Merits and Demerits of Individual & Group Decision making

1. Group Members:
Ankur Chatterjee
Amit Kumar
Binit Jain Bengani
Divyam Agrawal
Kriti Verma
Sandeep Kumar
Bishesh K Sah

2. DECISION MAKING
It is the process of identifying and selecting a course of action to
solve a specific problem.
As stated in Webster’s, it is “the act of determining in one’s own
mind an opinion or course of action.”
Problem –the discrepancy between ideal & actual situation.
Managerial decisions are deliberate choices made from a range of
alternatives. Before making the decision, the manager must evaluate
each choice according to its projected outcomes in terms of the
organization`s resources as well as the amount of information and
time available.

4. Crucial Elements IN the process of decision
making
Time
•Connection between organization present circumstances to
actions that will take the organization into future.
•Decisions are based on past experiences.
Human relationships
•Decision making is a process that managers conduct in
relationship with other decision makers.
•A wide network of relationship is always beneficial while deciding
about business dealings.

5. The Nature of Managerial Decision Making
1. It is a process of selecting the best from the alternatives.
2. It is based on rational thinking.
3. The purpose of decision making is to find out solution of some
problem.
4. It involves the evaluation of various available alternatives.
5. Decision making is aimed at achieving organisational goals.
6. It is both a managerial function and an organisational process.
7. Decision starts action.

6. 8. Decision making is an intellectual process.
9.All decisions involve future events, hence, decision makers must
analyze the certainity, risk and uncertainity associated with
alternative course of action.
All managers have a shortage of
knowledge, resources, and time.
Working within these
parameters, the management
process culminates in decisions to
implement various actions.

7. Types of decision making
Strategic decisions
-provides direction to an organization
- high managerial competence is required
- full of risk and uncertainty
- taken by top management level
Tactical decisions
- support and implement strategic decisions
- impact is medium with respect to time &
significance
- taken by middle management level

8. Operational decisions
-Pre programmed, highly structured, routine
decision to support tactical decision
- required little effort
- made by frontline management staff

11. Based on the nature of decision making,Herbert Simon has
grouped the decision making into two categories-
A) Programmed decisions
B) Nonprogrammed decisions

12. PROGRAMMED DECISIONS
Programmed decisions are made in accordance with written
or unwritten policies, procedures or rules that simplify decision
making in recurring situations by limiting or excluding
alternatives.
Programmed decisions are concerned with relatively routine
and repetitive problems. Information on these problems is
already available and can be processed in a pre-planned
manner.
Programmed decisions limit our freedom because the
individual has less latitude in deciding what to do.
Programmed decisions save time.

13. Nonprogrammmed decisions
 Non-programmed decisions deal with unique or unusual
problems. Such novel or non-repetitive problems cannot be
tackled in a predetermined manner.
 Ability to make nonprogrammed decisions become more
important, as we move up in the organizational hierarchy.
 The ability to make good non-programmed decisions help to
distinguish effective executives from non effective executives.
 More & more organizations have made their commitments to
social responsibility a matter of policy involving the both.

14. Programmed Non programmed
Decisions(structured) Decisions(unstructured)
Types of problems Repetitive, routine, frequent; Novel, complex, difficult,
decisions made according to infrequent; decisions
specific procedures require original thinking
Procedures Thinking Depend on policies and Require creativity, intuition,
rules tolerance for ambiguity
Examples Business firm :Periodic reorders Business firm:
of inventory Diversification into new
Health care: Procedure for products and markets
admitting patients Health care: Purchase of
experimental equipment

15. STRUCTURED UNSTRUCTURED
Made under established situation i.e. Made under emergent situation
definable, predictable & analyzable
Called programmed decision making Called non-programmed decision making
Routine problems Non-routine problems
Application of rules/ procedures/ habits Application of skill/ experience/ common
sense
Lower management Top management
Recurring Rare
Low risk & uncertainty High risk & uncertainty
High control Low control

16. Management level &decision making
Upper-level
Management
Makes decision
Middle level
Management
Makes decision
Lower level
Management
Makes decision
narrow decision intermediate decision broad decision
scope scope scope

17. Rational model of decision making
It is a four step process that help managers weigh alternatives
and choose the alternative with the best chance of success.
•Especially useful in making nonprogrammed decisions.
•Helps managers go beyond priori reasoning.
•It is an article of faith that we can trace to the managerial
approaches of Henry Ford, Henri Fayol and Chester Barnard.

18. Four stages of rational decision
making
1. INVESTIGATE 2. DEVELOP
THE SITUATION ALTERNATIVES
3. EVALUATE ALTERNATIVES
4. IMPLEMENT AND AND SELECT THE BEST ONE
MONITOR AVAILABLE

19. STAGE 1: INVESTIGATE THE SITUATION
A thorough investigation has three aspects:
•Problem Definition
•Diagnosis
•Identification of Objectives

20. •DEFINE THE PROBLEM
Defining the problem in terms of the organizational objectives
that are being blocked helps to avoid confusing symptoms with
problems.
Example: An upsurge in employee resignations, is not a problem
unless it interferes with the organizational objectives.
•DIAGNOSE THE CAUSES
To diagnose the causes of the problem, managers need to ask a
number of diagnostic questions.
Different individuals may perceive very different causes for the
problem, it is up to the manager to put all the pieces together and
come up with as clear picture as possible.

21. •IDENTIFY THE DECISION OBJECTIVES
The focus is on to decide what would constitute an effective solution.
A solution is an effective one if
- it enables managers to achieve organizational goals.
- it has more ambitious objectives rather than merely
restoring the organizational performance.
The immediate problem may be an indicator of future
difficulties, and the solution thus could be an opportunity to improve.
Thus all three aspects of problem investigation, is the importance of
manager’s education and his or her futuristic imagination.

22. Stage 2: Develop alternatives
It is a difficult process for complex nonprogrammed decisions and
especially if there are time constraints.
The temptation to accept the first feasible alternative prevents
managers from finding the best solution for their problem.
To prevent this some managers turn to individual or group
brainstorming.
Brainstorming: Decision making and problem solving technique
in which individual or group members try to improve creativity by
spontaneously proposing alternatives without concern for reality
or tradition.

23. Stage 3: Evaluate alternatives
and select the best one available
After developing a set of alternatives, managers must evaluate each
one on the basis of three key questions
-IS THE ALTERNATIVE FEASIBLE?
- IS THE ALTERNATIVE A SATISFACTORY SOLUTION?
-WHAT ARE THE POSSIBLE CONSEQUENCES FOR
THE REST OF THE ORGANIZATION?

24. STEP 3: EVALUATING ALTERNATIVES
DROP THE ALTERNATIVE
NO
DROP THE
ALTERNATIVE
NO DROP THE
ALTERNATIVE
YES NO
1. Is the
alternative CONDUCT
feasible 2. Is the YES
FURTHER
alternative EVALUATION
satisfactory? 3. Will the YY
YES
alternative have
positive or
neutral
consequences?

25. •IS THE ALTERNATIVE FEASIBLE?
Does the organization have the money and other resources needed to
carry out this alternative?
Does the alternative meet all the organization’s legal and ethical
obligations?
Is the alternative a reasonable one given the organization’s strategy
and internal politics?
What would happen if employees fail to support and implement it
whole heartedly?

26. IS THE ALTERNATIVE A SATISFACTORY SOLUTION?
This can be answered by the following two questions.
I. Does the alternative meet the decision objectives?
II. Does the alternative have an acceptable chance of succeeding?
WHAT ARE THE POSSIBLE CONSEQUENCES FOR THE
REST OF THE ORGANIZATION?
An organization is a system of interrelated parts and exists among
other systems, managers must try to anticipate how a change in one
area will affect both areas- both now and in the future.

27. STAGE 4: IMPLEMENT AND MONITOR THE DECISION
Implementing the decision involves more than giving appropriate
orders.
- Resources must be acquired and allocated as necessary.
-Set up budgets and schedules for the actions.
-Assign responsibility for the assigned tasks.
-Set up a procedure for progress reports and prepare to make
corrections if new problems arise.
Actions taken to implement a decision must be monitored.
Decision making is a continual process for managers – and a
continual challenge of dealing with other human beings over time.

28. Analysis of rational model
• Simon conducted pioneering analysis of
rational model.
• The limit on calculation is in a certain
sense an insuperable obstacle.
• This brings with it a important
implication: if economic subjects are
unable to explore all the consequences of
their actions, they are likewise unable to
assess them; and this introduces an
intrinsically uncertain element into human
action.

29. LIMITATIONS FOR THE RATIONAL DECISION
MAKING
There are two types of factor which puts limits
on rationality in decision making.
• Decision making mechanism
• Human factor in decision making

30. Decision making mechanism limitation
• It requires a great deal of time.
• It requires great deal of information.
• It assumes rational, measurable criteria are
available and agreed upon.
• It assumes a rational, reasonable, non-political
world.

31. Limitations due to Human factor in decision
making
In its standard version, the theory of
rationality rests on the following conception of
human behavior:
• Individuals possess a mental order of
preferences concerning all the possible
consequences of their actions, which is not true
practically.
• They therefore make their choice coherently with
their preferences and with the constraints upon
them.

32. ASSUMPTION OF THE MODEL
• Problem clarity
• Known options
• Clear preferences
• Constant preferences
• No time or cost constraints

33. A different solution
• However, in those years a different solution of
the dilemma was proposed by Milton
Friedman , a solution that was very successful.
• According to Friedman, although individuals
do not possess the formal tools with which to
calculate the optimum adequately, they
behaved as if they do.

34. • According to Simon ,people have only a limited,
simplified view of problems confronting them
because of certain reasons:
• They do not have full information about the
problems.
• They do not possess knowledge of all the possible
alternative solutions to the problems and their
consequences.
• They do not have abilities to process competitive
environmental and technical information.
• They do not have time and resources.

35. Factors Leading To Bounded Rationality
And Satisficing Decisions
Information
Process External Time and
abilities factors cost
limits
Decision
Organizational maker Personal
objectives factors
Satisficing
Decision

36. BOUNDED RATIONALITY AND SATISFICING
DECISIONS
• Bounded Rationality- the concept that the
managers make the most logical decisions they
can make within the constraints of limited
information and ability.
• Satisfice- Decision making technique in which
managers accept the first satisfactory decision
they uncover.

37. The Concept of Satisficing Behavior
• A satisficing decision maker is one who is
simply concerned with attaining a sought
objective.
• Satisficing behavior acknowledges
limitations.
• Decision maker searches for alternatives
until one is found that meets the objective
and a choice is made and implemented.
• Satisficing behavior is open to environment.

38. The Case for Satisficing Behavior
1. The case for satisficing behavior is centered in
the concept of bounded rationality.
2. Given bounded rationality, the best that a
rational decision maker can get is a satisficing
choice .

39. The Case for Satisficing Behavior
(cont’d)
The components of bounded rationality are:
1. Rational decision maker
2. Managerial objectives
3. External environment
4.Time and cost constraints
5.Cognitive limitations

40. The Case Against
Satisficing Behavior
1. Limitations on decision maker’s aspirations.
2. The need to specify objectives in advance.
3. Complexity of the choice may impose cognitive
strain on the decision maker.
4. Focus on short-term results.

41. The Case Against
SatiSficing Behavior (cont’d)
1. May choose the first alternative too rapidly.
2. Belief that a satisficing choice is a “second-
best” decision.
3. Focus on the behavioral aspects of decision
making.

42. Heuristics or Judgment Shortcuts
• Framing
– The selective use of perspective.
• Availability Heuristic
– The tendency of people to base their judgments on
information readily available to them.

43. Heuristics or Judgment Shortcuts
• Representative Heuristic
– The tendency to assess the likelihood of an occurrence by
trying to match it with a pre-existing category.
• Ignoring the Base Rate
– Ignoring the statistical likelihood of an event when making
a decision.
• Escalation of Commitment
– An increased commitment to a previous decision in spite
of negative information.

44. Heuristics or Judgment Shortcuts
• Overconfidence Bias
– Overestimating the accuracy of our predictions.
• Anchoring bias
– A tendency to fixate on initial information as a starting
point.

45. Decision Making Conditions:
In making decisions, all managers must weigh
alternatives, many such alternatives involve future events
that are difficult to predict like:
 Competitor’s reaction to a new price list
 Interest rates in next few years
 Reliability of a new supplier

46. Continuum of Decision Making Conditions:
1) CERTAINTY (Highly Predictable)
2) RISK
3) UNCERTAINTY (Highly Unpredictable)
CERTAINTY RISK UNCERTAINTY
MANAGERIAL
HIGH LOW
CONTROL

47. Certainty:
Decision making condition in which managers have
accurate, measurable, and reliable information about the
outcome of various alternatives under consideration.
Here the cause and effect relationships are known to
managers.
Example: Suppose a director is ordering programs for a
storytelling festival. She knows the objective- get programs
printed- and can easily compare representative samples
from local printers and the prices they quote for printing
varying quantities of program.

48. Risk:
It occurs whenever we cannot predict an
alternative’s outcome with certainty, but we do
have enough information to predict the
probability it will lead to the desired state.
To improve decision making, we may estimate the
objective probabilities of an outcome by using
Mathematical models. We can also use subjective
probability based on judgment and experience.
Example: Merger of Bank of America and
Security Pacific in 1992.

49. Uncertainty:
Decision making condition in which managers face
unpredictable external conditions or lack the
information needed to establish the probability of
certain events.
Example: A Corporation that decides to expand it’s
operation in a new country may know little about the
country’s culture, laws, economics, environment and
politics. The political situation may be so volatile that
even the experts cannot predict a possible change in
Government.

50. Modern Approaches to Decision
Making Under Uncertainty:
1) Risk Analysis
2) Decision Trees
1) Preference or Utility Theory

51. Risk Analysis:
Every decision is based on the interaction of a
number of important variables, many of which
have an element of uncertainty but, perhaps, a
fairly high degree of probability.
Example: The wisdom of launching a new product
might depend on a number of critical variables:
the cost of introducing the product, the cost of
producing it, the capital investment that will be
required, the price that can be set for the
product, the size of the potential market and the
share of the total market that it will represent.

52. Let us see the prospective for investment in a
new product :
Rate of Return 0 10 15 20 25 30 35 40
%
Probability of .90 .80 .70 .65 .60 .50 .40 .30
achieving at least
this rate

53. Decision Trees:
Decision Trees depict, in the form of a tree, the
decision points, chance events and probabilities
involved in various courses that might be undertaken.
Eg:-A common problem occurs in business when a new
product is introduced. Managers must decide whether
to install expensive permanent equipment to ensure
production at the lowest possible cost or to undertake
cheaper temporary tooling that will involve higher
manufacturing cost but lower capital investments and
will result in smaller losses if the product does not
sell as well as estimated.

54. Utility Theory:
Preference or utility theory is based on the notion that
individual attitudes toward risk will vary: some
individuals are willing to take only smaller risks than
those indicated by probabilities, while others are willing
to take greater risks. Purely statistical probabilities, as
applied to decision making, rest on the assumption that
decision makers will follow them.
It might seem reasonable that if there were a 60%
chance of a decision’s being the right one, a person
would take it. This is not necessarily true since the risk
of wrong is 40%.
Example: Managers avoid risk, particularly if penalty
for being wrong is severe, whether it be in terms of
monetary loss, reputation or job security.

55. Violations of the expected utility
theory:
Lotteries and Gambling
If by paying a small amount, one has a chance
of winning a large amount, individuals often
ignore the negative expected payoff, as the loss
is small.
BUT
If potential loss is larger, the same individual
may choose very differently
preference reversal in decision making

56. I ndi vi dual D si on M ng
eci aki
• Based on one’s ow n
exper i ence, know edge and i nt ui t i on.
l
• D si on m ng w t hout a gr oup’s
eci aki i
i nput .

57. Advant ages:
• Pr om deci si ons
pt
• Account abl e f or t he ef f ect s of
deci si ons
• Saves t i m m
e, oney and ener gy
• M e f ocused and r at i onal deci si ons
or

58. D sadvant ages
i
• Less i nf or m i on f or t he deci si on.
at
• Based on ow i nt ui t i on and vi ew
n s.
• I nef f ect i ve deci si ons.
• D si ons m ght not ser ve t he
eci i
i nt er est s of al l .

59. Group Decision Making
• D si on m ng by t aki ng t he i nput s
eci aki
of gr oup m ber s.
em
• Based on consul t at i on or consensus of
t he gr oup.

60. Advant ages
• Pool i ng of know edge & i nf or m i on
l at
• Sat i sf act i on & C m t m
om i ent
• Per sonnel Devel opment
• M e R sk t aki ng
or i

61. D sadvant ages
i
• Ti me-consum ng & C l y
i ost
• I ndi vi dual dom nat i on
i
• Pr obl em of r esponsi bi l i t y
• G oupt hi nk
r

62. I ndi vi dual vs. G oup deci si on m ng
r aki
“Too many cooks spoil the broth”
VS.
“Two heads are better than one head”

63. Analysis of Situation for individual and group
decisions making
• Nature of Problem If the policy guidelines regarding the decision for the
problem at hand are provided , individual decision making will result in greater
creativity as well as efficiency .Where the problem requires a variety of
expertise , group decision making is suitable
• Time Availability Group decision making is a time – consuming process and
therefore , when time at disposal is sufficient , group decision making can be
preferred
• Quality of Decision Group decision making generally leads to a higher
quality solution unless an individual has expertise in the decision area and this
has been identified in advance
• Climate of Decision making Supportive climate encourages group decision
making whereas competitive climate stimulates individual decision making
• Legal requirement Legal requirement may be prescribed by government’s
legal framework or by organisational policy ,rules ,etc .For eg : many decisions
have to be compulsorily made by board of directors ( group ) or committee in
companies

64. Techniques for Improving Group
Decision Making
• Brainstorming
• Nominal Group Technique
• Delphi Technique

65. Brainstorming
•Topic
•Take turns sharing ideas
•Record each idea
•No comments/criticisms
•Keep the tempo moving
•One idea per turn
•Members may pass
•Keep going until ideas are exhausted

66. Nominal Group Technique
A generic name for face-to-face group techniques in which
instructions are given to group members not to interact with each
other except at specific steps in the process.
•Silent idea generations,
•Round-robin sharing of ideas,
•Feedback to the group,
•Explanatory group discussion,
•Individual re-assessment, and
•Mathematical aggregation of revised judgements.

67. Delphi Technique
•Problem stated
•Questionnaires
•Anonymous & Independent
•Compile results
•Distribute copies of results
•New round begins
•Does not require physical
presence
•Time consuming