2. Decision Making – Definition
• A process of selecting best alternative from several alternatives.
• It is also the process of coming to the conclusion or finding a solution of certain event or
problems.
• Planning, organizing, staffing, directing, controlling and coordinating is nothing except a
decision making.
• According to George R. Terry, “ The selection based on some criteria from two or more
possible alternative.”
• According to Peter Drucker, “ Whatever a manager does, he does through decision
making.”
3. Making Decisions
RATIONALITY
• A decision-making model that describes how individuals should behave in order
to maximize some outcome.
• The rational decision making model relies on a number of assumptions:
i.
The decision maker has complete information.
ii. He/she is able to identify all the relevant options in an unbiased manner and choose
the options with the highest utility .
iii. Have a clear and specific goal.
iv. Will select the alternative that maximizes outcomes in the organization’s interests
rather than in their personal interests.
5. Making Decisions (cont’d)
BOUNDED RATIONALITY
• Managers make decisions rationally, but are limited (bounded) by their ability to process
information.
• A decision maker is said to exhibit bounded rationality when they consider fewer options
than are actually available, or when they choose an option that is not "the best overall"
but is best within the current circumstances.
• The bounded rationality model of decision making relies on following assumptions:
i.
Will not seek out or have knowledge of all alternatives
ii.
Will satisfice—choose the first alternative encountered that satisfactorily solves the
problem—rather than maximize the outcome of their decision by considering all
alternatives and choosing the best.
• Influence on decision making
• Escalation of commitment: An increased commitment to a previous decision despite
evidence that it may have been wrong.
6. THE ROLE OF INTUITION
• Intuitive decision making
• Making decisions on the basis of experience, feelings, and accumulated judgment.
8. Influences on Decision Making: Individual Differences and
Organizational Constraints
• Individual Difference:
Personality
Gender
Mental Ability
Cultural Difference
9. Ethics In Decision Making
Three Ethical Decision Criteria
Utilitarian Criterion - Process of making decisions solely on the basis of their
outcomes, ideally to provide the greatest good for the greatest number.
Right Criterion – Respecting and protecting the basic rights of individuals ( right to
privacy, free speech, due process).
Justice Criterion – Equitable distribution of benefits and cost
10. Improving Creativity In Decision Making
Three-Component Model of Creativity
1. Expertise:
• Foundation of all creative work.
• Knowledge of a subject were necessary conditions for us to be able to make creative contributions
to the fields of decision making.
• The potential for creativity is enhanced when individuals have
abilities, knowledge, proficiencies, and similar expertise in their fields of endeavor.
2. Creativity skills:
• The ability to use analogies to see the familiar in a different light and apply an idea from one
context to another
• This encompasses personality characteristic associated with creativity
(Intelligence, independence, self-confidence, risk taking, and internal locus of
control, tolerance for ambiguity and perseverance in the face of frustration )
11. Improving Creativity In Decision Making (contd.)
3. Intrinsic Task Motivation :
• The desire to work on a task because it is interesting, involving, exciting, satisfying, or
personally challenging.
• These factor would affect the task motivation.
• This would turn creativity potential into actual creative ideas.
In conclusion, decision making is a very important function of management which is done in every step of organizational activities. Everyday, every manager takes hundred of decisions before doing any activities. Therefore, the success and failure of an organization depends upon the decision making skill of a manager.Therefore it is very important function of management where an authority select best alternative among several alternatives and implement them so that pre-determined goals can be achieved.
Rational decision making models involve a cognitive process where each step follows in a logical order from the one before. By cognitive, I mean it is based on thinking through and weighing up the alternatives to come up with the best potential result.
Step 1: 1st of all Managers should identify the problem or situation to be decided. Unless the manager understand the main problem, he can’t identify the possible alternatives relating to that problem. Understanding the problem is the diagnosis stage.Step 2: Decision criteria are factors that are important (relevant) to resolving the problem. Costs that will be incurred (investments required)Risks likely to be encountered (chance of failure)Outcomes that are desired (growth of the firm)Step 3: Decision criteria are not of equal importance:Assigning a weight to each item places the items in the correct priority order of their importance in the decision making process.Step 4: Managers finds out various possible alternatives solution relating to the problem. If the problem is critical, alternatives should be identified very carefully which may be time consuming and costly.Step 5: then alternatives are evaluated & compared to each other on the basis of cost & benefit, profitability and risk, pros & cons and time involved in it.Step 6: A best and appropriate alternative is selected. This function should be performed very carefully by analyzing internal and external environment.Step 7: It is implemented into the action. Without this step decision making process will be incomplete. For the effective implementation there should be effective communication system.Step 8: Timely evaluation & follow up of very decision is equally essential to make decision successful. For this managers should absorb every activities carefully & if he finds deviation (differences) between plan and actual performance, he can take corrective action immediately. Thus predetermined goals can be achieved.
E.g., someone spills coffee on a shirt in a restaurant, and goes next door and buys a poorly fitting shirt to change into immediately.Obviously it would be optimal to buy a proper fitting shirt. But if the person is in a hurry and cannot wear a wet, coffee stained shirt, then buying the poorly fitting one is appropriate. This is called satisficing.
Least rational way of making decisionsIt occurs outside conscious thought and relies on holistic association, or links between disparate piece of information.It usually engages the emotions.Though it isn’t rational, we can’t say its wrong
Heuristics:Using “rules of thumb” to simplify decision making.Overconfidence Bias:Holding unrealistically positive views of one’s self and one’s performance.Immediate Gratification Bias: Choosing alternatives that offer immediate rewards and that to avoid immediate costs.Anchoring Effect:Fixating on initial information and ignoring subsequent information.Selective Perception Bias: Selecting organizing and interpreting events based on the decision maker’s biased perceptions.Confirmation Bias:Seeking out information that reaffirms past choices and discounting contradictory information.Framing Bias:Selecting and highlighting certain aspects of a situation while ignoring other aspects.Availability Bias:Losing decision-making objectivity by focusing on the most recent events.Representation Bias: Drawing analogies and seeing identical situations when none exist.Randomness Bias: Creating unfounded meaning out of random events.Sunk Costs Errors: Forgetting that current actions cannot influence past events and relate only to future consequences.Self-Serving Bias:Taking quick credit for successes and blaming outside factors for failures.Hindsight Bias:Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact).
Personality: personality trait & decision making goes hand in hand. For eg: if a person is carefree, he decisions will be based on his institution.Gender: gender and decision making are linked with each other in terms of: Rumination or reflection at length or overthinking problems. Research has shown that women spend much more time than men analyzing the past, present & future. They are more likely to overanalyze problems before making decisions.Mental ability: Mental ability & decision making are also connected to each other. For e.g. People with high level of mental ability are less likely to make decision errors.
