PPT slide for Decision Making method.pdf

This is the training document about decision making and its practical impact.

1. Decision Making

2. Introduction:
•Every action of a manager is generally an
outcome of a decision.
•Owing to this fact, P.P. Drucker in his book
“Practice of Management,” observes “Whatever a
manager does, he does through making
decision.”
•True, the job of management involves the making
of innumerable decisions.
• That is why many persons think that
management

3. Introduction
•According to Manely H. Jones, “It is a solution
selected after examining several alternatives
chosen because the decider foresees that the
course of action he selects will do more than
the others to further his goals and will be
accompanied by the fewest possible
objectionable consequences”‘.

4. Introduction
•The purpose of decision making is to direct huma
n behavior and commitment towards a future go
al. If there are no alternatives, if no choice is to b
e made, if there is no other way‐out, then there
would be not need for decision making.
•It involves committing the organization and its re
sources to a particular choice of course of action t
hought to be sufficient and capable of achieving
some predetermined objective

5. Introduction
•Decision is a choice whereby a person comes to a
conclusion about given circumstances/ situation.
It represents a course of behavior or action about
what one is expected to do or not to do.
•Decision- making may, therefore, be defined as a
selection of one course of action from two or
more alternative courses of action.
•Thus, it involves a choice-making activity and the
choice determines our action

6. Introduction
•Managers at all level in the organization make decision and solve pr
oblems. In fact, decision‐making is the process of reducing the gap
between the existing situation and the desired situation through so
lving problems and making use of opportunities.

• A decision is a course of action consciously selected from avail
able alternatives, with a view to achieving a desired goal.

•It is an outcome of the judgment and represents a choice and co
mmitment to the same. It is a final resolution of a conflict of needs,
means or goals made are the face of uncertainty, complexity a
nd multiplicity.
•A decision is conclusion reached after consideration it occurs wh
en one option is selected to the exclusion of others –
it is rendering of judgment

7. Introduction
•Decision-making is an indispensable part of life.
Innumerable decisions are taken by human
beings in day-to-day life. In business
undertakings, decisions are taken at every step.

•All managerial functions viz., planning,
organizing, staffing, directing, coordinating and
controlling are carried through decisions.
Decision-making is thus the core of managerial
activities in an organization

8. Definitions of Decision-Making
Some of the important definitions of decision-
making are given as under.
•Decision-making is the selection based on
some criteria from two or more possible
alternatives. “-—George R.Terry
•A decision can be defined as a course of action
consciously chosen from available alternatives
for the purpose of desired result —J.L. Massie

9. Definitions of Decision-Making
•Louis Allen
Decision making is the work a manager perfor
ms to arrive at conclusion and judgement

10. Definitions of Decision-Making
•A decision is an act of choice, wherein an
executive forms a conclusion about what must be
done in a given situation. A decision represents a
course of behaviour chosen from a number of
possible alternatives. -—D.E. Mc. Farland
•From these definitions, it is clear that decision-
making is concerned with selecting a course of
action from among alternatives to achieve a
predetermined objective

11. Definitions of Decision-Making
Following elements can be derived from the above mentioned
definitions:
1.Decision–making is a selection process and is concerned
with selecting the best type of alternative.
2. The decision taken is aimed at achieving the
organizational goals.
3.It is concerned with the detailed study of the available
alternatives for finding the best possible alternative.
4. Decision making is a mental process. It is the outline of
constant thoughtful consideration.
5. It leads to commitment. The commitment depends upon
the nature of the decision whether short term or long
term

12. Features or Characteristics of Decision-
Making
•Decision making is globally thought to be selectio
n from alternatives. It is deeply related with all th
e traditional functions of a manager, such as plan
ning, organizing, staffing, directing and controllin
g.
•However, the traditional management threorists
did not pay much attention to decision making.
• Infact, the meaningful analysis of decision makin
g process was initiated by Chester Bernard (1938
) who commented, The process of decision are lar
gely techniques for narrowing choice

13. Features or Characteristics of Decision-
Making
•Decisions are usually so much inter-related to
the organizational life of an enterprise that
any change in one area of activity may change
the other areas too.
•As such, the Manager is committed to
decisions not only from the time that they are
taken but upto their successfully
implementation

14. Features or Characteristics of Decision-
Making
1. Decision making is an intellectual process, which i
nvolves imagination, reasoning, evaluation and jud
gment.
2. It is a selection process in which best or most suit
able course of action is finalized from among severa
l available alternatives.
•Such selected alternative provides utmost help in
the achievement of organizational goals. The pro
blems for which there is only one selection are m
ost decision problems

15. Features or Characteristics of Decision-
Making
•3.Decision making is a goal oriented process. Decisions
are made to attain certain goals. A decision is rated go
od to be extent it helps in the accomplishment of objec
tives.
•
4. It is a focal point at which plans, policies, objectives,
procedures, etc., are translated into concrete actions.
•5.Decision making is a continuous process persuading a
ll organizational activity, at all levels and in the whole u
niverse. It is a systematic process and an interactive act
ivity.

16. Features or Characteristics of Decision-
Making
•6.Decision making involves commitment of resou
rces, direction or reputation of the enterprise. 7.
Decision making is always related to place, situati
on and time. It may be decision not act in the give
n circumstances.

8After decision making it is necessary and significan
t to communicate its results (decisions) for their su
ccessful execution.
•9.The effectiveness of decision‐making process is
enhanced by participation

17. Importance of decision‐making
1. Implementation of managerial function:
•Without decision‐making different managerial fu
nction such as planning, organizing, directing, con
trolling, staffing can’t be conducted.
•In other words, when an employee does, s/he do
es the work through decision‐making function. T
herefore, we can say that decision is important el
ement to implement the managerial function.
•

18. Importance of decision‐making
•2. Pervasiveness of
decision‐making: the decision is made in all manageria
l activities and in all functions of the organization. It m
ust be taken by all staff. Without decision‐making any
kinds of function is not possible. So it is pervasive.

•3. Evaluation of managerial
performance: Decisions can evaluate managerial perfo
rmance. When decision is correct it is understood that
the manager is qualified, able and efficient.

19. Importance of decision‐making
• When the decision is wrong, it is understood that
the manager is disqualified. So decision‐making
evaluate the managerial performance.
•4. Helpful in planning and policies:
Any policy or plan is established through decision
making. Without decision making, no plans and poli
cies are performed. In the process of making plans,
appropriate decisions must be made from so many
alternatives. Therefore, decision making is an impor
tant process which is helpful in planning

20. Importance of decision‐making
5. Selecting the best alternatives:
Decision making is the process of selecting the
best alternatives. It is necessary in every organiz
ation because there are many alternatives. So d
ecision makers evaluate various advantages and
disadvantages of every alternative and select th
e best alternative.

21. Importance of decision‐making
•6. Successful; operation of
business: Every individual, departments and o
rganization make the decisions. In this compet
itive world; organization can exist when the c
orrect and appropriate decisions are made. Th
erefore, correct decisions help in successful o
peration of business

22. Types of Decisions
•Decision-making is one of the core functions
of management. And it is actually a very
scientific function with a well-defined
decision-making process.

• There are various types of decisions the
managers have to take in the day to day
functioning of the firm. Let us take a look at
some of the types of decisions

23. Importance of decision‐making
1.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,
highlevel managers usually delegate these
decisions to their subordinates

24. Importance of decision‐making
•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

25. Importance of decision‐making
2 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

26. Importance of decision‐making
•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

27. Importance of decision‐making
3 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

28. Importance of decision‐making
4 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

29. Importance of decision‐making
5 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

30. Decision Making Process/steps
•Decision making is one of the most basic yet
significant management skills for all of us to
have.
•And it can differ from person to person.
Making decisions that are based on careful
analysis of numerous circumstances especially
in a timely manner is critical.
•Therefore, it shouldn’t be procrastinated or
taken in haste.

31. Decision Making Process/steps
•Step 1: Identification of the purpose of the
decision In this step, the problem is thoroughly
analyzed. There are a couple of questions one
should ask when it comes to identifying the
purpose of the decision.
What exactly is the problem?
• Why the problem should be solved? Who are
the affected parties of the problem? Does the
problem have a deadline or a specific time-line

32. Decision Making Process/steps
•Step 2: Information gathering
•A problem of an organization will have many
stakeholders.
•In addition, there can be dozens of factors
involved and affected by the problem. In the
process of solving the problem, you will have to
gather as much as information related to the
factors and stakeholders involved in the problem.
•For the process of information gathering, tools
such as 'Check Sheets' can be effectively used

33. Decision Making Process/steps
•Step 3: Principles for judging the alternatives
•In this step, the baseline criteria for judging the
alternatives should be set up.
•When it comes to defining the criteria, organizational
goals as well as the corporate culture should be taken
into consideration.
•As an example, profit is one of the main concerns in
every decision making process.
•Companies usually do not make decisions that reduce
profits, unless it is an exceptional case. Likewise,
baseline principles should be identified related to the
problem in hand

34. Decision Making Process/steps
•Step 4: Brainstorm and analyzes the different choices
• For this step, brainstorming to list down all the ideas is the
best option.
•Before the idea generation step, it is vital to understand the
causes of the problem and prioritization of causes.
•For this, you can make use of Cause-and-Effect diagrams
and Pareto Chart tool.
•Cause and-Effect diagram helps you to identify all possible
causes of the problem and Pareto chart helps you to
prioritize and identify the causes with highest effect. Then,
you can move on generating all possible solutions
(alternatives) for the problem in hand

35. Decision Making Process/steps
•Step 5: Evaluation of alternatives
•Use your judgment principles and decision-
making criteria to evaluate each alternative. In
this step, experience and effectiveness of the
judgment principles come into play. You need
to compare each alternative for their positives
and negatives

36. Decision Making Process/steps
•Step 6: Select the best alternative

•Once you go through from Step 1 to Step 5,
this step is easy. In addition, the selection of
the best alternative is an informed decision
since you have already followed a
methodology to derive and select the best
alternative

37. Decision Making Process/steps
•Step 7: Execute the decision
•Convert your decision into a plan or a
sequence of activities. Execute your plan by
yourself or with the help of subordinates

38. Decision Making Process/steps
•Step 8: Evaluate the results
•Evaluate the outcome of your decision. See
whether there is anything you should learn
and then correct in future decision making.
This is one of the best practices that will
improve your decision-making skills.

39. INDIVIDUAL AND GROUP DECISIONS
•Individual decisions are taken by a single
individual. The one-manager decision-making set
up is still prevalent in India as many business
units are owned by a single individual.
•But when business grows in size and complexity it
may not be possible for one individual to take all
the decisions himself.
•He needs the help of specialized people and also
other individual.

40. INDIVIDUAL AND GROUP DECISIONS
•Group decisions are taken by individuals who are
identified as a Group for making a decisions.
•Group decisions have plus values such as greater
participation of individual and better quality in
decisions. They are generally more effective
decisions.
•They, however, suffer from delay in decision
making process and difficulty in fixing the
responsibility for decisions.

41. INDIVIDUAL AND GROUP DECISIONS
•Decisions taken by a single individual are called
individual decision. Organizational decisions are
those taken by a group of persons.
•Organizational decision making is considered
better because the knowledge and imagination of
a group is better than individual.
•Organization decision making also factors co-
operation and co-ordination in the organization.
But group decision are those which an executive
takes in his official capacity and on behalf of the
organization

42. Rational decision making
•Rational decision making is a multi-step
process for making choices between
alternatives.
•The process of rational decision making favors
logic, objectivity, and analysis over subjectivity
and insight.
•The word “rational” in this context does not
mean sane or clear-headed as it does in the
colloquial sense

43. Rational decision making
•The approach follows a sequential and formal
path of activities. This path includes:
• 1. Formulating a goal(s)
•2. Identifying the criteria for making the
decision
•3. Identifying alternatives
•4. Performing analysis
•5. Making a final decision

44. Assumptions of the Rational Decision-
Making Model
•The rational model of decision making assumes that
people will make choices that maximize benefits and
minimize any costs.
•The idea of rational choice is easy to see in economic
theory. For example, most people want to get the most
useful products at the lowest price; because of this,
they will judge the benefits of a certain object (for
example, how useful is it or how attractive is it)
compared to those of similar objects.
•They will then compare prices (or costs). In general,
people will choose the object that provides the
greatest reward at the lowest cost

45. Rational decision making
The rational model also assumes:
•An individual has full and perfect information
on which to base a choice.
• Measurable criteria exist for which data can
be collected and analyzed.
• An individual has the cognitive ability, time,
and resources to evaluate each alternative
against the others

46. Rational decision making
•The rational-decision-making model does not
consider factors that cannot be quantified,
such as ethical concerns or the value of
altruism.
• It leaves out consideration of personal
feelings, loyalties, or sense of obligation.
•Its objectivity creates a bias toward the
preference for facts, data and analysis over
intuition or desire

47. A decision tree
•A decision tree is a branched flowchart showing multiple
pathways for potential decisions and outcomes. The tree
starts with what is called a decision node, which signifies
that a decision must be made.
•From the decision node, a branch is created for each of the
alternative choices under consideration. The initial decision
might lead to another decision, in which case a new
decision node is created and new branches are added to
show each alternative pathway for the new decision. The
result is a series of decision pathways.
•The flowchart might include only one or two decisions with
only one or two alternatives, or it can become a complex
sequence of many decisions with many alternatives at each
node.

48. A decision tree
•Along the decision pathway, there is usually some point
at which a decision leads to an uncertain outcome.

•That is, a decision could result in multiple possible
outcomes, so an uncertainty node is added to the tree
at that point. Branches come from that uncertainty
node showing the different possible outcomes.
Eventually, each pathway reaches a final outcome.
•The decision tree, then, is a combination of decision
nodes, uncertainty nodes, branches coming from each
of these nodes, and final outcomes as the result of the
pathways

49. Linear programming
•Linear programming is a mathematical
technique for finding optimal solutions to
problems that can be expressed using linear
equations and inequalities.

•If a real-world problem can be represented
accurately by the mathematical equations of a
linear program, the method will find the best
solution to the problem.

50. Game theory
•Game theory is the theory of independent
and interdependent decision making. It is
concerned with decision making in
organizations where the outcome depends on
the decisions of two or more autonomous
players, one of which may be nature itself, and
where no single decision maker has full
control over the outcomes

51. Game theory
•Classical models fail to deal with interdependent
decision making because they treat players as
inanimate subjects.
•They are cause and effect models that neglect the
fact that people make decisions that are
consciously influenced by what others decide.
•A game theory model, on the other hand, is
constructed around the strategic choices
available to players, where the preferred
outcomes are clearly defined and known.

52. Game theory
•Game theory aims to find optimal solutions to
situations of conflict and cooperation such as those
outlined above, under the assumption that players are
instrumentally rational and act in their own best
interests.
•In some cases, solutions can be found. In others,
although formal attempts at a solution may fail, the
analytical synthesis itself can illuminate different facets
of the problem.
•Either way, game theory offers an interesting
perspective on the nature of strategic selection in both
familiar and unusual circumstances

53. Game theory
•There are three categories of games:
•Games of skill;
•Games of chance; and
•Games of strategy.

•Games of skill are one-player games whose defining property is the
existence of a single player who has complete control over all the
outcomes. Sitting an examination is one example. Games of skill
should not really be classified as games at all, since the ingredient
of interdependence is missing.
•Nevertheless, they are discussed in the next chapter because they
have many applications in management situations. Games of
chance are one-player games against nature. Unlike games of skill,
the player does not control the outcomes completely and strategic
selections do not lead inexorably to certain outcomes.

54. Game theory
• The outcomes of a game of chance depend partly on
the player’s choices and partly on nature, who is a
second player. Games of chance are further categorized
as either involving risk or involving uncertainty.
•In the former, the player knows the probability of each
of nature’s responses and therefore knows the
probability of success for each of his or her strategies.
•In games of chance involving uncertainty, probabilities
cannot meaningfully be assigned to any of nature’s
responses (Colman, 1982), so the player’s outcomes
are uncertain and the probability of success unknown.

55. Game theory
•Games of strategy are games involving two or
more players, not including nature, each of
whom has partial control over the outcomes.
In a way, since the players cannot assign
probabilities to each other’s choices, games of
strategy are games involving uncertainty.
•They can be sub-divided into two-player
games and multi-player games

56. Waiting Lines Theory

•Waiting Lines Theory (Queuing Theory) is the Mathematical
approach of queue. It is basically considered as branch of
Operations Research.
•The results of Queuing models are often used in the Business
decisions. Queues are one of the unpleasant parts of everyday
human’s life.
•As we know that there is increase in demand of facilities from
customer side and if the service facilities is not in a position to
satisfy the customer in a specific time, customer requires too much
time to get service from service mechanism, result in the formation
of queue.
•Under such conditions there is increase in the cost of customers
waiting time.)

57. Waiting line theory
•Where as in some other cases if the service facilities
stand in idle condition waiting for the customers and
there is too less demand from customer side will
increase the cost of service facilities.
•In both the cases we get imperfect matching between
the customers waiting cost and cost of service facility.
•It is just because of one cannot predicts the inter-
arrival time of customers and service time of server.
•To get optimum level we have to minimize the sum of
cost of customers waiting time and cost of service
facilities.

58. Waiting line theory
•The expected total cost (TC) is the sum of the
expected waiting cost for the arrivals per
period (WC) and the expected facility cost (FC)
of the service personnel per period.

59. . BASIC FEATURES OF WAITING LINES
SYSTEM

A. Arrival of customers It is a process of arrival for customers
into the Waiting Lines System. Classification of arrival of
customers as:
1. Single line or multiple lines,
2. Finite or infinite
3. Single customer or customers comes in bulk,
4. Arriving customers are totally under control or partially or
no control,
5. Deterministic or Probabilistic process,
6. Empirical or a Theoretical Probability Distribution,
7. Independent or conditionally dependent variables,
8. Some times arrivals of customers is stationary

60. BASIC FEATURES OF WAITING LINES
SYSTEM
•B. Service Discipline
•It works on the rule by which customers are
selected from the queue for service.
•Rules are classified as:
•First-In First-Out (FIFO)
• . Last-In First Out (LIFO)
•Service For Random Order (SRO)
• Priority Service. (PS

61. Decision making Models
•Models are the tools of the decision making process
which help the managers to assess the situations
before they have happened by mimicking the real
experiences and situation, without the expense of
developing the situation for real.
•Here the decision makers use simulation to try to
mimic the way that the firm or elements within the
firm, will respond to changes in operating
characteristics sometimes mathematical techniques
such as queuing theory or linear programming are
applied to mimic the real life situation.

62. Decision making Models
•Models can be classified into various
categories

- Conceptual models
- Iconic models
- Analog models
- Schematic models

63. Decision making Models
•Conceptual models
Conceptual models are those formed through our experience, knowledge
and intuition.
•They are further subdivided as

- Descriptive models - Verbal models - Mental models

Descriptive models represent a higher level of conceptualization and may
be articulated and communicated.

Iconic models
Iconic models are those that resemble what they represent, although the
properties of an iconic model may not be the same as those of the real
system it represent iconic models include physical and pictorial models.

64. Decision making Models
•Analog models
Analog models are those that are built to act like
real system, although they look different from
what they represent.
•These models employ one set of properties to
represent some other set of properties possessed
by the real system.
•An artificial kidney dialysis machine that provides
life support is an example of an analog model.

65. Decision making Models
•Symbolic models
Symbolic models use symbols to designate the
components of a system and relationship among
those components. They are abstract models in
which symbols are substituted for systems
characteristics.

They are of three types:

-Graphical representation
-Schematic models, and
- Mathematical equations