Management Theory & Practice(Robbins, S. Coulter M.)

Imran Ashiq Computer People 2000 1
Lecture # 3
Decision Making

The Decision
Decision: A Choice from two or more
alternatives.
Decision Making: The Process of
identifying and selecting a course of
action to deal with a specific problem.

The Decision
Individuals at all levels make decisions.
Top-level managers make decisions
About their organization’s goal,
Where to locate resources,
What new market to move in,
What product/services to offer.

The Decision
Middle & Lower Level Managers make
decisions about
Setting weekly and monthly goals.
Product Schedule
Handling problems that arise
Allocation pay rises
Disciplining employees.

Time & Human Relationship
in Decision Making
Time and human relationship are
crucial in the process of making
decision.
Decision making also draws on the past
experiences-positive and negative.
Human relationship plays important role
in decision making as the managers do
not make decision in isolation.

The Problem Finding Process
Problem: Situation occurs when an actual
state of affairs differs from a desire state of
affairs.
Four situations usually alert managers to
possible problems.
1. Deviation form past experience.
2. Deviation from a set of plans.
3. Other people often bring problems to the
manager.
4. The performance of other companies can also
create problem solving situations.

Opportunity Finding
Opportunity: Situation that occurs when
circumstances offer an organization the
chance to exceed stated goals and
objectives.
It is not always clear whether a situation
faced by a manger presents a problem or
opportunity.
Missed opportunities creates problems, and
opportunities are often found while exploring
problems.

Decision Making
Decision
Making
The study of identifying & choosing alternatives
The process of reducing uncertainly &
doubt about alternatives

The Decision Making Process
The Rational Model of Decision Making
Decision Making Process: Consisted of
eight steps including identifying a
problem, selecting an alternative, and
evaluating decision’s effectiveness.
STEP I : Identifying Problem
A discrepancy between an existing and
desired sate of affairs.

STEP 2: Identifying Decision Criteria:
Criteria that define what’s relevant in a
decision.
After identification of a problem, the
decision criteria is important to the resolve
the problem.
Manager must determine what is relevant
in making decision.
Every decision maker has criteria that
guide his or her decision.

STEP 3: Allocation Weights to the Criteria
The criteria identitifed in step 2 aren’t all
equally important.
The decision maker must weight the items
in order to give them the correct priority in
the decisions.
A simple approach is to give the most
important criterion a weight of 10/100 and
then assign weights to the rest against that
standard.

STEP 4: Developing Alternatives
The forth step requires the decision maker
to list the viable alternatives that could
resolve the problem.
No attempt is made in the step to evaluate
the alternatives, only to list them.

STEP 5: Analyzing Alternatives
In this step decision maker must critically
analyze each alternative.
Each alternative is evaluated against
criteria established in step 2 and 3.
Decision maker also give weight to its
alternatives.
This comparison of alternatives gives the
strengths and weakness of each
alternative.

STEP 6: Selecting an Alternative
In this step decision maker choose the best
alternative from those considered.
In the pervious steps decision maker
determine all the criteria, weighted them,
and identified and analysis viable
alternatives.
At last decision maker chooses the
alternative that generated the highest score
in the step 5.

STEP 7: Implementing the Alternative
This step is concerned with putting the
decision into action.
Conveying a decision to those affected and
getting their commitment to it.
STEP 8: Evaluating Decision Effectiveness
The last step is appraising the outcome of
the decision to see if the problem has been
resolved.
Alternative chosen in step 6 and implemented
in step 7 accomplished the desired result?

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Identification of
Problem
Identification
Of Decision
Criteria
Allocation
Of Weight
To Criteria

Acer Compaq Gateway HP
Macromedia NEC Sony Toshiba
Gateway
Development
Of
Alternatives
Analysis
Of
Alternatives
Selection
Of
Alternatives
Implementation
Of the
Alternative
Evaluation

The Manager as Decision Making
Everyone in an org. makes decisions, but
decision making is particularly a manger’s job.
Decision making is part of all four managerial
functions like plan, organize, lead and control.
Almost everything a manager does involve
decision making.
Much of a manager’s decision making is
routine.
Managers make dozens of routine decision
every day.

The Manager As Decision Maker
Managerial decision making is assumed to
rational.
Rational Decision Making: describe
choices that are consistent and value
maximizing within specific constraints.
A rational decision would be fully objective
and logical.
Manager would carefully define a problem
and have clear and specific goal.

The problem is clear and unambiguous.
A single, well defined goal is to achieve.
All alternatives and consequence
are known.
Preference are clear.
Preference are constant and stable.
No time or cost constraints exist.
Final choice will maximize payoff.
Rational
Decision
Making
Lead to

Bounded Rationality:
 Behavior that is rational within the
parameters of a simplified decision making
process,
 which is limited(or bounded) by an
individual’s ability to process information.
Most of the decisions that manger’s make
don't fit the assumptions of perfect
rationality.
Usually mangers make decisions using
bounded rational approach.

Managers make decisions that are
satisfactory.
Managers decisions are influence by:
Org. culture,
Internal politics,
Power considerations
Escalation of Commitment: An increases
commitment to a pervious decision despite
evidence that it may have been wrong.

Role of Intuition:
 Intuition means a subconscious process of
making decisions on the basis of experience
and accumulated judgment.
Managers use their intuition in their decision
making and it also help in decision making.
Managers doesn’t rely on systematic and
thorough analysis of the problem and
evaluation alternatives but instead uses their
experience and judgment to make a decision.

Rational Decision
Bounded Rationality
Managers decisions are influence by
Different Factors.
Role of Intuition

Types of Problems and Decisions
Managers face different types of problems and
decisions during their job.
Depending on the nature of the problem, the
manager can use different type of decisions.
Well-Structure Problems and Programmed
Decisions:
 Straightforward, familiar and easily defined problems
is called Well-Structure problem.
 A repetitive decision that can be handled by a routine
approach Programmed Decision.

In this situation goal of decision maker is
clear, the problem is familiar, and information
about the problem is easily defined and
complete.
Programmed Decision making is relatively
simple and tends to rely heavily on previous
solutions.
Managers fellow procedure, rule and policy
routine in their decision making.

Procedure:
A series of interrelated sequential steps
that can be used to respond to a well-
structured problem.
Rule:
An explicit statement that tells mangers
what they can or cannot do.
Policy:
A guideline that establishes parameters for
making decisions.

Poorly structure Problems and
Nonprogrammed Decisions:
Problems that are new or unusual and for
which information is ambiguous or
incomplete are called poorly structure
problems.
A unique decision that requires a custom-
made solution is called nonprogrammed
decision.

When manager faces a poorly structure
problem, there is no cut and dried solution.
It requires a custom made response through
nonprogrammed decision making.

Decision Making Styles
One perspective on decision making styles
proposes that People differ long two
dimension s in the way they approaches to
decision making.
The first is an individual way of thinking.
Rational and Logical
Creative and Intuition.
The other dimension is an individual's
tolerance of ambiguity.

Low Tolerance for Ambiguity
High Tolerance for Ambiguity
These two dimension lead to four decision
making Style.
Directive Style:
 This style is characterized by low tolerance for
ambiguity and a rational way of thinking.
Analytic Style:
 Characterized by a high tolerance for ambiguity
and a rational way of thinking.

Conceptual Style:
 Characterized by a high tolerance for ambiguity
and an intuitive way of thinking.
Behavioral Style:
 Characterized by a low tolerance for ambiguity
and an intuitive way of thinking.
 Although these four decision making styles are
distinct, most of managers have characteristic of
more than one style.

Analytic Conceptual
Directive Behavioral
Way of Thinking
Rational Intuitive
Tolerance
forAmbiguity
High
Low

Decision Making Conditions
There are three conditions that manager
may face as they make decision.
1) Certainty:
A situation in which a manger can make
accurate decisions because all outcomes
are know.
This is ideal condition for decision making.
2) Risk:
Those conditions in which the decision
maker is able to estimate the likehood of
certain outcomes.

Decision Making Conditions
In risk situation manger assign probability to
outcomes based own his personal experience
or information.
3) Uncertainty:
A situation in which a decision maker has
neither certainty nor reasonable probability
estimate available.
In this situation decision is based on limited
available information.
Uncertainty in decision force manager to relay
more on intuition, creativity and other feelings.

Decision-Making Approach
•Rationality
•Bounded Rationality
•Intuition
Types of Problems & Decisions
Well Structured –Programmed
Poorly Structured-
Nonprogrammed.
Decision-Making Conditions
•Certainty
•Risk, Uncertainty.
Decision
•Choosing Best
Alternative
-Maximizing
-Satisfying
•Implementation
•Evaluating
Decision Maker’s Style
•Directive, Analytic
•Conceptual, Behavior
Decision-Making
Process

Group Decision Making
Many org. decisions are made by
group.
Studies show that mangers spend 70%
of their time in group meetings.
A large amount of their time spend in
formulating problems, developing
solutions and determining how to
implement the solution.

Advantages
1. More complete
Information.
2. Generate more
alternatives.
3. Increase
acceptance of a
solution.
4. Increase legitimacy.
Disadvantages
1. Time Consuming
2. Minority
Domination.
3. Pressure to
Confirm.
4. Ambiguous
Responsibility.

Effectiveness and Efficiency of
GD are effective depends on the criteria set
to assess effectiveness.
Effectiveness of group decision making is
also influenced by size of group.
Lager the group, the greater opportunity for
diverse representation. On the other it would
take more time and coordination.
Group of five, seven or lesser extent are the
most effective. Also odd number in group
helps avoid deadlock in decision.

Techniques for Improving Group
Decision Making
Electronic
Meeting
Increased
Creativity
Brainstorming
Nominal Group
Techniques(NGT)
GM interact
By using Computer

Techniques for Improving Group
Decision Making
Brainstorming:
An idea-Generating technique process
encourages alternatives while holding criticism.
NGT :
Group members are presented with problem.
Each member write downs ideas about problem.
Then presents his idea to the group member.
No discussion take place until all ideas have been
presented.

Quantitative Bases of Decision
Making
Operation Research:
 is the application of scientific methods to the study
of alternatives in a problem, with a view to
obtaining a quantitative basis for arriving at the
best solution.
The OR model has three components
 Alternatives
 Restriction
 Objective Criterion
The solution of OR model yields the value of
the decision variables that optimize the value
of objective function while satisfying all the
constraints.

Linear Programming
A mathematical technique that solves
resource allocation problems.
A technique for determining the optimum
combination of limited resources to obtain
desire goal.
Successful application of LP exist in the area
of military, industry, agriculture transportation
and health system.

Decision Making Tools
DECISION TREE
Decision Trees are excellent tools for helping
to choose between several courses of action.
They provide a highly effective structure
within which can lay out options and
investigate the possible outcomes of
choosing those options.
They also help to form a balanced picture of
the risks and rewards associated with each
possible course of action.

Decision Making Tools
Probability
It is the branch of mathematics devoted to
measuring quantitatively the likelihood that a
given event will occur.
Probability is associated with performing an
experiment whose outcome occur randomly.
Probability theory is the rational way to think
about uncertainty.
Probability is used when the data is not
known or exact numbers are not available.

Game Theory
Game theory deals with decision situation in
which two intelligent opponents have
conflicting objectives.
In a game conflict, two opponents will have a
number of alternatives or strategies.
Examples include launching advertisement
campaigns for competing products and
planning war strategies for opposing armies.

Queuing
The study of Queue determines the
measures of performance of a queuing
system.
Including the average waiting time, and the
average queue length, among other.
This information is used to decide on an
appropriate level of service for the facility.

SIMULATION
Simulation is the next best thing to observing
a real system in operation.
It allows to collect information about the
behavior of the system by executing a
computerized model.
The collected data are used to design the
system.
Simulation is not a optimization technique.
Rather, it is a technique for estimating the
measure of performance of the modeled
system.

Monte Carlo
Monte Carlo simulation refers to the use
of random sampling to estimate the
output of the experiment.

Management Theory & Practice(Robbins, S. Coulter M.)

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