DECISION MAKING

CONTENTS
1. 2. 3. 4. 5.

6.

Concept And Roles Of Decision Making Types Of Decisions Decision Making Process Techniques Of Decision Making Decision Making Models Difficulties In Decision Making

CONCEPT OF DECISION MAKING

DECISION MAKING IS THE PROCESS OF CHOOSING A COURSE OF ACTION FROM ALTERNATIVES TO ACHIEVE A DESIRED GOAL.

DECISION MAKING : A KEY PART OF MANAGERS ACTIVITIES

PLANNING ORGANISING STAFFING

DIRECTING
CONTROLLING

PLANNING
Planning is the process of defining a goal, establishing strategy and developing plan to coordinate activities.

ORGANISING
Organizing is the process of determining what needs to be done, how it will be done and who is to do it.

STAFFING
Staffing is the process of placing right person at right place in the organization.

DIRECTING
Directing is the process of explaining the people what they have to do and helps them to do it to the best of their ability.

CONTROLLING
Controlling ensures conformity with the plans adopted, instruction issued and the principles established.

TYPES OF DECISION

PROGRAMMED DECISIONS

Deal with recurring problems. Made in accordance with policies, rules and procedures. Repetitive decisions and easier for managers to make. For the same problem two managers will reach at the same solution.

NON PROGRAMMED DECISIONS

For dealing with unusual or exceptional problems. No definite procedures exist. Novel and non repetitive. For the same problem two managers may arrive at different solution.

STRATEGIC DECISIONS

Central to companys operation. Require lengthy deliberation and large funds. Taken by managers at higher levels.

ROUTINE DECISIONS

Supportive for companys operation. Require little deliberation and money. Taken by managers at lower levels.

INDIVIDUAL DECISION
These decisions are made by individual where Problem is of routine nature . Analysis of variable is simple. Definite procedures to deal with problem already exist.

GROUP DECISION

These decisions are made by group where Decisions are important and strategic which may result into some change in the organization.

ENVIRONMENT OF DECISION MAKING

CERTAINTY
Under conditions of certainty. Objectives are clearly defined. Accurate, reliable information about the outcome of each alternative is known.

RISK
occurs whenOutcome of alternative cannot be predicted with certainty. Enough information to predict the probability is available.

UNCERTAINTY
Under conditions of uncertainty Little is known about alternatives and their outcomes. Probability cannot be assigned.

WHAT IS A RATIONAL DECISION?

decision is rational if appropriate means are chosen to reach desired ends.

STEPS IN RATIONAL DECISION MAKING.

RECOGNISING THE PROBLEM. DECIDING PRIORITIES AMONG PROBLEMS. DIAGNOSING THE PROBLEM. DEVELOPING ALTERNATIVE SOLUTIONS. MEASURING AND COMPARING THE CONSEQUENCES OF ALTERNATIVE SOLUTIONS. CONVERTING THE DECISION INTO EFFECTIVE ACTION AND FOLLOW-UP OF ACTION.

RECOGNISING THE PROBLEM.

A problem exits: - When there is a deviation from pastexperiences. - When there is a deviation from the plan. - When other people bring problems to the manager. - When competitors outperform the managers organization.

DECIDING PRIORITIES AMONG PROBLEMS.

All strategic problems should be handled by the manager and all routine problems should be passed on to the subordinates.

DIAGNOSING THE PROBLEM.

A manager should remember that the symptoms of a problem that he observes may sometimes mislead him. They may lead him to suspect one part of the system when, in fact, the defect may lie hidden in another part which is less visible.

DEVELOPING ALTERNATIVE SOLUTIONS.

To ways of developing alternatives are: - To review the past experiences of a similar situation. - To scrutinize the practice of other companies. But sometimes, the manager has to depend upon his own ability to develop new ideas.

MEASURING AND COMPARING THE CONSEQUENCES OF ALTERNATIVE SOLUTIONS.

This involves a comparison of: Quality of a solution. - Tangible consequences. - Intangible consequences. Acceptability of a solution.

CONVERTING THE DECISION INTO EFFECTIVE ACTION AND FOLLOW-UP OF ACTION.

This requires the communication of decisions to the employees in clear terms in order to implement it properly and manager should institute a system of follow-up.

TECHNIQUES OF DECISION MAKING

MARGINAL ANALYSIS
Technique involves comparison of additional revenues from additional costs to find the point where the cost resulting from the addition of one more unit (marginal cost) is equal to the benefit (marginal revenue).

COST EFFECTIVENESS ANALYSIS

It is a comparison tool to help evaluate choices. It will not always indicate a clear choice, but it will evaluate options quantitatively based on a defined model.

RISK ANALYSIS
A risk analysis involves identifying the most probable threats to an organization and analyzing the related vulnerabilities of the organization to these threats.

LINEAR PROGRAMMING
Technique for determining the optimum combination of limited resources to minimize costs or maximize profits.

OPERATIONS RESEARCH
It provides scientific and objective basis so as to reduce intuition and subjectivity in solving organizational problem. TECHNIQUES Probability Theory Games Theory Network Analysis Queuing Theory LIMITATION Can be applied only when all the elements of a problem are quantified.

SIMULATION

It is a technique of reproducing the phenomena likely to occur in actual practice. Based on Probability Factor Enables to determine cost and benefit of each course of action

LIMITATION The calculations involved are very complex making the use of computer essential.

BRAINSTORMING
Under this technique a small group of persons are stimulated to creative thinking. Such free association and unrestricted thinking generates novel ideas from which unique solution can be found.

DELPHI TECHNIQUE

A panel of experts is appointed who are separated and unknown to each other. Suggestions are invited till convergence of opinions begins to emerge. This helps in quality of decisions.

Nominal Group Technique

Developed by Delbecq and VandeVen It is a structured method for group brainstorming that encourages contributions from everyone. Its main objective is to gain consensus.

STEPS :

Divide the people present into small groups of 5 or 6 members. State an open-ended question. Have each Person spend several minutes in silence individually brainstorming all the possible ideas and jot these ideas down. Give a chance to each person to put forward their ideas

Contd.

Have each person evaluate the ideas and individually and anonymously vote for the best ones. A group report is prepared, showing the ideas receiving the most points. Allow time for brief group presentations on their solutions.

Advantages Equal participation of group members. Influence and distractions are minimized. Disadvantages Opinions may not converge in the voting process. Cross-fertilization, of ideas may be constrained. The process may appear to be too mechanical.

DECISION MAKING MODELS

ECONOMIC MAN MODEL

Developed by classical economists

This is the rational model. It is based upon

an economic view of decision making.

Assumptions

Perfect Rationality. Best Alternative Searched In a Planned , Orderly And Logical Manner Perfect Knowledge. Normative. Optimal Decision.

Limitations

It requires a great deal of time. It requires great deal of information It assumes accurate, stable and complete knowledge of all the alternatives, preferences, goals and consequences. It assumes a rational, reasonable, non political world

ADMINISTRATIVE MAN MODEL

Developed

by Herbert Simon Also called as Bounded Rationality Model. A more realistic description of decision-making behaviour.

Assumptions

Bounded rationality Descriptive Incomplete knowledge Limited search for feasible alternatives Satisfying decisions

Steps involved:

Defining the problem. Establishing appropriate criteria to judge the acceptability of a solution. Using heuristics to narrow down the field of search and identify the feasible solution. If no feasible solution is identified then lower the criteria of acceptability of a solution. Evaluating the feasible solution.

If a solution is found acceptable then implement it and if not then search for a new one. Evaluating the degree of difficulty with which goal was or was not attained and raise or lower the criteria to judge the acceptability of a solution

SOCIAL MAN MODEL

Developed by classical psychologists

ASSUMPTIONS
Decisions are: Guided by unconscious desires Subject to social pressures and influences

Experiment by Solomon Asch

AIM: At times decisions are irrational and influenced by social pressures. PROCEDURE: Several groups of seven to nine subjects each were utilized. Their task was to compare the lengths of eighteen lines. All except one of the subjects in each group had prearranged with the experimenter to give clearly wrong answers on twelve of the eighteen line-judgment trials. About 37% of the native subjects yielded to the group pressures and gave incorrect answers to the twelve test questions.

OBSERVATIONS:
Strong social pressures can at times force managers to choose wrong alternatives. Their decisions cannot be termed as organisationally rational though it may be personally rational.

COMMON DIFFICULTIES IN DECISIONMAKING

Incomplete information. Unsupportive environment. Non-acceptance by subordinates. Ineffective communication. Incorrect timing.

References

Tripathi & Reddy Stoner,Freeman &Gilbert Jr.

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