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5. decision making

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  • 1. Decision Making Types of decisionSteps in rational decision making Planning Definition and characteristics
  • 2. Decision Making Defination: Decision Making is the process of choosing the best alternative for reaching objectives Managers make decisions affecting the organization daily and communicate those decisions to other organizational members 2
  • 3. Effective decision makingA major activity of management is the making of decisions.Decisions need to be timely. There are times when a decision has to bemade. Even if it turns out not to be the best decision it can be better thannot making a decision at all.Decisions often have to be made when there is insufficient information.Decisions involve taking risks. Effective decision making involvesgathering what information is known, identifying the options, assessingthe risks and making the best decisionwith the information available in a timely manner. 3
  • 4. When do decisions need to be made Situations include: • Determining the project strategy/approach • Resolving project issues • Developing estimates • Making purchases • Interviewing and selecting project team members • Selecting external suppliers • Handling disagreements and conflict resolution • Scheduling work and allocating resources to tasks • Managing meetings
  • 5. Types of decision Planned and unplanned Temporary and permanent 5
  • 6. The decision making processFour simple steps: 1. Gather the facts 2. Identify a number of alternatives 3. Assess the alternatives 4. Decide Where quick decisions need to be made, these steps can be done mentally “on the fly” or by one person. When time allows and the decision is important, more people can be involved and a more thorough decision making process used. 6
  • 7. Rational Decision Making8-step Process 1. Identification of problem 2. Identification of Decision Criteria 3. Allocation of weights to criteria 4. Development of alternatives 5. Analysis of alternatives 6. Decide on an alternative 7. Implementation of decision 8. Evaluation of decision 7
  • 8. The Decision-Making Process Allocation of Problem Identification of Weights to Development ofIdentification Decision Criteria Criteria Alternatives “My salespeople Price Reliability 10 Acerneed new computers” Weight Screen size 8 Compaq Warranty Warranty 5 Gateway Screen type Weight 5 HP Reliability Price 4 Micromedia Screen size Screen type 3 NEC Sony Toshiba Analysis of Selection of an Implementation Alternatives Alternative of an Alternative RSWWPSAcer 4 3 4 3 2 6 Acer 125 EvaluationCompaq 3 4 5 2 6 7 Compaq 142 Gateway of DecisionGateway 9 6 7 7 8 2 Gateway 246 EffectivenessHP 3 5 6 7 6 5 HP 174Micromedia 2 2 3 4 5 4 Micromedia 103NEC 3 45 6 7 2 NEC 151Sony 7 56 4 2 8 Sony 192Toshiba 3 45 6 7 3 Toshiba 154 8
  • 9. Decisions in the Management Functions 9
  • 10. About Rational DecisionMaking Is it always possible to make rational decisions? 10
  • 11. Single, well- defined goal is to be achievedAll alternatives Problem is and clear and consequences unambiguous are known Rational Decision Final choicePreferences Making will maximize are clear payoff Preferences No time or cost are constant constraints exist and stable 11
  • 12. Bounded Rationalitybehave rationally within the parametersof a simplified decision-making processthat is limited by an individual’s abilityto process information satisfice - accept solutions that are “good enough” 12
  • 13. Intuitive decisionmaking Based on “gut feeling”  subconscious process of making decisions on the basis of experience, values, and emotions  does not rely on a systematic or thorough analysis of the problem  generally complements a rational analysis 13
  • 14. Types of Problems & Decisions Well-Structured Problems - straightforward, familiar, and easily defined Programmed Decisions - used to address structured problems  minimize the need for managers to use discretion  facilitate organizational efficiency 14
  • 15. Types of Problems andDecisions Poorly-Structured Problems - new, unusual problems for which information is ambiguous or incomplete Nonprogrammed Decisions - used to address poorly- structured problems  produce a custom-made response  more frequent among higher-level managers Procedure, Rule, & Policy 15
  • 16. Types of Problems & Level In the Organization Ill-structured Top Nonprogrammed Type of Decisions Level inProblem Organization Programmed Decisions Well-structured Lower 16
  • 17. Things to consider . . .  Certainty – how certain is a particular outcome?  Risk – how much risk can you take?  expected value - the conditional return from each possible outcome  Uncertainty – Limited information prevents estimation of outcome probabilities for alternatives. 17
  • 18. What to do?maximax choice – optimistic maximizing the maximum possible payoff taking the best of all possible casesmaximin choice – pessimistic maximizing the minimum possible payoff taking the best of the worst casesminimax - minimize the maximum “regret” (difference between what you get and the best case) 18
  • 19. Decision-Making Styles Dimensions of Decision-Making Styles  Value orientations  Task and technical concerns  People and social concerns  Tolerance for ambiguity  Low tolerance: require consistency and order  High tolerance: multiple thoughts simultaneously 19
  • 20. Decision-Making Styles Analytical Directive Behavioral • Prefer complex Conceptual• Prefer simple, • Concern for their problems • Socially oriented clear solutions organization • Carefully analyze • Humanistic and• Make decisions • Interest in helping alternatives artistic approach rapidly others • Enjoy solving • Solve problems• Do not consider • Open to problems creatively many alternatives suggestions • Willing to use • Enjoy new ideas• Rely on existing • Rely on meetings innovative rules methods 20
  • 21. Decision Making Styles High Analytical Conceptual Directive Behavioral Low Tasks and Technical People and Social Concerns Concerns Value Orientation 21
  • 22. Gather the factsGuidelines • Write down a statement of what needs to be decided. • Is the decision statement clear and precise? If not refine the statement. • Is the need for the decision a result of an underlying problem, which also needs to be addressed? • Are there assumptions underlying the decision that need to be clarified and possibly challenged? • Is the decision part of a bigger decision that needs to be made, or can this decision be decomposed into smaller decisions? 22
  • 23. Identify alternativesGuidelines • Identify as many alternatives as possible. • Use brainstorming if appropriate. • Do not filter out alternative options at this stage - assume they can all be made to work. • When you have generated lots of ideas, consider each one to see if it is a viable alternative. • Shortlist the viable alternatives. 23
  • 24. Decision making behaviourPeople tend to adopt a particular decision making approach as a resultof factors such as: • their own personality • their current mood • the organisational culture • the personality of the person/people they are dealing with • the nature of the relationship they have with the people they are dealing with • time pressure and perceived level of stress Being aware of these influences can result in better decision making, by adopting the best decision making approach for each situation. 24
  • 25. Common Errors in Decision Making Over-confidence  Framing Hindsight  Confirmation Self-serving  Selective Sunk costs perception Randomness  Anchoring Representation  Immediate Availability gratification 25
  • 26. Helpful hints Don’t:  Do: – Make assumptions  Clearly identify the decision to be made – Procrastinate  Involve people qualified to help – Jump to conclusions in the decision making – Make uninformed decisions  Identify the context of the – Favour one decision prior to decision (the bigger picture) gathering the facts and  Identify all alternatives evaluating the alternatives  Assess each alternative – Allow only technical people to make the decisions  Assess the risks – Attempt to make a decision in  Consider your “gut feel” isolation of the context  Make the decision – Let emotion override and stick to it objectivity
  • 27. Identify alternativesGuidelines • Identify as many alternatives as possible. • Use brainstorming if appropriate. • Do not filter out alternative options at this stage - assume they can all be made to work. • When you have generated lots of ideas, consider each one to see if it is a viable alternative. • Shortlist the viable alternatives. 27
  • 28. Advantages and Disadvantages of Group-Aided Decision Making Advantages Disadvantages 1. Greater pool of knowledge 1. Social pressure 2. Different perspectives 2. Minority domination 3. Greater comprehension 3. Logrolling 4. Increased acceptance 4. Goal displacement 5. Training ground 5. “Groupthink” 28
  • 29. Decision-Making Approach • Rationality • Bounded Rationality • IntuitionTypes of Problems and Decisions• Well-structured Decision - programmed • Choose best• Poorly structured Decision-Making alternative - nonprogrammed Process - maximizing - satisficing • Implementing Decision-Making Conditions • Evaluating • Certainty Decision Maker Style • Risk • Directive • Uncertainty • Analytic • Conceptual • Behavioral 29
  • 30. Decision making behaviourPeople tend to adopt a particular decision making approach as a resultof factors such as: • their own personality • their current mood • the organisational culture • the personality of the person/people they are dealing with • the nature of the relationship they have with the people they are dealing with • time pressure and perceived level of stress Being aware of these influences can result in better decision making, by adopting the best decision making approach for each situation.
  • 31. Decision making approachesApproaches* to decision making situations: • Withdrawing: holding off making the decision. • Smoothing: focusing on areas of agreement and ignoring areas of difference. • Compromising: trying to come up with a decision that provides some degree of satisfaction for all parties. • Confronting/problem solving: working through the issues. • Forcing: executing a particular decision knowing agreement has not been reached. *Adapted from D Billows, Project Manager’s KnowledgeBase,31 2nd edition, 2004, The Hampton Group.
  • 32. Decision making approachesSkilled project managers and business analystsselect the best approach appropriate to the situation.Withdrawing: • Withdraw to gather more information and perspective • Only a stop gap measure • Useful in “cooling down” an overheated situation • Taking time out (“sleep on it”) before final decision Smoothing: • Relationship focused rather than solution focused • Avoids dealing with the issues • Can be useful in reducing the emotional tension where the decision is of low importance. • Does not provide a long-term solution32
  • 33. Decision making approachesCompromising: • Bargaining to get an acceptable agreement • Falls short of the best decision • Can be useful in resolving negotiation deadlocksConfronting/problem solving: • Direct approach • Identifies alternatives and works through the issues • Time-consuming • Most likely method to develop the best solution Forcing: • Used when an urgent decision is required or as a last resort • Necessary for situations when decision making is blocked • May result in reluctance in execution of decision if not handled well.33
  • 34. • END 34