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Is the process through which manageers and leaders identify and resolve prolems and captilize on opportunities.

Good decision making is the important at all levels in organization. Some experts believe that decision making is the most basic and fundamental of all managerial activities. Decision making is most closely linked with the Planning function. However, it is also part of Organizing, Leading and Controlling.

Decision making is the act of choosing one alternative from among a set of alternatives.
We have to first decide that a decision has to be made and then secondly identify a set of feasible alternatives before we select one.

Decision-Making

Process includes:

recognizing and defining the nature of a decision situation identifying alternatives choosing the best [most effective] alternative and putting it into practice.

Sometimes effective decisions must be made to:


Optimize some set of factors such as profits, sales, employee welfare and market share or Minimize loss, expenses or employee turnover or Select best method for going out of business, laying off employees, or terminating a strategic alliance.

Managers make decisions about both problems (undesirable situations) and opportunities (desirable situations).
Cutting costs by 10% Learning that the company has earned higher-thanprojected profits

It may take a long time before a manager can know for sure if the right decision was made.

Programmed decision is one that is fairly structured or recurs with some frequency (or both). Nonprogrammed decision is one that is unstructured and occurs much less often than a programmed decision.

Many decisions regarding basic operating systems and procedures and standard organizational transactions fall into this category.
ex : McDonalds employees are trained to make the Big Mac according to specific procedures. ex : Starbucks, and many other organizations, use programmed decisions to purchase new supplies [coffee beans, cups and napkins].

Most of the decisions made by top managers involving strategy and organization design are nonprogrammed.
Decisions about mergers, acquisitions and takeovers, new facilities, new products, labor contracts and legal issues are nonprogrammed decisions.

Managers faced with nonprogrammed decisions must treat each one as unique, investing great amounts of time, energy and resources into exploring the situation from all views. Intuition and experience are major factors in these decisions.

Decision Making Under Certainty


Decision Making Under Risk Decision Making Under Uncertainty

A state of certainty exists when a decision maker knows, with reasonable certainty, what the alternatives are and what conditions are associated with each alternative. Very few organizational decisions, however, are made under these conditions. The complex and turbulent environment in which businesses exist rarely allows for such decisions.

A state of risk exists when a decision maker makes decisions under a condition in which the availability of each alternative and its potential payoffs and costs are all associated with probability estimate. Decisions such as these are based on past experiences, relevant information, the advice of others and ones own judgment. Decision is calculated on the basis of which alternative has the highest probability of working effectively. [union
negotiations, Porsches SUV focus vs high-performance sports cars]

A state of uncertainty exists when a decision maker does not know all of the alternatives, the risks associated with each, or the consequences each alternative is likely to have. Most of the major decision making in todays organizations is done under these conditions. To make effective decisions under these conditions, managers must secure as much relevant information as possible and approach the situation from a logical and rational view. Intuition, judgment and experience always play major roles in the decision-making process under these conditions.
See Figure 9.1, page 279.

The decision maker faces conditions of:

Certainty

Risk

Uncertainty

Level of ambiguity and chances of making a bad decision

Lower

Moderate

Higher

Keys to Decision Making Classical Decision Model Rational Decision Making

An

approach to decision making that tells managers how they should make decisions. Approach assumes that managers are logical and rational. Approach assumes that managers decisions will be in the best interests of the organization. Conditions suggested in this approach rarely, if ever, exist.
See Figure 9.2, page 281.

and end up with a decision that best serves the interests of the organization.

Obtain complete and perfect information. Eliminate uncertainty. Evaluate everything rationally and logically When faced with a decision situation, managers should

Consists of six (6) steps that keep the decision maker focused on facts and logic and help guard against inappropriate assumptions and pitfalls. Designed to help the manager approach a decision rationally and logically.

1)

Identifying opportunities and diagnosing problems.


a) Need to define precisely what the problem is. b) Manager must develop a complete understanding of the problem. c) Manager must carefully analyze and consider the situation.

2)

Identifying objectives
a) Managers must realize that their alternatives may be limited by legal, moral and ethical norms, authority constraints, available technology, economic considerations and unofficial social norms.

3) Generating alternatives
a) Managers develop varioous ways to solve the problem and achieve objectives. Managers may rely on their training, personal experience, education, and knowledge of the situation to generate alternatives.

4) Evaluating alternatives
a) Each alternative must pass successfully through three stages before it may be worthy of consideration as a solution.
1. Feasibility Is it financially possible? Is it legally possible? Are there limited human, material and/or informational resources available? 2. Satisfactory Does the alternative satisfy the conditions of the decision situation? [50% increase in sales] 3. Affordability How will this alternative affect other parts of the organization? What financial and non-financial costs are associated?

b) The manager must put price tags on the consequences of each alternative. c) Even an alternative that is both feasible and satisfactory must be rejected if the consequences are too expensive for the total system.

5) Reaching Decisions
a) Choosing the best alternative is the real test of decision making. b) Optimization is the goal because a decision is likely to affect several individuals or departments. c) Finding multiple acceptable alternatives may be possible; selecting one and rejecting the others may not be necessary.

6) Implementing the chosen alternative


a) Managers must consider peoples resistance to change when implementing decisions. b) For some decisions, implementation is easy; for others, very difficult or time consuming. c) Operational plans are very useful in implementing alternatives. d) Managers must also recognize that even when all of the alternatives and their consequences have been evaluated as precisely as possible, unanticipated consequences are still likely.

7) Following up and evaluating the results


a) Managers must evaluate the effectiveness of their decisions did the chosen alternative serve its original purpose? b) If the implemented alternative appears not to be working, the manager has several choices:
1. Another previously identified alternative might be adopted or 2. Recognize that the situation was not correctly defined and start the process all over again or 3. Decide that the alternative has not been given enough time to work or should be implemented in a different way.
[See Figure 9.3 and Table 9.1 ]

Sometimes

decision making must reflect subjective considerations (tastes, etc.) behavioral aspects include: political forces, intuition, escalation of commitment, risk propensity and ethics.

Other

The Administrative Model of Decision Making


Herbert A Simon, a Nobel Prize winner in Economics,

developed the model to describe how decisions are often made rather than to prescribe how they should be made. Argues that decision makers have incomplete and imperfect information, are constrained by bounded rationality and tend to satisfice when making decisions. Bounded rationality suggests that decision makers are limited by their values and unconscious reflexes, skills and habits. [American vs foreign automakers]

Satisficing

is the tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency.

Rather than conducting an exhaustive search for

the best possible alternative, decision makers tend to search only until they identify an alternative that meets some minimum standard of sufficiency.

...and end up with a decision that may or may not serve the interests of the organization.

Use incomplete and imperfect Information. Are constrained by bounded rationality. Tend to satisfice When faced with a decision situation managers actually

perfect information
Attempt to accomplish objectives

Rational and systematic


Work in the best !

-Two or more persons interacting for some purpose and who is influence one in the process -TECHNIQUES FOR QUALITY IN GROUP DECISION MAKING; - Brainstorming - Nominal Group Technique - Delphi Technique - Devils Advocacy Approach - Dialectical Inquiry

A decision making technique in which group member present spontaneous suggestion for problem solution, regardless of their likehood of implementation in order to promote their freer and creative in the group : RULES !

1. 2. 3. 4. 5.

FREEWHEELING. Not criticize ideas. Quality Wilder Piggyback

No ideas are evaluated after all alternatives are generated.

When to Use Nominal Group Technique :

When some group members are much more vocal than others. When some group members think better in silence. When there is concern about some members not participating. When the group does not easily generate quantities of ideas. When all or some group members are new to the team. When the issue is controversial or there is heated conflict.

Uses experts to make predictions and forecast about future events buy survey instruments or questionnaires without meeting face to face