By:SAMIR ANJARIYA

Decision Making

Decision Types of Decision Rational Decision Models of Decision making Behavior Environment of Decision making Barriers in Decision Making

CONTENTS

DECISION

Alternatives(Variety of actions)

Purpose(Cause of action)

Selection(Application of

action)

Decision making means “To Choose wisely from Alternative actions for a certain Purpose”

Decision can be defined as “An selected Action which is applied to specific Problem for achieving desired Outcome“

Programmed & Non Programmed Major & Minor Routine & Strategic Simple & Complex Individual & Group

TYPES OF DECISION

Programmed Decisions: Policy, Rule or Procedure Not De novo Repetitive, Routine and Easiest E.g. Determining salary payments, recording office supply and so on.

Non Programmed decision: Novel, Non repetitive Problem has not arisen before No cut and dry method, Custom tailored treatment E.g. Allocation of organizational resources, about failing product line, improvisation of

community relations.

Programmed & Non-programmed Decisions.

Futurity: Decision commitment in future Long range impact E.g.

Major: Replacement of manpower by machinery, Diversification of the existing product lines.

Minor: Storage of raw material Impact:

No. of affected areas Size of cluster to be affected E.g.

Major: Change in basis of overhead allocation in preparing department profit and loss account

Minor: Shift to bound ledger to loose leaf ledger

Major & Minor Decisions.

Qualitative: Involves subjective factors Basic principles of conduct, Ethical values, Social & Political beliefs. E.g. Paying bribe to anyone for illegal gratification.

Recurrence: Repetition of event Major: Rare, no precedents , made at high level. Minor: Often, routine decisions, made at Lower level.

Major & Minor Decisions.

Routine Decisions: Supportive of company’s operations Relate to the present, to achieve highest efficiency Need less deliberation, Made at lower level E.g. Provision for air conditioning, Lighting, Parking, Cafeteria Service, etc.

Strategic Decisions: Relate to future Need more deliberation Need more money, Made at Higher level E.g. Lowering prices, Changing product line, Introduction of automation.

Routine & Stratagic Decisions.

Simple Decisions: Variables of consideration are Few

Complex Decisions: Variables of consideration are More

Mechanistic Decisions: Problem is simple and high certainty

Judgmental Decisions: Problem is simple and low certainty

Analytical Decisions: Problem is complex, High certainty

Adaptive Decisions: Problem is complex and low certainty

Simple & Complex Decisions.

Simple Complex

High

Low

Problem

Certainty

Mechanistic Analytical

Judgmental Adaptive

Individual Decisions: Problem is routine Analysis of variables is simple Definite procedures are existed already

Group Decisions: Important and Strategic decisions Interdepartmental decisions Methods: Dialectic method Devils Advocacy Advantages:

‐ Increased acceptance‐ Easier coordination‐ Easier communication‐ More information processed

• Disadvantages:‐ Group decisions take longer‐ Groups can be indecisive‐ Compromise‐ Dominated‐ Prior commitments

Individual & Group Decisions.

RATIONAL DECISION

Recognizing problems

&Deciding Priorities

Diagnosing the problem

Developing alternative

solution

Measuring Comparing

Consequences

Implement&

Follow up

Deviation from past experience: E.g. This years sales are falling behind last year’s, Expenses have suddenly increased, Too many defective products are suddenly coming off the assembly line.

Deviation from the plan: E.g. Profit levels are lower than anticipated, A department is exceeding its budget, A project is off schedule.

Other people causes problem: E.g. Customers may complain about late deliveries, Workers may complain about poor working conditions and so on.

Competitors outperform the organization: E.g. Other company includes new processes or improves operating procedures.

Recognizing the problem.

Some problems which can be solved by subordinates because they are close to them, Some problems may need to be referred upward because they affect other departments, Some problems may be differed because it may be not the best time to act. E.g. In many product development areas, delaying decision may be advisable until the

outcome of anticipated technical breakthrough is known. Some problems are procrastinated and allowed to be solved without any effort. There would be very few problems requiring the manager’s attention.

Deciding priorities among problems.

Diagnose the problem. Every problem should be correctly diagnosed. Sometimes symptoms of problem can mislead manager, Sometimes it happens that problem occurs in one part and manager finds problems into

another. E.g. When sales decline, manager may thinks causes in the sense of poor selling

procedures, sharp competition or saturation of old market but real problem may be the tight fisted control of the firm and inabilities to fulfill customers demands.

A manager must make a thorough study of all the sub-parts of his organization which are connected with the sub-parts in which problem is located.

Developing alternative solutions. For every problem there is always a alternative solution there. In every course of action alternative exists. To raise production :

Build a new plant Buy better equipment Add an extra shift Authorize overtime.

Developing alternatives==Feasibility==Limiting factors. Review Past experience==not always reliable with new culture Saturation: Manager must make himself thoroughly familiar with the problem. Deliberation: Manager must think problem from several viewpoints. Incubation: If deliberation does not help then turn off conscious search and relax. Illumination: Flash of insight take place and generates a new good idea. Accommodation: Manager refines his ideas into a usable proposal. Brain storming: 5 to 10 people indulge in an uninhibited search for solution. Brain stilling: Develop right half which controls intuition, Opposed to the left half which

controls logic and analytical capabilities.

Measuring and comparing consequences. Comparison of Quality and Acceptability. Tangible consequences: Which can be quantitatively measured or mathematically

demonstrated. Intangible consequences: Which cannot be quantitatively measured or mathematically

demonstrated. Problem occurs though, Good in quality, poor in acceptability. Vice versa. In technical matters (Engineering, production, finance, purchase) Quality is more

important than Acceptability. In Human matters (Working condition, office layout) Acceptability is more important than

Quality.

Implement & follow-up. Translation of decision into an action. Communication of decision to the employees in clear and unambiguous terms. Required employees acceptance, if not take steps to win their cooperation. Employee association with decision making. As a safeguard against incorrect decision, while converting a decision into an action,

manager should institute a system of follow-up so that he can modify his decision at the earliest opportunity.

As per Herbert A. Simon Four principle stages: Intelligence- Searching the environment conditions calling for decision. Design- Inventing, developing, and analyzing possible course of action. Choice- Selecting particular course of action from alternatives. Review- Assessing past choices.

Economic Man Model (Econologic Model) Administrative Man Model (Bounded Rationality Model) Social Man Model

MODELS OF DECISION MAKING BEHAVIOUR

Economic man model ( Econological model ). Man is completely Rational in his decisions. He always selects that alternative which gives him the greatest advantage. Planned, orderly and logical manner. Many critics about this model as it lacks realism. Man does not have enough capacity to:

gather all necessary information. mentally store this information. accurately recall information anytime he likes. do a series of complex calculations. rank all consequences on the basis of their merits.

Administrative man model ( Bounded rationality model ). Developed by Herbert Simon. Uses only limited rationality. Decision making by this model:

Not having the ability to maximize attempts to satisfice. Search for alternatives is sequential and incremental. Search for alternatives is guided by experience.

Steps included in Decision making process: Set the goal/Define the problem. Establish appropriate criteria to judge acceptability. Identify feasible solution. If no then lower the criteria and refresh search. If identified, evaluate it to determine acceptability. If acceptable, implement it. If unacceptable, initiate search for new solution. Evaluate degree of difficulty.

Social man model. Developed by classical psychologists. Freud: “Man being a bundle of feelings, emotions and instincts is guided by his

unconscious desires” Also a subject of social pressures and influences. Solomon Asch: “This world is full of irrational conformists” Strong social pressures can force managers to choose obviously wrong alternatives.

Certainty Risk Decision Tree Uncertainty

ENVIRONMENT OF DECISION MAKING

Certainty. Decision maker can specify the consequences of a particular decision or act. Certainty about future events is difficult. Managerial decisions must be made in awareness that future conditions may vary widely

from those contemplated when the decision is being made. E.g. When a company has to make shipments to a number of customers from a numbers

of warehouses, it is possible to obtain the relevant facts for the problem those are types of transport available, cost per unit for each source to each destination and so on. Also to develop a least cost distribution pattern.

As the number of possible alternatives increases, finding the one with highest payoff becomes more and more difficult.

Risk. Specified with known probability values. Value of probability associated with the event is a measure of the likelihood of the

occurrence of that event. Evaluation of alternatives is done by calculating the expected value of payoff associated

with each alternative.==sum of the value of each possible outcomes times its associated probability.

Alternatives availableNo. of buses needed

1 2P=0.7 P=0.3

Total expected pay off

1. Run one bus2. Run two buses

Rs. 500 Rs. 500 Rs. 0 Rs. 1000

Rs. 500Rs. 300

Decision tree. Approach involves linking a number of event branches. Process starts with minimum two alternatives to be evaluated. Probability must be ascertained as well as its monetary value.

Expected Pay off Buses run Buses NeedRs. 500 1 1Rs. 500 1 2

Re. 0 2 1Rs. 1000 2 2

Decision PointRun 1 bus

1 bus needed

2 buses needed

Run 2 buses1 bus needed

2 buses needed

Possible actions Possible events Net cash flow Total expected pay off

Rs. 500

Rs. 500

Rs. 0

Rs. 1000

(500*0.7) + (500*0.3) = Rs. 500

(0*0.7) + (1000*0.3) = Rs. 300

Uncertainty. Uncertainty exists when the decision maker does not know the probabilities associated

with possible outcomes. Since pay offs are identified but probabilities are unknown under conditions of

uncertainty, the criterion of maximizing the expected pay off cannot be used in evaluating the decision alternatives.

Maximin: Maximizes the minimum pay off. (Limited production in two years) Maximax: Maximizes the maximum pay off. (Immediate production and promotion) Minimax regret: Minimizes the maximum pay off. (Limited production now)

Incomplete information Un-supporting Environment Non-acceptance by subordinates Ineffective communication Incorrect Timing

BARRIERS IN DECISION MAKING

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