Decision Making-Important function of Management process

Decision Making

1. Introduction to Management “Decision making is the specific executive task.” Peter Drucker

2. Managing Decision Making

3. Lesson Outlines Introduction Define Decision Making Characteristics of Decision Making Process of Decision Making Problems in Decision Making Types of Decision Behavioral Aspects of Decision Making

4. Introduction Decision making is a process of selecting the best course of action from among the alternative course of action. Decisions must be rationally taken after careful analysis of the problem . In other words, Decision Making is an integral part of management that is at the core of planning and applied in every function of management. Peter F. Drucker has rightly said, “Whatever a manager does he does through decision-making ”. Managers at all levels are engaged in the decision making of one kind or the other, Management and decision making go hand in hand. Every manager constantly makes decisions. Decision making is a combination of thinking, deciding, and action.

5. Define Decision Making Decision making is the selecting of an alternative from two or more alternatives to determine an opinion or course of action . George R. Terry Decision making is the work that a manager performs to arrive at conclusion and judgment. Louis A. Allen Decision making is the actual selection from among alternatives of a course of action. Koontz and O’ Donnell Decision making in management is the process of making a choice between two or more options. This involves evaluating the pros and cons of various choices and choosing the best option to achieve a desired outcome.

6. Characteristics of Decision Making Selective: It is a selective process in which the optimal alternative is opted, among the various alternatives. The selection of the alternative is done, only after evaluating all the alternatives against the objectives. Cognitive: As the decision making encompasses the application of intellectual abilities, such as analysis, knowledge, experience, awareness and forecasting, it is a cognitive process. Dynamic: It is a dynamic activity in the sense that a particular problem may have different solutions, depending upon the time and circumstances. Positive or Negative: A decision is not always positive, sometimes even after analyzing all the points a decision may turn out as a negative one.

7. Ongoing process: We all know that a company has perpetual succession and various decisions are taken daily by different levels of management to keep the firm going. These decisions are taken, keeping in mind the objectives of the organization . Evaluative: Evaluation of the possible alternatives using critical appraisal methods, is a part of the decision-making process.

8. Process of Decision Making Decision making involves the identification and selection of the alternatives on the basis of the values, preferences, requirements, and beliefs. To begin the process objectives must be defined, classified and arranged in the order of their importance.

9. Defining the problem: The first and foremost step in the decision-making process is to clearly identify the problem for which a decision has to be taken . Collecting information: Gathering the relevant information concerning the problem is the next step in the process. For this purpose, an internal assessment needs to be done, while seeking external sources for the information . Identifying alternatives: After collecting the pertinent information, you will come across the multiple courses of action which can be taken to solve the given problem . Weighing the alternatives: On the basis of different parameters such as risk, economy for effort, timing, and limitation of resources weigh each alternative and check how accurately it resolves the issue and what are its consequences .

10. Selecting the best possible option: After weighing each and every alternative, the next step in this process is to select the best possible course of action, or a combination thereof. The alternative which is able to attain the objectives is regarded as the tentative decision, which is evaluated for possible consequences. Planning and Execution: To convert the decision into action, the course of action so selected is taken, along with that supplementary actions are taken to block negative consequences (if any). Taking the follow up of the action: In the last step, the outcome of the decision is reviewed and evaluated as to whether it is capable of resolving the problem.

11. Problems in Decision Making There are a number of problems which arise at the time of decision making, which are : Accuracy Timing Communication Participation Implementation

12. Types of Decision Strategic Decisions Routine Decisions Programmed Decisions Non-Programmed Decisions Policy Decisions Operating Decisions Organizational Decisions Personal Decisions Individual Decisions Group Decisions Major Decisions Minor Decisions

13. Strategic Decisions and Routine Decisions As the name suggests, routine decisions are those that the manager makes in the daily functioning of the organization, i.e. they are routine. Such decisions do not require a lot of evaluation, analysis or in-depth study. In fact, high-level managers usually delegate these decisions to their subordinates . On the other hand, strategic decisions are the important decisions of the firm. These are usually taken by upper and middle-level management. They usually relate to the policies of the firm or the strategic plan for the future. Hence such decisions require analysis and careful study. Because strategic decisions taken at this level will affect the routine decisions taken daily.

14. Programmed Decisions and Non-Programmed Decisions Programmed decisions relate to those functions that are repetitive in nature. These decisions are dealt with by following a specific standard procedure. These decisions are usually taken by lower management. For example, granting leave to employees, purchasing spare parts etc. are programmed decisions where a specific procedure is followed . Non-programmed decisions arise out of unstructured problems, i.e. these are not routine or daily occurrences. So there is no standard procedure or process to deal with such issues. Usually, these decisions are important to the organization. Such decisions are left to upper management. For example, opening a new branch office will be a non-programmed decision.

15. Policy Decisions and Operating Decisions Tactical decisions pertaining to the policy and planning of the firm are known as policy decisions. Such decisions are usually reserved for the firm’s top management officials. They have a long term impact on the firm and require a great deal of analysis . Operating decisions are the decisions necessary to put the policy decisions into action. These decisions help implement the plans and policies taken by the high-level managers. Such decisions are usually taken by middle and lower management. Say the company announces a bonus issue. This is a policy decision. However, the calculation and implementation of such bonus issue is an operating decision.

16. Organizational Decisions and Personal Decisions When an executive takes a decision in an official capacity, on behalf of the organization, this is an organizational decision . Such decisions can be delegated to subordinates. However, if the executive takes a decision in a personal capacity, that does not relate to the organization in any way this is a personal decision . Obviously, these decisions cannot be delegated.

17. Individual Decisions and Group Decisions When talking about types of decisions, let us see individual and group decisions. Any decision taken by an individual in an official capacity it is an individual decision . Organizations that are smaller and have an autocratic style of management rely on such decisions . Group decisions are taken by a group or a collective of the firm’s employees and management. For example, decisions taken by the board of directors are a group decision.

18. Major and Minor Decisions Major Decisions  are significant choices that can have a long-lasting impact on our lives. For example, deciding on a career path, choosing a life partner, or buying a house are major decisions. These decisions often require careful thought, research, and sometimes advice from others because they can affect our future in profound ways . On the other hand,  minor decisions  are smaller choices that we make more frequently and with less deliberation. Examples include what to eat for dinner, which clothes to wear, or what movie to watch. These decisions usually have a short-term impact and can often be changed without much consequence.

19. Behavioral Aspects of Decision Making Behavioral aspects are very important in every decision making process. The inter-and multidisciplinary decision-making theories distinguish two main typologies of research directions: The first one consists of two lines: The normative and descriptive (behavioral). Normative approach Under the direction of the normative approach attention is taken to what and how to decide, with an emphasis on decision-making methods and areas of application of these methods. It seeks also to determine the optimal solution for the ideal decision-maker, which completely uses the available information, determines the benefits of perfect accuracy and operates in a fully rational manner.

20. Descriptive approach In the descriptive approach, the focus is on the analysis of human behavior in decision-making, especially exposing the psychological and social aspects of decision-making. Taking into account the psychological aspects is to draw attention to the decision-making processes in the human brain and to study the impact of personality traits on decisions such as the choice of subjective criteria or tendency to take risk. Social (sociological) approach examine the social conditions: the place of decision maker in the organization, decision-making in groups and conflicts related to this.

21. Decision making errors and biases

22. Examples of Behavioral aspects of decision-making Cognitive bias: Cognitive bias is the tendency for people to make decisions that are based more on their emotions and beliefs than on objective facts and evidence. This can lead to decisions that are irrational and often lead to poor outcomes . Groupthink: Groupthink is a phenomenon that occurs when a group of people make decisions without considering all of the potential options or alternatives. Groupthink can lead to decisions that are not well thought out or that have not been fully explored . Anchoring: Anchoring is a cognitive bias in which people rely too heavily on the first piece of information they receive when making a decision. This can lead to decisions that are not based on an objective analysis of all the available information .

23. Availability heuristic: The availability heuristic is a cognitive bias in which people make decisions based on the information that is most easily accessible or available to them. This can lead to decisions that are not based on a comprehensive evaluation of all the available evidence . Overconfidence: Overconfidence is a cognitive bias in which people overestimate their ability to make accurate predictions or decisions. This can lead to decisions that are not based on a realistic assessment of the situation.

24. Advantages of Behavioral aspects of decision-making Identify potential biases and irrational behaviors that may hinder decision-making. I dentify cognitive limitations, such as overconfidence, that could lead to suboptimal decisions. Understand the impact of emotions on decision-making, which can lead to better decisions. Identify the impact of group dynamics on decision-making and can help to create more effective teams. Identify potential blind spots and unintended consequences associated with decisions, allowing decision makers to better anticipate potential issues. Create a culture of openness and accountability, where all stakeholders are heard and their input is taken into account. Foster a collaborative environment, where different perspectives are valued and considered.

25. Limitations of Behavioral aspects of decision-making C ognitive bias: Decisions can be influenced by a variety of cognitive biases, such as confirmation bias, anchoring bias, and hindsight bias, which can lead to decisions based on inaccurate or incomplete information . Emotional bias: Emotions can play a powerful role in decision-making, and decisions based on emotions rather than rational thought can lead to poor outcomes . Groupthink: Groupthink occurs when members of a group are so focused on maintaining harmony and agreement within the group that they fail to critically evaluate their decisions and can lead to poor decision-making outcomes. Limited resources: When resources are limited, decisions must be made with limited information, which can lead to decisions that are not well thought out or that do not consider all of the potential outcomes.

26. Other approaches related to Behavioral aspects of decision-making The cognitive approach: This approach focuses on the mental processes involved in decision-making and how information is gathered, processed and used to reach conclusions. The sociocultural approach: This approach examines the social and cultural aspects of decision-making, emphasizing the interaction of the individual with their environment, and the impact of culture on decision-making . The evolutionary approach: This approach studies decision-making from an evolutionary perspective, examining how decisions have changed over time and how they are shaped by natural selection. The computational approach: This approach uses machine learning and artificial intelligence to explore decision-making processes and develop models and algorithms to aid decision-making. Voyage 3

27. Questions: What is the meaning of decision making? What is the definition of Decision Making? What are the characteristics of decision making? What are the types of decisions? What are the features of decision making? What are the steps of the decision-making process? What is the importance of decision making?

28. Poor Decision Making In 1865, Fredrik Idestam established a paper mill in southern Finland, and in 1868, he established a second paper mill near the town of Nokia. After three years, in 1871, with his friend Leo Mechelin , Idestam formed a shared company called Nokia Ab. Fredrik Idestam retired and Leo Mechelin became the chairman of the company in 1896. After the retirement of his friend, Leo Mechelin expanded Nokia Ab’s operations, in 1902, into electricity generation. Fredrik was not in favour of this, but the expansion of operations didn’t stop . In 1922, Nokia Ab was nearing bankruptcy because of World War I. To save the same, Finnish Rubber Works acquired Nokia. It also acquired Suomen Kaapelitehdas Oy  (Finnish Cable Works ). Finnish Rubber Works grew fast after it moved to the Nokia region in the 1930s to take advantage of the electrical power supply besides other services. From the 1930s well into the early 1990s, Nokia also made respirators for both civilians and the military .

29. In 1967, the turning point of Nokia arrived. The three companies – Nokia Ab , Finnish rubber works, and Kaapelitehdas – merged together giving rise to the Nokia corporation we know today . Nokia corporation restructured itself into four major businesses – rubber, cable, forestry, and electronics.  Nokia also started making communicating devices and M61 gas mask for Finland’s defence forces. From this point on Nokia slowly started to focus more on the telecom industry as it was still untapped at that time. In 1992, Nokia introduced the world’s first commercially available GSM phone, Nokia 1011, which was used by the Finnish Prime Minister Harri Holkeri to make the world’s first GSM call. After this event, Nokia’s name spread like wildfire throughout the world.

30. From being the largest telecom company in the world in 2007 to being on the brink of bankruptcy in 2013, Nokia saw their worst days. The downfall of Nokia was a consequence of many internal and external factors. The Nokia brand is now controlled by HMD Global a company founded by former Nokia employees that released a line of smartphones in 2017. The company’s failure to keep up with software-based iOS and Android operating systems made it lose its market leader position . HMD Global is a Finnish mobile phone company made by previous executives of Nokia. It bought back the mobile phone division from Microsoft in 2016. It learned from past mistakes and partnered with Google’s Android One program. Voyage 3