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Decision Making
Decisionmakingisanintegralfunctionofmanagement.Decisionmakinginvolvesselectingorchoosinga particularcourseofactionfromamongthevariousalternativesavailableinthedecisionmaking situation.Theprocessdecisionmakinginvolves3phases. 1. Intelligenceactivityphaseidentificationoftheproblem. 2. Designactivityphasedeveloping&analysingvariouscourseofactions. 3. Choiceactivityphasechoosingthebestcourseofaction.

Types of Problems & Decisions

Structuredproblemsstraightforward,familiar&easydefinedproblems. Unstructuredproblemsproblemsthatareneworunusualforwhichinformationisambiguousand incomplete. ProgrammedDecisionshandlingcustomercomplaints. NonProgrammedDecisionsmergers,acquisitions,takeovers,newfacilities,newproducts,labor contracts,legalissues.

Decision Making Conditions or Env

Whenmakingdecisions,managefacethreedifferentconditionscertainty,riskanduncertainty. Aconditionofcertaintyexistswhenthedecisionmakerknowswithreasonablecertaintywhatalternatives are,whatconditionsareassociatedwitheachalternativeandoutcomeofeachalternative.Under conditionsofcertainty,accurate,measurable&reliableinformationonwhichtobasedecisionsis available. Whenamanagerlacksperfectinformationorwheneveraninformationasymmetryexists,riskarises. Underastateofrisk,thedecisionmakerhasincompleteinformationaboutavailablealternativesbuthasa goodideaoftheprobabilityofoutcomesforeachalternative.Whilemakingdecisions,managersmust determinetheprobabilityassociatedwitheachalternativeonthebasisoftheavailableinformationandhis experience. Mostsignificantdecisionsmadeintodayscomplexenvareformulatedunderastateofuncertainty.The decisionmakerisnotawareofallavailablealternatives,therisksassociatedwitheach,theconsequences ofeachalternativesortheirprobabilities.Inthefaceofsuchuncertainty,managersneedtomakecertain assumptionsaboutthesituationinordertoprovideareasonableframeworkfordecisionmaking.Modern approachestodecisionmakingunderuncertaintyareriskanalysis,decisiontrees,utilitytheoryetc.

Decision Making Approach/Models

ClassicalDecisionTheory Classicalmodelviewsthedecisionmakeractinginaworldofcompletecertainty.Therationalmodelof decisionmakinghasitsrootintheeconomictheorymaximizingprofitorutility.Accordingtorational model,managersengageinadecisionmakingprocesswhichistotallyrational.Theyhavealltherelevant informationneededtotakedecisions.Theyarealsoawareofdifferentpossiblealternatives,outcomesand

consequencesandhencemakerationaldecisions. Butitisverydifficultformanagerstobecompletelyrationalintheirdecisionmaking,sincedecisionsare takenkeepingthefutureinmindandthefutureisveryuncertain.Itisverydifficulttodetermineallthe alternativecourseofactionthatmightbefollowedtoaccomplishagoal. Classicaldecisiontheorymaynotfitwellinachaoticworld.Itcanbeusedtowardsthebottomofmany firms. BehavioralDecisionTheory Behavioraldecisiontheoryrecognizesthathumanbeingsoperatewithcognitivelimitationsandbounded rationality.Abehavioraldecisionmakerfacesaproblemthatisnotclearlydefined&hehasonlylimited knowledgeofpossiblealternativesandtheirconsequences.Theselimitationsforcehimtochoosea satisfactoryalternative. Behavioraldecisiontheoryfitwithachaoticworldofuncertainconditionsandlimitedinformation.Andthis modelencouragessatisficingdecisionmaking.However,keepinmindthattheirdecisionmakingisalso likelyinfluencedbytheorganizationsculture,internalpolitics,powerconsiderations,andbyaphenomenon calledescalationofcommitment,whichisanincreasedcommitmenttoapreviousdecisiondespite evidencethatitmayhavebeenwrong. GarbageCanModel Amodelofdecisionmakingthatviewsproblems,solutions,participantsandchoicesituationsasmixed togetherinthegarbagecanoftheorganization.Garbagemodelofdecisiontheoryismoreappropriatein dynamicsettings. IncrementalModel Anotherapproachtodecisionmakingistheincrementalmodel.Theincrementalmodelstatesthatthe managersputintheleastpossibleeffortonlyenoughtoreducetheproblemtoatolerancelevel. Managersaremoreconcernedaboutashorttermsolution.Thismodeldoesnotrequiremanagersto processagreatdealofinformationinordertotakeadecision.

Decision Makers Styles

LinearThinkingStylePreferenceforusingexternaldataandfactsandprocessingthisinformation throughrationallogicalthinkingtoguidedecisionsandactions. NonlinearThinkingStylePreferenceforinternalsourceofinformationlikefeelings&intuitionand processingthisinformationwithinternalinsights,feelingsandhunchestoguidedecisionsandactions.

Decision Making Process

1. IdentifyingaproblemAproblemisanobstaclethatmakesitdifficulttoachieveadesiredgoalor purpose.Priortoidentifyingtheproblem,itisessentialtofirstrecognizethataproblemexists. Identificationofaprobleminvolves3stagesscanning,categorization&diagnosis.

2. Identifyingthedecisioncriteria. 3. AllocatingweightstodecisioncriteriaIftherelevantcriteriaarenotequallyimportant,the decisionmakermustweightheitemsinordertogivethemthecorrectpriorityinthedecision. 4. DevelopingalternativesBrainstorming 5. AnalyzingalternativesFeasibility,quality,acceptability,cost&ethics 6. SelectinganalternativeExperience,Experimentation&Research&Analysis 7. Implementthealternative. 8. Evaluatingdecisioneffectiveness.

Scanninginvolvesmonitoringtheworkenvforchangesthatmayindicatetheemergenceofaproblem.

Heuristics
Aheuristicisamentalshortcutthatallowspeopletosolveproblemsandmakejudgmentsquicklyand efficiently.Theseruleofthumbstrategiesshortendecisionmakingtimeandallowpeopletofunction withoutconstantlystoppingtothinkabouttheirnextcourseofaction.Whileheuristicsarehelpfulinmany situations,theycanalsoleadtobiases. Whileheuristicscanspeedupourproblemanddecisionmakingprocess,theycanintroduceerrors.Just becausesomethinghasworkedinthepastdoesnotmeanthatitwillworkagain,andrelyingonanexisting heuristiccanmakeitdifficulttoseealternativesolutionsorcomeupwithnewideas. Availabilityheuristictendencyforthepeopletobasetheirjudgmentsoninformationthatis readilyavailabletothemratherthancompletedata..

Representativenessheuristictendencyforpeopletoassessthelikelihoodofanoccurrenceby tryingtomatchitwithapreexistingcategory. Anchoringandadjustmentheuristicbasesadecisiononincrementaladjustmentstoaninitial valuedeterminedbyhistoricalprecedentorsomereferencepoint. Generaljudgmentbiasesindecisionmakingare ConfirmationtrapThetendencytoseekconfirmationforwhatisalreadythoughttobetrueand tonotsearchfordisconfirminginformation. HindsighttrapThetendencytooverestimatethedegreetowhichaneventthathasalreadytaken placecouldhavebeenpredicted.

Creativity in Decision Making

Creativityindecisionmakinginvolvesthedevelopmentofuniqueandnovelresponsestoproblemsand opportunities.Creativityisespeciallyimportantinadynamicenvironmentfullofnonroutineproblems. Stagesinthecreativethinkingprocess. 1. Preparation. 2. Concentration. 3. Incubation. 4. Illumination 5. Verification.

Ethics in Decision Making

Ethicsisthestudyofmoralvaluesorprinciplesthatguideourbehaviour,andinformuswhetheractions arerightorwrong.Ethicalprincipleshelpusdotherightthing. Ethicaldilemmaisasituationinwhichapersonmustdecidewhetherornottodosomethingthat,although personallyororganizationallybeneficial,maybeconsideredunethicalandperhapsillegal.Ethicaldilemma areoftenassociatedwith Risk&uncertainty Nonroutineproblemsituations. Anindividualcanusefourdifferentcriteriainmakingethicalchoices. Ismyactionlegal? Isitright? Isitbeneficial? HowwouldIfeelifmyfamilyfoundoutaboutthis? HowwouldIfeelifmydecisionwereprintedinthelocalnewspaper?

Suggestionsforintegratingethicaldecisionmakingintothefirm. Developacodeofethicsandfollowit. Establishproceduresforreportingviolations. Involveemployeesinidentifyingethicalissues. Monitorethicalperformance. Rewardethicalbehavior. Publicizeethicalefforts. Implicationsofethicsfordecisionmaking. Moralityisinvolvedin: Choosingproblems. Decidingwhoshouldbeinvolvedinmakingdecisions. Estimatingtheimpactsofdecisionalternatives. Selectinganalternativeforimplementation. Moralconductdoesnotarisefromafterthefactembarrassment.

Decision making realities

Managersfacecomplexchoiceprocesses. Decisionmakinginformationmaynotbeavailable. Boundedrationalityandcognitivelimitationsaffectthewaypeopledefineproblems,identify alternatives,andchoosepreferredsolutions. Mostdecisionmakinginorganizationsgoesbeyondstepbysteprationalchoice. Mostdecisionmakinginorganizationsfallssomewherebetweenthehighlyrationalandthehighly chaotic. Decisionsmustbemadeunderriskanduncertainty. Decisionsmustbemadetosolvenonroutineproblems. Decisionsmustmustbemadeundertimepressuresandinformationlimitations. Decisionsshouldbeethical.

Group Decision Making

Inmanyorganizations,decisionsareoftenmadebygroupsratherthanbyindividuals.Groupdecision makingispracticedinmanylargeandcomplexorganizations.Manystudieshaveshownthatgroups makesbetterdecisionsthanindividuals,sincemoreinformationisavailableinagroupsetting.Main advantagesofgroupdecisionmakingare

Greaterpoolofknowledge Differentperspective Increasedacceptance Trainingground. Themostcommonformsofgroupdecisionmakingareinteractinggroup,delphigroupsandnominal groups. Interactivegroupsisadecisionmakinggroupinwhichthemembersopenlydiscuss,argueandagreeon thebestalternative.Inthisformofgroupdecisionmaking,anexistinggroupslikeastandingcommitteeor anewlydesignatedgroupsuchasanadhoccommitteeortaskforceisentrustedwiththetaskoftakinga decision.Thediscussionisopenandinteractiveandgrouparrivesatadecisionafterdiscussingthepros andconsofvariousalternatives.Anadvantageofthismethodisthattheinteractionbetweenpeoplebrings forthmanynewideasandimprovesunderstandingbetweenthemembersofthegroup.However,amajor disadvantageofthisformofgroupdecisionmakingisthatpoliticalfactorscaninfluenceittoagreat extent. Someofthedisadvantagesofgroupdecisionmakingare Socialpressure Dominationbyavocalfew. Logrollingpetprojectorvestedinterestisatstake. Goaldisplacementsecondaryconsiderationstakepreference. Groupthinkcompromise DelphiGroup Thisistechniqueissimilartothenominalgrouptechnique,butdiffersfromitinthatthedecisionmakersdo notactuallymeetatacommonplace.Thevariousstagesindelphitechniqueare Asmallgroupisformedcomprisingofindividualswithreasonableexpertiseinthedecisionmaking situation.However,theydonothavefacetofaceinteractionwitheachother. Eachexpertissentaquestionnaireconsistingofquestionsrelevanttothedecisionmaking situation.Theexpertadviceofeachindividualdecisionmakerissought. Thesummarisedresultorfeedbackofthesurveyisthensentbacktotheexpertsseekingtheir responsetotheresults. Theprocessisrepeatedseveraltimesuntilaconsensusamongtheexpertsisobtained. Thismethodhasthebenefitofovercomingpersonalbiasesofdecisionmakers.Researchshowsthatorg implementingthistechniquehavebeensuccessfulingeneratinginnovativeideastotheproblemsituation. Thismethodisnotusedforeverydayroutinedecisionsbecauseitistimeconsumingandexpensive. NominalGroupsInanominalgrouptechnique,thegroupofmembersareactuallybroughttogether,but theydontinteractasfreelyasthemembersofinteractivegroup.Thistechniqueisgenerallyusedwhen creativeorinnovativeideasarerequired.

BrainstormingAideagenerationprocessthatspecificallyencouragesanyandallalternativeswhile withholdinganycriticismofthosealternatives.

Factors Affecting Decision Making

TypesofProblemsstructured/unstructured DecisionMakingEnvcertainty/risk/uncertainty DecisionMakersStyleLinear/Nonlinear InformationInputs Itisveryimportanttohaveadequateandaccurateinformationaboutthesituationfordecision making, otherwisethequalityofthedecisionwillsuffer.Itmustberecognized,however,thatonindividualhas certainmentalconstraints,whichlimittheamountofinformationthathecanadequatelyhandle.Less informationisasdangerousastoomuchinformation.Somehighlyauthoritativeindividualsdomake decisionsonthebasisofcomparativelylessinformationwhencomparedtomoreconservativedecision makers. Prejudice&Bias Prejudiceandbiasisintroducedinourdecisionsbyourperceptualprocessesandmaycauseustomake ineffectivedecisions.First,perceptionishighlyselective,whichmeansthatweonlyacceptwhatwewant toacceptandhenceonlysuchtypeofinformationfiltersdowntooursenses. Second,perceptionishighlysubjective,meaningthatinformationgetsdistortedinordertobeconsistent withourpreestablishedbeliefs,attitudesandvalues. CognitiveConstraints Ahumanbrain,whichisthesourceofthinking,creativityanddecision making,islimitedincapacityina numberofways.Forexample,exceptforsomeuniquecircumstances,ourmemoryisshortterm,having thecapacityofonlyafewideas,wordsandsymbols.Also,wecannotperformmorethanalimitednumber ofcalculationsinourheadsanditistoughtocompareallthepossiblealternativesandmakeachoice. Finally,psychologically,wearealwaysuncomfortablewithmakingdecisions.Weareneverreallysureif ourchoiceofthealternativewascorrectandoptimaluntiltheimpactoftheimplicationofthedecisionhas beenfelt.Thismakesusfeelinsecure. Social&CulturalInfluences Socialnormisthestandardandacceptedwayofmakingjudgements.Culturalupbringingandvarious culturaldimensionshaveaprofoundimpactonthedecisionmakingstyleofanindividual.Forexample,in

theJapaneseorganizationalsystem,adecisionmakerarrivesatadecisioninconsensuswithothers.This styleisculturallyorientedandmakesimplementationofthedecisionmucheasiersinceeverybody participatesinthedecisionmakingprocess.InAmerica,onthecontrary,thedecisionmakingstyleis generallyindividualisticwiththehelpofdecisionmodelsandquantitativetechniques. Escalation of Commitment Anincreasedcommitmenttoapreviousdecisiondespitenegativeinformation.Individualsescalate commitmenttoafailingcourseofactionwhentheyviewthemselvesasresponsibleforthefailure.Thatis, theythrowgoodmoneyafterbadtodemonstratethattheirinitialdecisionwasnotwrongandtoavoid havingtoadmittheymadeamistake.Manyorganizationshavesufferedlargelossesbecauseamanager wasdeterminedtoprovehisorheroriginaldecisionwasrightbycontinuingtocommitresourcestowhat wasalostcausefromthebeginning.