Decision Making.pptx

decision making process

1. Managerial Decision Making

2. INTRODUCTION The word decision has been derived from the Latin word " decidere " which means "cutting off". Thus, the decision involves cutting-off of alternatives between those that are desirable and those that are not desirable . 2

3. DEFINITION In the words of Ray A Killian, "A decision in its simplest form is a selection of alternatives". Dr. T. G Glover defines decision "as a choice of calculated alternatives based on the judgement". "Decision-making is the selection based on some criteria from two or more possible alternatives". 3

4. Managerial Decision Making Decision making is not easy It must be done amid ever-changing factors unclear information conflicting points of view. Manager’s Challenge: Tupperware 4

5. Managerial Decision Making 5

6. Decisions and Decision Making 6

7. Categories of Decisions Programmed Decisions Situations occurred often enough to enable decision rules to be developed and applied in the future Made in response to recurring organizational problems Nonprogrammed Decisions – 7 in response to unique, poorly defined and largely unstructured, and have important consequences to the organization

8. Decisions and Decision Making 8 Many decisions that managers deal with every day involve at least some degree of uncertainty and require nonprogrammed decision making     May be difficult to make Made amid changing factors Information may be unclear May have to deal with conflicting points of view

9. Certainty, Risk, Uncertainty, Ambiguity 9 ● C er t a i n ty all the information the decision maker needs is fully available ● R i s k ● ● ● The decision has clear-cut goals good information is available future outcomes associated with each alternative are subject to change ● Uncertainty ● ● ● managers know which goals they wish to achieve information about alternatives and future events is incomplete managers may have to come up with creative approaches to alternatives ● Ambiguity ● ● ● ● by far the most difficult decision situation goals to be achieved or the problem to be solved is unclear alternatives are difficult to define information about outcomes is unavailable

10. Conditions that Affect the Possibility of Decision Failure O rg a n i za t i o na l Problem Pr o b l e m S o l u ti on H i gh Low Certainty Possibility of Failure Risk Uncertainty Ambiguity Pr o gr a m me d Decisions N o n p rog r am m e d Decisions 10

11. Selecting a Decision Making Model 11 Depends on the manager’s personal preference Whether the decision is programmed or non-programmed Extent to which the decision is characterized by risk, uncertainty, or ambiguity

12. Three Decision-Making Models Classical Model Administrative Model Political Model 12

13. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 13

14. Classical Model 14     Decision maker operates to accomplish goals that are known and agreed upon Decision maker strives for the condition of certainty – gathers complete information Criteria for evaluating alternatives are known Decision maker is rational and uses logic Normative = describes how a manager should and provides guidelines for reaching an ideal decision Logical decisions in the organization’s best economic interests Assumptions

15. A dmi n i s t r ati v e Model 15 How nonprogrammed decisions are made--uncertainty/ambiguity Two concepts are instrumental in shaping the administrative model Bounded rationality: people have limits or boundaries on how rational they can be Satisficing: means that decision makers choose the first solution alternative that satisfies minimal decision criteria Herbert A. Simon

16. Administrative Model 16 ● Managers actually make decisions in difficult situations characterized by non-programmed decisions, uncertainty, and ambiguity ● ● ● ● ● Decision goals often are vague, conflicting and lack consensus among managers; Rational procedures are not always used Managers’ searches for alternatives are limited Managers settle for a satisficing rather than a maximizing solution intuition looks to past experience ● Descriptive = how managers actually make decisions--not how they should How nonprogrammed decisions are made--uncertainty/ambiguity Herbert A. Simon

17. Political Model 17 ● ● ● ● ● Closely resembles the real environment in which most managers and decision-makers operate Useful in making non-programmed decisions Decisions are complex Disagreement and conflict over problems and solutions are normal Coalition = informal alliance among managers who support a specific goal Closely resembles the real environment

18. Characteristics of Classical, Political, and Administrative Decision-Making Models 18 Classical Model Administrative Model Political Model Clear-cut problem and goals Condition of certainty Full information about alternatives and their outcomes Rational choice by individual for maximizing outcomes Vague problem and goals Condition of uncertainty Limited information about Alternatives and their outcomes Satisficing choice for resolving problem using intuition Pluralistic; conflicting goals Condition of uncertainty/ambiguity Inconsistent viewpoints; ambiguous information Bargaining and discussion among coalition members

19. Six Steps in the Managerial Decision-Making Process a nd 19 Feedback Decision Requirement I mpl e m en t a ti on of Chosen Alternative D e c i s i o n- Making Process  E v a l ua t i on  Recognition of  Diagnosis and Analysis of Causes Development of Alternatives  Selection of Desired Alternative    

20. Steps in Decision Making Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 20

21. Six C's of Decision Making 21       Construct. Compile. Collect. Compare. Consider. Commit.

22. Six C's of Decision Making 22 C onstruct a clear picture of precisely what must be decided. Compile a list of requirements that must be met. C o l lect inf o r mat i o n o n al te r na t i v es t hat meet the requirements. C ompare alternatives that meet requirements. C onsider the " what might go wrong " factor with each alternative. C ommit to a decision and follow through with it.

23. Diagnosis and Analysis of Causes 23 Diagnosis = analyze underlying causal factors associated with the decision situation Managers make a mistake if they jump into generating alternatives without first exploring the cause of the problem more deeply

24. Underlying Causes - Kepner /Tregoe 24 What is the state of disequilibrium affecting us? When did it occur? Where did it occur? How did it occur? To whom did it occur? What is the urgency of the problem? What is the interconnectedness of events? What result came from which activity?

25. Selection of Desired Alternatives 25 Risk Propensity = willingness to undertake risk with the opportunity of gaining an increased payoff Implementation = using managerial, administrative, and persuasive abilities to translate the chosen alternative into action

26. Decision Styles 26 Differences among people with respect to how they perceive problems and make decisions Not all managers make decisions the same – – – – Directive style Analytical style Conceptual style Behavioral style

27. Personal Decision Framework S it u ati o n: P r og r a mm e d / n o n - programmed Classical, administrative, political Decision steps Decision Choice: Best Solution to Problem Personal Decision Style: Directive Analytical Conceptual Behavioral 27

28. Directive Style 28 People who prefer simple, clear-cut solutions to problems Make decisions quickly May consider only one or two alternatives Efficient and rational Prefer rules or procedures

29. Analytical Style 29 Complex solutions based on as much data as they can gather Carefully consider alternatives Base decisions on objective, rational data from management control systems and other sources Search for best possible decision based on the information available

30. Conceptual Style Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 30 Consider a broad amount of information More socially oriented than analytical style Like to talk to others about the problem and possible solutions Consider many broad alternatives Relay on information from people and systems Solve problems creatively

31. Behavioral Style Have a deep concern for others as individuals Like to talk to people one-on-one Understand their feelings about the problem and the effect of a given decision upon them Concerned with the personal development of others May make decisions to help others achieve their goals 31

32. Participation in Decision Making 32 Helps gauge the appropriate amount of participation for subordinates in the process Leader Participation Styles  Five levels of subordinate participation in decision-making ranging from highly autocratic to highly democratic V r oo m-J ag o Model

33. Participation in Decision Making 33 Diagnostic Questions Decision participation depends on the responses to seven diagnostic questions about the problem the required level of decision quality the importance of having subordinates commit to the decision V r oo m-J ag o Model

34. Seven Leader Diagnostic Questions 34 How significant is the decision? How important is the subordinate commitment? What is the level of the leader’s expertise? If the leader were to make the decision alone at what level would subordinates be committed to the decision? What level is the subordinate’s support for the team or organization’s objectives? What is the member’s level of knowledge or expertise relative to the problem? How skilled or committed are group members to working together?

35. New Decision Approaches for Turbulent Times L e a r n , D o n ’ t Pun is h Kn ow W hen to B ail Practic e the Five W hys Engage in Rigorou s Debate B rainstorm ing Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved. 35 New Decision Approaches for Turbulent Times

36. CHARACTERISTICS OF EFFECTIVE DECISIONS 1. Action Orientation: Decisions are action-oriented and re-directed towards relevant and controllable aspects of the environment. Decisions should ultimately find their utility in implementation . 2. Goal Direction: Decision-making could be goal-directed to enable the organization to meet its objectives. 3 Effective in Implementation: Decision-making should take into account all the possible factors not only in terms of external context but also in internal context so that a decision can be implemented properly. 36

37. BARRIERS IN MAKING DECISIONS Hasty- Making quick decisions without having much thought. Narrow – Decision-making is based on very limited information. Scattered - Our thoughts in making decisions are disconnected or disorganized. Fuzzy - Sometimes, the lack of clarity on important aspects of a decision causes us to overlook certain important considerations. 37