The Decision Making Process

1. Decision making
Ms Mahima Gupta
Management – Concept
& Meaning

2. OVERVIEW

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1. Describe the steps in the decision-making process.
2. Identify the assumptions of the rational decision-making model.
3. Explain the limits to rationality.
4. Define certainty, risk, and uncertainty as they relate to decision making.
5. Describe the actions of the bounded-rational decision maker.
Learning Outcomes
After reading this chapter, I will be able to:

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6. Identify the two types of decision problems and the two types of decisions that are used
to solve them.
7. Define heuristics and explain how they affect the decision-making process.
8. Identify four decision-making styles.
9. Describe the advantages and disadvantages of group decisions.
10. Explain three techniques for improving group decision making.
Learning Outcomes (cont’d)
After reading this chapter, I will be able to:

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• Decision-making process
• A set of eight steps that includes identifying a problem, selecting a solution, and
evaluating the effectiveness of the solution
• Problem
• A discrepancy between an existing and a desired state of affairs
• Decision criteria
• Factors that are relevant in a decision
Classical Management Theory

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What are the organization’s long-term objectives?
What strategies will best achieve those objectives?
What should the organization’s short-term objectives be?
What is the most efficient means of completing tasks?
What might the competition be considering?
What budgets are needed to complete department tasks?
How difficult should individual goals be?
Examples of Planning-Function Decisions

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The Decision-Making Process

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• Decision implementation
• Putting a decision into action; includes conveying the decision to the persons who will
be affected by it and getting their commitment to it.
Decision-making (cont’d)

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Making Decisions: The Rational Model
• Certainty
• The implication that the outcome of every possible alternative is known.
• Uncertainty
• A condition under which there is not full knowledge of the problem and reasonable
probabilities for alternative outcomes cannot be determined.
• Risk
• The probability that a particular outcome will result from a given decision.

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Assumptions of Rationality

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What Is Creative Potential?
• Expertise
• Understanding, abilities, knowledge, proficiencies, necessary in the field of creative
endeavor.
• Creative-thinking skills
• The personality characteristics associated with creativity, the ability to use analogies, as
well as the talent to see the familiar in a different light.
• Intrinsic task motivation
• The desire to work on something because it’s interesting, involving, exciting, satisfying, or
personally challenging.

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Three Elements of Creativity
Creativity
The ability to produce novel and useful ideas

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Making Decisions: The Rational Model
• Rational
• Describes choices that are consistent and value-maximizing within specified constraints.
• Bounded rationality (Herbert Simon)
• Behavior that is rational within the parameters of a simplified model that captures the
essential features of a problem.
• Satisfice
• Making a “good enough” decision: choosing the first-identified alternative that
satisfactorily and sufficiently solves the problem.

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Common Decision-making Errors
• Heuristics: Using judgmental shortcuts
• Availability heuristic
• The tendency to base judgments on information that is readily available.
• Representative heuristic
• The tendency to base judgments of probability on things (objects or events) that are
familiar
• Escalation of commitment
• An increased commitment to a previous decision despite negative information about
the decision’s present outcomes.

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How Do Problems Differ?
• Well-structured problems
• Straightforward, familiar, easily defined problems
• Ill-structured problems
• New problems in which information is ambiguous or incomplete
• Programmed decision
• A repetitive decision that can be handled by a routine approach
• Non programmed decisions
• Decisions that must be custom-made to solve unique and nonrecurring problems

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Programmed Decision-Making Aids
• Policy
• A general guide that establishes parameters for making decisions about recurring
problems.
• Procedure
• A series of interrelated sequential steps that can be used to respond to a well-
structured problem (policy implementation).
• Rule
• An explicit statement that tells managers what they ought or ought not to do
(limits on procedural actions).

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Types of Problems, Types of Decisions,
and Level in the Organization

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Technology And Decision Making
• Expert systems
• Software that acts like an expert in analyzing and solving ill-structured problems
• Use specialized knowledge about a particular problem area rather than
general knowledge
• Use qualitative reasoning rather than numerical calculations
• Perform at a level of competence higher than that of nonexpert humans.
• Neural networks
• Software that is designed to imitate the structure of brain cells and connections
among them

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Decision Making: Styles
• Directive style
• Characterizes the low tolerance for ambiguity and a rational way of thinking of
individuals who are logical and efficient and typically make fast decisions that
focus on the short term.
• Analytic style
• Characterizes the high tolerance for ambiguity combined with a rational way of
thinking of individuals who prefer to have complete information before making a
decision.

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Decision Making: Styles (cont’d)
• Conceptual style
• Individuals who tend to be very broad in outlook, to look at many alternatives, and
to focus on the long run and often look for creative solutions.
• Behavioral style
• Individuals who think intuitively but have a low tolerance for uncertainty; they
work well with others, are open to suggestions, and are concerned about the
individuals who work for them.

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Decision-Making Styles

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• Advantages
• Make more accurate decisions
• Provides more complete information
• Offers a greater diversity of experiences
and perspectives
• Generates more alternatives
• Increases acceptance of a solution
• Increases the legitimacy of a decision.
Group Decision Making
• Disadvantages
• Is more time-consuming and less
efficient
• Minority domination can influence
decision process
• Increased pressures to conform to the
group’s mindset (groupthink)
• Ambiguous responsibility for the
outcomes of decisions

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• Creativity
• Groups tend to be more creative than individuals.
• Acceptance of the final solution
• Groups help increase the acceptance of decisions.
• Effectiveness of group decision making
• Groups of five to seven members are optimal for decision process speed and quality.
When Are Groups Most Effective?

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• Brainstorming
• An idea-generating process that encourages alternatives while withholding criticism.
• Nominal group technique
• A decision-making technique in which group members are physically present but
operate independently.
• Electronic meeting
• A type of nominal group technique in which participants are linked by computer.
Improving Group Decision Making

25. Jagan Institute of Management Studies

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