Decision Making

DECISION MAKING

“A decision is a judgment. It is a choice

between alternatives. It is rarely a choice
between right and wrong. It is at best a
choice between “almost right” and
“probably wrong”.-Drucker
“A manager by profession is a
decision maker; Uncertainty is
his opponent, overcoming it is his
mission.”
 Decision Making

 Decision making is not easy

 It must be done amid

– ever-changing factors
– unclear information
– conflicting points of view

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 Decisions and Decision Making

 Decision = choice made from available

alternatives

 Decision Making = process of identifying

problems and opportunities and resolving
them

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The Significance of Decision Making

 Decision making is the one truly

distinctive characteristic of
managers.
 Decisions made by top managers
commit the total organization toward
particular courses of action.
The Significance of Decision Making
(cont’d)

 Decisions made by lower levels of management

implement the strategic decisions of top
managers in the operating areas of the
organization.
 Decisions invariably involve organizational
change and the commitment of scarce
resources.
 Categories of Decisions/Types

 Programmed Decisions (routine, almost

automatic process)
– Situations occurred often enough to enable decision rules to
be developed and applied in the future (There are rules or
guidelines to follow)
– Made in response to recurring organizational problems
(managers have made decision may times before)

Example: deciding to reorder office supplies

Ethical Dilemma: The No-Show Consultant

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 Non-programmed Decisions – (Unusual
situations that have not been often
addressed)
 In response to unique, poorly defined and largely unstructured, and
have important consequences to the organization
 No rules to follow, since the decision is new
 These decisions are made based on information, and a managers
intuition and judgment
Example: should the firm invest in a new technology?
 The Decision-Making Process

Define the problem/ Setting

Searching Comparing &
managerial
For potential evaluating
Objectives by identifying the
alternatives alternatives
Limiting factors

Revise or
update Renew
objectives/ search
problem

Follow-up
Implementing The act
and
decisions of choice/select the best alternative
control
Take
corrective
action as
necessary
 1.Define the problem

 Identify the problem

 Define the problem
 Identify the problem separately from its
symptoms (A successful manager doesn’t just attack
symptoms; he works to uncover the factors that cause these
symptoms )

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 Eg: Symptoms and their real causes

Symptoms Underlying Problems

Low profits/declining sales Poor market research
High cost Poor design process, poorly trained
employees
Low morale Lack of communication between
management and subordinates
High employee turnover Rate of pay too low, job design not
suitable
High rate of absenteeism Employees believe that they are not
valued

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 Identifying the limiting factor

 Realistically, managers operate in an environment

that normally doesn’t provide ideal resources. For
example- they may lack the proper budget or may
not have the most accurate information or extra time.
So they must choose to satisfice-to make the best
decision possible with the available information,
resources and time available.

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 2.Develop potential alternatives

 A manager should think through and

investigate several alternatives solutions to a
single problem before making a quick
decision. one of the best methods for
developing alternatives is through
brainstorming(where a group works together
to generate ideas and alternative solutions)

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  Although brainstorming is the most common technique
to develop alternative solutions, managers can use
several other ways to help develop solutions. Here are
some examples-
 nominal group technique (it’s a structured meeting, with
an agenda, restricts discussion during the decision
making process)
 Delphi technique- ( participants never meet, but a group
leader uses written questionnaire to conduct the
decision making
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 Advantages of group decision making

>Groups provide a broader perspective

>Employees are more likely to be satisfied and
to support the final decision
>opportunities for discussion help to answer
questions and reduce uncertainties for the
decision makers.

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3. Analyze the alternatives

>Decide the relative merits of each idea

>Identify the advantages and disadvantages of each
alternative solutions
>Perform a cost benefit analysis for each alternative
>Rank/give weights/ to each alternative
>A manager needs to evaluate each alternative in terms of-
Feasibility (can it be done)
Effectiveness (how well does it resolve the problem situation?)
Consequences ( what will be its cost to the organization?)
4. Select the best alternative

 Decides which alternative is-

the most feasible and effective
less cost to the organization
chances of success

A manager simply selects the alternative with

the highest probability of success
5. Implement the decision
6. Establish a control- Actions needs to be
monitored. An evaluation system should
provide feedback on how well the decisions
is being implemented, what are the results,
what adjustments are necessary to get the
results etc…
Decisions and Decision Making

 Many decisions that managers deal with

every day involve at least some degree of
uncertainty and require non-programmed
decision making
 May be difficult to make
 Made amid changing factors
 Information may be unclear
 May have to deal with conflicting points of view
 Conditions that influence decision making
● Certainty
● all the information the decision maker needs is fully available ( DSS)
● Risk
● Non programmed decisions are tailored to the situations
● Lacks complete information
● future outcomes associated with each alternative are subject to chance
● Uncertainty
● Sometimes cant even assign probabilities
● information about alternatives and future events is incomplete
● managers may have to come up with creative approaches to alternatives
Ambiguity
● by far the most difficult decision situation
● goals to be achieved or the problem to be solved is unclear
● alternatives are difficult to define
● information about outcomes is unavailable
 Conditions that Affect the Possibility
of Decision Failure
Organizational
Problem

Low Possibility of Failure High

Certainty Risk Uncertainty Ambiguity

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution
 MODEL OF DECISION MAKING
D E C IS IO N

P R O G R AM M E D N O N P R O G R AM M E D

ON GOING / RULES REQUIRES THINKING UN-

STRUCTURED EMPRICAL STRUCTURED NOT UNIQUE
M ODEL

C L AS S IC AL AD M IN IS T R AT IV E

1. Approach Rational/Objective Satisficing Approach

2. Type Prescriptive (Idealized situation) Descriptive (Reality Based)

3. Knowledge Complete Fragmentary

4. Probability of risk Low High

5. Alternatives Many Only a few

available Broad Spectrum
Defined
6. Goals
Selecting a Decision Making Model

 Depends on the manager’s personal preference

 Whether the decision is programmed or non-
programmed
 Extent to which the decision is characterized by
risk, uncertainty, or ambiguity
Three Decision-Making Models

 Classical Model
 Administrative Model
 Political Model
 Classical Model
Logical decision in the organization’s best economic interests

Assumptions
 Decision maker operates to accomplish goals that
are known and agreed upon
 Decision maker strives for condition of certainty –
gathers complete information
 Criteria for evaluating alternatives are known
 Decision maker is rational and uses logic
Normative = describes how a manager should and
provides guidelines for reaching an ideal decision
 Administrative
Model Herbert A. Simon
How nonprogrammed decisions are made--uncertainty/ambiguity
 Two concepts are instrumental in shaping the
administrative model
● Bounded rationality: people have limits or
boundaries on how rational they can be

● Satisficing: means that decision makers choose

the first solution alternative that satisfies minimal
decision criteria
 Administrative Model
How nonprogrammed decisions are made--uncertainty/ambiguity
● Managers actually make decisions in difficult situations
characterized by non-programmed decisions, uncertainty,
and ambiguity

● Decision goals often are vague, conflicting and lack consensus

among managers;
● Rational procedures are not always used
● Managers’ searches for alternatives are limited
● Managers settle for a satisficing rather than a maximizing solution
● intuition, looks to past experience

● Descriptive = how managers actually make decisions--not how

they should
 Political Model
Closely resembles the real environment

● Closely resembles the real environment in which

most managers and decision makers operate
● Useful in making non-programmed decisions
● Decisions are complex
● Disagreement and conflict over problems and
solutions are normal
● Coalition = informal alliance among manages
who support a specific goal
 Characteristics of Classical, Political,
and Administrative Decision Making
Models

Classical Model Administrative Model Political Model

Clear-cut problem and goals Vague problem and goals Pluralistic; conflicting goals
Condition of certainty Condition of uncertainty Condition of uncertainty/ambiguity
Full information about Limited information about Inconsistent viewpoints; ambiguous
alternatives and their outcomes Alternatives and their outcomes information
Rational choice by individual Satisficing choice for resolving Bargaining and discussion among
for maximizing outcomes problem using intuition coalition members
 Six Steps in the Managerial
Decision-Making Process

 
Evaluation Recognition of
and Decision
Feedback Requirement


Implementation Diagnosis
of Chosen Decision- and Analysis
Alternative Making of Causes
Process



Selection of Development of
Desired Alternatives
Alternative


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Rational decision making model

Step Example

Recognizing & defining the situation A plant manager sees that

employee turnover has increased
by 5%
Identifying the alternatives The plant manager can increase
wages, increase benefits, or change
hiring standards
Evaluating the alternatives Increasing the benefits may not be
feasible. Increasing wages and
changing hiring standards may
satisfy all conditions
Selecting the best alternative Changing hiring standards will take
an extended period of time to cut
turnover, so increase wages
Implementing the chosen The plant manager may need
alternatives permission from corporate
headquarters. The HRD
establishes a new wage structure
Following up and evaluating the The pant manager notes that six
results months later turnover has dropped
to its previous level
 CONSTRAINTS OF
RATIONAL DECISION MAKING

1. PROBLEM
• Seldom consensus as to the definition of the problem.
• Differentiate fact from opinion.
• Identify what standard is violated.

2. GENERATE ALTERNATIVE SOLUTION

• The first acceptable solution is usually accepted.
• Alternatives are based on what was successful in the past.
• Specify alternatives that are consistent with goals
 CONSTRAINTS OF
RATIONAL DECISION MAKING

3. EVALUATE ALTERNATIVES
• Limited information available about each alternative.
• Satisfactory solutions, not optimal ones, are usually accepted.
• Do not evaluate main effects and side effects.

4. IMPLEMENT AND FOLLOW UP

• Resistance to change is a universal phenomenon.
• Not always clear what part of the solution should be monitored
or measured in follow-up.
Decision Styles

 Differences among people with respect to how

they perceive problems and make decisions
 Not all managers make decisions the same
– Directive style
– Analytical style
– Conceptual style
– Behavioral style
 DECISION STYLES
High
Analytical Conceptual
Careful decision makers Broad outlook
Adapt to new situation examine
more alternative
long range
Tolerance find creative solution
for
Ambiguity
Directive
Efficient,logical Behavioral
use less Work well with others
information, few Receptive to
alternative suggestions Avoid
make decision fast conflicts
focus on short-
term
Rational Intuitive
Low Way of Thinking
 Personal Decision Framework

Situation: Personal Decision Decision Choice:

· Programmed/non- Style: ·Best Solution to
programmed ·Directive Problem
· Classical, administrative, ·Analytical
political ·Conceptual
· Decision steps ·Behavioral
Directive Style

 People who prefer simple, clear-cut solutions

to problems
 Make decisions quickly
 May consider only one or two alternatives
 Efficient and rational
 Prefer rules or procedures
Analytical Style

 Complex solutions based on as much data

as they can gather
 Carefully consider alternatives
 Base decision on objective, rational data
from management control systems and other
sources
 Search for best possible decision based on
information available
Conceptual Style

 Consider a broad amount of information

 More socially oriented than analytical style
 Like to talk to others about the problem and possible
solutions
 Consider many broad alternatives
 Relay on information from people and systems
 Solve problems creatively
Behavioral Style

 Have a deep concern for others as individuals

 Like to talk to people one-on-one
 Understand their feelings about the problem and the
effect of a given decision upon them
 Concerned with the personal development of others
 May make decisions to help others achieve their
goals
Experiential Exercise: What’s Your Personal Decision Style?
The Scope of Decision Making

 Individual decision making

 Group decision making
 Organizational decision making
 Metaorganizational decision
making
 The Scope of Decision Making
Decisional Inputs Metaorganization
(Objectives,
information, Organization
resources,
energy) Interactional
Group Levels

Individual

Permeable Decisional
Boundaries Outputs
(Actions
transactions,
outcomes)

External Environment
 TOYOTA DECISION MAKING METHODS

Preferred Group
Consensus
, with full
Group authority
Consensus,
Management
Seek
Approval
Group
Input, then Fallback (if
Seek
Level of involvement

Decide consensus
Individual Fallback
and not achieved)
Input, then
Announce
Decide
and
Announce
Decide
and
Announce

Time
New Decision Approaches
for Turbulent Times

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