Quantitative Analysis to Managerial

Decision Making
MBA 631

HARAMBEE UNIVERITY

BY: Mulachew Haile 1

 CHAPTER ONE

Introduction to Quantitative analysis to

Managerial Decision Making

BY: Mulachew Haile 2

Cont’d…

• Why do you think decision making today is so

complex as compared to decisions decades back?

BY: Mulachew Haile 3

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

BY: Mulachew Haile 4

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

BY: Mulachew Haile 5

 i. Quantitative analysis
• QA is the scientific approach to managerial decision making.
• Whims, emotions, and guesswork are not part of the quantitative analysis
approach.
• The approach starts with data and the data are manipulated or processed
into meaningful information that is valuable to people making decisions.
• This processing and manipulating of raw data into meaningful
information is the heart of quantitative analysis.

Quantitative Meaningful
Raw Data
Analysis Information
BY: Mulachew Haile 6
 Cont’d…
• Computers have been instrumental in the increasing use of quantitative
analysis, in simplifying processing of data.

?Why do you think computers are so important here?

• Quantitative analysis will be an aid to the decision-making process by

providing various quantitative techniques to process the data in a more
meaningful manner.
• A variety of names exists for the body of knowledge involving quantitative
approaches to decision making: management science, operations research,
and decision science are used interchangeably today.
BY: Mulachew Haile 7
 Quantitative techniques
• Quantitative techniques are those Mathematical, statistical and
programming techniques, which help decision makers in solving
problems, especially those concerning business and industry.
• Are those techniques that provide decision makers with systematic and
powerful means of analysis, based on quantitative data, for achieving
predetermined goals.
• are methods used to make better decisions, operate more efficiently and
generate more profits.

BY: Mulachew Haile 8

 Application areas of quantitative Techniques
• are used by organizations for better forecasting of demand and better scheduling of
employees, used to increase advertising revenue by using a model to help develop sales
plans for advertisers, allocating capital to alternative investments, determining mix of
products and ingredients, and more.
• other examples of how companies use quantitative analysis or operations research
methods to operate better and more efficiently, go to the website www.scienceofbetter.org
• Quantitative techniques could be mathematical, Statistical and Programming techniques.

Quantitative
Techniques

Programming
Statistical quantitative Quantitative
Mathematical Techniques Techniques
quantitative Techniques
BY: Mulachew Haile 9
Cont’d
i. Mathematical Quantitative Techniques: A technique in which
quantitative data are used along with the principles of mathematics is
known as mathematical quantitative techniques. Mathematical
quantitative techniques involve: Equations, Matrices, Determinants,
differentiations, Integrations, Set theory, Combinations, Permutations…

BY: Mulachew Haile 10

Cont’d…
ii. Statistical Techniques are those techniques which are used in conducting
statistical enquiry concerning a certain phenomena.
• It included all statistical methods from collection of data to interpretation
of collected data, including collection, classification, summarizing,
analyzing and interpretation of data.
• The methods of collection of statistical data, techniques of classification
and tabulation of collected data, calculations of central tendencies(mean,
mode, median), dispersions(standard deviation, variance), coefficient of
correlation techniques of analysis and interpretation and deriving
inference and judging their reliability come under statistical techniques.

BY: Mulachew Haile 11

Cont’d…
iii. Programming Techniques(also called Operations Research) is a
quantitative approaches to decision making based on scientific method of
problem solving.
• It provides techniques for taking wise decisions and arriving at optimal
solution.
• It includes variety of techniques including Linear programming, Net work
Analysis, Transportation and Assignment Models, Decision Theory, Game
theory, Simulation models…
• Most of the models to be covered in this course are Programming
Quantitative techniques, which are mainly of Operations Research concern
but with supplement of the remaining models.

BY: Mulachew Haile 12

Mathematical Quantitative Statistical Quantitative
Techniques Programming
Techniques
• Equations Techniques(OR)
• Methods of Collecting • Linear Programming
• Matrices, data
• Determinants • Transportation and
• Collection and
classification of data Assignment models
• Differentiation
• Probability theory and • Decision Theory
• Integration
Sampling Analysis • Simulation
• Sets Theory • Correlation and • Net work Analysis
• Combination Regression
• Queuing Theory
• Permutation …. • Index numbers
• Time series Analysis • Theory of Game
• Survey Techniques and • Integrated production
Methods models
• Analysis of Variance • Inventory Planning
• Statistical interpretation • Replacement Theory
and inferenc e
BY: Mulachew Haile
• Break even analysis….13
Functions of Quantitative Techniques
1. To facilitate decision making process
2. To provide tools for scientific research
3. To help in choosing an optimal strategy
4. To enable in proper deployment of resources
5. To help minimizing costs
6. To help in minimizing the total processing time required for
performing a set of jobs

BY: Mulachew Haile 14

Historical development of QA/OR
• The scientific management revolution of the early 1900s, initiated by
Frederic W. Taylor, provided the foundation for the use of quantitative
methods in management.
• But modern management science research( often used interchangeably
with Quantitative analysis or Operations Research) is generally
considered to have originated during the World War II period, when
teams were formed by Britain to deal with strategic and tactical
problems faced by the military.
• These teams, which often consisted of people with diverse specialties
(e.g., mathematicians, engineers, and behavioral scientists), were joined
together to solve a common problem of war by utilizing the scientific
method.
BY: Mulachew Haile 15
Cont’d…
• After the war, many of these team members continued their research
in the field of management science.
• Application of operational research to operational problems was
surprisingly successful in both the British and American military,
partly because members of the professional class who had not
previously "dirtied their hands" had their first opportunity to apply
their training to operational problems.
• Their success attracted attention, and operations research spread to
industry during the fifties.

BY: Mulachew Haile 16

Contributing Factors for fast growth of OR
• Three developments that occurred during the post–World War II period
led to the growth and use of management science in nonmilitary
applications ( Business and Industry).
i. Continued research resulted in numerous methodological
developments.
• Probably the most significant development was the discovery by George
Dantzig, in 1947, of the simplex method for solving linear
programming problems.
• Other similar discoveries were Inventory Models(EOQ), Statistical
Process Control(SPC), dynamic Programming and other, which
motivated them to do more.
BY: Mulachew Haile 17
Cont’d…
ii. Invention of digital computers with high analytical power prompted a
virtual explosion in computing power during similar time of
methodological development.
 Computers enabled practitioners to use the methodological advances
to solve a large variety of problems.
iii. The economic and industrial boom after World War II
• This resulted in continuous mechanization, automation,
decentralization of operations and division of management factors.
• This industrialization also resulted in complex managerial problems,
and therefore application of operations research to managerial
decision-making become popular.
BY: Mulachew Haile 18
Cont’d…
• After its first few years, operations research focused almost
exclusively on mathematical modelling.
• There is little communication between people in quantitative fields
and those in such "soft" fields as organizational science and general
management.
• Though there is no single theory coined to accommodate both, the
aspects should be considered in decision making process.
• Despite the limitations of the quantitative methods discussed , in many
specific areas they are quite useful.

BY: Mulachew Haile 19

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

BY: Mulachew Haile 20

Features of QA/Operations Research
Approach
1. Inter-disciplinary approach
2. Methodological Approach
3. Wholistic Approach or Systems Orientation
4. Objectivistic Approach
5. Decision Making
6. Use of Computers
7. Human factors
BY: Mulachew Haile 21
Cont’d…
i. Inter-disciplinary approach
• Interdisciplinary teamwork is essential because while attempting to
solve a complex management problem, one person may not have
complete knowledge of all its aspects such as economic, social,
political, psychological, engineering, etc.
ii. Methodological Approach
•It is the application of scientific methods, techniques and tools to
problems involving the operations of systems so as to provide those in
control of operations with optimum solutions to the problems.

BY: Mulachew Haile 22

Cont’d…
iii. Wholistic Approach or Systems Orientation
•While arriving at a decision, the manager/team examines the relative
importance of all conflicting and multiple objectives and the validity of claims
of various departments of the organization from the perspective of the whole
organization ,i.e. systems view.
Note: A system is a set of interdependent components designed to achieve a particular
objective(s) according to plan.
iv. Objectivistic Approach
•It seeks to obtain an optimal solution to the problem under analysis. For
this, a measure of desirability (or effectiveness) is defined, based on
objective(s) of the organization.
•A measure of desirability is then used to compare alternative courses of action
with respect to their outcomes.
BY: Mulachew Haile 23
Cont’d…
v. Decision Making –QA increases the effectiveness of management
decisions. It is the decision science which helps management to make
better decisions. So the major premise of OR is decision making,
irrespective of the situation involved.
vi. Use of Computers: It often requires a computer to solve the complex
mathematical model or to perform a large number of computations that
are involved.
vii. Human factors: In deriving quantitative solution, we do not
consider human factors which doubtlessly play a great role in the
problems. So study of the QA is incomplete without a study of human
factors.

BY: Mulachew Haile 24

ii. Problem Solving and Decision Making@
• This is the second component.

?What do you think is the difference and which one is

broader in scope? Look in to the figure in the next slide
and react from your own perspective.

BY: Mulachew Haile 25

Cont’d…
• Problem solving -the process of identifying a difference between the
actual and the desired state of affairs and then taking action to resolve
the difference.
• Problem – a gap between the current and desired state of a
phenomenon; it is not necessarily chaotic situation.
• E.g. Chaotic: Sales or market share of an organization is slashing
down
• Positive Gap: Increasing the market share from the current15% to
25%

BY: Mulachew Haile 26

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

BY: Mulachew Haile 27

Problem Solving Process

BY: Mulachew Haile 28

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

BY: Mulachew Haile 29

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

BY: Mulachew Haile 30

 Cont’d…
ii. Identify the alternatives
• Alternatives are courses of actions/strategies from which the best
choice will be chosen.
• As many as possible alternatives should have to be listed out not to
incur opportunity cost of missing the “could” be best alternative.
• Hence, alternatives should be collectively exhaustive and mutually
exclusive.
Collectively exhaustive- should list all possible alternative in the
sphere of the decision maker.
Mutually exclusive – the occurrence of one alternative should
not depend on another.
BY: Mulachew Haile 31
Cont’d…
iii. Determine the criteria
Criteria - factor against which you evaluate your alternatives.
• They also should be mutually exclusive and collectively exhaustive.
 what will happen if you miss out “experience” as a criteria in
evaluating candidates for promotion?

BY: Mulachew Haile 32

Problems could be:
• Single-criterion decision problems- Problems in which the objective
is to find the best solution with respect to one criterion.
• Simple as it considers only one criteria.
eg. Gov’t tenders which are mainly based on price, Job selection
based on highest starting salary.
• Multi-criteria decision problems- Problems that involve more than
one criterion.
Eg. Price and quality during purchasing of an item; Opportunity for
advancement, location, salary for job selection
Becomes more complex and require help of soft wares like spread
sheet as the number of criteria increase.
BY: Mulachew Haile 33
Cont’d…
iv. Evaluate alternatives
• While evaluating alternatives, weight should be given to the criteria
depending on the level of importance of criteria to the decision and
necessary computations should be made.
• All advantages and disadvantages of all alternatives should be
evaluated.
• In this evaluation both quantitative and qualitative analysis should be
considered.

BY: Mulachew Haile 34

 Quantitative & quantitative analysis in decision
making
• In solving a problem, managers must consider both qualitative and
quantitative factors
i) Qualitative analysis is based primarily on the manager’s judgment and
experience; it includes the manager’s intuitive “feel” for the problem and is
more of an art than a science.
• e.g. The weather, state and federal legislation, new technological
breakthroughs, the outcome of an election, and so on may all be factors that
are difficult to quantify.
• Used when:
 the problem is relatively simple and the manager has prior experience with
similar problems, a heavy emphasis may be placed upon a qualitative
analysis. BY: Mulachew Haile 35
Cont’d…
ii) Quantitative approach, focuses on the quantitative facts or data
associated with the problem and develop mathematical expressions
that describe the objectives, constraints, and other relationships that
exist in the problem.
• Then, by using one or more quantitative methods, the analyst will
make a recommendation based on the quantitative aspects of the
problem.

BY: Mulachew Haile 36

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

BY: Mulachew Haile 37

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

BY: Mulachew Haile 38

THE ROLE OF QUALITATIVE AND QUANTITATIVE ANALYSIS In
Decision Making Process

BY: Mulachew Haile 39

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

BY: Mulachew Haile 40

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

BY: Mulachew Haile 41

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

BY: Mulachew Haile 42

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

BY: Mulachew Haile 43

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

BY: Mulachew Haile 44

 Types of Decisions
1. PROGRAMMED DECISIONS: routine, almost automatic process.
• Managers have made decision many times before.
• There are rules or guidelines to follow.
Example: Deciding to reorder office supplies.
Should we fire an employee (based on guideline)?
• Mainly based on quantitative analysis as the repetitive data can be programmed and
2. 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 manager’s intuition, and
judgment.
• Example: Should the firm invest in a new technology?
• Mainly based on qualitative analysis
BY: Mulachew Haile 45
Decision Making Models
i) CLASSICAL MODEL OF DECISION MAKING: a prescriptive
model that tells how the decision should be made.
• Assumes managers have access to all the information needed to
reach a decision.
• Managers can then make the optimum decisions by easily ranking
their own preferences among alternatives; hence leads to
unbounded rationality.
• The manager knows the potential out comes of the alternatives.
• Unfortunately, managers often do not have all (or even most) required
information; hence “bounded rationality”.

BY: Mulachew Haile 46

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

List alternatives Assumes all information

& consequences is available to manager

Rank each alternative Assumes manager can

from low to high process all information

Assumes manager knows

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

BY: Mulachew Haile 48

Why Information is Incomplete?:
• Reasons:

Uncertainty Ambiguous
& risk Information

Incomplete
Information

Time constraints &

BY: Mulachew Haile 49
information costs
Cont’d…
Incomplete information exists due to many reasons:
i)Risk: managers know a given outcome can fail or succeed and
probabilities can be assigned.
• Uncertainty: probabilities cannot be given for outcomes and the
future is unknown.
• Many decision outcomes are not known such as a new product
introduction.
ii) Ambiguous information: information whose meaning is not clear.
• Information can be interpreted in different ways.

BY: Mulachew Haile 50

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

BY: Mulachew Haile 51

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

BY: Mulachew Haile 52

How cognitive bias happens? Types:
Prior
• x Hypothesis

Representativeness Cognitive
Biases
Illusion of Control

Escalating Commitment
BY: Mulachew Haile 53
Types of Cognitive Biases cont’d…
i. Prior hypothesis bias: manager allows strong prior beliefs about a
relationship between variables and makes decisions based on
these beliefs even when evidence shows they are wrong.
ii. Representativeness: decision maker incorrectly generalizes a
decision from a small sample or one incident.
iii. Illusion of control: manager over- estimates their ability to
control events.
iv. Escalating commitment: manager has already committed
considerable resource to project and then commits more even
after feedback indicates problems.

BY: Mulachew Haile 54

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

BY: Mulachew Haile 55

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

BY: Mulachew Haile 56

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

BY: Mulachew Haile 57

Cont’d…
(4) Mental fatigue occurs, which results in slower work or poor quality
work.
(5) Decision fatigue occurs, where the decision maker tires of making
decisions. Often the result is fast, careless decisions or even decision
paralysis--no decisions are made at all.
Unless information is consciously selected, processing will be biased
toward the first part of the information received. After that, the mind
tires and begins to ignore subsequent information or forget earlier
information.
 Therefore, decide on which information to use.
 As a result of this, satisficing; not optimizing is possible according to
Simon.
BY: Mulachew Haile 58
Classical and neoclassical theories versus the
bounded rationality model
• Unbounded Rationality  Bounded Rationality
 Decision makers cannot be rational unless the
• Decision makers are rational by first decision maker has perfect control on the
collecting all the relevant information, environmental factors as well as his mental
generate all possible alternatives and examine capabilities.
the consequences of those alternatives and
finally choose the most optimal alternative
 decision makers are irrational actors
• decision maker is rational actor

• it ignores limitations that are involved with  Considers limitations on human computational
gathering necessary information to make a ability and how those limitations influence his
decision including, time, cost, organizational rational behavior
culture, etc. in arriving at a decision.
the outcome of such a process
 The outcome is optimal choice. will be “satisficing” decisions which indicates that
such decisions are not guaranteed to be “optimal”.
BY: Mulachew Haile 59
Evaluating Alternatives
• Is it legal? Managers must first be sure that an alternative is legal in
the country
• Is it ethical? The alternative must be ethical and not hurt stakeholders
unnecessarily.
• Is it economically feasible? Can our organization’s performance goals
sustain this alternative?
• Is it practical? Does the management/employees have the capabilities
and resources to do it?

BY: Mulachew Haile 60

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

BY: Mulachew Haile 61

… Strategies
There are several strategies used for choosing. Among them are the
following:
1. Optimizing. This is the strategy of choosing the best possible
solution to the problem, discovering as many alternatives as
possible and choosing the very best.
• How thoroughly optimizing can be done is dependent on
A. importance of the problem
B. time available for solving it
C. cost involved with alternative solutions
D. availability of resources, knowledge
E. personal psychology, values
BY: Mulachew Haile 62
… Strategies
2. Satisficing. In this strategy, the first satisfactory alternative is
chosen rather than the best alternative.
• If you are very hungry, you might choose to stop at the first decent
looking restaurant in the next town rather than attempting to choose
the best restaurant from among all (the optimizing strategy).
• The word satisficing was coined by combining satisfactory and
sufficient.

BY: Mulachew Haile 63

… Strategies
3. Maximax. This stands for "maximize the maximums."
• This strategy focuses on evaluating and then choosing the
alternatives based on their maximum possible payoff.
• This is sometimes described as the strategy of the optimist, because
favorable outcomes and high potentials are the areas of concern.
• It is a good STRATEGY FOR USE WHEN RISK TAKING IS
MOST ACCEPTABLE, when the go-for-broke philosophy is
reigning freely.

BY: Mulachew Haile 64

… Strategies
4. Maximin. This stands for "maximize the minimums.“
• In this strategy, that of the pessimist, t h e w o r s t p o s s i b l e
o u t c o m e o f e a c h d e c i s i o n i s c o n s i d e re d and the decision
with the highest minimum is chosen.
• The Maximin orientation is good when the consequences of a failed
decision are particularly harmful or undesirable.
• Maximin concentrates on the salvage value of a decision, or of the
guaranteed return of the decision.
It's the philosophy behind the saying, "A bird in the hand is worth two
in the bush."

BY: Mulachew Haile 65

Approaches to Decision Making
• There are two major approaches to decision making in an
organization
i. the authoritarian method in which an executive figure makes a
decision for the group and
ii. the group method in which the group decides what to do.

BY: Mulachew Haile 66

Approaches to Decision Making Cont’d…
1. Authoritarian/Individual approach
• The manager makes the decision based on the knowledge he can gather.
• He then must explain the decision to the group and gain their acceptance
of it.
• In some studies, the time breakdown for a typical operating decision is
something like this:
 make decision - 5 min.; explain decision - 30 min.; gain
acceptance - 30 min.
i.e., it will take shorter time to reach in to decision; but longest time to
sell and implement.
BY: Mulachew Haile 67
Approaches to Decision Making Cont’d…
2. Group.
The group shares ideas and analyses, and agrees upon a decision to
implement.
Studies show that the group often has values, feelings, and reactions
quite different from those the manager supposes they have.
No one knows the group and its tastes and preferences as well as the
group itself.
And, interestingly, the time breakdown is something like this:
group makes decision, 30 min.; explain decision, 0
min.; gain acceptance, 0 min.
BY: Mulachew Haile 68
Approaches to Decision Making Cont’d…
• Clearly, just from an efficiency standpoint, group decision making is
better; but takes longer time to reach to decision.
• More than this, it has been shown many times that people prefer to
implement the ideas they themselves think of.
• They will work harder and more energetically to implement their own
idea than they would to implement an idea imposed on them by others.
• We all have a love for our own ideas and solutions, and we will always
work harder on a solution supported by our own vision and our own
ego than we will on a solution we have little creative involvement
with.
BY: Mulachew Haile 69
Group Decision Making
Many decisions are made in a group setting.
• Groups tend to reduce cognitive biases and can call on combined
skills, and abilities.
But, there are some disadvantages with groups:
Group think: biased decision making resulting from group members
striving for agreement.
• Usually occurs when group members rally around a central
manager’s idea, and become blindly committed without considering
alternatives.
• The group tends to convince each member that the idea must go
forward.
BY: Mulachew Haile 70
Improving Group Decision Making
• These techniques are used to challenge ideas and stops reaching to decision
in rush.
1. 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.
i. 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.
ii. PROMOTE DIVERSITY: by increasing the diversity in a group, a wider set
of alternatives may be considered.

BY: Mulachew Haile 71

Comparison…
Devil’s Advocacy Dialectic Inquiry

Presentation of Alter. 1 Alter. 2

alternative

Debate the two

Critique of alternatives
alternative
Reassess
alternatives
Reassess accept 1 or 2, combine
alternative
BY: Mulachew Haile 72
accept, modify, reject
Advantages and Dis advantages of Group
Decision
. DISADVANTAGES
ADVANTAGES
ADVANTAGES DISADVANTAGES
More
Moreinformation
informationavailable
available Time-consuming
Time-consuming

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

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

Builds
Buildsmember
member Risk
Riskof
ofgroupthink
groupthink
knowledge
knowledge&&skill
skillbase
base
BY: Mulachew Haile
73
BUILDING GROUP CREATIVITY
1. BRAINSTORMING:
- managers meet face-to-face to generate and debate many alternatives.
• Group members are not allowed to evaluate alternatives until
all alternatives are listed.
• Be creative and radical in stating alternatives.
• When all are listed, then the pros and cons of each are
discussed and a short list created.
PRODUCTION BLOCKING;is a potential problem with
brainstorming.
• Members cannot absorb all information being presented
during the session and can forget their own alternatives.
BY: Mulachew Haile 74
Cont’d…
2. NOMINAL GROUP TECHNIQUE:
- Provides a more structured way to generate alternatives in writing.
• Avoids the production blocking problem.
• Similar to brainstorming except that each member is given
time to first write down all alternatives he or she would
suggest.
• Alternatives are then read aloud without discussion until all
have been listed.
• Then discussion occurs and alternatives are ranked.

BY: Mulachew Haile 75

 Cont’d…
3. DELPHI TECHNIQUE: provides for a written format without
having all managers meet face-to-face.
• PROBLEM IS DISTRIBUTED IN WRITTEN FORM to
managers who then generate written alternatives.
• Responses are received and summarized by top managers.
• These results are sent back to participants for feedback, and
ranking.
• The process continues until consensus is reached. Delphi allows
distant managers to participate

BY: Mulachew Haile 76

……..THE END……..
THANK YOU ALL!!!

Any ???

BY: Mulachew Haile 77