Presented By:

Arthur HauramaAndrew JoshuaChristopher Gau

To understand the rational approach to decision making To become aware of techniques that can be used to improve

decision making To understand reasons why the rational approach is limited in

its practical application to understand what an effectivestrategic decision making process looks like.

Strategic Decision Making process

Learning Outcomes:

What is Decision Making? Process of Decision Making Rational Approach to Decision Making Risk assessment of strategic options Limitations on rational decision making in practice Competitors Actions A practical model for effective strategic decision making Conclusion

Strategic Decision Making process

Contents:

What is Decision Making

Is the process of selecting the BestSolution among Alternatives in orderto solve a problem.

Types of Decision Making

1.Programmed decision

A decision that is fairly structured or

Recurs with some frequency (or both)

2.Non programmed decision

A decision that is relatively

unstructured and occurs much less

often than a programmed decision

Process of Decision Making

Rational Models of Decision Making

“Based on a normative approach (i.e. how decisions should be made). ”

Research shows that Rational Decision-Making processes produce better and more accurate results more often than intuitive decision making processes.

Facts

Rational Approach to Decision Making

“Based on a normative approach (i.e. how decisions should be made). ”

aim at achieving the end goal Are conscious, explicit and deliberate. Intentionally consistent and logical Are fully informed Allow for independent means and ends Involve choice between alternative ends and alternative means,

choices which aim to maximize the end results achieved. Assume a casual relationship between the means taken and the

end results achieved.

Rational Decisions have the following criteria;

Rational Approach to Decision Making

“There are many different approaches to strategic risk assessment. ”

Industry Technology Brand Competitor Customer Project and Lack of growth risk

Slywotsky and Drzik suggest considering 7 different types of strategic

risks;

Risk assessment of strategic options

.

Risk Assessment

1. Consider a range of alternatives:

A key to making the right choice is to consider several options to start with!Manyorganization tend to jump straight from analysis to recomendation, without considering any alternatives.

Consider at least three alternatives:• Would it be best to go international into one country deeply, into several countries thinly, or to spread the risk by choosing two or three countries?• Should we introduce a new product nationally, in a major area first then roll it out, or a minor area firstThe first idea is not always the best.

Ideas are cheap ;execution is difficult. It is easier to come up with many

attractive sounding proposals, but there are many hidden practical traps,

each idea takes time to implemement. Successful organization have been

found to be conservative despite growing quickly and being very

profitable. They tended to consider the downside of proposal, and try to

find ways to spread the risk among partners or by spreading the decision

overtime.

2. Be Conservative:

Strategic planning is primarily qualitative;

What strategy should we follow ?

What position do we want to achieve in the industry

Do we have the resources - managerial(usually the key constrains),financial,people

,productive capacity,etc..?

Often the returns are not there from the strategic ideas.Even if they

are,this process gives an idea of what the soft spots are,and also gives

confidence in undertaking the proposal and now the quantitative analysis

support that idea.

Risk Assessment

3. Forecast the alternatives:

It is the development of a plan for the project, incorporating timings and action responsibilities, qualitative ideas and quantitative support, provides a control tool for future implementation and demonstrate that the idea is well thought through.

A standard error is to assume that the organization’s action will be the only change that occurs in the competitive landscape.

Risk Assessment

5. Consider Competitive reactions:

There are three limitations in decision making:1. Individual 2. Organizational3. Political

Limited/bounded rationalityManagers (and people in general) are unable to hold all the information required at a particular time to produce the perfect decision. Reality and ambiguityIn reality information is known and it is believed that what an individual perceives and experiences constitutes reality for that person while ambiguity means that we are unsure of what is true.

Limitations on rational decision making in Practice

Individual Limitations

Continue………

InterpretationInterpretation can provide a sense of security to an individual where they interpret new experiences and information in ways that make them consistent with their own beliefs. IntuitionIn time of pressured environments and faced with information overload, uncertainty and ambiguity, many managers use intuition to simplify their decision making. Individual emotions and valuesPeople have emotions and values, they work in an organizational culture that has its own values and ethics and people are social and political, they have their own desires, personality likes and dislikes to ensure that rational aspect of decision making is not the same as another person’s.

existing organization decision makingOrganization creates a set of rules for how decisions are normally made and what the boundaries of acceptable decisions are. Groups as decision makersThe rational approach to decision making assumes an individual is making the decision, but as soon as more than one person is involved in the decision, the existence of individual raises the possibility of conflict, even if the individuals are all using a rational model and all perceive themselves as being part of a corporative group or as partners. The talk trapDecisions in organizations are generally made based on verbal arguments, not on the basis of actual outcomes. Decision making seen as an event, not a processDecision made by an individual considering all the information at one point in time, coming to a conclusion, and beginning the process of implementation leads to false emphasis on the objective facts and individual rationality as being important.

Organizational Limitations

Individuals/groups in conflict as decision makersGroups can be corporative, but most groups will include individuals whose personal preferences, styles, requirements and ambitions can clash resulting in conflict as much as corporation. RelationshipsOne reason for social business occasions, clubs, private business meetings and the formation of private networks and alliances is to develop and nurture personal relationships which provide the source of ability to influence or be influenced by other organizations through a cell phone call, to assist or be assisted to partner or be partnered.

Political Limitations

The layers of decision makingIn larger organisations, a major proposal will be put up to several individuals or groups (committees) and can fail at any one of the levels. Therefore, to be successful in getting a decision approved, it is necessary to understand what the levels are and the connections (e.g. timing, people involved, information and format of decision) between each.

Where and how decisions are madeIn cases where individuals make decisions, we need to understand where and how decisions are actually made.

informal or informal meetings Inside or outside work hours Based on a formal paper, formal discussion, informal discussion or some

predictable combination. Based on rational arguments In a single meeting or several occasions.

Continue….

In decision making we should allow competitor reaction as evidence in dynamic approaches to strategy.

Taking action involving such commitments without considering the possible actions or reactions of competitors can be extremely costly.

Competitors Actions

.

Involve Several People

Use an ethical framework

Stop Political behaviour

A Model of effective decision making

Agree goals

Search

Evaluate Risk

Make decision

Communicate decision

Engage implementors

Assess Outcomes

Seek win-win

Establish clear criteriaConsider data quality & quantity

Decision making is the process of selecting the BEST Solutionamong ALTERNATIVES in order to solve problems.

A model for practical, effective, strategic decision making andthe importance in getting decisions approved is to understandthe practice of organizations decision making processes and tofit the strategic proposal within that framework.

Decision making however, often tends to vary from onedecision to another, providing hope for any new proposal, butgloom for those seeking consistent, rational, just and equitabledecisions.

Conclusion

Hubbard Rice Beamish, strategic Management, thinking analysis action, www.pearsoned.com.ac/hubbard

References

Thank You