DECISION MAKING

UNDERSTANDING DECISION
MAKING
 Puzzles, Problems, and Wicked Problems
A discrepancy between a desirable and an
actual situation.
 Well structured, ill-structured, and complex
problems.
 Decision
A choice made between available alternatives.
 Decision Making
 The process of developing and analyzing
alternatives and choosing from among them.
 Judgment
 Thecognitive, or “thinking,” aspects of the
decision-making process.

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MANAGERIAL DECISION MAKING
 Decision making: the process by which managers
respond to opportunities and threats by analyzing
options, and making decisions about goals and courses
of action.

 Decisions in response to opportunities: managers

respond to ways to improve organizational
performance.

 Decisions in response to threats: occurs when

managers are impacted by adverse events to the
organization.
DECISION MAKING.......????

  
 
DECISION MAKING

A decision is one when there are different

things you can do and you pick one of
them. You make lots of decisions
everyday!
SOME DECISIONS ARE EASY
LIKE.......

What to eat in breakfast????

WHAT TO WEAR????
SOME DECISIONS ARE DIFFICULT
LIKE.......
CHOOSING GOOD FRIENDS
CHANGING A JOB
IN EVERY SITUATION YOU HAVE
TO SEARCH FOR...
HOW TO MAKE RIGHT
DECISIONS???
MEANING OF DECISION MAKING
 Decision Making is a process of selection from
a set of alternative courses of action which is
thought to fulfill the objectives of the
decision problem more satisfactorily than
others.
 Decision making involves thinking, and
deciding before doing and is part of every
managerial function .
DEFINITION OF DECISION
MAKING
 “Decision Making is the selection based on
some criteria from two or more possible
alternatives.” George R Terry
 “ Decision Making may be defined as a
selection based on some criteria of one
behaviour alternatives from two or more
possible alternatives. To decide means “ to
cut off” or in practical term, ‘ to come to a
conclusion.’ R S Daver
CHARACTERISTICS
 It is a process of choosing a course of action
from among the alternative course of action.
 It is a human process involving to a great
extent the application of intellectual abilities.
And, hence subjective values may also go in
decision making process.
 It is the end process preceded by delibration
and reasoning i.e. it is a rational process.
 It is always related to the situation. A manager
take one decision in a particular set of
circumstances and another in a different set of
circumstances.
 It is always has a purpose. Keeping this in
view , there may just be a decision not to
decide.
 A decision is aimed to achieve the objectives
of the organisation.
MANAGERIAL DECISION MAKING
 Decision making: the process by which managers
respond to opportunities and threats by analyzing
options, and making decisions about goals and
courses of action.

 Decisions in response to opportunities: managers

respond to ways to improve organizational
performance.

 Decisions in response to threats: occurs when

managers are impacted by adverse events to the
organization.
TYPES OF DECISION MAKING
 Programmed Decisions: routine, almost automatic
process.
 Managers have made decision many times before.
 There are rules or guidelines to follow.
 Example: Deciding to reorder office supplies.
 Non-programmed Decisions: unusual situations that
have not been often addressed.
 No rules to follow since the decision is new.
 These decisions are made based on information, and a
manger’s intuition, and judgment.
 Example: Should the firm invest in a new technology?
TYPES OF DECISIONS
Ill-structured Nonprogrammed Top
Decisions
Type of Level in
Problem Organization
Programmed
Well-structured Decisions Bottom

 Programmed Decision
 A decision that is repetitive and routine and can be
made by using a definite, systematic procedure.
 Non programmed Decision
 A decision that is unique and novel.
 The Principle of Exception
 “Only bring exceptions to the way things should be to
the manager’s attention. Handle routine matters
yourself.”

19
 Individual and Group Decision
 Information Input
 Prejudice
 Cognitive Constraints
 Attitude about risk and uncertainty
 Personal Habit
Advantages of Group Decision Making:
 Multiple minds, multiple information
 Can generate more solutions for evaluation.
 Is more democratic in nature while individual decision making is more
autocratic in nature.
Disadvantages of Group Decision Making:
 Time consuming
 Disagreement in the group may result in delayed decision
 It may be dominated by one or the few group members.
THE CLASSICAL MODEL
 Classical model of decision making: a prescriptive
model that tells how the decision should be made.
 Assumes managers have access to all the information
needed to reach a decision.
 Managers can then make the optimum decision by
easily ranking their own preferences among
alternatives.
 Unfortunately, mangers often do not have all (or
even most) required information.
 THE CLASSICAL MODEL
List alternatives
& consequences Assumes all information
is available to manager

Rank each alternative Assumes manager can

from low to high
process information

Select best Assumes manager knows

alternative the best future course of
the organization
THE ADMINISTRATIVE
/BEHAVIOURALMODEL
 Administrative Model of decision making:
Challenges the classical assumptions that managers have and
process all the information.
As a result, decision making is risky.

 Bounded rationality: There is a large number of alternatives

and information is vast so that managers cannot consider
it all.
Decisions are limited by people’s cognitive abilities.

 Incomplete information: most managers do not see all

alternatives and decide based on incomplete information.
WHY INFORMATION IS
INCOMPLETE
Uncertainty Ambiguous
& risk Information

Incomplete
Information

Time constraints &

information costs
DECISION MAKING STEPS
Recognize need for
a decision

Frame the problem

Generate & assess

alternatives

Choose among alternatives

Implement chosen
alternative

Learn from feedback

DECISION MAKING STEPS

1. Recognize need for a decision:

Managers must first realize the need
for which a decision must be made.
DECISION MAKING STEPS
Recognize need for
a decision

Frame the problem

Generate & assess

alternatives

Choose among alternatives

Implement chosen
alternative

Learn from feedback

DECISION MAKING STEPS

2. Frame the problem: managers must

frame problem for which decision is to be
made.
DECISION MAKING STEPS
Recognize need
for
a decision
Frame the problem

Generate & assess

alternatives

Choose among alternatives

Implement chosen
alternative

Learn from feedback

DECISION MAKING STEPS

3. Generate alternatives: managers must develop feasible

alternative courses of action.
 If good alternatives are missed, the
resulting decision is poor.
 It is hard to develop creative alternatives,
so managers need to look for new ideas.
Evaluate alternatives: what are the advantages and
disadvantages of each alternative?
Managers should specify criteria, then
evaluate.
DECISION MAKING STEPS
Recognize need for
a decision

Frame the problem

Generate & assess

alternatives

Choose among alternatives

Implement chosen
alternative

Learn from feedback

DECISION MAKING STEPS

4. Choose among alternatives: managers

rank alternatives and decide.
 Whileranking, all information needs to be
considered.
DECISION MAKING STEPS
Recognize need for
a decision

Frame the problem

Generate & assess

alternatives

Choose among alternatives

Implement chosen
alternative

Learn from feedback

DECISION MAKING STEPS

Implement choose alternative: managers

5.
must now carry out the alternative.
 Often a decision is made and not implemented.
DECISION MAKING STEPS
Recognize need
for
a decision
Frame the problem

Diagnosis and Analysis of the problem

Generate & assess

alternatives

Choose among alternatives

Implement chosen
alternative

Learn from feedback

DECISION MAKING STEPS
6.Learn from feedback: managers
should consider what went right and
wrong with the decision and learn
for the future.
 Without feedback, managers never learn
from experience and might repeat the same
mistake.
DECISION MAKING STEPS
Recognize need for
a decision

Frame the problem

Generate & assess

alternatives

Choose among alternatives

Implement chosen
alternative

Learn from feedback

EVALUATING ALTERNATIVES
Is the possible course of action:
Legal?

Ethical ?

Economical?

Practical?
EVALUATING ALTERNATIVES
 Is it legal? Managers must first be sure that an
alternative is legal both in this country and abroad
for exports.
 Is it ethical? The alternative must be ethical and
not hurt stakeholders unnecessarily.
 Is it economically feasible? Can our organization’s
performance goals sustain this alternative?
 Is it practical? Does the management have the
capabilities and resources to do it?
ERRORS IN DECISION MAKING
 Indecisiveness
 Postponement of Decision
 Failure to isolate the cause of the problem
 Failure to assess the reliability
 Use of unsound methods for analyzing
information.
 Implementation of decision is not sufficient,
but follow up is essential.
GROUP DECISION MAKING
Many decisions are made in a group setting.
 Groups
tend to reduce cognitive biases and can call on
combined skills, and abilities.
There are some disadvantages with groups:
Group think: biased decision making resulting from
group members striving for agreement.
 Usually occurs when group members rally around a
central manger’s idea (CEO), and become blindly
committed without considering alternatives.
 The group tends to convince each member that the idea
must go forward.
IMPROVED GROUP DECISION
MAKING
 Devil’s Advocacy: one member of the group acts
as the devil’s advocate and critiques the way the
group identified alternatives.
 Points out problems with the alternative selection.
 Dialectical inquiry: two different groups are
assigned to the problem and each group evaluates
the other group’s alternatives.
 Top managers then hear each group present their
alternatives and each group can critique the other.
 Promote diversity: by increasing the diversity in a
group, a wider set of alternatives may be
considered.
DEVIL’S ADVOCACY V.
DIALECTIC INQUIRY
Devil’s Advocacy Dialectic
Presentation of
Inquiry
Alter. 1 Alter. 2
alternative

Critique of Debate the two

alternative alternatives

Reassess Reassess
alternative alternatives
accept, modify, reject accept 1 or 2, combine
ORGANIZATIONAL LEARNING &
CREATIVITY
 Organizational Learning: Managers seek to improve
member’s ability to understand the organization and
environment so as to raise effectiveness.
 Thelearning organization: managers try to improve the
people’s ability to behave creatively to maximize
organizational learning .
 Creativity: is the ability of the decision maker to
discover novel ideas leading to a feasible course of
action.
 A creative management staff and employees are the key
to the learning organization.
SENGE’S LEARNING
ORGANIZATION PRINCIPLES

Build complex,
Develop Personal
challenging
Mastery
mental models

Encourage
Systems
Thinking
Build Shared Promote Team
Vision Learning
CREATING A LEARNING
ORGANIZATION
Senge suggests top managers follow several steps to
build in learning:
 PersonalMastery: managers empower employees and
allow them to create and explore.
 MentalModels: challenge employees to find new, better
methods to perform a task.
 Team Learning: is more important than individual learning
since most decisions are made in groups.
 Build
a Shared Vision: a people share a common mental
model of the firm to evaluate opportunities.
 SystemsThinking: know that actions in one area of the
firm impacts all others.
INDIVIDUAL CREATIVITY
 Organizations can build an environment
supportive of creativity.
 Many of these issues are the same as for the
learning organization.
 Managers must provide employees with the
ability to take risks.
 If people take risks, they will occasionally fail.
 Thus, to build creativity, periodic failures
must be rewarded.
 This idea is hard to accept for some managers.
BUILDING GROUP CREATIVITY
 Brainstorming: managers meet face-to-face
to generate and debate many alternatives.
 Group members are not allowed to evaluate
alternatives until all alternatives are listed.
 Be creative and radical in stating alternatives.

 When all are listed, then the pros and cons of each are

discussed and a short list created.

 Production blocking is a potential problem
with brainstorming.
 Members cannot absorb all information being
presented during the session and can forget their own
alternatives.
BUILDING GROUP CREATIVITY
 Nominal Group Technique: Provides a more
structured way to generate alternatives in writing.
 Avoids the production blocking problem.
 Similar to brainstorming except that each member is given
time to first write down all alternatives he or she would
suggest.
 Alternatives are then read aloud without discussion until all
have been listed.
 Then discussion occurs and alternatives are ranked.
BUILDING GROUP CREATIVITY
 Delphi Technique: provides for a written
format without having all managers meet
face-to-face.
 Problem is distributed in written form to managers who
then generate written alternatives.
 Responses are received and summarized by top

managers.
 These results are sent back to participants for feedback,

and ranking.
 The process continues until consensus is reached.

Delphi allows distant managers to participate.

DECISION MAKING PROCESS AND
AFTER MATH
 Organisational Objective
 Defining Problem
 Gathering Information
 Developing Alternatives
 Evaluating Alternatives
 Selecting Action
 Securing Acceptance
 Implementing the Decision.
 CASE LET
Mr. Kumar was appointed as a manager in a production
house. He approved the installation of some machines
and a new scheduling system in order to increase the
production and reduce the cost of manufacturing.
However, the production went down and the number
of complaints increased, substantially. When he asked
his subordinates about the performance of a new
system, they informed him that it was working as
desired. The Managing director while looking at the
production figures asked Mr. Kumar the effectiveness
of his investment decision to acquire new machines
and asked him to solve the problem immediately.
Q.1) Identify the problem in this case?
Q.2) What steps you should initiate to solve the problem?