Decision Making

THE ESSENCE OF MANAGERS JOB

Topics to be Covered..

What is Decision? What are Decision Making Approaches? The Decision Making Process. The Managers as Decision Makers. What is Problem? What are the types of Problems? Types of Decisions. Conditions of Decision Making. Decisions making styles.

Decision making Biases and Errors.

What is Decision?

Making a choice from two or more alternatives. So, decision is a choice. Suppose you have some money to invest , and you are considering different investment alternatives.
Alternative 1st 10% (+,-) Problem To make Investment Alternative 2nd 15% (+,-) Alternative 1st 12% (+,-)

What are Decision Making Approaches?

Rational Decision Making (Value Maximizing Approach)

Based on logics and normal thinking. Cost and benefits analysis. Select those alternatives where benefits are more than costs. Level of information is high. One clear goal, and all the alternatives available to achieve that

Goal (Problem) are available.

Investment

Rafhan 20%

PTC 25%

MTM 15%

Rational Decision Making (Value Maximizing Approach)

Managers make decisions rationally, but are limited /bounded by

their ability to process information.

You are bound to make decisions those are not good.

Problem Hiring of employee

A [Not Good]

B [Average]

C [Good]

Information may be available to managers but they are bound to make irrational decision because of; 1. Order of boss, 2. Lack of time, 3. System, 4. Limited resources.

Intuition
** Predicting Stock Market Fluctuations ** Setting future perspective of business organization for next 5 years. ** Setting Pakistan's future direction for next 20 years.

Making decisions on the basis of experiences, feelings, judgments, skills, training, knowledge, senses, subconscious, mental processing, ethical values and culture. ** Usually for unseen problems.
Experience

Ethical values

Culture

Intuition
Mental processing

Feelings

Knowledge

Skills

The Decision Making Process

Step No.
1
2

Step Description
Identification of a Problem.
Identification of decision criteria.

Step Example
I need a Automobile or Car
1. 2. 3. 4. 1. 2. 3. 4. Price Durability Mileage Style Price ----------------10 Durability----------08 Mileage -------------07 Style ----------------05

Allocation of weights to decision criteria.

These are given from 10.

Development of Alternatives.

I. GLI Toyota Corolla II. Honda Citi III. Suzuki Liana

Analysis of Alternatives GLI Toyota Corolla Honda Citi Suzuki Liana

Price [10]

Durability [8]

Mileage [7]

Style [5]

Total

27

8 10

5 3

5 6

5 2

23 21

Selection of Alternative.

I. GLI Toyota Corolla

II. Honda Citi III. Suzuki Liana

7 8

Implementation of selected alternative. (decision) Evaluation of decision s effective.

Purchased GLI Toyota Corolla I am satisfied with decision, because this car has met all the criterion I was looking for.

The Decision Making Process

Step No.
1
2

Step Description
Identification of a Problem.
Identification of decision criteria.

Step Example
I am feeling hungry and want to eat Pizza
1. 2. 3. 4. 1. 2. 3. 4. Price Taste Environment Customer Services Price ---------------- 50 Taste----------------100 Environment ----- 80 Customer Services -70

Allocation of weights to decision criteria.

These are given from 100.

Development of Alternatives.

I. Pizza Hut II. AFC Pizza Shop III. Pizza Shop D- Ground

Analysis of Alternatives

Price [50]

Taste [100]

Enviornment [ 80]

Customer services [70]

Total
280 230

Pizza Hut

30 40

100 80

80 60

70 50

AFC Pizza Shop

Pizza Shop DGround

50

60

40

30

180

Selection of Alternative.

I. Pizza Hut
II. AFC Pizza Shop III. Pizza Shop D- Ground

Implementation of selected alternative. (decision)

Got there and eaten Pizza

Evaluation of decision s effective.

I am satisfied with decision, because pizza huts pizza met criterion those I was intended for .

The Managers as Decision Makers

Managers make decisions while they are;

Function of Management Examples of Decisions Future direction of organization Deciding Goal for next year. How to achieve this goal? (Strategy) 5Ws ( What, When, Why, Where, Who) Resource allocation by managers. Decision making authorities and powers. Organogram. What leadership style is to used? How to motivate employees, whether giving financial or combination of both financial and non-financial reward. The best possible way to measure employee performance. In case of weak performance what needs to be done e.g. training, counseling, firing etc.

Planning

Organizing

Leading

Controlling

What is Problem?
The GAP between actual and desired state.
Actual State Poor
Actual State Loss

Problem

Desired State Rich

Desired State Profit

Problem

Actual State Unmarried

Problem

Desired State Married

What are the types of Problems?

Routine /Structured/Non-crises Problem.

Straight Forward Familiar in advance Easily defined problem Not much serious, you can delay it.

There is no emergency.

They are usually taken by Front-line Managers. E.g. To allocate resources(Human, Financial and Physical)

to fulfill an order or consignment.

Un-structured/Crises Problem.
New or unusual problem and for which information might

not be available and if available it may be incomplete or ambiguous. (Unclear)

This type of problem needs immediate solution.

They are taken mostly by Top Management.

E.g.
Machinery breakdown.

Accelerated employee turnover.

Inventory

at danger level.

Opportunity
When you solve this problem, it creates opportunity for

you.

E.g.
Minimizing

wastages in production process so that lower production cost may make you able to offer high prices that will lead to higher sales volume and increased customer attraction.

Types of Decisions
Programmed Decision
Already decided. Already available to you. They are made for structured/routine problem. E.g.
Class time table Certain special days in year. Resource allocation for fulfilling order of 1,00,000 items.

Problem

Decision

Un-programmed Decision
Unstructured

problems involve ambiguities and information deficiencies and often occur as new or unexpected situations.

Not planned.
Not scheduled. Ist time decision.

Customized decision.
E.g.
Bomb blast in Marriott Islamabad , destroying PTCs Head office.

Machinery break down.

Problem