Express various models of decision making process.

Describe a model which is most suitable to your organization or any organization you are familiar with and why? Describe the organization you are referring to. Decisions can be classified in a number of ways: I. Programmed and Non programmed Decisions: Programmed decisions are those that are made in accordance with some policy, rule or procedure so that they do not have to be handled de navo each time they occur. In the case of non-programmed decisions, since each manager may bring his own personal beliefs, attitudes and value judgements to bear on the decision process. It is possible for two managers to arrive at distinctly different solutions to the same problem, each claiming that he is acting rationally. II. Major and Minor Decision: a) Degree of Purity of Decision - A decision which has a long-range impact, like replacement of men by machinery or diversification of the existing product lines must be rated as a very major decision. b) Impact of the decision on other functional areas - If a decision affects only one function it is a minor decision. Thus the decision to shift from bound ledger to loose leaf ledger may be made by the accountant himself since it affects no one except his department. c) Qualitative factors that enter the decision A decision which involves certain subjective factors is an important decision. d) Recurrrance of decisions - Decision which are rare and have no precedents as guides may be regarded as major decisions and may have to be made at a high level. III. Routine and strategic decisions - Routine, tactical or housekeeping decisions are those which are supportive of rather than central to the companys operations. IV.Individual and Group Decisions - Decisions may be taken either by an individual or by a group. Simple and complex Decisions - when variables to be considered for solving a problem are few, the decision is simple, when they are many the decision is complex. Steps in rational decision making: a) b) c) d) e) f) Recognising the problem Deciding priorities among problems. Diagonosing the problem. Developing alternative solutions or courses of action. Measuring and comparing the consequences of alternative solutions. Converting the decision into effective action and follow up action.

MODELS OF DECISION MAKING PROCESS The three models are: 1) the econologic model or the economic man, 2) the bounded rationally model or the administrative man; and 3) the implicit favorite model or the gamesman. You will notice that each model differs on the assumptions it makes about the person or persons making the decision. i) Econologic Model or Economic Man Model The econologic model represent the earliest attempt to model decision process. Briefly, this model rests on two assumptions: (1) It assumes people are economically rational; and (2) that people attempt to maximize outcomes in an orderly and sequential process.

Economic rationality, a basic concept in many models of decision-making, exist when people attempt to maximize objectively measure advantage, such as money or units of goods produced. That is, it is assumed that people will select the decision or course of action that has the greatest advantage or payoff from among the many alternatives. It is also assumed that they go about this search in a planned, orderly, and logical fashion. Following are the steps in decision making process: Discover the symptoms of the problem or difficulty Determine the goal to be achieved or define the problem to be solved Develop a criterion against which alternative solutions can be evaluated. Identify all alternative courses of action. Consider the consequences of each alternatives as well as the likelihood of occurrence of each. 6. Choose the best alternative by comparing the consequences of each alternative ( step 5) with the decision criterion 9step 3) and 7. Act or implement the decision The economic man model represents a useful prescription of how decisions should be made, but it does not adequately portray how decisions are actually made. If you look closely in this prescriptive model you shall be able to recognize some of the assumptions it makes about the capabilities of human beings. First, people have the capability to gather all necessary information for a decision ie., people can have complete information. Second, people can mentally store this information in some stable form ie., they can accurately recall any information any time they like. Third, people can manipulate all this information in a series of complex calculations design to provide expected values; and Fourth, people can rank the consequences in a consistent fashion for the purpose of identifying the preferred alternative. ii) Bounded Rationally Model or Administrative Man model An alternative model, one not bound by the above assumptions, has been presented by Simon. This is the bounded rationality model, also known as the administrative man model. As the name implies, this model does not assume individual rationality in the decision process. Instead, it assumes that people, while they may seek the best solution, usually settle for much less because the decisions they confront typ9ically demand greater information processing capabilities than they possess. They seek a kind of bounded (or limited) rationality in decisions. The concept of bounded rationality attempts to describe decision process in terms of here mechanisms: Sequential attention to alternative solution: People examine possible solutions to a problem sequentially. Instead of identifying all possible solutions and selecting the best as suggested in the econologic model), the various alternatives are identified and evaluated one at a time. If the first solution fails to work it is discarded and the next solution is considered. When an acceptable (that is, good enough and not necessarily the best) solution is found, the search is discontinued. 1. 2. 3. 4. 5.

Use of heuristics: A heuristic is a rule which guides the search for alternatives into areas that have a high probability for yielding satisfactory solutions. For instance, some companies continually select management graduates from certain institutions because in the past such graduates have performed well for the company. According to the bounded rationality model, decision makers use heuristics to reduce large problems to manageable proportions so that decisions can be made rapidly. They look for obvious solutions or previous solutions that worked in similar situations. Satisfying: Whereas the econologic model focuses on the decision maker as an optimizer, this model sees him or her as a satisfier. An alternative is optimal if: 91) here exists a set of criteria that permits all alternatives to be compared: and (2) the alternative in question is preferred, by these criteria, to all other alternative. An alternative is satisfactory if (i) there exist a set of criteria that describes minimally satisfactory alternatives; and (2) the alternative in question meets or exceeds all these criteria.

iii) Implicit Favorite Model Gamesman Model This model deals primarily with non-programmed decisions. The non-programmed decisions are decisions that are novel or unstructured, like seeking ones first job. Programmed decisions, in contrast, are more routine or repetitious in nature, like the procedures for admitting students to a secondary school. The implicit favorite model developed by Soelberg (1967) emerged when he observed the job choice process of graduating business students and noted that, in many cases the students identified implicit factories very early in the recruiting and choice process. However, they continued their search for additional alternatives and quickly selected the best alternative candidate, known as the confirmation candidate. This was done through perceptual distortion of information about the two alternatives and thorough weighing systems designed to highlight the positive features of the implicit favourite. Finally after a decision rule was derived that clearly favoured the implicit favourite, the decision was announced. Ironically, Soelberg noted that the implicit favourite was typically superior to the confirmation candidate on only or two dimensions. Even so, the decision makers generally characterized their decision rules as being multi-dimensional nature. How it can be improved: These conditions of knowledge are often referred to as the environment of decision making. This environment may be of three types 1) certainity, 2) risk and 3) uncertainity. Certainity: The decision maker can specify the consequences of a particular decision or act. Certainity about future events is difficult and managerial decisions must be made in awareness that future conditions may vary widely from those contemplated when the decision is being made. Risk: In decision making under the condition of risk, the consequences of a particular decision cannot be specified with certainity but can be specified with known probability values. Uncertainity: More prevalent than either conditions of centainity or risk are conditions of uncertainity. Uncertainity exists when the decision maker does not know the probabilities associated with the possible outcomes though he has been able to identify the possible outcomes and the related pay offs.