Decision making

Decision: Lopez A decision represents a judgement; a final resolution of a conflict of needs, means, or goals; and a commitment to action made in face of uncertainty, complexity, and even irrationally. Decision making: Shull et al Decision making is a conscious human process involving both individual and social phenomenon based upon factual and value premises which concludes with a choice of one behavioural activity from one or more alternatives with the intention of moving toward some desired state of affairs.

Meaning

Features
Decision making implies that there are various alternatives and the most desirable alternative is chosen to solve the problem or to arrive at expected results. Existence of alternatives suggests that the decision maker has freedom to choose an alternative of his liking. Decision making may not be completely rational but may be judgemental and emotional (preferences and values of decision maker). Decision making is goal-directed.

Types of decisions
Programmed decisions Non-programmed decisions Strategic decisions Tactical decision

Decision-making process
Specific objectives Identification of problems: 1. Diagnosis 2. Analysis Search for alternatives Evaluation of alternatives

Feedback

Results

Action

Choice of alternatives: 1. Experience 2. Experimentation 3. Research and Analysis

Effective decision:

Guidelines for Making Effective Decision: 1. Categorical interpretation 2. Applications of Limiting Factor 3. Adequate information 4. Considering Others Views 5. Timeliness

1. Action orientation 2. Goal direction 3. Efficiency in implementation

Individual Decision-making: Three approaches The Rational Economic Model:

The decision maker is assumed to make decisions that would maximise his or her advantage by searching and evaluating all possible alternatives. Assumptions: 1. Decision making is a goal-oriented process. 2. All choices are known 3. Order of preference 4. Maximum advantage Factors intervening in being perfectly rational: 1. Impossible to state the problems accurately. 2. Not fully aware of problems 3. Imperfect knowledge 4. Limited time and resources 5. Cognitive limits 6. Politics

This is an idealistic model which works only when all the underlying assumptions prevail.

Administrative model
Objective: to explain the decision making behaviour of individuals and organisations. According to Simon, people carry only a limited, simplified view of problems confronting them because No full information about the problems No knowledge of all the possible alternative solutions to problems Do not have ability to process competitive environmental considerations No sufficient information time and resources to conduct extensive search for alternative solutions.

Bounded rationality: ability of managers to be perfectly rational in decision making is limited by such factors as cognitive capacity and time constraints. Satisficing model: managers seek alternatives until they find one that looks satisfactory, rather than seeking the optimal decision.

The Political Model Useful for making non-programmed decisions: (i) When conditions are uncertain (ii) Information is limited (iii) There is disagreement among managers about what goals to seek or what course of action to pursue. Complex decisions are resolved through Coalition Building

Decision-making conditions 1. Certainty: All the information needed by the decision-maker is fully available. 2. Risk: A decision has clear-cut goals and that good information (incomplete but reliable, and factual) is available, but the future outcomes associated with each alternative are subject to chance. 3. Uncertainty: Managers know the goal which they wish to achieve, but does not know all the alternatives, the risks associated with each, or the likely consequences of each alternative

Non-quantitative techniques for decision making Useful for problems dealing with objectives and problems dealing with means to accomplish the objectives. Four techniques: 1. Intuition: use of hunches, inner feelings or gut feelings of the decision maker in making a decision. Trial and error method to find a solution. No structure for gathering information. 2. Facts: Decision is made on factual data which means that the premises on which the decision is based are sound, solid, and intensely applicable to the particular situation.

3. Experience: A persons past experience provides him guides for decision-making. It helps answer the question of what to do in a particular situation. Thus, similar situations along with their decisions, as well as unlike situations and their decisions, can be recognised and evaluated and the decisions are made. 4. Considered opinions: This uses logic which is made explicit and derived from careful analysis of the situation. For this purpose, relevant data are collected and analysed. The results are discussed in a group meeting. Opinions of various participants are sought and analysed to arrive at a decision

Quantitative techniques for decision making Operations research: Applied decision theory where the manager seeks to achieve rationality while dealing with problems through the use of scientific, logical, or mathematical means. Uses: 1. The scope for the use of OR techniques covers almost the entire business activities.. 2. OR helps in optimum allocation of resources in the organisation. 3. Faster decision making.

OR techniques 1. Decision Tree: A graphical method for identifying alternative actions, estimating probabilities, and indicating the resulting expected payoff

2. Linear programming: A decision making technique under given constraints based on the assumption that the relationships among the variables representing different phenomena show linearity. This is used to allocate limited resources in an optimum manner.
3. Game theory: attempts to provide an answer to the question: What may be considered a rational course of action for an individual confronted with a situation whose outcome depends not only on his own actions but also on the actions of others, who, in turn, are faced with a similar problem of choosing a rational course of action.

4. Queuing theory or Waiting line theory The objective of queuing models is to help management in designing a system that minimises a sum of the cost of customer waiting and the cost of idle facilities.

Problem solving
Problem solving is more concerned with solving the problem that has emerged because of implementation of an earlier decision. Approaches: 1. Routine approach (Standard Operating Procedures) 2. Scientific approach (orderly system for processing information) 3. Quantitative approach (Mathematical modelling of systems) 4. Creative approach