DECISION MAKING MODELS FOR MANAGERS

1. Management Information System
Decision Making:
▪ Decision making process
▪ Stages in Decision making
▪ Individual and Organizational Decision making
▪ Decision Making Models
▪ Information System Support for Decision making phases

2. Management Information System
Lecture – 1
Decision making process

3. What is Decision Making?

4. ●Decision making is the mental process of
selecting a course of action from a set of
alternatives.
●Decision-making is the selection based on
some criteria from two or more possible
alternatives. “-—George R.Terry

5. Decision-making Process
●Decision-making is a cognitive process that
results in the selection of a course of action
among several alternative scenarios.
●Decision-making is a daily activity for any
human being and also to business organizations.
●Corporate decision-making is the most critical
process as Effective and successful decisions
result in profits, while unsuccessful cause losses.

6. ●In a decision-making process, we choose one
course of action from a few possible
alternatives.
●In the process of decision-making, we may use
many tools, techniques, and perceptions.
●We may also make our own private decisions
or may prefer a collective decision.
●Decision-making is hard and many corporate
decisions involve some level of dissatisfaction
or conflict with another party.

7. Steps in Decision Making Process
Step 1: Identification of the Purpose of the Decision
Step 2: Information Gathering
Step 3: Principles for Judging the Alternatives
Step 4: Brainstorm and Analyze the Choices
Step 5: Evaluation of Alternatives
Step 6: Select the Best Alternative
Step 7: Execute the decision:
Step 8: Evaluate the Results:

8. Step 1: Identification of the Purpose
of the Decision
●Thorough analysis of the problem. Couple of
questions one should ask when it comes to
identifying the purpose of the decision.
●What exactly is the problem?
●Why the problem should be solved?
●Who are the affected parties of the problem?
●Does the problem have a deadline or a specific
time-line?

9. Step 2: Information Gathering
●A problem may be related to many stakeholders
and can have dozens of factors involved and
affected.
●One must gather as much as information related
to the factors and stakeholders involved in the
problem. Information gathering tools should be
used.

10. Step 3: Principles for Judging the Alternatives
●Baseline criteria for judging the alternatives
should be set up. Organizational goals as well as
the corporate culture should be taken into
consideration.
●Ex: Profit is one of the main concerns in every
decision making process. Companies usually do
not make decisions that reduce profits, unless it
is an exceptional case.

11. Step 4: Brainstorm and Analyze the Choices
● Brainstorming to list down all the ideas is the best
option. Before the idea generation step, it is vital to
understand the causes of the problem and prioritization
of causes.
● Use of Cause-and-Effect diagrams and Pareto Chart
tool.
● Generate all possible solutions (alternatives) for the
problem in hand.

12. Step 5: Evaluation of Alternatives
●Use judgment principles and decision-
making criteria to evaluate each alternative.
●Experience and effectiveness of the
judgment principles come into play. You
need to compare each alternative for their
positives and negatives.

13. Step 6: Select the Best Alternative
●The selection of the best alternative is an
informed decision since you have already
followed a methodology to derive and
select the best alternative.

14. Step 7: Execute the decision:
●Convert your decision into a plan or a
sequence of activities.
●Execute your plan by yourself or with the
help of subordinates.

15. Step 8: Evaluate the Results:
●Evaluate the outcome of your decision.
●See whether there is anything you should
learn and then correct in future decision
making.
●This is one of the best practices that will
improve your decision-making skills.

16. ●What is Decision making?
●Discuss the steps in decision making.

17. Lecture - 2
Individual and Organizational
Decision Making

18. Individual Decision Making
●Individuals have a tendency to think and
question before performing.
●Individual decision making has certain pros
and cons as mentioned below:

19. Pros of Individual Decision Making
●An individual generally makes prompt decisions.
●Individuals do not escape responsibilities. They
are accountable for their acts and performance.
●Individual decision making saves time, money
and energy as individuals make prompt and
logical decisions generally.
●Individual decisions are more focused and
rational.

20. Cons of Individual Decision Making
●Individual has limited potential of collecting
more and full information while making
decisions.
●An individual while making any decision uses
his own intuition and views.
●An individual can’t discover a hidden talent and
core competency.
●An individual may not take into consideration
every members interest.

21. Individual Decision Making
managers should
●Rational approach –
Ideal method for how
make decisions.
●Bounded rationality perspective –
How decisions are made under severe time
and resource constraints

22. Steps in the Rational Approach

23. Bounded Rationality Perspective
●There is a limit to how rational managers
can be
- time and resource constraints
- Non-programmed decisions
●Constraints and Tradeoffs
– Constraints impinge (force to..) the decision
maker
●The Role of Intuition
– Experience and judgment rather than logic

24. Constraints and Tradeoffs
During Non-programmed Decision Making

25. Lecture - 3
Organizational Decision Making

26. Organizational Decision Making:
● Organizational decision making:
The process of responding to a problem
by searching for and selecting a solution
or course of action that will create value
for organizational stakeholders
Types:
❖
❖
Programmed Decision
Non-Programmed Decision

27. Decision Making - Types
Programmed Decision:
– Routine, virtually automatic decision making that
follows established rules or guidelines.
Non-Programmed Decision:
– Non-routine decision made in response to unusual or
novel opportunities and threats.
– The are no rules to follow since the decision is new.

28. Design Essentials
●Most decisions are not made in a logical manner
●Individuals make decisions, but organizational
decisions are not made by a single individual
●Conflict exists when problems are not agreed on
●The garbage can model has become a
description of decision-making
●Organizations operate in high-velocity
environments
●Allowing biases to cloud decision making can
have negative consequences

29. Different Approaches of –
Organizational Decision Making

30. 1. Management Science Approach
●Similar to rational individual approach
– Structured
●Based on technology

31. Management Science
Approach
●Use of statistics to identify relevant variables
●Remove human element
●Very successful for military problems
●Good tool for decisions where variables can be
indentified and measured
●A drawback of management science is that
quantitative data are not rich and lack tacit
knowledge

32. Models of Organizational Decision Making
1. The rational model:
● The rational model: decision making is a
straightforward, three-stage process
– Underlying assumptions
● Decision makers have all the information they need
● Decision makers can make the best decision
● Decision makers agree about what needs to be done

33. 2. Carnegie Model
● Introduces a set of more realistic assumptions
about the decision-making process
– Satisficing: limited information searches to identify
problems and alternative solutions
– Bounded rationality: a limited capacity to process
information
– Organizational coalitions: solution chosen is a result
of compromise, bargaining, and accommodation
between coalitions

34. Differences Between the
Rational and Carnegie Models
Rational model Carnegie model
Informationisavailable Limited information isavailable
Decisionmakingiscostless Decisionmakingiscostly
Possiblealternativesaregenerated Limited rangeof alternativesare
generated
Solutionischosen by unanimous
agreement
Solutionischosen by bargaining
and compromise
Soln chosen isbest fortheorgn Soln chosen issatisficingforthe
orgn

35. Carnegie Model

36. Thanks

37. Lecture - 4
●Model in Organizational Decision Making
Cont..

38. 3. Incrementalist model:
Incrementalist model:
Managers select alternative courses of action that are
only slightly, or incrementally, different from those
used in the past
Reduce the chances of making a mistake
–
– They correct or avoid mistakes through a succession of
incremental changes
– Tries to explain how organizations improve their
programmed decisions over time

39. 4. The unstructured model:
Describes how decision making takes place in
environments of high uncertainty
Unstructured model recognizes uncertainty in
the environment
– Managers rethink their alternatives when they
hit a roadblock
– Tries to explain how organizations make non-
programmed decisions

40. 5. The garbage can model:
● In this model a view of decision making takes the
unstructured process to the extreme
– Decision makers are as likely to start decision making from the
solution side.
– Create decision-making opportunities that they can solve with
ready-made solutions based on their competencies and skills
– Different champion form different alternatives
– Decision making becomes a “garbage can” in which problems,
solutions, and people all mix.
– Selection of an alternative depends on which person’s or
group’s definition of the current situation holds a way

41. Garbage Can Model
●Pattern or flow of multiple decisions
●Think of the whole organization
●Explain decision making in high uncertainty
- organized chaos:
– Problematic preferences
– Unclear, poorly understood technology
– Turnover
●Streams of events instead of defined
problems and solutions

42. Consequences of the Garbage Can Model
1. Solutions may be proposed even when
problems do not exist
2. Choices are made without solving
problems
3. Problems may persist without being
solved
4. A few problems are solved

44. 6. Contingency Decision-Making
●Two dimensions
– Problem consensus
– Technical knowledge about solutions

45. Contingency Model of Decision Making:

46. HERBERT SIMON MODEL
●He describes the model in three phases :
I. Intelligence: Raw data collected, processed and
examined, Identifies a problem calling for a
decision.
II.Design: Inventing, developing and analyzing the
different decision alternatives and testing the
feasibility of implementation. Assess the value of
the decision outcome.
III.Choice: Select one alternative as a decision, based
on the selection criteria.

47. Herbert Simon
Decision Making Model
Intelligence
Design
Choice

48. Intelligence phase:
●MIS collects the data. The data is scanned,
examined, checked and edited.
●Data is sorted and merged with other data and
computations are made, summarized and
presented.
●The attention of the manager is drawn to all
problem situations by highlighting the
significant differences between the actual and
the expected, the budgeted or the targeted.

49. Design phase:
●In the design phase, the manager develops
a model of the problem situation on
which he can generate and test the
different decision alternatives.

50. Choice phase:
●The manager evolves selection criteria
such as maximum profit, least cost,
minimum wastage, least time taken and
highest utility.
●The criterion is applied to the various
decision alternatives and the one which
satisfies the most is selected.

51. ●Ex: A manager finds on collection and through
the analysis of the data that the manufacturing
plant is underutilized and the products which are
being sold are not contributing to the profits as
desired. The problem identified, therefore, is to
find a product mix for the plant, whereby the
plant is fully utilized within the raw material and
the market constraints, and the profit is
maximized.

52. Distortion of Organizational Decision Making
by Cognitive Biases

53. Thanks

54. Lecture -5
MIS Role in Decision making

58. ●Unstructured decisions (usually related to
the long-term strategy of the organization);
●Semi-structured decisions (some decision
procedures can be pre-specified but not
enough to lead to a definite recommended
decision);
●Structured decisions (the procedure to
follow, when a decision is needed, can be
specified in advance).

59. Thanks

60. MIS Role in Decision making
1. MIS is a system providing
management with accurate and timely
information to facilitate the decision
-making process and
organizations planning,
enable the
control, and
operational functions to be carried out
effectively.

61. 2. MIS increase competitiveness of the
firm by reducing cost and improving
processing speed.
3. The power of technology has
transformed the role of information in a
business firm. So, information is considered
as the lifeblood of an organization.

62. 4. MIS and its organizational subsystems
contribute to the decision making process in
many ways.
– Decisions regarding operational improvements
– Selecting new business opportunities for
maximizing the company's profit.

63. 5. MIS sets the stage for accomplishments in
the other area, which is DSS, the virtual
office and knowledge based systems.
6. The MIS keeps a continuous supply of
information flowing to the management.

64. MIS and decision making
process
MIS
Processes
Information
Flow
User’s
Processes
Decision
ata
ow

65. Forms of MIS
●Management Support Systems (MSS)
●Decision Support Systems (DSS)
●Executive Support Systems (ESS)
●Specialized Processing Systems (PS)

66. Thanks

67. Lecture - 6
Methods for Decision Making
1. Pay off Matrix
2. Decision tree

68. 1. Payoff Matrix:
●A payoff matrix is defined as a visual
representation of all the possible outcomes that can
occur when two people or groups have to make a
strategic decision.
●The decision is referred to as a strategic decision
because each decision maker has to take into
consideration how their choice will affect their
opponent's choice and how their opponent's choice
will affect their own choice.

69. ●The payoff matrix illustrates each possible
strategy that one side can choose, as well as
every combination of outcomes that are
possible based on each opponent's choice.
●On the basis of Expected value the decision
is taken. (EV = Probability * Outcome)

70. Ex: Assume that a marketing manager of a computer manufacturer is to
choose from three alternatives -
1. Modify the existing PC to improve its design and processing power
2. Launch a new PC having latest technology
3. Do nothing i.e. leave the P.C. as it is
There are three states of nature that affects the pay-off from each of the
alternative strategies –
i. A competitor may launch a new PC with the latest technology
ii. Government may impose high excise duty on manufacturers of PC to
encourage the use of laptop
iii.Conditions will remain as they are.
The various pay-offs are as below-
Strategies State of Nature
Same Condition (0.40) New Competitor (0.40) Govt. Ban (0.20)
S1: (Modify) 7 5 -5
S2: (New Product) 10 3 -13
S3: (Do nothing) 5 1 -2

71. Case-1: As every thing is certain.
●EV of S1 = 3.8
●EV of S2 = 2.6
●EV of S3 = 2.0
The strategy S1 will be selected i.e.
The decision to Modify the existing PC to
improve its design and processing power
should be taken by the company.

72. Case 2: The probabilities of happenings are not given i.e. the
state is uncertain (unstructured type decision)
Strategies State of Nature
Same Condition New Competitor Govt. Ban
S1: (Modify) 7 5 -5
S2: (New Product) 10 3 -13
S3: (Do nothing) 5 1 -2
Using Maximax criterion the strategy S2 will be selected
(Optimistic approach) as Maximax payoff is =10
Using Maximin criterion the strategy S3 will be selected
(Pessimistic approach) as Maxmin payoff = 5

73. 2. Decision Tree
What is Decision Tree?
●A decision tree is a graphical
representation of possible solutions to a
decision based on certain conditions.
●It's called a decision tree because it starts
with a single box (or root), which then
branches off into a number of solutions, just
like a tree.

74. ●Making a decision tree requires a
systematic, documented thought process.
●Decision trees help formalize the
identify more
brainstorming process to
potential solutions.
●On the basis of Expected value the decision
is taken. (EV = Probability * Outcome)
●Symbols used in decision tree –
Decision Point
Chance Event
Elimination of Action

75. Ex: The company may have high or low
penetration and market share. The
probabilities and net gain are as shown in
table. Which Channel the company should
select?
Channels High Penetration Low Penetration
Direct Sales Probability 0.60 0.40
Net Gains Rs. 40 Lakhs Rs. 30 Lakhs
Selling Agent Probability 0.80 0.20
Net Gains Rs. 45 Lakhs Rs. 20 Lakhs

76. Gain 40 lakhs
EV = 24 lakhs
Total EV =
36 lakhs
EV = 12 lakhs
Gain 30 lakhs
Gain 45 lakhs
EV = 36 lakhs
Total EV =
40 lakhs
EV = 04 lakhs
Gain 20 lakhs

77. Thanks