© farhan mir 2007 ims management thoughts & practices mba & bba lecture 6 (decision making...

© Farhan Mir© Farhan Mir

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Management Management Thoughts & PracticesThoughts & Practices

MBA & BBA MBA & BBA Lecture 6Lecture 6(Decision Making the Essence (Decision Making the Essence of Managerial Job)of Managerial Job)

By: Farhan MirBy: Farhan Mir


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Learning OutcomesLearning Outcomes

Describe the steps in the decision-making process

Identify the assumptions of the rational decision-making model

Explain the limits to rationality

Define certainty, risk, and uncertainty as they relate to decision making

Describe the actions of the bounded-rational decision maker


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Learning Outcomes (…)Learning Outcomes (…)

Identify the two types of decision problems and the two types of decisions that are used to solve themDefine heuristics and explain how they affect the decision-making processIdentify four decision-making styles


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How are decisions madeHow are decisions madein organizations?in organizations?

Decision making.

The process of choosing a course of action for dealing The process of choosing a course of action for dealing

with a problem or opportunity.with a problem or opportunity.

Many Methods can be adopted by various managers

for making decisions, one of these is called the

“Systematic Decision Making” (Also known as the

“Rational Model of Decision Making”)


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Steps in systematic decision making.

Recognize and define the problem or opportunity.Recognize and define the problem or opportunity.

Identify and analyze alternative courses of action, and estimate their effects Identify and analyze alternative courses of action, and estimate their effects

on the problem or opportunity.on the problem or opportunity.

Choose a preferred course of action.Choose a preferred course of action.

Implement the preferred course of action.Implement the preferred course of action.

Evaluate the results and follow up as necessary.Evaluate the results and follow up as necessary.


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Six Steps in Decision Six Steps in Decision MakingMaking

Figure 7.4


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Identify Problem

The Decision-Making Process

Select Alternative

ImplementAlternative

EvaluateResults

1

Develop Alternatives

AnalyzeAlternatives

DevelopDecisionCriteria

Allocate Weights to

Criteria

2 3

4 5

6

7

8


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Step 1: Identify a Step 1: Identify a ProblemProblem

The difference between The difference between what is and what it ought what is and what it ought to beto be


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Step 2: Decision CriteriaStep 2: Decision Criteria

Factors that are relevant in making the decision

PriceInterior comfortDurabilityRepair recordPerformanceHandling


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Determining the relative priority of each of the

criteria

Step 3: Allocating Weights


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Problem: To purchase Problem: To purchase a new cara new car

Criterion Weight

Price 10

Interior comfort 8

Durability 5

Repair record 5

Performance 3

Handling 1


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Step 4: AlternativesStep 4: Alternatives

Generate a list of possible Generate a list of possible vehicle manufacturersvehicle manufacturers


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Assessing the value of each alternative by making a value

judgment of the feature

Step 5: Analyzing Alternatives


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Concluding Steps in Concluding Steps in Making a DecisionMaking a Decision

Step 6: Select the “best”

Step 7: Implement decision

Step 8: Evaluate decision


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Assumptions Of Assumptions Of RationalityRationality

RationalDecisionMaking

Problem isclear and

unambiguous

Single, well-defined goal

is to be achievedAll alternatives

and consequences

are known

Preferencesare clear

Preferencesare constantand stable

No time or costconstraints exist

Final choicewill maximize

payoff

FOM 4.12


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The systematic decision-making process may not be followed where substantial change occurs and many new technologies prevail.

Novel decision techniques may yield superior performance in certain situations.

Ethical consequences of decision making must be considered.


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What are the usefulWhat are the usefuldecision making models?decision making models?

Decision making realities.Managers face complex choice processes.Managers face complex choice processes.

Decision making information may not be available.Decision making information may not be available.

Bounded rationality and cognitive limitations affect Bounded rationality and cognitive limitations affect the way people define problems, identify the way people define problems, identify alternatives, and choose preferred solutions.alternatives, and choose preferred solutions.


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What Makes Decision What Makes Decision Making so Difficult? Making so Difficult? ComplexityUncertainty Organizational & Environment PressureIndividual Decision Making LimitationsExperience, Beliefs & Perceptions of the Decision Maker

Results!!!!Satisfying (sounds like….guess!!!!) Satisfying (sounds like….guess!!!!)

Focusing on highly visible choices Focusing on highly visible choices

So managers make decisions in Bounded So managers make decisions in Bounded RationalityRationality

Key bounding constraints are time, uncertainty and other organizational and cultural influences


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How do intuition, judgment, and How do intuition, judgment, and creativity affect decision creativity affect decision making?making? Intuition.

The ability to know or recognize quickly and readily the The ability to know or recognize quickly and readily the

possibilities of a given situation.possibilities of a given situation.

A key element of decision making under risk and A key element of decision making under risk and

uncertainty.uncertainty.


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How do intuition, judgment, and How do intuition, judgment, and creativity affect decision creativity affect decision making?making? Judgmental heuristics.

Simplifying strategies or “rules of thumb” used to make Simplifying strategies or “rules of thumb” used to make decisions.decisions.

Makes it easier to to deal with uncertainty and limited Makes it easier to to deal with uncertainty and limited information.information.

Can lead to systematic errors that affect the quality and/or Can lead to systematic errors that affect the quality and/or ethics of decisions.ethics of decisions.


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How do intuition, judgment, and How do intuition, judgment, and creativity affect decision creativity affect decision making?making?

Types of heuristics.Availability heuristic Availability heuristic — bases a decision — bases a decision on recent events relating to the on recent events relating to the situation at hand.situation at hand.

Representativeness heuristic — bases a Representativeness heuristic — bases a decision on similarities between the decision on similarities between the situation at hand and stereotypes of situation at hand and stereotypes of similar occurrencessimilar occurrences


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How do intuition, judgment, and How do intuition, judgment, and creativity affect decision creativity affect decision making?making?Creativity factors.

Creativity in decision making involves the development of Creativity in decision making involves the development of

unique and novel responses to problems and opportunities.unique and novel responses to problems and opportunities.

Creativity is especially important in a dynamic Creativity is especially important in a dynamic

environment full of nonroutine problems.environment full of nonroutine problems.


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Types of Types of DecisionsDecisions


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Problems Problems Well-Structured vs. ill-Well-Structured vs. ill-StructuredStructured

StraightforwardFamiliarEasily-defined

New or unusualAmbiguous informationIncomplete information


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Structured and Structured and Unstructured ProblemsUnstructured Problems


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Decisions are classified as:Unstructured: Non-routine, decision maker provides judgment, evaluation, and insights into problem definition, no agreed-upon procedure for decision making

Structured: Repetitive, routine, handled using a definite procedure

Managers and Decision Making


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Programmed and Non-Programmed and Non-programmed Decisionsprogrammed Decisions

Programmed DecisionRoutine, virtually automatic decision Routine, virtually automatic decision making that follows established rules making that follows established rules or guidelines.or guidelines.

Managers have made the same decision many times before.There are rules or guidelines to follow based on experience with past decisions.Example: Disciplinary action to be taken concerning a tardy employee.


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Procedure

Rule

Policy

Programmed DecisionProgrammed Decision


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Programmed and Non-Programmed and Non-programmed Decisionsprogrammed Decisions

Non-Programmed DecisionsNon-routine decision making that occurs in Non-routine decision making that occurs in response to unusual, unpredictable response to unusual, unpredictable opportunities and threats.opportunities and threats.

The are no rules to follow since the decision is The are no rules to follow since the decision is new.new.

Decisions are made based on information, and a manager’s intuition, and judgment.

Example: Deciding to invest in additional production equipment to meet forecasted demand.


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Types of Decision and Management Levels


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ProgrammedDecisions

Non-programmedDecisions

Relationship of Relationship of Problems, Decisions, Problems, Decisions, and Leveland Level

Type ofProblem

Level

Ill-Structured

Well-Structured

Top

Lower


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How can the decision-makingHow can the decision-makingprocess be managed?process be managed?

Reasons for decision making failure.

Managers too often copy others’ choices and try to sell Managers too often copy others’ choices and try to sell them to subordinates.them to subordinates.

Managers tend to emphasize problems and solutions Managers tend to emphasize problems and solutions rather than successful implementation.rather than successful implementation.

Managers use participation too infrequently.Managers use participation too infrequently.


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Analytical

BehavioralDirective

Conceptual

Decision-Making StylesDecision-Making Styles

Rational Intuitive

Way of Thinking

Low

HighT

ole

ran

ce f

or

Am

big

uit

y

Source: S. P. Robbins, Supervision Today (Upper Saddle River, NJ: Prentice Hall, 1995), page 111.


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Decision-Making and Decision-Making and National CultureNational Culture

Differs from one country to another

Need to recognize what is acceptable

Managers can expect high payoff if they can accommodate the diversity

© farhan mir 2007 ims management thoughts & practices mba & bba lecture 6 (decision making...

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