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The Decision Making Process
Week 4
MGT 101 - Principles of Management and Business
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Objectives
✤ To describe the decision making process
✤ To practice decision making
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The Decision Making Process
✤ Definition:
✤A set of eight steps that begins with identifying a problem; it moves through selecting an alternative that can alleviate the problem and concludes with evaluating the decision’s effectiveness
✤ This process can be used to describe both individual and group decisions.
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The Decision Making Process
Identificationof a
Problem
Identificationof Decision
Criteria
Allocationof Weightsto Criteria
Developmentof
Alternatives
Analysisof
Alternatives
Selectionof an
Alternative
Implementation
of theAlternative
Evaluationof
DecisionEffectiveness
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Step 1: Identification of a Problem
✤ A Problem: a discrepancy between an existing and a desired state of affairs
✤ In real world, most problems are not clear.. Thus, problem identification is not simple
✤ Also, problem identification is subjective
✤ Furthermore, managers who mistakenly solve the wrong problem are not different from those who don’t solve it!
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How Can Managers Identify Problems?
✤ They need to make comparisons between current state of affairs AND some standard
✤ The standard can be:
✤ past performance
✤ previously set goals
✤ the performance of some other unit within the organization or some other organization
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Step 2: Identification of Decision Criteria
✤ Here, we select specific criteria that we will use in making the decision. The criteria include: price, weight, size, number of employees, hours needed ... etc.
✤ Decision Criteria (single is criterion): factors that are relevant in a decision
✤ Every decision making has a criteria whether explicitly stated or not
✤ If a factor is not included, it’s considered irrelevant
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Step 3: Allocation of Weights to Criteria
✤ In this step, we give weights to the criteria identified in the previous step
✤ A simple approach: Give 10 to the highest important factor, and then assign weight the rest against that standard
✤ For example: if you give another criterion 5, the standard is twice as important
✤ Mainly, you use your personal preferences. In a more studied decisions, you will use data, statistics, studies, analysis, and research
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Important Criteria and Weights in a Car-Buying Decision
CriterionCriterion WeightWeight
Price 10
Interior Comfort 8
Durability 5
Repair Record 5
Performance 3
Handling 1
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Step 4: Development of Alternatives
✤ Here, we list all the alternatives that could succeed in solving the problem
✤ We only list them, without evaluating them
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Step 5: Analysis of Alternatives
✤ Each alternative is evaluated by appraising it against the criteria
✤ The strengths and weaknesses of each alternative become both evident as we compare them to the criteria and weights established in step 2 and step 3
✤ The assessment is clearly a personal judgement
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Assessment of Possible Car Alternatives
AlternativAlternativee
Initial Initial PricePrice
Interior Interior ComfortComfort
DurabilitDurabilityy
Repair Repair RecordRecord
PerformanPerformancece
HandlinHandlingg
TotaTotall
Mazda C230
5 6 9 10 7 7 44
Isuzu Ascender
7 6 8 6 5 6 38
BMW 335 9 7 6 4 4 7 37
Toyota Camry
6 5 10 10 6 6 43
VW Passat 8 6 6 5 7 8 40
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What if?
✤ If one alternative scored 10 on every criterion, we wouldn’t need to consider the weights
✤ Similarly, if the weights were all equal, you could evaluate each alternative merely by summing up the appropriate lines
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Evaluation of Car Alternatives:Assessment Criteria x Criteria Weight
AlternativAlternativee
Initial Initial PricePrice[10][10]
Interior Interior ComfortComfort
[8][8]DurabilityDurability
[5][5]
Repair Repair RecordRecord
[5][5]PerformancePerformance
[3][3]HandlingHandling
[1][1]
TotaTotall
Mazda C230
5 50 6 48 9 4510 50
7 21 7 7 221
Isuzu Ascender
7 70 6 48 8 40 6 30 5 15 6 6 209
BMW 335 9 90 7 56 6 30 4 20 4 12 7 7 215
Toyota Camry
6 60 5 40 10 5010 50
6 18 6 6 224
VW Passat 8 80 6 48 6 30 5 25 7 21 8 8 212
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Step 6: Selection of an Alternative
✤ Here, we choose the best alternative among those assessed
✤ We merely choose the alternative that scored the highest score in step 5
✤ In our example: Toyota Camry
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Step 7: Implementation of the Alternative
✤ Decision implementation: putting a decision into action
✤ This includes conveying the decision to those affected and getting their commitment to it
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Step 8: Evaluation of Decision Effictiveness
✤ Managers appraise the result of the decision to see whether it has corrected the problem; did the alternative chosen in step 6 and implemented in step 7 accomplish the desired result?
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Learning Outcomes
✤ Decision making is a process of eight steps
✤ Managers use criteria to make decisions, whether they mention them or not
✤ Managers should make alternatives and evaluate them based on the criteria
✤ Managers need to evaluate their decisions to make sure they are solving the right problem