
• Solution is global optimum if it satisfies the overall organizational
objective than specific unit; other wise it is sub optimum.

BY: Mulachew Haile 19

Features of QA/Operations Research Approach
i. Inter-disciplinary approach
ii. Methodological Approach
iii. Wholistic Approach or Systems Orientation
iv. Objectivistic Approach
v. Decision Making
vi. Use of Computers
vii. Human factors

BY: Mulachew Haile 20

Cont’d…
i. Inter-disciplinary approach
• Interdisciplinary teamwork is essential because while attempting to
solve a complex management problem, one person may not have
complete knowledge of all its aspects such as economic, social,
political, psychological, engineering, etc.
ii. Methodological Approach
•It is the application of scientific methods, techniques and tools to
problems involving the operations of systems so as to provide those in
control of operations with optimum solutions to the problems.
•Note: A system is defined as an arrangement of components designed
to achieve a particular objective(s) according to plan.
BY: Mulachew Haile 21
Cont’d…
iii. Wholistic Approach or Systems Orientation
•While arriving at a decision, the team examines the relative importance of
all conflicting and multiple objectives and the validity of claims of various
departments of the organization from the perspective of the whole
organization.
iv. Objectivistic Approach
•It seeks to obtain an optimal solution to the problem under analysis. For
this, a measure of desirability (or effectiveness) is defined, based on
objective(s) of the organization.
•A measure of desirability so defined is then used to compare alternative
courses of action with respect to their outcomes.
BY: Mulachew Haile 22
Cont’d…
v. Decision Making – It increases the effectiveness of management
decisions. It is the decision science which helps management to make
better decisions. So the major premise of OR is decision making,
irrespective of the situation involved.
vi. Use of Computers: It often requires a computer to solve the complex
mathematical model or to perform a large number of computations that
are involved.
vii. Human factors: In deriving quantitative solution, we do not
consider human factors which doubtlessly play a great role in the
problems. So study of the QA is incomplete without a study of human
factors.
BY: Mulachew Haile 23
Problem Solving and Decision Making
• Problem solving -the process of identifying a difference between the
actual and the desired state of affairs and then taking action to resolve
the difference.
• Problem – a gap between the current and desired state of a
phenomenon; it is not necessarily chaotic situation.
• E.g. Chaotic: Sales or market share of an organization is slashing down
Positive Gap: Increasing the market share from the current
15% to 25%

BY: Mulachew Haile 24

Cont’d…
• Decision making – the process of choosing the best alternative
among potential solutions.
• Decision is selection of best alternative.
• While decision making is a process, decision is an event.
• Decision is made when there are more than one alternatives; other
wise no decision would be made when there are no available options.

BY: Mulachew Haile 25

Problem Solving Versus Decision Making
?What do you think is the difference and which one is broader in scope?
Look in to the figure in the next slide and react from your own
perspective.

BY: Mulachew Haile 26

Problem Solving Process

BY: Mulachew Haile 27

Cont’d…
• Decision making is the term generally associated with the first five
steps of the problem solving process. Thus, the first step of decision
making is to identify and define the problem.
• Decision making ends with the choosing of an alternative, which is the
act of making the decision; showing decision making is narrower in
scope than problem solving.
• In solving a single managerial problem, it might necessitate to make
thousands of decisions.

BY: Mulachew Haile 28

 Cont’d…
i. Defining the Problem
• Problems should be clearly identified as separate from symptoms.
• This is the most difficult part of problem solving and is foundational.
• When problem is defined wrongly, all the efforts in the subsequent
steps will be futile and the costs will be accumulated for no recovery.
• You can’t find the right solution for wrong problem.
“Clearly defined problem is half solved”- P. Drucker

BY: Mulachew Haile 29

 Cont’d…
ii. Identify the alternatives
• Alternatives are courses of actions/strategies from which the best
choice will be chosen.
• As many as possible alternatives should have to be listed out not to
incur opportunity cost of missing the “could” be best alternative.
• Hence, alternatives should be collectively exhaustive and mutually
exclusive.
Collectively exhaustive- should list all possible alternatives in the
sphere of the decision maker
Mutually exclusive – the occurrence of one alternative should not
depend on another/should not halt the occurrence of the other.
BY: Mulachew Haile 30
 Cont’d…
iii. Determine the criteria
Criteria - factor against which you evaluate your alternatives.
• They also should be mutually exclusive and collectively exhaustive.
 what will happen if you miss out “experience” as a criteria in evaluating
candidates for promotion?

BY: Mulachew Haile 31

Problems could be:
• Single-criterion decision problems- Problems in which the objective
is to find the best solution with respect to one criterion.
• Is simple as it considers only one criteria.
eg. Gov’t tenders which are mainly based on price, Job selection
based on highest starting salary
• Multi-criteria decision problems- Problems that involve more than
one criterion.
Eg. Price and quality during purchasing of an item; Opportunity for
advancement, location, salary for job selection
Becomes more complex and require help of soft wares like spreed
sheet as the number of criteria increase.
BY: Mulachew Haile 32
Cont’d…
iv. Evaluate alternatives
• While evaluating alternatives, weight should be given to the criteria
depending on the level of importance of criteria to the decision and
necessary computations should be made.
• All advantages and disadvantages of all alternatives should be
evaluated.
• Both quantitative and qualitative analysis should be undertaken before
choosing the alternative.

BY: Mulachew Haile 33

Cont’d…
v. Choose an alternative
• List down all alternatives based on their values before choosing
among alternatives.
• This is the point where decision will be made and decision making
process ceases and problem solving takes up the remaining steps
before solving the problem.

BY: Mulachew Haile 34

Cont’d…
vi. Implement the decision
• Any decision is as good as its implementation.
• Decision without implementation of a solution remains on the shelf
without any return on the investment.
• Necessary preparations and trainings should be made before
implementing a decision; otherwise, there is no guarantee for a
lucrative solution to succeed.

BY: Mulachew Haile 35

Cont’d…
vii. Evaluate the results
• The implemented solution should have to be closely monitored and
reviewed to see whether it is working, i.e. is narrowing or removing
the defined gap or even worsening the situation or creating other
problems.
• The feed back is used to take necessary action before the problem is
beyond the control.
• Necessary information should be gathered from various sources to
update the solution where needed; otherwise the solution might fail in
the harsh light of reality.

BY: Mulachew Haile 36

 Quantitative & quantitative analysis and decision
making
• In solving a problem, managers must consider both qualitative and
quantitative factors
i) Qualitative analysis is based primarily on the manager’s judgment and
experience; it includes the manager’s intuitive “feel” for the problem and
is more of an art than a science.
• e.g. The weather, state and federal legislation, new technological
breakthroughs, the outcome of an election, and so on may all be factors that
are difficult to quantify(qualify).
• Used when:
 the problem is relatively simple and the manager has prior experience with
similar problems, a heavy emphasis may be placed upon a qualitative
analysis. BY: Mulachew Haile 37
Cont’d…

ii) Quantitative approach, focuses on the quantitative facts or data

associated with the problem and develop mathematical expressions that
describe the objectives, constraints, and other relationships that exist in
the problem.
• Then, by using one or more quantitative methods, the analyst will
make a recommendation based on the quantitative aspects of the
problem.
• Used when the manager has had little experience with similar
problems, or if the problem is sufficiently complex

BY: Mulachew Haile 38

Cont’d…
E.g. quantitative analysis can be used:
to determine how much our investment will be worth in the future
when deposited at a bank at a given interest rate for a certain number
of years.
in computing financial ratios from the balance sheets for several
companies whose stock we are considering.
to analyze cash flows and rates of return for investment property.

BY: Mulachew Haile 39

Quantitative analysis in decision making process is used
when:
1. The problem is sufficiently complex, and the manager cannot develop
a good solution without the aid of quantitative analysis.
2. The problem is especially important (e.g., a great deal of money is
involved), and the manager desires a thorough analysis before
attempting to make a decision.
3. The problem is new, and the manager has no/little previous
experience with similar problems from which to draw.
4. The problem is repetitive, and the manager saves time and effort by
relying on quantitative procedures to make routine decision
recommendations.

BY: Mulachew Haile 40

THE ROLE OF QUALITATIVE AND QUANTITATIVE ANALYSIS In
Decision Making Process

BY: Mulachew Haile 41

Cont’d…
• Mingling both qualitative and quantitative analysis in analyzing the
problem helps in improving the quality of the decision and look the
alternatives from various angles.
• While Qualitative approaches are inherent in the manager and usually
increase with experience, the skills of the quantitative approach can be
learned only by studying the assumptions and methods of management
science.
• A manager can increase decision-making effectiveness by learning
more about quantitative methodology and by better understanding its
contribution to the decision-making process.

BY: Mulachew Haile 42

Cont’d…
• A manager who is knowledgeable in quantitative decision-making
procedures is in a much better position to compare and evaluate the
qualitative and quantitative sources of recommendations and
ultimately to combine the two sources in order to make the best
possible decision.
• Quantitative Analysis is encompasses most of the subject matter of
this course.

BY: Mulachew Haile 43

 Types of Decisions
• Programmed Decisions: routine, almost automatic process.
• Managers have made decision many times before.
• There are rules or guidelines to follow.
Example: Deciding to reorder office supplies.
Should we fire an employee?
• Mainly based on quantitative analysis
• Non-programmed Decisions: unusual situations that have not been often addressed.
• No rules to follow since the decision is new.
• These decisions are made based on information, and a manger’s intuition, and
judgment.
• Example: Should the firm invest in a new technology?
• Mainly based on qualitative analysis
BY: Mulachew Haile 44
Decision Making Models
i) Classical model of decision making: a prescriptive model that tells
how the decision should be made.
• Assumes managers have access to all the information needed to
reach a decision.
• Managers can then make the optimum decision by easily ranking
their own preferences among alternatives; hence leads to
unbounded rationality.
• Unfortunately, mangers often do not have all (or even most) required
information; hence bounded rationality- H.Simon.

BY: Mulachew Haile 45

The Classical Model Steps
Recognize the need for Assumes the problem is clearly
xDecision & define problem defined

List alternatives Assumes all information

& consequences is available to manager

Rank each alternative Assumes manager can

process all information

Assumes manager knows

Select best the best future course of
alternative the organization
BY: Mulachew Haile 46
The Administrative Model
ii. Administrative Model of decision making:
• Challenged the classical assumptions which states managers
have and process all the information.
• But, in realty, this may not be the case, which makes decision
making risky.
• Read article by Herbert Simon on Bounded rationality.
Bounded rationality: There is a large number of alternatives and
information that managers cannot consider it all.
• Decisions are limited by incomplete information and people’s
cognitive abilities.
Incomplete information: most managers do not see all
alternatives and decide based on incomplete information.
BY: Mulachew Haile 47
Why Information is Incomplete?:
• Reasons:
Uncertainty Ambiguous
& risk Information

Incomplete
Information

Time constraints &

information costs
BY: Mulachew Haile 48
Cont’d…
Incomplete information exists due to many reasons:
i)Risk: managers know a given outcome can fail or succeed and
probabilities can be assigned to these states.
• Uncertainty: probabilities cannot be given for outcomes and
the future is unknown.
• Many decision outcomes are not known such as a new
product introduction.
ii) Ambiguous information: information whose meaning is not clear.
• Information can be interpreted in different ways.

BY: Mulachew Haile 49

Cont’d…
iii) Time constraints and Information costs: Managers do not have the time or
money to search for all alternatives.
These reasons lead the manager to decide based on incomplete
information which results in satisficing than optimizing.
Satisficing: Managers explore a limited number of options and choose an
acceptable decision rather than the optimum decision.
• This is the response of managers when dealing with incomplete
information.
• Managers assume that the limited options they examine, which represent
all options.

BY: Mulachew Haile 50

Cont’d…
• ? Compare between Unbounded and bounded
rationality ?
• Differentiate between Optimization and satisficing?

BY: Mulachew Haile 51

How cognitive bias happens? Types:
•Prior
x Hypothesis

Representativeness Cognitive
Biases
Illusion of Control

Escalating Commitment
BY: Mulachew Haile 52
Types of Cognitive Biases cont’d…
i. Prior hypothesis bias: manager allows strong prior beliefs about a
relationship between variables and makes decisions based on these
beliefs even when evidence shows they are wrong.
ii. Representativeness: decision maker incorrectly generalizes a decision
from a small sample or one incident.
iii. Illusion of control: manager over- estimates their ability to control
events.
iv. Escalating commitment: manager has already committed considerable
resource to project and then commits more even after feedback
indicates problems.

BY: Mulachew Haile 53

The Effects of Quantity of data on Decision
Making
• Many decision makers have a tendency to seek more information than
required to make a good decision.
• When too much information is sought and obtained, one or more of
several problems can arise.
(1) A delay in the decision occurs because of the time required to obtain
and process the extra information.
• This delay could impair the effectiveness of the decision or solution.

BY: Mulachew Haile 54

Cont’d…
(2) Information overload will occur.
• In this state, so much information is available that decision-making
ability actually declines because the information in its entirety can no
longer be managed or assessed appropriately

BY: Mulachew Haile 55

Cont’d…
• A major problem caused by information overload is forgetfulness
• When too much information is taken into memory, especially in a
short period of time, some of the information (often that received early
on) will be pushed out.
(3) Selective use of the information will occur. That is, the decision
maker will choose from among all the information available only those
facts which support a preconceived solution or position.

BY: Mulachew Haile 56

Cont’d…
(4) Mental fatigue occurs, which results in slower work or poor quality
work.
(5) Decision fatigue occurs, where the decision maker tires of making
decisions. Often the result is fast, careless decisions or even decision
paralysis--no decisions are made at all.
Unless information is consciously selected, processing will be biased
toward the first part of the information received. After that, the mind
tires and begins to ignore subsequent information or forget earlier
information.
 Therefore, decide on which information to use.
 As a result of this, satisficing; not optimizing is possible according to
Simon.
BY: Mulachew Haile 57
Classical and neoclassical theories versus the
bounded rationality model
• Unbounded Rationality  Bounded Rationality
 Decision makers cannot be rational unless the
• Decision makers are rational by first decision maker has perfect control on the
collecting all the relevant information, environmental factors as well as his mental
generate all possible alternatives and examine capabilities.
the consequences of those alternatives and
finally choose the most optimal alternative
 decision makers are irrational actors
• decision maker is rational actor

• it ignores limitations that are involved with

 Considers limitations on human computational
gathering necessary information to make a ability and how those limitations influence his
decision including, time, cost, organizational rational behavior
culture, etc. in arriving at a decision.

the outcome of such a process

 The outcome is optimal choice. will be “satisficing” decisions which indicates that
such decisions are not guaranteed to be “optimal”.58
BY: Mulachew Haile
Evaluating Alternatives
• Is it legal? Managers must first be sure that an alternative is legal in
the country
• Is it ethical? The alternative must be ethical and not hurt stakeholders
unnecessarily.
• Is it economically feasible? Can our organization’s performance goals
sustain this alternative?
• Is it practical? Does the management/employees have the capabilities
and resources to do it?

BY: Mulachew Haile 59

Some Decision Making Strategies
• The task of choosing a solution can be as simple or as complex as the
importance of the decision warrants, and the number and quality of
alternatives adjusted according to importance, time, resources and so
on.

BY: Mulachew Haile 60

… Strategies
There are several strategies used for choosing. Among them are the
following:
1. Optimizing. This is the strategy of choosing the best possible
solution to the problem, discovering as many alternatives as possible
and choosing the very best.
• How thoroughly optimizing can be done is dependent on:
A. importance of the problem
B. time available for solving it
C. cost involved with alternative solutions
D. availability of resources, knowledge
E. personal psychology, values
BY: Mulachew Haile 61
… Strategies
2. Satisficing. In this strategy, the first satisfactory alternative is chosen
rather than the best alternative.
• If you are very hungry, you might choose to stop at the first decent
looking restaurant in the next town rather than attempting to choose
the best restaurant from among all (the optimizing strategy).
• The word satisficing was coined by combining satisfactory and
sufficient.

BY: Mulachew Haile 62

… Strategies
3. Maximax. This stands for "maximize the maximums."
• This strategy focuses on evaluating and then choosing the alternatives
based on their maximum possible payoff.
• This is sometimes described as the strategy of the optimist, because
favorable outcomes and high potentials are the areas of concern.
• It is a good strategy for use when risk taking is most acceptable, when
the go-for-broke philosophy is reigning freely.

BY: Mulachew Haile 63

… Strategies
4. Maximin. This stands for "maximize the minimums.“
• In this strategy, that of the pessimist, the worst possible outcome of
each decision is considered and the decision with the highest
minimum is chosen.
• The Maximin orientation is good when the consequences of a failed
decision are particularly harmful or undesirable.
• Maximin concentrates on the salvage value of a decision, or of the
guaranteed return of the decision.
It's the philosophy behind the saying, "A bird in the hand is worth two
in the bush."
BY: Mulachew Haile 64
Approaches to Decision Making
• There are two major approaches to decision making in an
organization
i. the authoritarian method in which an executive figure makes a
decision for the group and
ii. the group method in which the group decides what to do.

BY: Mulachew Haile 65

Approaches to Decision Making Cont’d…
1. Authoritarian/Individual approach
• The manager makes the decision based on the knowledge he can gather.
• He then must explain the decision to the group and gain their acceptance
of it.
• In some studies, the time breakdown for a typical operating decision is
something like this:
 make decision - 5 min.; explain decision - 30 min.; gain acceptance
- 30 min.
i.e., it will take shorter time to reach in to decision; but longet time to
sell and implement.
BY: Mulachew Haile 66
Approaches to Decision Making Cont’d…
2. Group.
The group shares ideas and analyses, and agrees upon a decision to
implement.
Studies show that the group often has values, feelings, and reactions
quite different from those the manager supposes they have.
No one knows the group and its tastes and preferences as well as the
group itself.
And, interestingly, the time breakdown is something like this:
group makes decision, 30 min.; explain decision, 0
min.; gain acceptance, 0 min.
BY: Mulachew Haile 67
Approaches to Decision Making Cont’d…
• Clearly, just from an efficiency standpoint, group decision making is
better; but takes longer time to reach to decision.
• More than this, it has been shown many times that people prefer to
implement the ideas they themselves think of.
• They will work harder and more energetically to implement their own
idea than they would to implement an idea imposed on them by others.
• We all have a love for our own ideas and solutions, and we will always
work harder on a solution supported by our own vision and our own
ego than we will on a solution we have little creative involvement
with.
BY: Mulachew Haile 68
Group Decision Making
Many decisions are made in a group setting.
• Groups tend to reduce cognitive biases and can call on combined skills,
and abilities.
But, there are some disadvantages with groups:
Group think: biased decision making resulting from group members striving
for agreement.
• Usually occurs when group members rally around a central manger’s idea,
and become blindly committed without considering alternatives.
• The group tends to convince each member that the idea must go forward.

BY: Mulachew Haile 69

Improving Group Decision Making
• These techniques are used to challenge ideas and stops reaching to decision
in rush.
i. Devil’s Advocacy: one member of the group acts as the devil’s advocate and
critiques the way the group identified alternatives.
• Points out problems with the alternative selection.
ii. Dialectical inquiry: two different groups are assigned to the problem and
each group evaluates the other group’s alternatives.
• Top managers then hear each group present their alternatives and each group can
critique the other.
iii. Promote diversity: by increasing the diversity in a group, a wider set of
alternatives may be considered.

BY: Mulachew Haile 70

Comparison…
Devil’s Advocacy Dialectic Inquiry
Presentation of
Alter. 1 Alter. 2
alternative

Critique of Debate the two

alternative alternatives

Reassess Reassess
alternative alternatives
accept 1 or 2, combine
accept, modify, reject
BY: Mulachew Haile 71
Advantages and Dis advantages of Group
Decision
. DISADVANTAGES
ADVANTAGES
ADVANTAGES DISADVANTAGES
More
Moreinformation
informationavailable
available Time-consuming
Time-consuming

More
More
alternative Delays
Delays&&ill
illfeeling
feelingpossible
possible
alternativesolutions
solutions

Increases
Increasessolution
solution
understanding Domination
Dominationby
byindividuals
individuals
understanding& &acceptance
acceptance

Builds
Buildsmember
member Risk
Riskof
ofgroupthink
groupthink
knowledge
knowledge&&skill
skillbase
base
BY: Mulachew Haile
72
Building Group Creativity
i. Brainstorming: managers meet face-to-face to generate and
debate many alternatives.
• Group members are not allowed to evaluate alternatives
until all alternatives are listed.
• Be creative and radical in stating alternatives.
• When all are listed, then the pros and cons of each are
discussed and a short list created.
Production blocking is a potential problem with
brainstorming.
• Members cannot absorb all information being presented
during the session and can forget their own alternatives.
BY: Mulachew Haile 73
Cont’d…
ii. Nominal Group Technique: Provides a more structured way to
generate alternatives in writing.
• Avoids the production blocking problem.
• Similar to brainstorming except that each member is given
time to first write down all alternatives he or she would
suggest.
• Alternatives are then read aloud without discussion until all
have been listed.
• Then discussion occurs and alternatives are ranked.

BY: Mulachew Haile 74

 Cont’d…
iii. Delphi Technique: provides for a written format without having all
managers meet face-to-face.
• Problem is distributed in written form to managers who then
generate written alternatives.
• Responses are received and summarized by top managers.
• These results are sent back to participants for feedback, and
ranking.
• The process continues until consensus is reached. Delphi
allows distant managers to participate

BY: Mulachew Haile 75

……..THE END……..
THANK YOU ALL!!!

BY: Mulachew Haile 76