Decision making


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Decision making

  1. 1. Business Decision Making Free Powerpoint Templates Page 1
  2. 2. A Core Function  Managers are responsible for effective and efficient execution of these organizational functions.  A typical manager performs a number of functions that are categorized as:  Interpersonal  Informational  Decisional  One of the key traits that distinguish managers from operatives is the ability to make Independent Decisions. Free Powerpoint Templates Page 2
  3. 3. What is Decision-Making?The word decision is defined as:“A choice between two or more alternatives”.Thus decision-making can be defined as:“the selection of a course of action from amongalternatives ”. The process of choosing the most appropriate alternative from a given set of alternatives. Free Powerpoint Templates Page 3
  4. 4. Types of problems decision makers faceManagerial decision making typically centers on threetypes of problems:  Crisis A crisis problem is a serious difficulty requiring immediate action.  Non-Crisis A non-crisis problem is an issue that requires resolution but does not simultaneously have the importance and immediacy characteristics of a crisis.  Opportunity Problems An opportunity problem is a situation that offers strong potential for significant organizational gain if appropriate actions are taken. Free Powerpoint Templates Page 4
  5. 5. Differences in decision making situations• There are two situation  Programmed Decision Making Programmed Decisions are those made in routine, repetitive, well- structured situations through the use of predetermined decision rules.  Non-Programmed Decision Making Non-programmed Decisions are those for which predetermined decision rules are impractical because the situations are novel and/or relatively ill structured. Free Powerpoint Templates Page 5
  6. 6. Strategic Decisions • Administrative decisions • Routine or Operating decisionsIndividual and Group decisions Free Powerpoint Templates Page 6
  7. 7. Decision-Making Process1) Identifying a problem2) Identifying decision criteria3) Allocating weights to criteria4) Developing alternatives5) Analyzing alternatives6) Selecting an alternative7) Implementing the alternative8) Evaluation (of decision effectiveness) Free Powerpoint Templates Page 7
  8. 8. Herbert Simon Model Free Powerpoint Templates Page 8
  9. 9. Making Rational DecisionsA series of steps that decision makers should consider if theirgoal is to maximize the quality of their outcomes. Free Powerpoint Templates Page 9
  10. 10. Rational Economic Man Model• By Adam Smith, it states that managers are always rationaland choose the alternative which provides maximum gain.• A rational decision maker has a clear idea of the problem tobe solved and he is fully objective and logical in approach.Assumptions1. Decision maker has a clear and well defined goal2. Is rational and uninfluenced by emotions3. Can identify the problem clearly and precisely4. He knows all the alternatives available, with consequences5. Can rank all consequences according to preferences6. Has full freedom to choose the best alternative. Free Powerpoint Templates Page 10
  11. 11. Bounded Rationality A critique of the rational man model. Administrative man he says is the way decisions are actually made. He says there are limits on decision making: 1. Bounded rationality: imperfect information about goals and courses of action and relation of means to ends. Only perceive a few of the possible decisions, courses of action, dimly perceive means end relation. 2. Bounded discretion: constraints on optimizing, prior commitments, moral and ethical standards, laws, and social standards. Forced to make decisions that are just good enough. Called Satisficing. Search for a needle in the haystack. Optimize is to look for the sharpest. Satisfied is to search until you find the needle that is just sharp enough to do the job. Free Powerpoint Templates Page 11
  12. 12. Bounded Rational: Causes 1. Inadequate goal formulation 2. Vaguely defined problems 3. Imperfect knowledge 4. Limited time and resources 5. Human Limitations 6. Power Politics 7. Environmental Dynamics Free Powerpoint Templates Page 12
  13. 13. Group Decision-makingThe group members interact with each other, discussthe problem and make a collective decision.The factors requiring group decisions include:1. Involving sensitive issues2. High cost alternatives3. Involving very high risk factor4. Strategic impact Free Powerpoint Templates Page 13
  14. 14. Group Decisions: Advantages1. Acceptance of group members2. Coordination is easier3. Communication is easier4. Existence of large alternatives5. More information can be processed6. Diversity of experience and perspectives Free Powerpoint Templates Page 14
  15. 15. Group Decisions: Disadvantages 1. Take longer time 2. Group can be indecisive 3. Groups can compromise 4. Groups can be dominated 5. Groups can “play games” 6. Victim to Groupthink - group members over look other available alternatives for the sake of complete consensus Free Powerpoint Templates Page 15
  16. 16. Decision Making with Quantitative Tools1. Marginal Analysis – Comparison of additional revenues from additional costs to point where the cost resulting MC=MR2. Cost Effectiveness Analysis – Cost Benefit Analysis3. Risk Analysis – Determination of the nature and size of risk involved4. Linear Programming – Technique for determination of optimum combination of limited resources to minimize cost or to maximise profits.5. Operations Research- Scientific analysis of decision problems6. Decision Tree- Graphic method used for identifying the available alternatives and the risk and outcome associated with each alternative.7. Network Analysis- Analysis of a project into small interconnected in a logical order. CPM and PERT Free Powerpoint Templates Page 16
  17. 17. Decision Making with Qualitative Tools1. Brainstorming - A group creativity technique by which a group tries to find a solution for a specific problem by gathering a list of ideas spontaneously contributed by its members.2. Delphi Technique - A structured communication technique, originally developed as a systematic, interactive forecasting method which relies on a panel of experts. the experts answer questionnaires in two or more rounds. After each round, a facilitator provides an anonymous summary of the experts’ forecasts from the previous round as well as the reasons they provided for their judgments. Thus, experts are encouraged to revise their earlier answers in light of the replies of other members of their panel. It is believed that during this process the range of the answers will decrease and the group will converge towards the "correct" answer. Free Powerpoint Templates Page 17
  18. 18. 3. Nominal Group Technique- A decision making method for use among groups of many sizes, who want to make their decision quickly, as by a vote, but want everyones opinions taken into account (as opposed to traditional voting, where only the largest group is considered) . Facilitators will encourage the sharing and discussion of reasons for the choices made by each group member, thereby identifying common ground, and a plurality of ideas and approaches. This diversity often allows the creation of a hybrid idea (combining parts of two or more ideas), often found to be even better than those ideas being initially considered. The numbers each solution receives are totalled, and the solution with the lowest (i.e. most favored) total ranking is selected as the final decision.4. Simulation – Imitation of some real thing available, state of affairs, or process. The act of simulating something generally entails representing certain key characteristics or behaviours of a selected physical or abstract system. Free Powerpoint Templates Page 18
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