Decision Making Notes (Part 1) by Vyasa IAS

Table of Content

1. What is Decision Making?

2. Definition of Decision Making
3. Characteristics of Decision Making
4. 7 Steps to Effective Decision Making
5. Understanding Problem Solving
6. Difference between decision making and problem solving
7. How can you integrate Decision Making and Problem Solving?
8. How to use Problem Solving and Decision making skills

What is Decision Making?

Decision-making is an integral part of modern management. Essentially, Rational or sound decision

making is taken as primary function of management. Every manager takes hundreds and hundreds of
decisions subconsciously or consciously making it as the key component in the role of a manager.
Decisions play important roles as they determine both organizational and managerial activities.
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• A decision can be defined as a course of action purposely chosen from a set of alternatives to
achieve organizational or managerial objectives or goals. Decision making process is continuous
and indispensable component of managing any organization or business activities.
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• Decisions are made to sustain the activities of all business activities and organizational functioning.
Decision making process is a consultative affair done by a comity of professionals to drive better
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functioning of any organization.

• Decision making process can be regarded as check and balance system that keeps the organisation
growing both in vertical and linear directions. It means that decision making process seeks a goal.
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Definition of Decision Making

• According to the Oxford Advanced Learner’s Dictionary, the term decision making means - the
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process of deciding about something important, especially in a group of people or in an

organization.
• Trewatha & Newport defines decision making process as follows, “Decision-making involves the
selection of a course of action from among two or more possible alternatives in order to arrive at
a solution for a given problem”.

Characteristics of Decision Making

• Selective: It is a selective process in which the optimal alternative is opted, among the various
alternatives. The selection of the alternative is done, only after evaluating all the alternatives
against the objectives.
• Cognitive: As the decision making encompasses the application of intellectual abilities, such as
analysis, knowledge, experience, awareness and forecasting, it is a cognitive process.

• Dynamic: It is a dynamic activity in the sense that a particular problem may have different
solutions, depending upon the time and
 Decision Making Notes (Part 1) by Vyasa IAS

• Positive or Negative: A decision is not always positive, sometimes even after analysing all the
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points a decision may turn out as a negative one.

• Ongoing process: We all know that a company has perpetual succession and various decisions are
taken daily by different levels of management to keep the firm going. These decisions are taken,
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keeping in mind the objectives of the organization.

• Evaluative: Evaluation of the possible alternatives using critical appraisal methods, is a part of the
decision-making process.
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7 Steps to Effective Decision Making

 Decision Making Notes (Part 1) by Vyasa IAS

Step 1: Identify the decision

• You realize that you need to make a decision. Try to clearly define the nature of the decision you
must make. This first step is very important.

Step 2: Gather relevant information

• Once you have identified your decision, it’s time to gather the information relevant to that choice.
Do an internal assessment, seeing where your organization has succeeded and failed in areas
related to your decision.
• Also, seek information from external sources, including studies, market research, and, in some
cases, evaluation from paid consultants.

Step 3: Identify the alternatives

• With relevant information now at your fingertips, identify possible solutions to your problem.
There is usually more than one option to consider when trying to meet a goal.
• For example, if your company is trying to gain more engagement on social media, your alternatives
could include paid social advertisements, a change in your organic social media strategy, or a
combination of the two.

Step 4: Weigh the evidence

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• Once you have identified multiple alternatives, weigh the evidence for or against said alternatives.
See what companies have done in the past to succeed in these areas, and take a good look at your
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organization’s own wins and losses.

• Identify potential pitfalls for each of your alternatives, and weigh those against the possible
rewards.
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Step 5: Choose among alternatives

• Here is the part of the decision-making process where you actually make the decision. Hopefully,
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you’ve identified and clarified what decision needs to be made, gathered all relevant information,
and developed and considered the potential paths to take. You should be prepared to choose.
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Peter Drucker has laid down four criteria in order to weigh the consequences of various alternatives. They
are:
• Risk: A manager should weigh the risks of each course of action against the expected gains. As a,
matter of fact, risks are involved in all the solutions. What matters is the intensity of different
types of risks in various solutions.
• Economy of Effort: The best manager is one who can mobilize the resources for achieving results
with minimum effort. Decision to be chosen should ensure the maximum possible economy of
efforts, money and time.
• Situation or Timing: The choice of a course of action will depend upon the situation prevailing at a
particular point of time. If the situation has great urgency, the preferable course of action is one
that alarms the organization that something important is happening. If a long and consistent effort
is needed, a slow start gathers momentum’ approach may be preferable.
• Limitation of Resources: In choosing among the alternatives, primary attention must be given to
those factors that are limiting or strategic to the decision involved. The search for limiting factors
 Decision Making Notes (Part 1) by Vyasa IAS
in decision making should be a never ending process. Discovery of the limiting factor lies at the
basis of selection from the alternatives and hence planning and decision making.

Step 6: Take action

• Once you’ve made your decision, act on it! Develop a plan to make your decision tangible and
achievable. Develop a project plan related to your decision, and then assign tasks to your team.

Step 7: Review your decision

• After a predetermined amount of time—which you defined in step one of the decision-making
process—take an honest look back at your decision. Did you solve the problem? Did you answer
the question? Did you meet your goals?
• If so, take note of what worked for future reference. If not, learn from your mistakes as you begin
the decision-making process again.

Understanding Problem Solving

• Problem Solving is a critical cognitive process that allows individuals to address obstacles,
overcome difficulties, and achieve desired outcomes.
• It involves a systematic approach to understanding the issue, identifying possible solutions, and
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implementing the most effective resolution. This helps you to navigate complexities and arrive at
successful conclusions.
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Some tips that can help you in Problem Solving effectively:

1) Problem identification: As a first step towards Problem Solving, effectively carry out tasks. Also,
recognise and define the issue or challenge that needs to be addressed.
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2) Data gathering: Gathering relevant information and data related to the problem is essential for
understanding its root causes and implications. This helps you become a good problem solver.
3) Analysis and diagnosis: Analyse the gathered information to identify the underlying causes of the
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problem. This helps you in devising targeted solutions.

4) Solution generation: Brainstorming and generating multiple potential solutions is crucial for you when
you are exploring diverse approaches to resolve the problem.
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5) Evaluation of alternatives: Carefully evaluate the pros and cons of each solution. This helps you in
selecting the most feasible and effective one.
6) Implementation: After choosing a solution, you have to put the chosen solution into action. This
requires planning, coordination, and effective execution.
7) Creative thinking: Employing creative thinking approaches can lead you to have innovative solutions to
complex problems.
8) Root Cause Analysis: Identifying and addressing the root cause of a problem ensures that you have a
more sustainable and lasting solution.

Difference between decision making and problem solving

Aspect Decision Making Problem Solving

Definition Selecting from available alternatives to Identifying and resolving an issue or
achieve a specific goal or outcome. challenge to reach a desired state.
Objective Making a choice among options. Finding a solution to a problem
 Decision Making Notes (Part 1) by Vyasa IAS
Focus Choosing the best course of action. Understanding the problem and
generating potential solutions
Process Evaluating alternatives, considering Identifying the problem, gathering data,
risks and rewards. analysing, and implementing solutions.
Rationality Often involves a logical and systematic Requires critical thinking and creativity.
approach.
Input Involves available information and past Data and insights related to the problem
experiences. at hand.
Outcome Leads to a final decision. Results in a resolved problem or
improved situation.
Examples Often applied to challenges or Troubleshooting technical issues and
obstacles in various domains. finding solutions to production
problems.
Interrelation Decision Making may follow effective Effective Problem Solving often leads to
Problem Solving. better Decision Making.
Context Applicable to a wide range of Often applied to challenges or obstacles
situations. in various domains.
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How can you integrate Decision Making and Problem Solving?

You are aware of the differences between Problem Solving and Decision Making abilities. But you need to
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integrate these two special skills so that you can carry out challenging tasks or situations, both in the
workplace and in your personal life. The following tips will help you show how you can take effective
decisions and simultaneously solve problems:
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1) Foster a systematic approach: You can start by adopting a systematic approach to Problem Solving. It
involves defining the issue, gathering relevant information, analysing data, generating potential solutions,
and evaluating alternatives. Then, you can implement your structured Problem Solving process, which
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provides a solid foundation for your informed Decision Making.

2) Identify decision points: You can recognise the key decision points within the Problem Solving Process.
You have to then determine which factors require choices. Then weigh the consequences of each decision
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on the overall problem-solving outcome.

3) Incorporate critical thinking: You can emphasise your critical thinking throughout both Problem Solving
and Decision Making. Engage in objective analysis so that you can consider multiple perspectives and
challenge assumptions to arrive at well-rounded solutions and decisions.
4) Utilise data-driven decisions: Ensure that the decisions made during the Problem Solving process are
backed by relevant data and evidence. Your data-driven Decision Making minimises biases and increases
the chances of arriving at the most suitable solutions.

How to use Problem Solving and Decision making skills

To improve your efficiency at work, you can follow a streamlined and organized approach to solve
problems and make decisions. Here are five steps that you can follow to make the most of your problem-
solving and decision-making skills:

1. Define the issue

 Decision Making Notes (Part 1) by Vyasa IAS
The first step is to define the problem or issue. Once you've pinpointed the issue, analyze it and think
about what might have caused it. Try to identify any smaller issues within the main problem. It's
important to understand the issue before you start thinking about potential solutions and decisions.
Having a clearly defined problem can make it easier to make decisions later on in the process. Define or
state your issue in as specific terms as possible so it's easy to understand. To determine the needs of the
issue, you might ask yourself:
• What factors are contributing to this issue?
• Who are the people involved with the issue?
• When is this issue occurring?
• Where is this issue taking place?
These questions can clarify information related to the issue to help you and others understand the issue
as much as possible before moving forward with creating a solution.

2. Brainstorm different approaches

After you've defined and analyzed the issue, you can begin brainstorming different approaches to
resolving it. In an effort to see all sides of the problem, try to get feedback from mentors and people
involved with the issue. You can also think about how you've solved past problems similar to the current
issue. Be sure to consider both short- and long-term approaches to the issue.
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You can brainstorm independently or collaboratively, and you can use tools like a whiteboard or online
software to illustrate your brainstorming. Common brainstorming techniques include:
• Mind mapping: Mind mapping is creating illustrations of ideas in hierarchical layouts. Mind maps
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can show the relationships between different aspects of an issue, making this technique fitting for
problem-solving and decision-making.
• SWOT Analysis: You can use SWOT (Strength, Weakness, Opportunities, Threat) analysis to identify
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the strengths, weaknesses, opportunities and threats related to an issue. Understanding these
important components can help you to come up with potential solutions.
• Flowcharts: Flowcharts can be useful for illustrating processes and workflows, so they can be
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helpful in planning a process to respond to an issue. Creating a flowchart can help you organize
your ideas and design step-by-step solutions to problems.
• Rapid ideation: Rapid ideation is a brainstorming technique in which everyone involved with an
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issue writes as many potential solutions as they can think of in a short amount of time. After
everyone writes their ideas, you can review them as a team.

3. Evaluate different approaches

After you've brainstormed approaches, it's time to evaluate them. Think through all the pros and cons for
each option, and consider how each one would affect your organization. Think about the different
resources that each decision would require. Taking all these factors into consideration can help you make
the best decision for your company.

4. Make your decision

Once you have evaluated your different approaches, it's time to make your decision. You can choose from
different decision-making structures, which include:
• Collaborative decision making: This decision-making structure includes input from a variety of
opinions.
 Decision Making Notes (Part 1) by Vyasa IAS
• Command decision making: In this structure, you make a decision without getting feedback from
other people, which can be the fastest way to decide.
• Vote decision making: This decision-making structure lets you get input from numerous people in
a short amount of time. It allows people to vote on a decision from a set of options.
• Consensus based decision making: In this structure, everyone involved attempts to agree on a
decision. This process can be lengthy, so it's ideal if a decision is not time-sensitive and if you want
to make sure your decision has complete support.
After making your decision, ensure it fully addresses the issue and does not create a new one. Make sure
the decision is something that your company can realistically implement and it aligns with the mission,
vision and values of the company.

5. Implement your decision

After you've made your decision, you can decide how to implement it. Start by identifying primary
objectives and deliverables and creating deadlines. Then, outline specific steps to meet the objectives. In
the implementation plan, you can include those who are involved with the issue and assign
responsibilities to the employees. Then, share your plan with everyone involved with the issue and get
feedback.
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Decision Making Notes Part 2

Table of Content

1. Decision Making Styles

2. Approaches to Decision Making
3. Types of Decision-Making
4. The OODA Loop and Decision Making

Decision Making Styles

1. Directive Style
2. Analytical Style
3. Conceptual Style
4. Behavioral Style

Directive Style
• In the directive style of decision-making, the decision-maker makes clear-cut, short, and
decisive decisions. One who adopts the directive style has a low tolerance for ambiguity.
• Managers adopting this style have a quality rational way of thinking. They are efficient and
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logical, make fast decisions, and focus on the short term. They use minimum information
and assess only a few alternatives.
• Directive managers make decisions based on their knowledge, skills, and experience they
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usually do not ask others for information. They do not come to a decision unless they are
not sure about the positive outcomes of the choice they will make.
• Strengths: Efficient decision-making, effective in urgent situations.
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• Weaknesses: May overlook important perspectives, resistance from team members.

Analytical Style
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• Managers who follow an analytical decision-making style have a greater tolerance for
ambiguity are careful and can successively adapt to changing situations.
• The analytical decision-makers come to a decision only after carefully analyzing the
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alternatives. They invest more time in collecting data, information, and relevant past
records. They try to make as many as possible alternatives for specific problems or desired
goals.
• Once, analytical decision-makers develop sufficient alternatives they step in to analyze or
assess every one of them based on the criteria outlined. And, they come to a decision that
gives the best solution to the given situation.
• An analytical decision-making style is useful when there are many alternatives to solve a
problem or to achieve the desired organizational goals. However, this style is time-
consuming.
• Strengths: Thorough evaluation, minimizing risks.
• Weaknesses: May lead to over-analysis and delays in decision-making.

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Conceptual Style
• Managers with conceptual decision-making styles tend to be very broad in their outlooks
and look at many alternatives. They can tolerate ambiguity and use an intuitive way of
thinking.
• In more simple words, conceptual decision-makers are good at making long-term
decisions. They are big-picture thinkers. Compared to the directive and analytical decision-
makers conceptual ones have a high degree of tolerating ambiguity.
• They are high-risk takers, focus on the long term, and are very good at finding creative
solutions to problems. They look into the future and analyze what would happen if the
decision were made.
• Conceptual decision-makers are socially oriented, they favor group thinking and
brainstorming ideas. They make decisions after carefully visualizing the alternatives for
future success or failure situations.
• They tend to challenge the status quo of the company and are out-of-the-box thinkers. They
are very good at making effective long-term decisions.
• Strengths: Visionary approach, adaptability.
• Weaknesses: May neglect practical details, increased uncertainty.

Behavioral Style
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• The behavioral style of decision-making is more focused on relationships than tasks.

Managers with behavioral styles work well in groups or teams. It generally relies on people’s
feelings and behavior while making decisions.
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• Usually, behavioral managers make decisions with employee teams and for employee teams
because they value the feelings and emotions of every member and want to maintain the
relationships.
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• Behavioral decision-makers follow the participative management approach, they are

concerned about their subordinates. Such managers have a low tolerance for ambiguity
and an intuitive way of thinking.
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• Strengths: Improved team morale, consideration of interpersonal factors.

• Weaknesses: Decision-making may take longer, potential for compromise without clear
direction.
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How are the decision-making styles determined?

Two spectrums work together to create the decision-making style framework. The first spectrum is
structure vs. ambiguity. This spectrum measures people's propensity to prefer either structure
(i.e., defined processes and expectations) or ambiguity (i.e., open-ended and flexible).

The second spectrum is task/technical vs. people/social. This spectrum measures if the
motivation to make a specific choice is guided more by a desire to be right, or to get results
(task/technical), or if it's to create harmony or social impact (people/social).

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Where you fall on both of these

spectrums will determine which
quadrant best describes you. Each
quadrant relates to a decision-
making style, as you can see below.

Approaches to Decision Making

There are different approaches
managers can use for decision-
making to come to an effective
choice in order to achieve desired
goals. Generally, there are three
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approaches to managerial decision

making which are mentioned below.
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1. Classical Approach
2. Administrative Approach
3. Rational Approach
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Classical Approach
• The classical approach
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to decision-making is also
known as a prospective
approach since it makes the
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assumption that managers are logical and rational. Therefore, they will make decisions
that are best for the company.
• It explains to managers the decision-making process. This method makes the assumption
that all issues are well stated and that all data necessary to make a decision is available.
• Managers are aware of all of the options and their advantages and disadvantages. It is
expected that evaluation standards are known. Computers can provide them with knowledge
and assistance so they can make wise decisions.

Administrative Approach
• The descriptive model of decision-making, often known as the administrative approach,
states that decision-makers are unable to obtain comprehensive and accurate
information. They are limited by restricted rationality and have a tendency to be satisfying.

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• This method makes the assumption that managers may have to make judgments in
scenarios that involve ambiguity, uncertainty, and non-programmed choices.
• Decision-makers are restricted by the limits of their reason. Its potential is constrained by
beliefs, values, attitudes, aptitudes, skills, routines, credentials, knowledge, and resources.
• The administrative method also argues that decisions are satisfying and that people tend to
look for the next option only until they find one that is at least acceptable.

Rational Approach
In the rational approach, the function of decision-making is completed by a step-by-step process
where managers identify the best alternative (s). The rational decision-making process usually
involves certain steps for effective decision-making.

The steps include the following,

• Defining the problems
• Identification of alternatives
• Evaluating alternatives
• Selecting the best alternative
• Implementing selected alternatives, and
• Follow up and evaluation of the decision.
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Types of Decision-Making
Programmed Decision
• A programmed decision is repetitive in nature and usually follows the established
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procedures of the organization. While making such programmed decisions managers do

not have to give their in-depth knowledge to come to a conclusion since they have already
available rules, regulations, and procedures to execute them.
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• Usually, programmed decisions are taken by the lower level management for regular
activities like purchasing raw materials, keeping records, disputes settlement, etc.
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Non-Programmed Decision
• The non-programmed decision is the opposite of the programmed decision where managers
do not take decisions regularly. These decisions are specific in nature and are taken by
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the more authoritative or executive body of the firm.

• Similarly, non-programmed decisions have no such established procedures to follow, and
when the time comes executives have to collect and analyze the data to come to a decision.

Routine or Tactical Decision

• The routine decision is related to the day-to-day activities of the organization. Routine
decisions are made to solve repetitive problems that may arise in the regular activities of
the company to bring smoothness to regular activities.
• Routine decisions are also called tactical decisions. These decisions are normally taken by
the lower level or departmental level managers for their respective working areas.

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Basic Decision or Strategic Decision
• Strategic decisions are those that are made at the highest levels of management with the
long term in mind. Basic decisions are another name for strategic decisions. Such
choices are crucial for the organization’s long-term survival and growth.
• Making such strategic decisions are usually in the hand of top managers which requires
intuition, creativity, and an in-depth review of the future impact of alternatives. Long-term
goals, objectives, and strategic plans are strategic decisions.

Organizational Decision
• When you make decisions as manager on behalf of the organization that affects the
organization’s performance such a decision is known as an organizational decision. The
organizational decision is formal in nature as such it is also called a formal decision.
• These decisions are delegated in nature and can be transferred to subordinate employees
when managers become absent or according to time and situations.

Personal Decision
• A personal decision is when managers make decisions in their personal capacity that do
not affect the regular activity of the organization. It is informal in nature and has no impact
on the firm’s regular performance. And, these decisions cannot be delegated to others.
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Group Decision
• By the involvement of persons in decision-making, the types of decisions can also be group
decisions and individual decisions.
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• In group decisions, a group of people is formed to discuss some subject matter and they
come to a solution after the discussion is finished through mutual understanding.
• In big organizations, group decision-making is a common thing. This decision technique is
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adopted to solve unique problems. And, group decisions are usually also found in an
organization that follows the participative management style.
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Individual Decision
• When a manager alone makes a decision in his official capacity such decision is known as
an individual decision. While making such decisions managers are responsible for thinking
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about the firm’s objectives and performance.

• Usually, the practice of individual decision-making is found in small organizations and
organizations that follow an autocratic management style.

Policy Decision
• Top-level management makes policy decisions, which have a long-term effect on
organizational performance. These choices include the introduction of new rules,
regulations, and programs as well as the modification of current rules and the introduction of
new products.
• Top managers typically have to take future performance into account when making such
choices.

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Operational Decision
• Lower-level management makes operational decisions, which are related to the
organization’s daily operations. These choices are made in order to put top management’s
objectives and policies into effect.
• These decisions involve changes in the schedule of work, amount of remuneration to
employees, set-up of machines and equipment, etc.

The OODA Loop and Decision Making

• An important concept in the field of decision making is the OODA Loop or the Observe-
Orient-Decide-Act loop. This refers to the strategic advantage that a decision maker gets
over his or her opponent when he or she observes the situation and orients themselves and
then decides and acts accordingly.
• This concept was introduced primarily in combat and strategic warfare where it was
believed that a combatants “edge” over his or her opponent happens when the OODA loop is
fully functional.
• The term and the concept were proposed by the military strategist and member of the
United States Air Force, Colonel John Boyd.
• The theory underlying the OODA loop is that decision making within our minds happens
according to the way in which the recurring loops of observation, orientation, decision and
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action happen in response to a situation.

• The basic premise is that decision makers must be agile and alert to the situations and
have a clear head and cool mind to take a decision lucidly and cogently.
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• The diagram above describes how the OODA loop works in real life situations. The inputs
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from the environment are taken by means of information, interaction with the
environment and the circumstances that unfold with the interaction.
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• Then the orientation to the situation happens by means of the individual’s internal processes
and the perceived expectations along with his or her own conditioning.
• Then the next stage where the decision has to be taken takes over where the information
from the situation meets the individual’s thought processes leading to decision making
capabilities.
• Finally, the decision leads to the action where the decision is actualized and made
operational.
• The important thing to remember about the OODA loop is that feedback is an integral
component of all stages with information flowing back and forth between the individual and
the situation.
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Table of Content
1. Group Decision Making
• Nominal Group Technique
• Delphi Technique
• Brainstorming
• Dialectic Decisions Method
2. Johari Window
3. Decision Theory of Management
Group Decision Making
• The Group Decision Making is the collective activity wherein several persons interact simultaneously to find out
the solution to a given statement of a problem.
• In other words, group decision making is a participatory process wherein multiple individuals work together to
analyze the problem and find out the optimum solution out of the available set of alternatives.

There are several techniques that can be used to increase the efficiency of group decision making. These are as follows:
1. Nominal Group technique
2. Delphi Technique
3. Brainstorming
4. Dialectic Decisions Method
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A) Nominal Group Technique

The Nominal Group Technique is a form of brainstorming, wherein a structured meeting is held among the group
members where they are required to find solutions to the problem identified for the discussion.
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• In other words, a systematic and an organized group meeting held among the members to facilitate decision
making by properly identifying the problems and generating the solutions thereof.
Objective – The objective of nominal group technique is to resolve the opinion conflicts among the group members by
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enabling each individual to pen down his/her thoughts about the problem and later discuss it with the entire group to
reach the consensus solution.
Generally, the nominal group training is comprised of the following steps:
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Step 1 – First of all, the facilitator welcomes all the participants and then briefs about the problem requiring decision.
Step 2 – The participants are given time to pen down their ideas that come to their minds in reference to the problem
being discussed. During this period, each member writes his/her ideas silently without discussing anything with each
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other
Step 3 – Once all the members have written, their ideas are required to share them in front of all the group members. At
this stage, the facilitator chalks down the ideas of each group member on the flip chart, thereby giving all the members
equal opportunity to share what they feel.
Step 4 – Once the key points are written on the chart, the members are asked to discuss the points which they feel
requires an explanation. Each member explains his/her mind to the other members and in the meanwhile, the facilitator
tries to maintain the discussion as neutral as possible, thereby avoiding the criticism and judgment.
Step 5 – Once all points are explained, the members are asked to give vote or rank various ideas by prioritizing these in
relation to the basic problem, for which the meeting is held.

• If the group does not reach a consensus decision, then again the ranks are assigned to the recorded ideas and
this process continues till the final decision is arrived.
Advantages – it gives all the group members an equal opportunity to speak out their minds. Also, some group members
are quite and shy, this method helps them to write down their ideas and discuss with the group members.

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Disadvantage – this technique consumes a lot of time to arrive to a final conclusion and also only one problem can be
addressed at a time.

B) Delphi Technique
The Delphi Technique refers to the systematic forecasting method used to gather opinions of the panel of experts on
the problem being encountered, through the questionnaires, often sent through mail.
In other words, a set of opinions pertaining to a specific problem, obtained in writing usually through questionnaires
from several experts in the specific field is called as a Delphi technique.
• In a Delphi technique, the group facilitator or the change agent aggregates all the anonymous opinions received
through the questionnaires, sent two or three times to the same set of experts.
• The experts are required to give justification for the answers given in the first questionnaire and on the basis of
it, the revised questionnaire is prepared and is again sent to the same group of experts.
• The experts can modify their answers in accordance with the replies given by other panel members.
Objective – The objective of a Delphi technique is to reach to the most accurate answer by decreasing the number of
solutions each time the questionnaire is sent to the group of experts. The experts are required to give their opinion
every time the questionnaire is received, and this process continues until the issues are narrowed, responses are
focused, and the consensus is reached.

• In a Delphi technique, the identity of the group members is not revealed, and they are not even required to
gather for a physical meeting.
• Each member is free to give his opinion with respect to the problem, thereby avoiding the influential effect that
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a powerful or authoritative member can have on the other group members.

• This technique is quite advantageous as diverse opinions can be gathered from the large pool of experts who
might be geographically separated. Also, the quality of decision gets improved as the expertise of each group
30

member is capitalized to reach to a final solution.

C) Brainstorming
The Brainstorming is a technique to stimulate creative ideas and solutions through a group discussion. Simply, a
50

process wherein a group attempts to find a solution for the specific problem by aggregating all the spontaneous
opinions or suggestions given by each group member individually is called as brainstorming.
• In a brainstorming session, a group of 10-15 persons is constituted who are directly or closely related to the
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problem of discussion irrespective of their fields of disciplines.

• During this session, the group members are just required to share their ideas or speak out the mind in front of
other members and need not worry about how realistic or feasible the solution is.
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Generally, the brainstorming is carried on in the following ways:

1. First of all, the group leader/facilitator outlines the problem requiring a decision. The problem is clearly stated
such that the members can easily understand it and focus their direct attention on it.
2. Once the problem is defined, the participants are asked to share their opinions through which the
problem can be tackled. Here the aim is to get as many ideas as possible; its feasibility is checked later.
3. The participants are required to give away their ideas freely without considering any financial, legal or
organizational limitations.
4. The evaluation of ideas is done in the later stage. Therefore, any criticism, judgement, or comment is
strictly prohibited during the brainstorming session, and the participants are told not to indulge in these.
Once the brainstorming session is over, all the recorded ideas are analyzed, discussed and criticized during the
evaluation session, during which the actual feasibility of an idea is checked.

D) Dialectic Decisions Method

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The Dialectic Decisions Method is a technique used to overcome the
problem in the group-decision making, wherein the group members
quickly agree to one alternative proposal and might overlook more
promising solutions than the chosen one. Thus, it ensures a full
consideration of alternatives.
The reason behind such a quick converge on a single alternative may be,
the participant’s unwillingness to meet and get indulged into the tough
discussions. Thus, in order to overcome such problem, the dialectic
decisions method came into existence.

The dialectic decisions method comprises of

following steps:

1. First of all, a clear statement of a problem is

stated.
2. Then, all the possible alternative proposals
are generated.
3. Once the set of alternatives is listed, the
group members identify all the implicit and
explicit assumptions central to the
proposals.
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4. Then each alternative is broken into

subgroups to study all the pros and cons of
the proposals in the light of a problem.
30

5. Once these steps are completed

individually, the group members meet and
decide on a proposal to be chosen on the
50

basis of its ultimate results (pros and cons).

Thus, through a dialectic decisions method, every group member participates equally in finding out the most promising
alternative proposal in the context of a given problem.
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Johari Window
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The Johari Window is the psychological model developed by Joseph Luft and Harrington Ingham, that talks about the
relationship and mutual understanding between the group members.
• In other words, a psychological tool that helps an individual to understand his relationship with himself and with
other group members is called as a Johari Window.
The objective behind the creation of a Johari window is to enable an individual to develop trust with others by
disclosing information about himself and also to know what others feels about himself through feedback.

The Johari Window model is made up of four quadrants that explain the overall relationship of an individual with himself
and with other group members. These are as follows:

• Open Self: This quadrant shows the behavior, motives, attitudes, knowledge skills of an individual that he is
aware of and is willing to share it with others. The open self is characterized as a state wherein the individual is
open and straight forward to himself and others about what he is doing, how is he doing and what are his
intentions.

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• Blind Self: The blind self shows the state of an individual known to others but not known to him. It usually
happens, when an individual or a subject copies the behavior of some significant personalities unconsciously
since his childhood.
• Hidden Self: This quadrant of the Johari window shows the state of an individual known to him but not known
to the others. This is generally seen in the individuals who are introvert and do not like to share their private
lives with anyone. The individual keeps his feelings, ideas or thoughts to himself and do not disclose it in front of
the others.
• Unknown Self: The unknown self is the mysterious state of an individual neither known to him, nor others know
about it. Ofen the feelings, thoughts or ideas go so deep down the individual that it becomes difficult for the
individual as well for the other people to understand it.

Decision Theory of Management

The decision theory of management holds the belief that a manager should make rational decisions. A manager
involved in the decision-making process should make quality decisions that have a significant impact on managerial
effectiveness, organizational efficiency, and productivity which are the basis of organizational success.

The decision theory of management was developed by Herbert Simon, in 1986, and was awarded Nobel Prize for this
outstanding work. Other contributors to this theory include Luther Gulick and Lyndall Urwick.
• According to this theory, managers’ primary responsibility in organizations is making decisions. When deciding
on the organizational structure, establishing goals, putting plans into effect, launching new products, choosing
new hires, investing in fixed assets, and many other daily tasks, they ought to be involved in the decision-making
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process.

A rational decision-making method entails choosing the best option from a set of available alternatives. A manager
30

needs to make logical decisions.

According to Simon, a manager should follow these steps to make rational decisions for organizational efficiency.
• Define the problem clearly
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• Define decision premises

• Identify relevant or potential alternatives
• Evaluate alternatives
• Select the best one
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• Implement
• And, evaluate and review the results.
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Theoretically, a rational decision-making process that is tested to fulfill and constrained by bounded rationality is how
ideal decisions are produced. This method of decision-making presupposes that managers may encounter situations
involving uncertainty, ambiguity, and non-programmed decision-making.

Contributions of Decision Theory:

• This theory provides a rational decision-making process depending on the mathematical tools.
• It is helpful to make effective decisions on the basis of proven theory.

Limitations of this theory:

• This theory is limited to economic rationale.
• The consideration of this theory is still very limited and narrow.
• It only focuses on decision-making issues.

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Decision Making Notes Part 4

Table of Content

1. Participative Decision Making

2. Decision Tree
3. Decision Making Techniques and Tools
4. Management Information System (MIS)
5. Decision Support System (DSS)
6. Marginal Analysis
7. Pareto Analysis
Participative Decision Making

In the Participative Leadership Style, the leader encourages his subordinates to contribute their ideas or opinion in the
group situations and share responsibility in them.

There are four major types of decision-making style that a leader adopts to get the group goals accomplished. These
are:
• Collective Decision Making: Under this leadership style, all the group members take the decision collectively,
and the responsibility of such decision rests with the entire group. This type of style is advantageous only when
the clear lines of authority and responsibility are defined among the group members.
• Democratic or Participative Decision Making: Here, the leader collects all the ideas and opinions from the group
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members and then takes the final decision by himself. Once the leader has taken the decision, he
communicates the same to his subordinates and tries to resolve the objections if any.
• Autocratic Participative Decision Making: Under this leadership style, the authority of final decision making
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rests with the leader alone, who makes decisions on the basis of the solutions obtained through the discussions
with group members. Here, the leader collects all the ideas and opinions from the group members and then
arrive at a final conclusion.
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✓ The difference between the democratic and autocratic decision making is that in the latter the decision
making is fast since it is goal-directed whereas the democratic style is people-oriented and hence the
decision making is slow.
✓ Thus, the results are obtained faster in the case of the autocratic participative decision making.
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• Consensus Decision Making: Under this style, the leader gives up his responsibility to take decisions on the
group members and arrive at the final conclusion through a majority of the group.
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Generally, the group members are involved in setting goals, problem-solving, and team building. But the authority of
final decision-making rests with the leader himself.

Decision Tree

Decision Tree may be understood as the logical tree, is a range of conditions (premises) and actions (conclusions),
which are depicted as nodes and the branches of the tree which link the premises with conclusions.
• It is a decision support tool, having a tree-like representation of decisions and the consequences thereof.
• It uses ‘AND’ and ‘OR’ operators, to recreate the structure of if-then rules.
• A decision tree does not constitute a decision but assists in making one, by graphically representing the
material information related to the given problem, in the form of a tree.
• It diagrammatically depicts various courses of action, likely outcomes, states of nature, etc, as nodes, branches
or sub-branches of a horizontal tree.

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Nodes
There are two types of Nodes:
• Decision Node: Represented as square, wherein
different courses of action arise from decision
node in main branches.
• Chance Node: Symbolised as a circle, at the
terminal point of decision node, the chance
node is present, where they emerge as sub-
branches. These depict probabilities and
outcomes.
For instance: Think of a situation where a firm
introduces a new product. The decision tree presented
below gives a clear idea of managerial problems
• Key A is a decision node, wherein the decision is taken, i.e. to test the product or drop the same.
• Key B is an outcome node, which shows all possible outcomes, that can be taken. As per the given situation,
there are only two outcomes, i.e. favorable or not.
• Key C is again a decision node, that describes the market test is positive, so the firm’s management will decide
whether to go further with complete marketing or drop the product.
• Key D is one more decision node, but does not shows any choice, which depicts that if the market test is
unfavorable then the decision is to drop the product.
• Key E is again an outcome node.
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The decision tree can be applied to various areas, where decisions are pending such as make or buy decision,
investment decision, marketing strategy, the introduction of a new project. The decision maker will go for the
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alternative that increases the anticipated profit or the one which reduces the overall expected cost at each decision
point.

Types of Decision Tree

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In single stage decision tree, the decision maker

can find only one solution, which is the best
course of action, on the basis of the information
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gathered. On the other hand, multi-stage

decision tree involves a series of the decision to
be taken.
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Decision Making Techniques and Tools

Managers can use various tools for making

decisions in order to make more effective
decisions. They require factual information,
expert opinion, and other tools for the purpose. Managers usually select qualitative and quantitative tools of decision-
making on the basis of the nature of problems and the need for accuracy.
Some of the important decision-making tools and techniques are mentioned below:

Qualitative Techniques:
1) Intuition: It is making a choice without the use of conscious thought or logical inference. It is important for a manager
to develop his intuitive skills because they are as important as rational analysis in many decisions.

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2) Delphi Technique: Kindly refer Decision Making Part 3 notes. We have already covered there so there is no need to
copy paste here also.

3) Brainstorming: Kindly refer Decision Making Part 3 notes. We have already covered there so there is no need to copy
paste here also.

4) Nominal Group Technique (NGT): Kindly refer Decision Making Part 3 notes. We have already covered there so there
is no need to copy paste here also.

5) Multi-Voting: In this method, repeated rounds of voting are carried out until a consensus is arrived at. In this
method, each participant presents his opinion or proposition in front of the panel and each member casts a vote. When
voting for every participant’s suggestion is completed, the strategies or suggestions with highest voting qualify for the
next round. This process is continued until a clear unanimous strategy is voted.

6) Didactic Interaction: This is a very useful decision-making technique when decisions to be taken are dichotomous in
nature. The solution to such decisions is in terms of either “yes” or “no” decision. For example, to purchase machinery
or not to purchase, to import or not to import, to sell or not to sell, etc. These decisions are mutually exclusive, i.e.,
acceptance of one decision automatically results in rejection of another.

7) Considered Opinions: It involve considering opinions of knowledgeable persons in the field concerned. In this,
relevant data is collected and analysed. The results are discussed in a group meeting. Opinions of various participants
are sought and analysed to arrive at a decision.
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Quantitative Techniques:
Quantitative decision-making is the one which is based on numerical and quantifiable data. The quantitative approach to
decision-making aims at solution finding through mathematical models. Such decision-making techniques are applicable
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in case of structured decisions.

1) Decision Matrix: Decision matrix method was invented by Professor Stuart Pugh and is also called as Pugh method.
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Decision matrix method is a quantitative technique used to rank the multi-dimensional options available for an
underlying problem. This technique is primarily used when various alternatives are available and many different
parameters are to be considered for making a selection.
Various areas of applicability of decision matrix are investment options, vendor options, product options, etc. The
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Decision Matrix is used by exercising a series of pair-wise comparisons between alternatives against a number of criteria
or requirements. One of its key advantages over other decision-making tools is that Decision Matrix is able to handle a
large number of decision criterion simultaneously.
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2) Cost Benefit Analysis: Cost benefit analysis is a systematic process for evaluating the feasibility of projects or
proposals under consideration. As the name indicates, this method aims at comparing total benefits derived from a
project with the total costs incurred for the same.

Cost benefit analysis, as a decision-making technique, is useful in situations where:

(a) Benefits and costs from a project can be numerically identified.

(b) Evaluating and selection of a project among many alternatives.

(c) Determining the feasibility of a capital purchase.

3) Payback Analysis: Payback analysis is a financial tool in the hands of a decision-maker to determine the viability of
the project by calculating payback period for the projects. Payback period may be defined as the period within which

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initial investment of a project is recovered. In other words, it tells how long a project will take to recover its initial
investment.
• As a decision-making tool, on the basis of payback period, a manager may decide which project to accept
and which to reject. A project with less payback period is preferred over others as it is fastest in recovering
its investment.

4) Decision Tree Analysis: It is a schematic representation of several decisions followed by different chances of the
occurrence. Simply, a tree-shaped graphical representation of decisions related to the investments and the chance
points that help to investigate the possible outcomes is called as a decision tree analysis.
• Decision tree analysis helps the decision maker to take all the possible outcomes into the consideration
before reaching a final investment decision.

5) Simulation: Simulation may be defined as an imitation of a real-life situation. As a decision-making technique,

simulation is used by creating a replica of real-life situation so as to know what could be an outcome under real
operating conditions.

Donald G. Malcolm defines simulation as, “a model which depicts the working of a large-scale system of men, materials,
machines and information operating over a period of time in a simulated environment of the actual real world
conditions.” Simulation technique primarily aims at answering “what if’ questions about real-life situations.

The simulation method may be adopted in the following situations:

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(a) In the study of projects involving huge investments before actual implementation.
(b) For foreseeing the difficulties or problems that may arise due to implementation of new machinery, process or
system.
(c) For training employees without disturbing the actual operations.
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(d) Situations where actual execution or performance is irreversible such as – medical operations, layout of a building,
wars, etc.
50

6) Network Analysis: It refers to use of network techniques for solving large, complex problems comprising of many
interrelated activities to be performed in a particular order. For example in metro construction, bridge construction,
etc., network analysis is applicable for successful completion of projects within time.
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Network is a graphical presentation of these interrelated activities in the order of their occurrence connected through
arrows and depicted by nodes. Network analysis aims at developing a network and then planning, scheduling and
controlling of performance of activities of a large complex project.
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There are primarily two network techniques which are widely applied. These are:

(a) Programme Evaluation Review Technique (PERT) – PERT is a technique applicable for projects with non-repetitive
activities. PERT is a probabilistic approach where time of completion of each activity is not certainly known.

(b) Critical Path Method (CPM) – CPM is a project evaluation technique which aims at identification of total duration for
the project completion time along with the shortest path for its completion. CPM is a deterministic networking
technique where activity completion time is known with certainty.

7) Operations Research: It may be defined as a scientific method making use of various tools and techniques to
quantitatively provide solutions to the problems. As a quantitative decision-making technique, operations research is
very widely used to solve a wide variety of problems.

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With the help of applying operation research techniques, management is able to solve many complex problems through
a systematic and objective methodology, which is subject to minimal biases. Operations research as a scientific approach
comprises of various techniques which have their respective areas of applicability.

These techniques are:

(a) Linear programming – It is an optimization technique. It deals with the optimisation (maximisation and minimisation)
of an objective function, i.e., problem under consideration subject to availability of constraints.

(b) Transportation model – This is a decision-making technique which aims at managing the movement of goods from V
number of sources to ‘m’ number of destinations in the most cost-effective manner.

(c) Assignment model – This technique aims at assigning jobs to various task persons so as to minimise the cost of
getting the work done.

(d) Inventory control – These techniques aims at taking decisions for economic order quantity, how much quantity to
order, how frequently to order, what should be the safety stock level, etc.

(e) Queuing theory – This technique is applicable for resolving the long queue issues and problems of traffic congestion.
For example, at petrol pumps, railway booking window, service windows in a college, etc., all face long queues. This
technique primarily answers questions such as whether to open a new counter or not, what is the desired number of
persons in a queue so as to maintain efficiency, etc.
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(f) Sequencing theory – This technique involves determination of an optimal order or sequence of performing a series of
jobs so as to optimise the total time or cost involved in the process.
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Management Information System (MIS)

Management Information System or ‘MIS’ is a computer-based system of collecting, storing and disseminating data in
the form of information needed to carry out the functions of management. MIS is a system to support the decision-
50

making function in an organisation.

• It helps the managers to discharge their functions of management efficiently and effectively. With MIS, the
quality of management enhances as it provides accurate, timely and relevant information necessary for
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planning, organisation and control.

Objectives of MIS:
(a) Capturing Data – The very first purpose of MIS is to capture and collect data from diverse sources which will facilitate
64

in organisational decision-making. Data may be specific, general, and contextual or may be operational information.
(b) Processing Data – The data captured is in its original form is not apt for the purpose of making decision-making.
Hence, it is processed to be converted into information. This processed data is utilised for various organisational
functional decision areas such as planning, organising, coordinating, directing and controlling.

Data can be processed through:

(i) Making calculations

(ii) Sorting of data

(iii) Classifying data

(iv) Summarising data.

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(c) Information Storage – MIS stores the processed or unprocessed data for future use. If any information is not
immediately required, it is saved as an organisation record, for later use.

(d) Information Retrieval – The system should be able to retrieve this information from the storage as and when
required by various users.

(e) Dissemination of Information – Information, which is an output or finished product of MIS, is disseminated to the
users in the organisation.

Characteristics of MIS:
(a) Systems Approach – MIS follows a systems approach. It means considering a systematic and comprehensive outlook
of various input and output sub-systems.
(b) Management-oriented – Management information system, being a very critical and integral part of decision-making,
focuses on catering to the decision-making requirements of various managerial functions such as- planning, organising,
staffing, etc.
(c) Need-based – Management information system is a means for effective decision-making. Thus, it is designed and
implemented according to the need and requirement of an organisation or of specific level.
(d) Future Orientation – Being a tool for decision-making, MIS is essentially a future-oriented technique. Collecting data
and providing information for taking decisions is done by MIS for future reference.
(e) Integrated approach – MIS, being a computer-based system aims at collection, processing and dissemination of
information on a unanimous basis. It adopts an integrated approach so as to provide more meaningful information to
the right person at the right time.
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(f) Long-term Planning – MIS is a decision-making system which involves a complex set-up and expertise to implement
it. To reap the benefits of MIS, it is implemented in an organisation for a long-term period.
30

Significance of MIS:
In the recent years, the need for management information system has increased manifold due to the following reasons:
(a) Fosters Effective Planning – MIS is very useful for efficient and effective planning function of an organisation. MIS by
providing quick and timely information to the management will be instrumental in developing plans more accurately and
50

swiftly.

(b) Faster Communication – Management information system, with the computer-based information system and usage
91

of advanced techniques of information transfer, ensures that information reaches the right person at the right time.
With MIS, the formal communication becomes fast and accurate.

(c) Globalisation and Reducing Cultural Gap – With the implementation of computer-based information system in
64

organisations, one can scale down the problems arising from the linguistic, geographical and some cultural diversities.
With MIS, sharing of information, knowledge, communicating and building relationships between different countries
become much easier.

(d) Availability – Management information systems have made it possible for businesses to be open 24 x 7 across the
globe. This means that a business can be open anytime and anywhere making trade between different countries easier
and more convenient.

(e) Cost-Effectiveness and Productivity – MIS application promotes more efficient operation of the company and also
improves the supply of information to decision-makers. Applying such systems can also play an important role in helping
companies to put greater emphasis on information technology in order to gain a competitive advantage.

(f) Effective Means of Control – MIS is instrumental in generation of various kinds of reports indicating about the
performance of men, materials, machinery, money and management. MIS is helpful in controlling costs by giving
information about idle time, labour turnover, wastages and losses and surplus capacity.

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Limitations of MIS:
MIS, although being a very sophisticated decision-making tool, has the following limitations:

(a) Only Quantitative Inputs: MIS considers primarily quantitative components and thus, in this manner, it disregards
the non-quantitative variables like assurance, motivation, dispositions of individuals from the association, etc., which
have an essential impact and influence on the organisation’s decision-making process.
(b) Meant for Programmed Decisions: MIS is less useful for making non-programmed decision-making. Such types of
decisions are not of routine type and thus they require information, which may not be available from existing MIS to
executives.
(c) Inflexibility: With ever changing and dynamic environment, MIS may not be flexible enough to have imperative
adaptability to rapidly redesign itself with the changing needs of time.
(d) No Substitute for Effective Management: MIS, despite being an important element in decision-making, does not
replace the role and function of managerial judgment in decision-making. It is simply a vital device in the hands of
decision-makers which facilitate in decision-making and problem-solving.
(e) Expensive: Implementation of management information system in an organisation requires huge investment in
terms of installation of computers, appointment of specialised technical staff and providing training to existing
employees for effectively utilising it.

Decision Support System (DSS)

Decision Support Systems (DSS) are interactive computerised information systems planned in a manner so as to enable
the decision-takers to make a selection of the most feasible alternative amongst various options available. As the
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name says, DSS is a software-based system which assists managers in taking decisions by providing access to voluminous
information collected from various information
systems in an organisation.
30

It need not necessarily take the decision itself. An

appropriately composed DSS is an intelligent
programming based framework expected to help
50

the decision-makers to assemble valuable data from

a mix of crude information, reports, individual
learning, or plans of action to recognise and take
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care of issues and finally take decision.

A DSS requires three basic constituents:

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(a) The database (or knowledge base)

(b) The model (i.e., the decision context and user

criteria)

(c) The user interface

Objectives of DSS:
(a) Data handling – The very objective of a DSS is to handle and store large amounts of data. It is like database searches
which can be accessed as and when need for extracting the information arises.
(b) Collection and processing of data – DSS aims at procurement of data from varied internal and external sources and
then processing it to convert into relevant information and finally storing it on the system for access.

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(c) Facilitate in report making – DSS not only provides information but also helps the decision-maker by generating
reports and presentations suiting his needs. DSS also helps the user by making charts, graphs, tables, etc., according to
the requirement of the user.

(d) Analytical support – DSS also provides support to the user by making complex analysis and developing comparative
charts with the help of using advanced software packages.

(e) Performs “what-if” and goal-seeking analysis.

Characteristics of DSS:
(a) DSS provides modern systematic models and information investigation instruments to bolster decision-making
activities which are primarily semi-organised and unstructured.

(b) DSS aims at concentrating on issues that are extraordinary and swiftly changing. It focuses on assisting in arriving at
a solution and is not characterised with the system of arriving at a solution.

(c) DSS is a system comprising of user-friendly softwares enabling the users to have easy interface and work directly.
It has supportive networks which help management to address vital issues and long-term trends, both in internal and
external environment.

(d) Having a focus on unstructured and non-routine decisions, DSS relies upon judgment, assessment and knowledge of
the manager rather than replacing it.
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(e) DSS facilitates the decision-makers with an array of computing and communicating capacity so as to enable him to
apply them in different situations and problems.
30

Significance of DSS:
(a) Speedy Decision-Making
(b) Improves Effectiveness of User
(c) Cost Saving
50

(d) Improves Interpersonal Communication

(e) Increases Satisfaction of Decision-Maker
(f) Automation of Various Support Systems
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Limitations of DSS:
Decision Support System brings many advantages for organisations and can have positive benefits. However, designing
64

and developing of a decision support system may have following limitations:

(a) Huge Cost Involvement

(b) Information Overload
(c) Shift of Responsibility
(d) Reduces Creativity
(e) Status Reduction

Marginal Analysis
Marginal analysis helps organizations allocate resources to increase profitability and benefits and reduces costs.

An example from indeed.com is if a company has the budget to hire an employee, a marginal analysis may show that
hiring that person provides a net marginal benefit because the ability to produce more products outweighs the increase
in labor costs.

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Pareto Analysis
The Pareto Principle helps identify changes that will be the
most effective for an organization. It’s based on the
principle that 20 percent of factors frequently contribute to
80 percent of the organization’s growth.
For example, suppose 80 percent of an organization’s sales
came from 20 percent of its customers. A business can use
the Pareto Principle by identifying the characteristics of that
20 percent customer group and finding more like them.
By identifying which small changes have the most
significant impact, an organization can better prioritize its
decisions and energies.
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30
50
91
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 DECISION MAKING NOTES PART 5 BY VYASA IAS
Decision Making Notes Part 5

Table of Content

1. Models in Decision Making

A) Econologic Model or Economic Man Model
B) Bounded Rationality Model or Administrative Man Model
C) Intuitive Decision Model
D) Recognition primed model
E) Creative decision model
F) Vroom-Yetton decision-making model
2. Conditions that Influence Decision Making
3. Biases in Decision Making
4. Heuristics

Models in Decision Making

A decision-making model is a structured process used to guide teams to make decisions. Each
decision-maker model uses different methods to help you analyze and overcome a particular
challenge. Because decision-maker models take different approaches, they’re useful for people with
different learning styles or time constraints.
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A) Econologic Model or Economic Man Model

The econologic model represents the earliest attempt to model decision process. It is also called
rational decision model.
Briefly, this model rests on two assumptions:
30

(1) It assumes people are economically rational; and

(2) People attempt to maximise outcomes in an orderly and sequential process.
50

• Economic rationality, a, basic concept in many models of decision making, exists when
people attempt to maximise objectively measured advantage, such as money or units of
goods produced.
• That is, it is assumed that people will select the decision or course of action that has the
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greatest advantage or payoff from among the many alternatives. It is also assumed that they
go about this search in a planned, orderly, and logical fashion.
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The steps which should be followed when using a rational decision-making model:
1. Define your goal or obstacle: First, you must define the goal or obstacle you wish to achieve
or overcome. Defining this helps you understand exactly what outcome your solution should
produce.
2. Determine the relevant information: For this step, consider delegating research tasks to
your team or brainstorming during a team meeting. Determine what information about your
goal or obstacle is relevant to finding a solution.
3. Create a list of options: Using the relevant information, your team can create a list of
potential options for solutions. Try to support your options with evidence for why they would
solve achieve your goal or overcome your obstacle.
4. Arrange options by their value: After creating a list of options, arrange them by their
likelihood of success. Options that have a higher chance of success also have a higher value,
while options with little evidence may have a lower value.

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5. Choose the best option: Consider the value of each option and how it can help your
company succeed. With your team, come to a consensus about the best option for a
solution using the information you've gathered.
6. Finalize your decision and take action: Once your team decides on the best solution,
clearly state your commitment to the solution and asks if any team members have concerns.
After this, you can implement your solution in your company

B) Bounded Rationality Model or Administrative Man Model

An alternative model, one not bound by the above assumptions, has been presented by Simon. This
is the bounded rationality model, also known as the administrative man model.
• As the name implies, this model does not assume individual rationality in the decision,'
process. Instead, it assumes that people, while they may seek the best solution, usually
settle for much less because the decisions they confront typically demand greater information
processing capabilities than they possess. They seek a kind of bounded (for limited)
rationality in decisions.

The concept of bounded rationality attempts to describe decision processes in terms of three
mechanisms:
• Sequential attention to alternative solutions: People examine possible solutions to a
problem sequentially. Instead of identifying all possible solutions and selecting the best (as
suggested in the econologic model), the various alternatives are identified and evaluated
one at a time. If the first solution fails to work it is discarded and the next solution is
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considered. When an acceptable (that is, `Good enough' and not necessarily the best')
solution is found, the search is discontinued.
• Use of heuristics: A heuristic is a rule which guides the search for alternatives into areas
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that have a high probability for yielding satisfactory solutions. For instance, some
companies continually select Management graduates from certain institutions because in the
past such graduates have performed well for the company.
• According to the bounded rationality model, decision makers use heuristics to reduce
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large problems to manageable proportions so that decisions can be made rapidly. They
look for obvious solutions or previous solutions that worked in similar situations.
• Satisfying: Whereas the econologic model focuses on the decision maker as an optimiser,
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this model sees him or her as a satisfier. An alternative is optimal if: (1) there exists a set'
of criteria that permits all alternatives to be compared; and (2) the alternative in question is
preferred, by these criteria, to all other alternatives.
• An alternative is satisfactory if: (I) there exists a set of criteria that describes minimally
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satisfactory. alternatives; and (2) the alternative in question meets or exceeds all these
criteria.

Based on these three assumptions about decision makers, it is possible to outline the decision
process as seen from the standpoint of the bounded rationality model.

C) Intuitive Decision Model

Rather than logical reasoning, the intuitive decision model uses feelings and instinct to make
decisions. Often, team leaders or managers use this model to make quick decisions when they
don't have a lot of time for research or planning
The process of an intuitive decision is less structured and may use previous knowledge of
similar goals or obstacles to determine a useful solution. Consider the following steps to help
you use the intuitive decision-making model:

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1. Define your goal or obstacle: Even with little time, it's important to define your goal or
obstacle clearly, especially if you're making a decision without your team. This can help you
explain the decision and its effects later.
2. Identify similar goals or obstacle: Brainstorm similar goals or obstacles you've encountered
before and how you solved them. Use this information as a basis for creating your own
solution.
3. Recognize possible biases: Recognizing your biases is especially important when you don't
have input from your team. Consider how your decision may affect yourself, your team and
your company as you think of potential solutions.
4. Determine a usable solution: Determine the best solution using your prior experience and
the values of your company. An ideal solution helps your company achieve its goals or
overcome an obstacle while also benefitting your team and other employees.
5. Finalize your decision and take action: After choosing a usable solution, you can alert
your company and team of your decision. If you have to make the decision quickly, you may
have to put it into action without discussing with your team

D) Recognition primed model

The recognition primed model is similar to the intuitive decision-making model in that it
relies heavily on the decision-maker's experience and instinct. However, the recognition primed
model is a little more structured than intuitive decision-making and includes the following
steps:
• Step #1) Analyze available information to identify possible solutions: The first step
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in the recognition primed model is to brainstorm possible solutions based on your

available information.
• Step #2) Run scenarios through your head: For each possible solution, run the
scenario through your head and see how it plays out.
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• Step #3) Make a decision: The recognition primed model dictates that the solution
that leads to the best possible outcome when you visualize it in your mind is the
solution that you should choose.
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E) Creative decision model

• The creative decision model uses original ideas to create innovative solutions that
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achieve goals or overcome obstacles. This involves thinking through a situation and
inventing a solution without referencing similar situations.
• Often, you can use this model for situations you haven't experienced before, like new
projects or production issues. Using the creative decision model typically requires
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flexible thinking to create successful, unique solutions

F) Vroom-Yetton decision-making model

The Vroom-Yetton model is designed to help you to identify the best decision-making approach
and leadership style to take, based on your current situation. It was originally developed by
Victor Vroom and Philip Yetton in their 1973 book, "Leadership and Decision Making."
No single decision-making process fits every scenario. Instead, Vroom-Yetton offers a number of
different processes and directs you toward the best one for your situation. For example, if speed and
decisiveness are required then it will likely point you toward an autocratic process.
If collaboration is what's needed, then it will nudge you toward a more democratic process.

Before you start using the model, you'll need to consider these three factors:

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• Decision quality – Sometimes, making the "right" decision is critical, and you'll need to use
a large number of resources (people, time, information, and so on) to ensure that the action
you take has been well thought through and is of high quality.
• Team commitment – Some of your decisions will have a major impact on your team, while
others will go unnoticed. When a decision will likely impact your team, it's best to use a
collaborative process. This will improve the quality of the decision, and you'll likely deliver a
successful result faster.
• Time constraints – When the issue at hand isn't time sensitive, you have more "space" to
research your options and to include others, which will help to boost the quality of your
decision. If your time is limited, however, it may not be feasible to include others or to
undertake thorough research.

Figure below, shows the Vroom-Yetton model. The framework poses seven "yes/no" questions,
which you need to answer to find the best decision-making process for your situation.
As you answer each of the questions, you work your way through a decision tree until you arrive at
a code (A1, A2, C1, C2, or G2). This code identifies the best decision-making process for you and
your team. (Note that, in some scenarios, you won't need to answer all of the questions.)
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The following codes represent the five decision-making processes that are described by the model:
• Autocratic (A1): You use the information that you already have to make the decision,
without requiring any further input from your team.

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• Autocratic (A2): You consult your team to obtain specific information that you need, and
then you make the final decision.
• Consultative (C1): You inform your team of the situation and ask for members' opinions
individually, but you don't bring the group together for a discussion. You make the final
decision.
• Consultative (C2): You get your team together for a group discussion about the issue and to
seek their suggestions, but you still make the final decision by yourself.
• Collaborative (G2): You work with your team to reach a group consensus. Your role is
mostly facilitative, and you help team members to reach a decision that they all agree on.

Conditions that Influence Decision Making

Managers make problem‐solving decisions under three different conditions: certainty, risk, and
uncertainty. All managers make decisions under each condition, but risk and uncertainty are
common to the more complex and unstructured problems faced by top managers.

Certainty
• Decisions are made under the condition of certainty when the manager has perfect
knowledge of all the information needed to make a decision. This condition is ideal for
problem solving. The challenge is simply to study the alternatives and choose the best
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solution.
• When problems tend to arise on a regular basis, a manager may address them through
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standard or prepared responses called programmed decisions. These solutions are already
available from past experiences and are appropriate for the problem at hand.
✓ A good example is the decision to reorder inventory automatically when stock falls
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below a determined level. Today, an increasing number of programmed decisions are

being assisted or handled by computers using decision‐support software.
• Structured problems are familiar, straightforward, and clear with respect to the
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information needed to resolve them. A manager can often anticipate these problems and plan
to prevent or solve them.
✓ For example, personnel problems are common in regard to pay raises, promotions,
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vacation requests, and committee assignments, as examples. Proactive managers can

plan processes for handling these complaints effectively before they even occur.

Risk
• In a risk environment, the manager lacks complete information. This condition is more
difficult. A manager may understand the problem and the alternatives, but has no guarantee
how each solution will work. Risk is a fairly common decision condition for managers.

When new and unfamiliar problems arise, non-programmed decisions are specifically tailored to the
situations at hand. The information requirements for defining and resolving non-routine problems
are typically high. Although computer support may assist in information processing, the decision
will most likely involve human judgment.

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• Most problems faced by higher‐level managers demand non-programmed decisions. This fact
explains why the demands on a manager's conceptual skills increase as he or she moves into
higher levels of managerial responsibility.

Uncertainty
When information is so poor that managers can't even assign probabilities to the likely outcomes
of alternatives, the manager is making a decision in an uncertain environment. This condition is
the most difficult for a manager.
• Decision making under conditions of uncertainty is like being a pioneer entering unexplored
territory.
• Uncertainty forces managers to rely heavily on creativity in solving problems: It requires
unique and often totally innovative alternatives to existing processes.
• Groups are frequently used for problem solving in such situations. In all cases, the responses
to uncertainty depend greatly on intuition, educated guesses, and hunches — all of which
leave considerable room for error.

These unstructured problems involve ambiguities and information deficiencies and often occur
as new or unexpected situations. These problems are most often unanticipated and are addressed
reactively as they occur. Unstructured problems require novel solutions. Proactive managers are
sometimes able to get a jump on unstructured problems by realizing that a situation is susceptible
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to problems and then making contingency plans.

Biases in Decision Making

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When you have bias in decision making, it means you make your decision based on what is usually
subconscious processing of your previous experiences and prior knowledge.
• These mental shortcuts can impact how you make your decisions and can result in a
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decision that's different from what you'd make if biases weren't present. Biases differ by the
individual and their unique personalities and experiences.
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Self serving biases

• A self-serving bias is one that promotes your self-esteem and helps you feel better about
the position you're in to make a decision.
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• When you engage in a self-serving bias, you may unintentionally make decisions that benefit
yourself over other employees, customers, clients, vendors or the organization and its goals.

Anchoring bias
• Our mind tends to absorb the initial information given to us quickly. We tend to give all
our attention to this information and ignore the information provided to us later.
• The first piece of information acts as an anchor, and we judge the later information with
respect to the anchor.
• This affects our decision-making process, as this hinders us from looking at the subsequent
pieces of information.

Availability bias
• Our tendency to focus on readily available information and make decisions on this basis.

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• We tend to combine this information with our existing knowledge and information. This will
cause oversight of unfavorable and rare events.

Confirmation bias
• This is based on the perception that we tend to seek information that supports our views
and beliefs and neglect the ones that do not. This practice hinders us from collecting all
the necessary information and objectively evaluating them.

Overconfidence bias
• It occurs when people are overconfident about their abilities and knowledge.
• They tend to overestimate themselves, making them overly optimistic. Being overly optimistic
more often leads to failure than not.

Randomness error
• When people believe they can predict a random situation's outcome. This can majorly
affect the decision-making process.

Hindsight Bias
• Hindsight bias is the tendency we have to believe that we’d have accurately predicted a
particular event after the outcome of that event is known. On the Saturday before a
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Super Bowl, far fewer people are sure of the outcome of the event, but on the Monday
following, many more are willing to claim they were positive the winning team was indeed
going to emerge the winner.
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Representative Bias
• Representative bias is when a decision maker wrongly compares two situations because
of a perceived similarity, or, conversely, when he or she evaluates an event without
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comparing it to similar situations. Either way, the problem is not put in the proper context.
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Survivorship bias
• The survivorship bias causes us to make decisions based only on examples of success – all
while assuming that we have the full story.
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Heuristics
• Heuristics are mental shortcuts that allow people to solve problems and make judgments
quickly and efficiently. These rule-of-thumb strategies shorten decision-making time and
allow people to function without constantly stopping to think about their next course of
action.
• However, there are both benefits and drawbacks of heuristics. While heuristics are helpful in
many situations, they can also lead to cognitive biases. Becoming aware of this might help
you make better and more accurate decisions.

How Heuristics Are Used

Heuristics play important roles in both problem-solving and decision-making, as we often turn to
these mental shortcuts when we need a quick solution. Here are a few different theories from
psychologists about why we rely on heuristics.

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• Attribute substitution: People substitute simpler but related questions in place of more
complex and difficult questions.
• Effort reduction: People use heuristics as a type of cognitive laziness to reduce the mental
effort required to make choices and decisions.
• Fast and frugal: People use heuristics because they can be fast and correct in certain
contexts. Some theories argue that heuristics are actually more accurate than they are
biased.

Types of Heuristics
There are many different kinds of heuristics. While each type plays a role in decision-making, they
occur during different contexts. Understanding the types can help you better understand which one
you are using and when.

Availability
• The availability heuristic involves making decisions based upon how easy it is to bring
something to mind. When you are trying to make a decision, you might quickly remember a
number of relevant examples. Since these are more readily available in your memory, you will
likely judge these outcomes as being more common or frequently occurring.

Familiarity
• The familiarity heuristic refers to how people tend to have more favorable opinions of
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things, people, or places they've experienced before as opposed to new ones. In fact, given
two options, people may choose something they're more familiar with even if the new option
provides more benefits.
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Representativeness
• The representativeness heuristic involves making a decision by comparing the present
situation to the most representative mental prototype. When you are trying to decide if
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someone is trustworthy, you might compare aspects of the individual to other mental
examples you hold.
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Affect
• The affect heuristic involves making choices that are influenced by the emotions that an
individual is experiencing at that moment. For example, research has shown that people
are more likely to see decisions as having benefits and lower risks when they are in a positive
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mood. Negative emotions, on the other hand, lead people to focus on the potential downsides
of a decision rather than the possible benefits.

Anchoring
• The anchoring bias involves the tendency to be overly influenced by the first bit of
information we hear or learn. This can make it more difficult to consider other factors
and lead to poor choices. For example, anchoring bias can influence how much you are
willing to pay for something, causing you to jump at the first offer without shopping around
for a better deal.

Scarcity
• Scarcity is a principle in heuristics in which we view things that are scarce or less available
to us as inherently more valuable. The scarcity heuristic is one often used by marketers to

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influence people to buy certain products. This is why you'll often see signs that advertise
"limited time only" or that tell you to "get yours while supplies last."

Trial and Error

• Trial and error is another type of heuristic in which people use a number of different
strategies to solve something until they find what works. Examples of this type of
heuristic are evident in everyday life. People use trial and error when they're playing video
games, finding the fastest driving route to work, and learning to ride a bike (or learning any
new skill).
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