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Unit10
Structure
10.1 Introduction 10.2 DecisionmakingConcepts 10.2.1 RationalDecisionmaking 10.2.2 TheProblemsinMakingRationalDecisions 10.3 DecisionmakingProcess 10.3.1 TypesofDecisionmakingSystems 10.3.2 TypesofDecisions 10.3.3 NatureofDecisions 10.3.4 TheLawofRequisiteVariety 10.4 DecisionAnalysisbyAnalyticalModelling 10.5 BehaviouralConceptsinDecisionmaking 10.6 OrganisationalDecisionmaking 10.7 MISandDecisionmaking 10.8 Summary TerminalQuestions AnswertoSAQsandTQs

DecisionMakingInMIS

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10.1 Introduction Theword'decisionisderivedfromtheLatinrootdecido,whichmeanstocutoff.Theconceptof decision,therefore,issettlement,afixedintentionbringingtoaconclusiveresult,ajudgment,anda resolution. A decision isthe choiceout of several options made by thedecision maker to achieve some objective in a given situation. This unit throws light on the decisionmaking process in an organisationanditsrelevancetoMIS. LearningObjectives Afterstudyingthisunit,youwillbeableto: Explainthecharacteristicsofthebusinessdecisions. Explainrationaldecisionmakinganditsproblems. DescribeHerbertSimonsmodelofdecisionmaking. Mentionthetypesofdecisions. Statethefourwaysofdecisionanalysis. Examinethebehaviouralconceptsanddecisionmaking.

10.2 DecisionmakingConcepts Businessdecisionsarethose,whicharemadeintheprocessofconductingbusinesstoachieveits objectives ina givenenvironment. In concept, whether weare talking about business decisionsor anyotherdecision,weassumethatthedecisionmakerisarationalperson. Themajorcharacteristicsofthebusinessdecisionmakingare:
(a) Sequentialinnature. (b) Exceedinglycomplexduetorisksandtradeoffs. (c) Influencedbypersonalvalues. (d) Madeininstitutionalsettingsandbusinessenvironment.

The business decisionmaking is sequential in nature. In business, the decisions are not isolated events.Eachofthemhasarelationtosomeotherdecisionorsituation.Thedecisionmayappearas "snap"decisionbutitismadeonlyafteralongchainofdevelopmentsandaseriesofrelatedearlier decisions. The decisionmaking process is a complex process in the higher hierarchy of management. The complexityistheresultofmanyfactors,suchastheinterrelationshipamongtheexpertsordecision makers,ajobresponsibility,aquestionoffeasibility,thecodesofmoralsandethics,andaprobable
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impactonbusiness. The personal values of the decisionmaker play a major role in decisionmaking. A decision otherwisebeing very soundon thebusiness principleandeconomic rationality may be rejectedon thebasisofthepersonalvalues,whicharedefeatedifsuchadecisionisimplemented.Theculture, thediscipline and the individual's commitmentto goals will decide theprocess and successof the decision. Whatevermaybethesituation,ifoneanalysesthefactorsunderlyingthedecisionmakingprocess,it wouldbeobservedthattherearecommoncharacteristicsineachofthem.Thereisadefinitemethod ofarrivingatadecisionanditcanbeputintheformofdecisionprocessmodel. The decisionmaking process requires creativity, imagination and a deep understanding of human behaviour. The process covers a number of tangible and intangible factors affecting the decision makingprocess.Italsorequiresaforesighttopredictthepostdecisionimplicationsandawillingness tofacethoseimplications.Alldecisionssolvea'problem'butoveraperiodoftimetheygiverisetoa numberofother'problems.' 10.2.1 RationalDecisionmaking Rationaldecisionistheonewhich,effectivelyandefficiently,ensurestheachievementofthegoalfor whichthedecisionismade.Ifitisraining,itisrationaltolookforacoversothatyoudonotgetwet. Ifyouareinbusinessandwanttomakeprofit,thenyoumustproducegoodsandsellthematamuch higher pricethancostofproduction. In reality, there is no right or wrong decision buta rational or irrational decision. The quality of decisionmaking is to be judged on the rationality and not necessarilyontheresultitproduces. SimonHerbertdifferentiatesamongthetypesofrationality.Adecision,inagivensituationis: Objectivelyrationalifitmaximisesthevalueoftheobjective. Subjectively rational if it maximises the attainment of value within limitation of the knowledge andawarenessofthesubject. Consciously rational to the extent the process of the decisionmaking is deliberate and a consciousone. Organisationallyrationaltothedegreeoftheorientationtowardstheorganisation. Personallyrationaltotheextentitachievesanindividual'spersonalgoals.

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Inotherwords,solongasthedecisionmakercanexplainwithlogicandreason,theobjectivityand thecircumstancesinwhichthedecisionismade,itcanbetermedasarationaldecision.Whetherthe rationalityappliedisappropriateornotcouldbeapointfordebate.GrossBertramM.suggeststhree dimensionsofrationality.First,thedegreeofsatisfactionofhumaninterestSecond,thedegreeof feasibility in achieving the objectives Third, consistency in decisionmaking. If a decisionmaker showsaconsistentbehaviourintheprocessofdecisionmaking,thenonecansaythathemeetsthe testoftherationality. 10.2.2 TheProblemsinMakingRationalDecisions (a) Ascertainingtheproblem AsPeterDruckerpointsout,"themostcommonsourceofmistakesinthemanagementdecisionsis theemphasisonfindingtherightanswersratherthantherightquestions."Themaintaskistodefine the right problem in clear terms. The management may define the problem as the "Sales are declining."Actually,thedeclineofsalesissymptomatictherealproblemmaybesomewhereelse. For example, the problem may be the poor quality of the product and you may be thinking of improvingthequalityofadvertising. (b) Insufficientknowledge For perfect rationality, total information leading to complete knowledge is necessary. An important function of a manager is to determine whether the dividing line is reached between insufficient knowledgeandtheenoughinformationtomakeadecision. (c) Notenoughtimetoberational The decisionmaker is under pressure to make decisions. If time is limited, he may make hasty decisionswhichmaynotsatisfythetestofrationalityofthedecision. (d)Theenvironmentmaynotcooperate Sometimes,thetimingofthedecisionissuchthatoneisforcedtomakeadecisionbuttheenviron mentisnotconduciveforit.Thedecisionmayfailthetestofrationalityastheenvironmentalfactors consideredinthedecisionmakingturnouttobeuntrue.Forexample,inaproductpricing,thefactor ofoilandpetroleumproductpriceisconsideredasstable.Butthepostdecisionenvironmentproves theconsiderationtobewrong.

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(e) Otherlimitations Other limitations are the need for a compromise among the different positions, misjudging the motives and values of people, poor communications, misappraisal of uncertainties and risks, and inabilitytohandletheavailableknowledgeandhumanbehaviour. How do we then ensure rationality? It is ensured, if the process of decisionmaking is carried out systematically, wherebyall the aspects of the decisionmaking discussedabovearetaken careof. Herbert Simon said that a decisionmaker follows the process of decisionmaking disregarding the decision or the type ofdecisionand the motive behind thedecision. This process isfollowed con sciouslyorwithoutknowingit.WecanputthisprocessintheDecisionMakingModel. 10.3DecisionmakingProcess Decisionmakingisaprocesswhichthedecisionmakerusestoarriveatadecision.Thecoreofthis processisdescribedbyHerbertSimoninamodel.Hedescribesthemodelinthreephasesasshown inFig.10.1viz.:(a)Intelligence(b)Designand(c)Choice. MISfollowsthismodelinitsdevelopmentstage.

Fig.10.1:HerbertSimonModel Intelligence Rawdatacollected,processedandexamined.Identifyaproblemcallingforadecision. Design Inventing, developing and analysing the different decision alternatives and testing the feasibility of implementation.Assessthevalueofthedecisionoutcome. Choice Selectonealternativeasadecision,basedontheselectioncriteria. In the intelligencephase,the MIS collects the data. Thedata is scanned,examined, checked and

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edited. Further, the data is sorted and merged with other data and computations are made, summarised and presented. In this process, the attention of the manager is drawn to all problem situations by highlighting the significant differences between the actual and the expected, the budgetedorthetargeted. In the design phase, the manager develops a model of the problem situation on which he can generate and test the different decisions to facilitate its implementation. If the model developed is usefulingeneratingthedecisionalternatives,hethenfurthermovesintophaseofselectioncalledas choice. Inthephaseofchoice,themanagerevolvesaselectioncriterionsuchasmaximumprofit,leastcost, minimumwaste,leasttimetaken,andhighestutility.Thecriterionisappliedtothevariousdecision alternativesandtheonewhichsatisfiesthemostisselected. Inthesethreephases,ifthemanagerfails,toreachadecision,hestartstheprocessalloveragain fromtheintelligencephasewhereadditionaldataandinformationiscollected,thedecisionmaking modelisrefined,theselectioncriteriaischangedandadecisionisarrivedat. 10.3.1 TypesofDecisionmakingSystems Thedecisionmakingsystemscanbeclassifiedinanumberofways.Therearetwotypesofsystems based on the manager's knowledge about the environment. If the manager operates in a known environment then it is a closed decisionmaking system. The conditions of the closed decision makingsystemare: (a) Themanagerhasaknownsetofdecisionalternativesandknowstheiroutcomesfullyintermsof value,ifimplemented. (b) The manager has a model, a method or a rule whereby the decision alternatives can be generated,tested,andrankedforselection. (c) Themanagercanchooseoneofthem,basedonsomegoalorobjectivecriterion. Few examples are a product mix problem, an examination system to declare pass or fail, or an acceptanceofthefixeddeposits. If the manager operates in an environment not known to him, then the decisionmaking system is termed as an open decisionmaking system. The conditions of this system in contrast closed decisionmakingsystemare:
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(a) Themanagerdoesnotknowallthedecisionalternatives. (b) Theoutcomeof thedecision isalsonot knownfully. The knowledgeof the outcome maybea probabilisticone. (c) No method, rule or model is available to study and finalise one decision among the set of decisionalternatives. (d) Itisdifficulttodecideanobjectiveoragoaland,therefore,themanagerresortstothatdecision, wherehisaspirationsordesiresaremetbest. Deciding on the possible product diversification lines, the pricing of a new product, and the plant location,aresomedecisionmakingsituationswhichfallinthecategoryoftheopendecisionmaking systems. The MIS tries to convert every open system to a closed decisionmaking system by providing information support for the best decision. The MIS gives the information support, whereby the manager knows more and more about environment and the outcomes, he is able to generate the decisionalternatives,testthemandselectoneofthem.AgoodMISachievesthis. 10.3.2 TypesofDecisions Thetypesofdecisionsarebasedonthedegreeofknowledgeabouttheoutcomesortheeventsyet to take place. If the manager has full and precise knowledge of the event or outcome which is to occur, then the decisionmaking is not a problem. If the manager has full knowledge, then it is a situation of certainty. If he has partial knowledge or a probabilistic knowledge, then it is decision making under risk. If the manager does not have any knowledge whatsoever, then it is decision makingunderuncertainty. AgoodMIStriestoconvertadecisionmakingsituationunderuncertaintytothesituationunderrisk andfurther to certainty. Decisionmaking in theOperations Management is a situation of certainty. Thisismainlybecausethemanagerinthisfieldhasfairlygoodknowledgeabouttheeventswhich aretotakeplace,hasfullknowledgeofenvironment,andhaspredetermineddecisionalternatives forchoiceorforselection. Decisionmakingatthemiddlemanagementlevelisoftherisktype.Thisisbecauseofthedifficulty in forecasting an event with hundred per cent accuracy and the limited scope of generating the decisionalternatives. Atthetopmanagementlevel,itisasituationoftotaluncertaintyonaccountofinsufficientknowledge
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oftheexternalenvironmentandthedifficultyinforecastingbusinessgrowthonalongtermbasis. AgoodMISdesigngivesadequatesupporttoallthethreelevelsofmanagement. 10.3.3 NatureofDecisions Decisionmaking is a complex situation. To resolve the complexity, the decisions are classified as programmedandnonprogrammeddecisions. If a decision can be based on a rule, method or even guidelines, it is called the programmed decision.Ifthestocklevelofanitemis200numbers,thenthedecisiontoraiseapurchaserequisi tionfor400numbers,isaprogrammeddecisionmakingsituation.Thedecisionmakerhereistoldto makeadecisionbasedontheinstructionsorontheruleoforderingaquantityof400itemswhenits stocklevelreaches200. If such rules can be developed wherever possible, then the MIS itself canbedesigned to makea decisionandevenexecute.Thesysteminsuchcasesplaystheroleofadecisionmakerbasedona givenruleoramethod.SincetheprogrammeddecisionsaremadethroughMIS,theeffectivenessof the rule can be analysed and the rule can be reviewed and modified from time to time for an improvement. Theprogrammeddecisionmakingcanbe delegated to a lower level in the manage mentcadre. Adecisionwhichcannotbemadebyusingaruleoramodelisthenonprogrammeddecision.Such decisionsareinfrequentbutthestakesareusuallylarger.Therefore,theycannotbedelegatedtothe lowerlevel.TheMISinthenonprogrammeddecisionsituationcanhelptosomeextent,inidentifying the problem, giving the relevant information to handle the specific decisionmaking situation. The MIS, in other words, can develop support systems in the nonprogrammeddecisionmaking situations. 10.3.4 TheLawofRequisiteVariety Inprogrammeddecisionmaking,itisnecessaryforthemanager,toenumerateallthestagestothe decisionmakingsituation,andprovidethenecessarysupportthroughrulesandaformulaforeach oneofthem.Thefailuretoprovidethedecisionmakingrule,ineachofthem,willleadtoasituation wherethesystemwillnotbeabletomakeadecision.Itis,therefore,necessarytocoverarequisite varietyofsituationswiththenecessarydecisionresponse.

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The requisite variety of situations means that for efficient programmed decisionmaking, it is necessaryforthemanagertoprovide: (a) Allthedecisionalternativesandthechoicesineachprobablestate (b) Thedecisionrulestohandlethesituationand (c) Thesystemorthemethodtogenerateadecisionchoice. It has been found that in a closeddecisionmaking situation, the programmeddecisionmaking system works efficiently, while in the opendecisionmaking situation, it is not efficient. With the adventofexpertsystemsandtheknowledgebasedartificialintelligencesystems,itisnowpossible for a computer to develop the alternatives, test them and handle them on the criteria of selection leading to a decision. The MIS is expected to provide the necessary information and knowledge supporttothecomputerbasedsystem. MethodsforDecidingDecisionAlternatives There are several methods to help the manager decide among the alternatives. The methods basicallyaresearchprocessestoselectthebestalternativeuponsatisfyingcertaingoals. The methods for selection of decision alternatives with the goals in view are: (a) Optimisation Techniques(b)PayoffAnalysisand(c)DecisionTreeAnalysis. Optimisationtechniques Linear Programming, Integer Programming, Dynamic Programming, Queuing Models, Inventory Models, Capital Budgeting Models and so on are the examples of optimisation techniques. These methodsareusedincaseswheredecisionmakingsituationisclosed,deterministicandrequiresto optimizetheuseofresourcesunderconditionsofconstraints.Tohandlethesesituations,software packagesareavailable.ThesemethodsaretermedOperationalResearch(OR)techniques. Thepayoffanalysis Whenallthealternativesandtheiroutcomesarenotknownwithcertainty,thedecisionismadewith thehelp ofpayoffanalysis. The payoff matrix is constructed where the rows show the alternatives andthecolumnsshowtheconditionsorthestatesofnaturewiththeprobabilityofoccurrence.The intersectionofcolumnandrowshowsthevalueofanoutcomeresultingoutofthealternativeandthe stateofthenature.AtypicalpayoffmatrixinpricingdecisionisasgiveninTable10.1.

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Yourdecisionalternative

Competitors Decision: probability

No change 0.100

Increase 0.20 10 4 12

Decrease 0.30 8 3 4

Expected gain

Nochangeintheprice Increasetheprice Decreasetheprice Table10.1:

4 6 10 PayoffMatrixI

10.40 4.70 8.60

For example, if the decision chosen is 'no change in the price' and the competition also does not change the price, then your gain is '4'. Thedecision is takenby choosing thatdecision alternative whichhasthemaximumexpectedvalueofoutcome.Since,theexpectedvalueincaseofthethird alternativeisthehighest,thedecisionwouldbetodecreasetheprice. The concept of utility relates to the money value considered by the decisionmaker. Utility is measured in terms of utile. Money has a value of a different degree to different decisionmakers dependingupontheamount,andalsothemannerinwhichitisreceived.Ifrupeeoneisequaltoone utile,thenRs.100millionisnot100millionutilitiesbutcouldbemuchmore.Theutilevaluewillbe differentifthemoneyisreceivedinonelotasagainstinpartsinseveralyears.Theutilityfunctionis different for different decisionmakers. The utile value of utility has an influence on the risk taking ability ofthe decisionmaker.A well placed manager with a soundbusiness will tendtogambleor takemorerisk,thanamangernotsowellplacedinthebusiness.Insuchdecisionmakingsituations, the monetary values of the outcomes are replaced by the utile values, suitable to the decision maker'sutilityfunction.Inourexampleofpricing,ifwereplacethevaluesbyutiles,thematrixwould beasgivenbelowinTable10.2. Decision Competitor's No Increas Decrea Expecte choice change e se dutility probability 0.100 0.20 0.30 4 200 100 Table10.2:MatrixII Sincethehighestvalueofutilityis220.80utiles,thedecisionwouldbetoincreasetheprice. Decisiontreeanalysis
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100 4 20

200 400 4

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Whenadecisionmakermustmakeasequenceofdecisions,thedecisiontreeanalysisisusefulin selectingthesetofthedecisions. Themethodofanalysiscanbeexplainedbyanexample.ThedecisiontreeisdrawninFig.10.2with thehelpofsymbols. Letustakeanexampleofinvestmentinproductioncapacityforaplanningperiodoffiveyears

Fig.10.2:DecisionTree Inthisdecisionsituationtherearetwodecisionpointsandsixpathsasgivenbelow.Thepathwhich givesmaximumcashflowistherightdecisionpath.Thecashflowvaluesareasunder: Path ABGCollaboration ABDNoCollaboration ACEHCollaboration1 Phase nd Collaboration2 Phase
st ACEICollaboration1 Phase nd Collaboration2 Phase st

ExpectedCashflow 7.9 7.10 9.2 8.0

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st ACFJ No Collaboration 1 Phase nd Collaboration2 Phase st ACFK No Collaboration 1 Phase nd No Collaboration 2 Phase

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8.2

7.4

Theproblemiswhethertoexpandnowwithalargecapacityortoinvestnowinsmallcapacityand makeadecisionofexpansion afterone year with thehelp of collaborationor without collaboration undercertaindemandconditions. SincethehighestexpectedcashflowpathisACEH,thedecisionistoinvestinasmallcapacityin the 1st phaseand invest in the remaining capacity in the secondphase withtheassistance of the collaboration. The decision tree approach is useful when you visualise a series of decisions having alternative pathswiththeassociatedprobabilitiesandthecashflowsforeachpathformorethanoneyear. SelfAssessmentQuestions1 1. In.,itisnecessaryforthemanagertoenumerateallthestagestothedecisionmaking situationandprovidethenecessarysupportthroughrulesandaformulaforeachoneofthem. 2. Ina,theprogrammeddecisionmakingsystemworksefficiently. 3. Themethodofcanbeadopted,ifthedecisionmakingsituationcanbedescribedasa chainofdecisions. 4. Whenallthealternativesandtheiroutcomesarenotknownwithcertainty,thedecisionismade withthehelpof. 5. Theconceptof..relatestothemoneyvalueconsideredbythedecisionmaker.

10.4DecisionAnalysisbyAnalyticalModelling
Based on the methods discussed, a decision is madebut such decision needs to beanalysedfor conditions and assumptions considered in the decision model. The process is executed through analyticalmodellingofproblemandsolution.Themodelisanalysedinfourways.

Whatifanalysis

GoalSeekingAnalysis

SensitivityanalysisGoalAchievinganalysis
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Whatifanalysis Decisionsare madeusing a modelof the problem for developing various solution alternativesand testing them for best choice. The model is built with some variables and relationship between variables. In reality, the considered values of variables or relationship in the model may not hold goodandthereforesolutionneedstobetestedforanoutcome,iftheconsideredvaluesofvariables orrelationshipchange.Thismethodofanalysisiscalled'whatifanalysis.' For example, in decisionmaking problem about determining inventory control parameters (EOQ, SafetyStock,MaximumStock,MinimumStock,Reorderlevel)leadtimeisassumedfairlyconstant andstableforaplanningperiod.Basedonthis,theinventoryparametersarecalculated.Inventory managerwantstoknowhowthecostofholdinginventorywillbeaffectedifleadtimeisreducedby oneweekorincreasedbyoneweek.Themodelwithchangedleadtimewouldcomputethecostof holding inventory under new conditions. Such type of analysis can be done for purchase price change,demandforecastvariationsandsoon.Suchanalysishelpsamanagertotakemorelearned decisions. What if analysis creates confidence in decisionmaking model by painting a picture of outcomesunderdifferentconditions. SensitivityAnalysis In what if analysis you test the effect on solution by changing the value of number of variables simultaneouslyorchangingtherelationsbetweenthem.Butinsensitivityanalysis,aspecialcase ofwhatifanalysis,onlyonevariableischangedandrestarekeptunchanged. Inourproblemofinventory,sensitivityanalysiscanbeusedtoassessthecostofholdinginventory,if costofitemincreasesby20percentinsensitivityanalysis,youaretestinghowsensitiveisthecost of holding inventory to the change in cost of item. Sensitivity analysis helps to understand the significanceofvariableindecisionmakingandimprovesthequalityofdecisionmaking. GoalAchievingAnalysis Ingoalseekinganalysis,youanalysetheprobleminexactlyreversewayasthatofwhatifanalysis orsensitivityanalysis.Ingoalseekinganalysis,goalisfixedandyougodowntoanalysethevari ablesandvalues,whichwouldhelptoseekthatgoal.Weworkbackwardfromthegoal. Forexample,inourinventoryproblemyouwouldfixagoalofachievingthecostofholdinginventory ofanitematthelevelofRs.10,00,000/.Goalseekinganalysiswillhelpyoutoarriveatvaluesof parameterstoattaintheinventorylevelofRs.10,00,000/.
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GoalSeekingAnalysis: Inagoalseekinganalysis,youdonotfixthegoalbutyoutrytoachieveagoalofanoptimumvalue arrived atafter satisfying all the constraints operating in the problem. In optimisation analysis, you cometoknowwhicharethecriticalconstraintsandwhicharelimitingthevalueofgoal.Thedecision maker can use this analysis to work on constraints and resources and find ways to improve upon solutiontoseekhighestgoal.

10.5 BehaviouralConceptsinDecisionmaking
Themanager,beingahumanbeing,behavesinapeculiarwayinagivensituation.Theresponseof one manager may not be the same as that of the two other managers, as they differ on the behaviouralplatform.Eventhoughtools,methodsandproceduresareevolved,thedecisionismany atimesinfluencedbypersonalfactorssuchasbehaviour. The managers differ in theirapproach towardsdecisionmaking inthe organisation, and, therefore, theycanbeclassifiedintotwocategories,viz.,theachievementoriented,i.e.,lookingforexcellence and the taskoriented, i.e., looking for the completion of the task somehow. The achievement orientedmanagerwillalwaysoptforthebestand,therefore,willbeenterprisingineveryaspectof the decisionmaking. He will endeavour to develop all the possible alternatives. He would be scientific, and therefore, more rational. He would weigh all the pros and cons properly and then conclude. The manager's personal values will definitely influence ultimately. Some of the managers show a natureofriskavoidance.Theirbehaviourshowsadistinctpatternindicatingaconservativeapproach to decisionmakinga path of low risk or no risk. Further, even though decisionmaking tools are available,thechoiceofthetoolsmaydifferdependingonthemotivesofthemanager.Themotives arenotapparent,andhence,aredifficulttounderstand.Arationaldecisioninthenormalcoursemay turnouttobedifferentonaccountofthemotivesofthemanager. The behaviour of the manager is also influenced by thepositionhe holds in the organisation. The behaviourisinfluencedbyafearandananxietythatthepersonalimagemaybetarnishedandthe career prospects in the organisation may be spoiled due to a defeat or a failure. The managerial behaviour, therefore, isa complex mix of thepersonal values,the atmosphere inthe organisation, themotivesandthemotivation,andtheresistancetochange.Suchbehavioursometimesoverrides normaldecisionsbasedonbusinessandeconomicprinciples.
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The interplay of different decisionmaking of all the managers in the organisation shapes up the organisationaldecisionmaking.Therationaleofthebusinessdecisionwilllargelydependuponthe individuals,theirpositionsintheorganisationandtheirinterrelationshipwithothermanagers. Iftwomanagersareplacedintwodecisionmakingsituations,andiftheirobjectivesareinconflict, themanagerswillarriveatadecisionobjectively,satisfyingindividualgoals.Manyatimes,theymay makeaconsciousdecision,disregardingorganisation'sobjectivetomeettheirpersonalgoalsandto satisfy their personal values. If the manager is enterprising, he will make objectively rational decisions. But if the manager is averse to taking risk, he will make a decision which will be subjectively rational as he would act with limited knowledge and also be influenced by the risk averseness. Thus, it is clear that if the attitudes and the motives are not consistent across the organisation,thedecisionmakingprocessslowsdownintheorganisation. 10.6 OrganisationalDecisionmaking An organisation is an arrangement of individuals having different goals. Each individual enjoys different powers and rights because of his position, function and importance in the organisation. Sincethereisanimbalanceinthepowerstructure,thedifferentindividualscannotequallyinfluence theorganisationalbehaviour,themanagementprocessandthesettingofbusinessgoals.Ultimately, whatemergesisahierarchyofgoalswhichmaybeconflicting,selfdefeatingandinconsistent. Thecorporategoalsandthegoalsofthedepartments/divisionsorthefunctionalgoals,manyatimes, are in conflict. If the organisation is a system, and its departments/divisions or functions are its subsystems, then unless the system's objective and the subsystem's objectives are aligned and consistenttoeachother,thecorporategoalsarenotachieved. The organisational behaviour theory provides different methods for resolution of avoiding such conflictinggoalsasexplainedinTable10.3.asabove. DealingwithUncertainty The organisations perform in an environment of uncertainty. The market uncertainty, the price fluctuations,thechangesintheGovernmentpolicy,notknowingthemovesofthecompetitors,the technology changes are some of the factors which make the business environment uncertain. Organisationalbehaviourwill,therefore,betowardsminimizingtheriskindecisionmaking.Thetrend willbeforriskavoidancewithavailableinformationsupport.
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The organisation will votefor a decision which has 90 per cent chance ofearning Rs 1 million as againstadecisionwhichhas10percentchanceofearningRs10million.Theorganisationalbehav iourindecisionmakingtendstoavoidriskandminimizecostpostdecisionimplementation. ThemethodsfordealingwithuncertaintyaregiveninTable10.4. Method Decideforalimited shortperiod,andmake aprovisiontocorrect thedecision. Explanation Iftheenvironmentisreviewedat shortintervals,theuncertainty impactcanbereducedprovidinga chancetocorrecttheprevious decision. Toreducetheimpactoftherisk, theuncertaintyisconvertedto certaintybymakingdecisions binding,thoughthenegotiated contracts. Example Purchasingofsmallerquantitymore frequently.Adoptingthepolicyof enhancementinplacereplacementby newplantsandequipment.

Negotiateddecision makingwithlimited liability.

Internationalpriceagreements, supplyassurancesandsharingthe risks.

Table10.4:MethodsofDealingwithUncertainty OrganisationalLearning Theorganizationaldecisionmakingimproveswithlearningbyacquiringanadditionalknowledgeand experience, the training and development, the experience of implementation and so on. Learning provides strength to review the goals andthe objectives,and allows to set them more correctly. It alsohelpstoreviseandimprovethedecisionrules.Theimprovementsarecarriedoutbyadopting thepolicyofmodernisation,rationalisationandtheapplicationofthemanagementscience. Theprocessbringswithsmallchangesintheexistingpolicyandguidelines.Thenitslowlycomesto thechangesinthestrategicdecisionandplanning.Further,itrevampsthedecisionrulesandalso providesasystemsapproachtodecisionmaking.Asthetimeprogresses,theorganisationmayhave a new set of goals and objectives. It may go through a process of rationalisation of goals and objectives across the company. The organisation may take a fresh look at the alternatives, outcomes,implementationstrategies,methods,proceduresandsystems. Adoptingsuchmethods,theorganisationbuildsskillsandcapabilitiesinthemanagement.Itcreates the infrastructure to make all the decisions rational, which can be implemented effectively and efficiently,toachievetheobjectives.

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10.7 MISandDecisionmaking Itisnecessarytounderstandtheconceptsofdecisionmakingastheyarerelevanttothedesignof theMIS.TheSimonModelprovidesaconceptualdesignoftheMISanddecisionmaking,wherein thedesignerhastodesignthesysteminsuchawaythattheproblemisidentifiedinpreciseterms. In the design phase of the model, the designer is to ensure that the system provides models for decisionmaking.Thesemodelsshouldprovideforthegenerationofdecisionalternatives,testthem andpavewayfortheselectionofoneofthem.Inachoicephase,thedesignermusthelptoselect thecriteriatoselectonealternativeamongstthemany. The concept of programmed decisionmaking is the finest tool available to the MIS designer, whereby he can transfer decisionmaking from a decisionmaker to the MIS and still retain the responsibility and accountability with the decisionmaker or the managerThe concept of decision makingsystemssuchastheclosedandtheopensystemshelpsthedesignerinprovidingadesign flexibility.Theclosedsystemsaredeterministicandrulebasedtherefore,thedesignneedstohave limitedflexibility,whileinanopensystem,thedesignshouldbeflexibletocopeupwiththechanges requiredfromtimetotime. ThemethodsofdecisionmakingcanbeuseddirectlyintheMISprovidedthemethodtobeapplied hasbeendecided.Anumberofdecisionmakingproblemscallforoptimisation,andORmodelsare availablewhichcanbemadeapartofthesystem.Theoptimisationmodelsarestaticanddynamic, andbothcanbeusedintheMIS.. Theconceptsoftheorganisationalandbehaviouralaspectsofdecisionmakingprovideaninsightto thedesignertohandletheorganisationalcultureandtheconstraintsintheMIS.Theconceptsofthe rationalityofabusinessdecision,theriskaversenessofthemanagersandthetendencytoavoidan uncertainty,makesthedesignerconsciousaboutthehumanlimitations,andpromptshimtoprovide asupportintheMIStohandletheselimitations. The decisionmaking concepts are significant in MIS design. The significance arises out of the complexity of decisionmaking, the human factors in decisionmaking, the organisational and behaviouralaspectsandtheuncertainenvironments.

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SelfAssessmentQuestions2 1. createsconfidenceindecisionmakingmodelbypaintingapictureofoutcomesunder differentconditions. 2. In., oneanalyses the problem in exactly reverse way as that of what ifanalysis or sensitivityanalysis. 3. Inagoalseekinganalysis,onedoesnotbuttriestoachieveagoalofanoptimumvalue arrivedataftersatisfyingalltheconstraintsoperatingintheproblem. 4. In..............onecomestoknowwhicharecriticalconstraintsandwhicharelimitingthevalueof goal. 5. Anorganisationisanarrangementofindividualshaving.. 10.8 Summary Businessdecisionsarethose,whicharemadeintheprocessofconductingbusinesstoachieve itsobjectivesinagivenenvironment. Decisionmakingisaprocesswhichthedecisionmakerusestoarriveatadecision. Thebusinessdecisionmakingissequentialinnature.Inbusiness,thedecisionsarenotisolated events. Thedecisionmakingprocessrequirescreativity,imaginationandadeepunderstandingofhuman behaviour. Rationaldecisionistheonewhich,effectivelyandefficiently,ensurestheachievementofthegoal forwhichthedecisionismade. PeterDruckerpointsout:"Themostcommonsourceofmistakesinthemanagementdecisionsis theemphasisonfindingtherightanswersratherthantherightquestions." The decisionmaking systems can be classified in a number of ways. There are two types of systemsbasedonthemanager'sknowledgeabouttheenvironment. Ifthemanageroperatesinaknownenvironmentthenitisacloseddecisionmakingsystem. If the manager operates in an environment not known to him, then the decisionmaking systemistermedasanopendecisionmakingsystem. The managers differ intheir approachtowardsdecisionmaking in theorganisation,and,there fore, they can be classified into two categories, viz., the achievementoriented and the task oriented.
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ManagementInformationSystems

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Theinterplayofdifferentdecisionmakingofallthemanagersintheorganisationshapesupthe organisationaldecisionmaking.

TerminalQuestions 1. Explainthemajorcharacteristicsofthebusinessdecisionmaking. 2. HowdoesSimonHerbertdifferentiateamongthetypesofrationality? 3. DescribeHerbertSimonsmodelofadecisionmakingprocess. 4. ExplainthetypesofDecisionmakingSystems. 5. Distinguishbetweencloseddecisionmakingsystemandopendecisionmakingsystem. 6. WhatisWhatifanalysis? 7. Why do two people disagree on the choice of a decision? Is it then better to resort to programmabledecisionmaking? 8. Whyismoretimespentinproblemanalysisandproblemdefinitionascomparedtothetimespent ondecisionanalysis? AnswerstoSelfAssessmentQuestions SAQs1 1. Programmeddecisionmaking 2. Closeddecisionmakingsituation 3. Decisiontree 4. Payoffanalysis 5. Utility SAQs2 1. Whatifanalysis 2. Goalseekinganalysis 3. Fixthegoal 4. Optimisationanalysis 5. Differentgoals AnswerstoTerminalQuestions 1. Referto10.2
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ManagementInformationSystems

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2. Referto10.2 3. Referto10.3 4. Referto10.3 5. Referto10.3 6. Referto10.4 7. Referto10.5 8. Referto10.5

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