DECISION MAKING

 We are all involved in decision-making- consciously or unconsciously several times in a day.

 Managers similarly make decisions  Simply stated, decision making in choosing from alternatives  Steps in decision making Identification of a problem Identification of Decision criteria Allocation of weights to criteria Development of Alternatives Analysis of Alternatives Selection of an Alternatives Implementation of the Alternatives Evaluation of Decision Effectiveness

 

Problems and issues ( Part of Diagnosis) Problems and symptoms (Externally observable)

Making decisions
1. 2. Rationality Approach Logical, Consistent, value maximizing, consisting with goals. Bounded Rationality: Decision making thats rational but limited (bounded) by an individuals ability to process information. They are rational within limits. Satisficing making decision, which is `good enough not necessary the best. Escalation of commitment : Increased commitment to a previous decision despite evidence it may be a poor decision. Intuitive Decision Making : A survey (Miller and Ireland) that half of the executives used intuition more often than formal analysis to run their companies. A study (Seo and Barrett) showed that managers who experienced intense feelings and emotions achieved higher decision- making performance.

3.

What is Intuition
Managers make decisions Based on ethical values Or culture

Managers make decisions based on Their past experience

Managers make decisions Based on feelings or emotions

Experience-based decisions Value or ethics based decisions Affect-initiated decisions

Intuition
Subconscious Mental processing

Cognitive-based decisions

Managers use data from Subconscious mind to Help them make decisions

Managers make decisions based on skills Knowledge and training

Types of Decision 
   Structured or Programme decision (generally in problem is easily defined and complete). Repetitive in nature, Developing alternative generally not possible. Procedures, rules and prices to handle. Unstructured problems and non-programmed decisions. - New type - Ambiguous information - Non-recurring - Custom made solutions

Programmed versus Non-programmed Decisions

Programmed Decisions Structured Lower Levels Repetitive, routine Readily available Clear, specific Short Procedure, rules, policies Non-programmed Decisions Unstructured Upper levels New, unusual Ambiguous or incomplete Vague Relatively long Judgment and creativity

Characteristic Type of problem Managerial Level Frequency Information Goals Time frame for solution Solution relies on

Decision Making Conditions - Certainty - Risk Historical data, Assignment of probabilities possible - Uncertainty Limited amount of information Maximax Maximising maximum pay off (optimistic) Maximin Maximising minimum payoff (Pessimistic) Maximax Minimise maximum regret (minimizing maximum regret) Payoff Matrix: Your Strategy Competitor's Strategy C1 C2 C3 S1 26 28 22 S2 18 30 36 S3 48 42 30 S4 36 28 56

Regret Matrix: (in lakh of rupees Visa Marketing Strategy S1 S2 S3 S4

C1 22 30 0 12

Master Cards Response C2 C3 14 34 12 20 0 26 14 0

Optimist Pessimist Regret avoidance

Maximax Strategy 4 Maximin Strategy 3 Minimax Strategy 4

Many times managers, who are unable to quantify and therefore fail to use these techniques, often use gutful' intuition or guesses.

Decision Making Styles Linear : Preference for external data Logical Thinking Decision and actions guided by rationality.

Non-Linear

Preference for internal source. Possessing with internal insights, feeling and intuition. More creative More Complex

Twelve Decision Making Errors/Baises - Over Confidence (When the hold unreastically + positive views - Immediate gratification (They want immedite rewards) - Anchoring effect (When they fixate on initial information and are unable to adjust or change) - Selective Perception (When they selectively interpret data events) - Confirmation (Base their decision on past decision) - Framing (Decision by drawing attention to specific information) - Availability (Considering information which they remember or more recent) - Representation (Consider analogies and identical situations) - Randomness (Create meaning out of random events) - Sunk costs (forget that current choices cannot correct the past) - Self serving (To take credit for their successes) - Hind sight (Decision to say that they could have accurately predicted the outcomes).

Overview of Decision Making

Decision-Making Approach
Rationality Bounded rationality Intuition

Types of Problems and Decisions

Well structured programmed Unstructured- non programmed

Decision Making Errors and Baises

Decision Decision-Making Process

Choosing best alternative -Maximizing -Satisficing Implementing Evaluating

Decision-Making Conditions
Certainty Risk Uncertainty

Decision Makers Style Linear thinking style Non linear Thinking style

Other aspects of Decision Making 1. 2. 3. 4. Understand cultural differences Time to call it quits : Tata Motors and Singur, WB Use an effective decision making process Spot the unexpected and quickly adapt to changes.