Managing Decision Making and Problem Solving

Copyright Houghton Mifflin Company. All rights reserved.

9-1

The Nature of Decision Making

Decision making:
The act of choosing one alternative from among a set of alternatives. e.g. Bharti could have selected any business for expansion but they have selected businesses that are in line with their existing businesses i.e. DTH, 3G

Decision-making process:
Recognizing and defining the nature of a decision situation, identifying alternatives, choosing the best alternative, and putting it into practice e.g. Maggi Pasta is a new product that Nestle has come out with as this product category is growing at 70%.
Copyright Houghton Mifflin Company. All rights reserved. 9-2

Types of Decisions
Programmed decision:
A decision that is fairly structured or recurs with some frequency (or both). e.g. Planned decision for routine matters in a company or an organization, budget for India.

Non-programmed decision:
A decision that is relatively unstructured and occurs much less often than a PROGRAMMED DECISION. e.g. unplanned decision for non routine matters in a company and organization 26/11 for Government of India

Copyright Houghton Mifflin Company. All rights reserved.

9-3

A View of Decision-Making Conditions

The decision maker faces conditions of:

Certainty

Risk

Uncertainty

Level of ambiguity and chances of making a bad decision

Lower

Moderate

Higher
9-4

Copyright Houghton Mifflin Company. All rights reserved.

Decision-Making Conditions
State of certainty:
A condition in which the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative.

State of risk:
A condition in which the availability of each alternative and its potential payoffs and costs are all associated with probability estimates.

Copyright Houghton Mifflin Company. All rights reserved.

9-5

State of Uncertainty
A condition in which the decision maker does not know all the alternatives, the risks associated with each, or the likely consequences of each alternative.

Copyright Houghton Mifflin Company. All rights reserved.

9-6

The Classical Model of Decision Making

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

Copyright Houghton Mifflin Company. All rights reserved.

9-7

Rational Perspectives on Decision Making

Classical model:
A prescriptive approach to decision making that tells managers how they should make decisions. It assumes that managers are logical and rational and that they make decisions that are in the best interests of the organization.

Copyright Houghton Mifflin Company. All rights reserved.

9-8

Steps in Rational Decision Making

STEP
Recognize and define situation. Identify alternatives. Evaluate alternatives. Select alternative. Implement alternative. Follow up and evaluate results.

DETAIL
Stimulus may be positive or negative. Alternatives must be generated. Feasibility check. Choose best fit alternative. Implementation. Does it work?

Copyright Houghton Mifflin Company. All rights reserved.

9-9

Copyright Houghton Mifflin Company. All rights reserved.

9 - 10

Identifying Alternatives
When the decision situation has been recognized and defined, the second step is to identify alternative courses.

The third step in the decision-making process is evaluating each alternative.

Copyright Houghton Mifflin Company. All rights reserved.

9 - 11

Evaluating Alternatives in the DecisionMaking Process

Copyright Houghton Mifflin Company. All rights reserved.

9 - 12

Behavioral Aspects of Decision Making

The Administrative Model:
A decision making model showing that managers:
1. Have incomplete and imperfect information. 2. Are constrained by bounded rationality. 3. Tend to satisfice when making decisions.

Copyright Houghton Mifflin Company. All rights reserved.

9 - 13

Different Types Of Personalities

1. Sanguine: Party types, Love to be centre of attraction,
Enthusiastic, Low on details

2 Melancholy: Lonely, depressed, high on details low

on enthusiasm, Will carry notebook for writing for any seminar

3 Choleric: Convert every situation in to competition,

Always want to win, Ruthless, want to lead but sometimes ignore feeling of their people

4 Phlegmatic: Peace at all costs, do not want to get into

any confrontation, can keep people in teams together
Copyright Houghton Mifflin Company. All rights reserved. 9 - 14

The Administrative Model of Decision Making

...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

Copyright Houghton Mifflin Company. All rights reserved.

9 - 15

Bounded Rationality
A concept suggesting that decision makers are limited by their values and unconscious:
A. B. C. D. Values. Unconscious reflexes. Skills. Habits.

Copyright Houghton Mifflin Company. All rights reserved.

9 - 16

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

Copyright Houghton Mifflin Company. All rights reserved.

9 - 17

Political Forces in Decision Making

Coalition:
An informal alliance of groups formed to achieve a common goal.

Copyright Houghton Mifflin Company. All rights reserved.

9 - 18

Intuition and Escalation of Commitment

Intuition:
An innate belief about something without conscious consideration.

Escalation of commitment:
A decision makers staying with a decision even when it appears to be wrong.

Copyright Houghton Mifflin Company. All rights reserved.

9 - 19

Risk Propensity and Decision Making

Risk propensity:
The extent to which a decision maker is willing to gamble when making a decision.

Copyright Houghton Mifflin Company. All rights reserved.

9 - 20

Group and Team Decision Making in Organizations

Forms of Group and Team Decision Making:

Interacting group or team:
A decision making group or team in which members openly discuss, argue about, and agree on the best alternative.

Delphi group:
A form of group decision making in which a group solicits input from a panel of experts who contribute individually; their opinions are combined and, in effect, averaged.

Nominal group:
A structured technique, in which the group members are brought face to face to generate:
Creativity. Innovative alternatives. Ideas.
Copyright Houghton Mifflin Company. All rights reserved. 9 - 21

Advantages and Disadvantages of Group and Team Decision Making

ADVANTAGES More information and knowledge available. More alternatives generated. More acceptance. Enhanced communication. Better discussions. DISADVANTAGES The process takes longer. Compromised decisions result from indecisiveness. One person may dominate.

Copyright Houghton Mifflin Company. All rights reserved.

9 - 22