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Decision making techniques
1. Decision-making is a central activity of management that involves identifying problems, criteria, alternatives, analyzing options, selecting a choice, and implementing and evaluating decisions. 2. Group decision-making follows techniques like nominal group thinking, Delphi technique, and stepladder technique to generate ideas and reach consensus while avoiding biases. 3. Programmed decisions are routine while non-programmed decisions are novel, complex, and involve risk; ethics should be considered in all stages of decision-making.
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Decision making techniques
- 1. Submitted to: Submittedby: Dr. Shipra Mittal Gupta Nikita Gupta Mtech(2nd sem) March 6, 2015 1
- 2. What is decision-making? Decision-makingis one of the central activities of management and is a huge part of any process of implementation Good decision making is an essential skill to become an effective leaders and for a successful career “A decision is a judgment. It is a choice between alternatives. It is rarely a choice between right and wrong. It is at best a choice between “almost right” and “probably wrong”.- Drucker. wikipedia.org/wiki/Decision www.merriam-webster.com/dictionary/decision March 6, 2015 2
- 3. The Significance ofDecision Making Decision making is the one truly distinctive characteristic of managers. Decisions made by top managers commit the total organization toward particular courses of action. Decisions made by lower levels of management implement the strategic decisions of top managers in the operating areas of the organization. Decisions invariably involve organizational change and the commitment of scarce resources. www.mindtools.com March 6, 2015 3
- 4. Decision-making Process Identifyinga problem Identifying decision criteria Allocating weights to criteria Developing alternatives Analyzing alternatives Selecting an alternative Implementing the alternative Evaluation (of decision effectiveness) Introduction to management by L.M. Prasad March 6, 2015 4
- 5. The Decision-Making Process Allocationof Development of Problem Identification of Weights to Alternatives Identification Decision Criteria Criteria Acer Compaq“My salespeople Price Reliability 10 GatewayWeight Screen size 8need new computers” HPWarranty Warranty 5 MicromediaScreen type Weight 5 NECReliability Price 4 SonyScreen size Screen type 3 Toshiba Analysis of Selection of an Implementation Alternatives Alternative of an Alternative Acer Acer Compaq Compaq Evaluation GatewayGateway Gateway of Decision HP HP Effectiveness Micromedia Micromedia NEC NEC Sony Sony Toshiba Toshiba March 6, 2015 5
- 6. Categories of Decisions ProgrammedDecisions: A decision that is repetitive and routine A definite method for its solution can be established Does not have to be treated a new each time it occurs Procedures are often already laid out Examples: pricing standard customer orders, determining billing dates, recording office supplies etc. www.slideshare.net March 6, 2015 6
- 7. Categories of Decisions NonprogrammedDecisions: A decision that is novel (new or unique) or Ill structured No established methods exist, because it has never occurred before or because It is too complex Are “tough” decisions that involve risk and uncertainty and call for entrepreneurial abilities Such decisions draw heavily on the analytical abilities of the manager Examples: Moving into a new market, investing in a new unproven technology, changing strategic direction www.slideshare.net March 6, 2015 7
- 8. Programmed vs. Non-programmedDecisions Characteristics Programmed decisions Non-programmed decisions Type of problem Structured Unstructured Managerial level Lower level Upper level Frequency Repetitive New,unusual Information Readily available Ambiguous or incomplete Time frame for solution Short Relatively long Solution relies on Procedures,rules, and policies Judgment and creativity
- 9. Selecting a DecisionMaking Model Depends on the manager’s personal preference Whether the decision is programmed or non-programmed Extent to which the decision is characterized by risk, uncertainty, or ambiguity www.mindtools.com March 6, 2015 9
- 10. Rational Model: Assumptions Clear and unambiguous problem Single, well-defined goal All alternatives are known Clear preferences (ranking criteria) Constant/stable preferences No time or cost constraints Decision will maximize payoff www.slideshare.net March 6, 2015 10
- 11. Rational Model: Criticism Not all decisions made on rational basis Most problems, goals and preferences are not clear or well defined Not practical to know all possible alternatives Time and cost constraints exist in all practical problems Result not maximized in most cases www.slideshare.net March 6, 2015 11
- 12. Bounded Rational Model:Assumptions Limited set of criteria Self-interest influences ratings Limited no. of alternatives Alternatives are assessed one at a time till a satisficing (or good enough) alternative is found Politics influences acceptance and commitment of decision education-portal.com/.../bounded-rationality March 6, 2015 12
- 13. 1. NOMINAL GROUPTHINK The NGT is designed to help all team members participate and express opinions while still building team consensus The nominal group technique is a structured decision making process in which group members are required to compose a comprehensive list of their ideas or proposed alternatives in writing NGT is designed to help with group decision making by ensuring that all members participate fully. http://www.slideshare.net/LouzelLinejan/decision-making-by-individual-and-group
- 14. NGT follows thesesteps: 7-10 individuals are brought together to participate in a structured exercise that includes the following steps: Team members are presented with a problem, challenge or issue Individual team members silently and independently write down their ideas about how to tackle the problem. Each team member (one at a time, in round-robin fashion) presents an idea to the group. Individuals silently and independently vote on each idea. http://www.slideshare.net/LouzelLinejan/decision-making-by-individual-and-group
- 15. 2. DELPHI TECHNIQUE Anothertechnique which capitalises group's resources, while avoiding several possible disadvantages of relying on group decision-making processes This approach, called the Delphi Technique, is similar to NGT in several respects, but also differs significantly in that the decision-makers never actually meet. Its greatest advantage is that it avoids many of the biases and obstacles associated with interacting groups (that is, groups where the members meet face-to-face) http://www.slideshare.net/LouzelLinejan/decision-making-by-individual-and-group
- 16. DELPHI follows thesesteps: Select a group of individuals who possess expertise in a given problem area Survey the experts for their opinions via a mailed questionnaire. Analyse and distil the experts' responses. Mail the summarised results of the survey to the experts and request that they respond once again to a questionnaire. If one expert's opinion sharply differs from the rest, he or she may be asked to provide a rationale. process is repeated several times, the experts usually achieve a consensus http://www.slideshare.net/LouzelLinejan/decision-making-by-individual-and-group
- 17. 3. STEPLADDER TECHNIQUE Aproblem-solving structure recently proposed as a solution to the problem of unequal participation in groups. The technique is intended to improve group decision-making by structuring the entry of group members into a core group. Encourages all members to contribute on an individual level before being influenced by anyone else. This results in a wider variety of ideas, it prevents people from "hiding" within the group, and it helps people avoid being "stepped on" or overpowered by stronger, louder group members. http://www.slideshare.net/LouzelLinejan/decision-making-by-individual-and-group
- 18. 3. STEPLADDER TECHNIQUE Step1: Before getting together as a group, present the task or problem to all members. Give everyone sufficient time to think about what needs to be done Step 2: Form a core group of two members. Have them discuss the problem. Step 3: Add a third group member to the core group. The third member presents ideas to the first two members BEFORE hearing the ideas that have already been discussed. http://www.slideshare.net/LouzelLinejan/decision-making-by-individual-and-group
- 19. 3. STEPLADDER TECHNIQUE Step4: Repeat the same process by adding a fourth member, and so on, to the group. Allow time for discussion after each additional member has presented his or her ideas. Step 5: Reach a final decision only after all members have been brought in and presented their ideas. http://www.slideshare.net/LouzelLinejan/decision-making-by-individual-and-group
- 20. Group Decision-making The factorsrequiring group decisions include: Involving sensitive issues High cost alternatives Involving very high risk factor Strategic impact http://smallbusiness.chron.com/ March 6, 2015 20
- 21. Group Decision-making Advantages 1. Moreinformation and knowledge are available. 2. More alternatives are likely to be generated. 3. More acceptance of the final decision is likely. 4. Enhanced communication of the decision may result. 5. Better decisions generally emerge. Disadvantages 1. The process takes longer than individual decision making, so it is costlier. 2. Compromise decisions resulting from indecisiveness may emerge. 3. One person may dominate the group. 4. Groupthink may occur. http://smallbusiness.chron.com/ March 6, 2015 21
- 22. Ethics into decisionmaking Ways to infuse ethics into decision making. Develop a code of ethics and follow it. Establish procedures for reporting violations. Involve employees in identifying ethical issues. Monitor ethical performance. Reward ethical behavior. Publicize ethical efforts. http://en.wikipedia.org/wiki/Decision-making
- 23. Ethics into decisionmaking Morality is involved in: Choosing problems. Deciding who should be involved in making decisions. Estimating the impacts of decision alternatives. Selecting an alternative for implementation. An effective decision needs to solve a problem as well as match moral values and help others http://en.wikipedia.org/wiki/Decision-making
- 24. REFERENCES http://www.tutorialspoint.com/management_concepts/decision_making_proces s.htm http://www.slideshare.net http://www.authorstream.com/ http://en.wikipedia.org/wiki/Decision-making http://smallbusiness.chron.com/ education-portal.com/.../bounded-rationality Books: 1. Introduction to management by L.M. Prasad 2. Handbook on Decision making by Lakhmi C Jain Vol 4 March 6, 2015 24
- 25. THANK YOU!!! March 6,2015 25
Editor's Notes
- #14 Although it is true that there are a great many factors that can negatively affect our ability to make decisions successfully, there are also many things that can be done to help increase our decision-making effectiveness 1. One approach that attempts to capitalise on the positive features of group decision-making, while avoiding many of the potential pitfalls, is the Nominal Group Technique (NGT). The NGT is designed to help all team members participate and express opinions while still building team consensus. In this technique, seven to ten individuals are brought together to participate in a structured exercise that includes the following steps: Team members are presented with a problem, challenge or issue. Individual team members silently and independently write down their ideas about how to tackle the problem. This is the nominal (non-interacting) phase. Each team member (one at a time, in round-robin fashion) presents an idea to the group. As each idea is offered, it is summarised and recorded on a whiteboard or wall chart, without discussion of its merits. A discussion is held in which all ideas are clarified and evaluated. The merits of the ideas are considered. Ideas are merged, eliminated, expanded and modified. Individuals silently and independently vote on each idea. This voting may involve a rating of the proposals, a rank ordering, the selection of the top two or three ideas, or the division of 10 points among alternatives. The group's decision is then derived by pooling the votes or rankings into a single preferred alternative. A revised list of the best ideas is presented to team members for discussion. If a consensus emerges, the team is finished. If not, the procedure returns to Step 2 and continues through more rounds until the best ideas are identified and agreement is reached. The nominal group technique is a quite popular means of reaching a group decision because it avoids many of the potential problems of group decision-making. For example, a decision can be reached in a reasonable amount of time without being greatly influenced by the leader's preferred position. Perhaps the strongest drawback of NGT is its high degree of structure. As a result, the group may tend to limit its discussion to a single and often highly focused issue.
- #15 Although it is true that there are a great many factors that can negatively affect our ability to make decisions successfully, there are also many things that can be done to help increase our decision-making effectiveness 1. One approach that attempts to capitalise on the positive features of group decision-making, while avoiding many of the potential pitfalls, is the Nominal Group Technique (NGT). The NGT is designed to help all team members participate and express opinions while still building team consensus. In this technique, seven to ten individuals are brought together to participate in a structured exercise that includes the following steps: Team members are presented with a problem, challenge or issue. Individual team members silently and independently write down their ideas about how to tackle the problem. This is the nominal (non-interacting) phase. Each team member (one at a time, in round-robin fashion) presents an idea to the group. As each idea is offered, it is summarised and recorded on a whiteboard or wall chart, without discussion of its merits. A discussion is held in which all ideas are clarified and evaluated. The merits of the ideas are considered. Ideas are merged, eliminated, expanded and modified. Individuals silently and independently vote on each idea. This voting may involve a rating of the proposals, a rank ordering, the selection of the top two or three ideas, or the division of 10 points among alternatives. The group's decision is then derived by pooling the votes or rankings into a single preferred alternative. A revised list of the best ideas is presented to team members for discussion. If a consensus emerges, the team is finished. If not, the procedure returns to Step 2 and continues through more rounds until the best ideas are identified and agreement is reached. The nominal group technique is a quite popular means of reaching a group decision because it avoids many of the potential problems of group decision-making. For example, a decision can be reached in a reasonable amount of time without being greatly influenced by the leader's preferred position. Perhaps the strongest drawback of NGT is its high degree of structure. As a result, the group may tend to limit its discussion to a single and often highly focused issue. === The nominal group technique is a structured decision making process in which group members are required to compose a comprehensive list of their ideas or proposed alternatives in writing. The group members usually record their ideas privately. Once finished, each group member is asked, in turn, to provide one item from their list until all ideas or alternatives have been publicly recorded on a flip chart or marker board. Usually, at this stage of the process verbal exchanges are limited to requests for clarification—no evaluation or criticism of listed ideas is permitted. Once all proposals are listed publicly, the group engages in a discussion of the listed alternatives, which ends in some form of ranking or rating in order of preference. As with brainstorming, the prohibition against criticizing proposals as they are presented is designed to overcome individuals' reluctance to share their ideas. Empirical research conducted on group decision making offers some evidence that the nominal group technique succeeds in generating a greater number of decision alternatives that are of relatively high quality. === Nominal Group Technique Nominal Group TechniqueA technique designed to help with group decision making by ensuring that all members participate fully. (NGT) was developed to help with group decision making by ensuring that all members participate fully. NGT is not a technique to be used at all meetings routinely. Rather, it is used to structure group meetings when members are grappling with problem solving or idea generation. It follows four steps.[528] First, each member of the group engages in a period of independently and silently writing down ideas. Second, the group goes in order around the room to gather all the ideas that were generated. This goes on until all the ideas are shared. Third, a discussion takes place around each idea and members ask for and give clarification and make evaluative statements. Finally, individuals vote for their favorite ideas by using either ranking or rating techniques. Following the four-step NGT helps to ensure that all members participate fully and avoids group decision-making problems such as groupthink.
- #16 DELPHI TECHNIQUE Another technique for capitalising on a group's resources, while avoiding several possible disadvantages of relying on group decision-making processes, was developed by the Rand Corporation. This approach, called the Delphi. Delphi TechniqueDelphi TechniqueA group process that uses written responses to a series of questionnaires instead of physically bringing individuals together to make a decision. is unique because it is a group process using written responses to a series of questionnaires instead of physically bringing individuals together to make a decision. The first questionnaire asks individuals to respond to a broad question, such as stating the problem, outlining objectives, or proposing solutions. Each subsequent questionnaire is built from the information gathered in the previous one. The process ends when the group reaches a consensus. Facilitators can decide whether to keep responses anonymous. This process is often used to generate best practices from experts. For example, Purdue University professor Michael Campion used this process when he was editor of the research journal Personnel Psychology and wanted to determine the qualities that distinguished a good research article. Using the Delphi Technique, he was able to gather responses from hundreds of top researchers from around the world without ever having to leave his office and distill them into a checklist of criteria that he could use to evaluate articles submitted to the journal
- #17 DELPHI TECHNIQUE Another technique for capitalising on a group's resources, while avoiding several possible disadvantages of relying on group decision-making processes, was developed by the Rand Corporation. This approach, called the Delphi. The steps in the Delphi technique are: After this process is repeated several times, the experts usually achieve a consensus. If not, the responses can be pooled to determine a most preferred view. -The Delphi technique has a number of advantages and disadvantages. Its greatest advantage is that it avoids many of the biases and obstacles associated with interacting groups (that is, groups where the members meet face-to-face). It has also been shown to generate fairly useful information and high-quality solutions. A strong disadvantage stems from the amount of time it takes to complete the entire Delphi process. It rarely takes less than several weeks, and often as long as five months. Clearly, urgent problems cannot be solved in this manner. Finally, like NGT, the Delphi Technique follows a highly structured format. As a result, it does not offer much flexibility if conditions change. And, obviously, since respondents never meet face-to-face, social interaction and free dialogue are lost. == individuals in the Delphi "group" are usually selected because of the specific knowledge or expertise of the problem they possess. In the Delphi technique, each group member is asked to independently provide ideas, input, and/or alternative solutions to the decision problem in successive stages. These inputs may be provided in a variety of ways, such as e-mail, fax, or online in a discussion room or electronic bulletin board. After each stage in the process, other group members ask questions and alternatives are ranked or rated in some fashion. After an indefinite number of rounds, the group eventually arrives at a consensus decision on the best course of action. ==
- #18 STEPLADDER TECHNIQUE Initially a small core group of two members, for example, work on a problem. Then the third member joins the core group and presents his or her preliminary suggestions for solving the same problem. Next the member's presentation is followed by a three-person discussion. Each additional member, fourth, fifth and so on joins the expanding core group and presents his or her preliminary solutions; at each step there is a discussion. The technique has four requirements. >>>>> These steps make it difficult for a member to "hide" in the group. Research on the effectiveness of the stepladder technique has shown that stepladder groups produce higher-quality decisions than conventional groups. == Developed by Steven Rogelberg, Janet Barnes-Farrell and Charles Lowe in 1992, it encourages all members to contribute on an individual level BEFORE being influenced by anyone else. This results in a wider variety of ideas, it prevents people from "hiding" within the group, and it helps people avoid being "stepped on" or overpowered by stronger, louder group members. All of this helps the group make better decisions.
- #19 How to Use the Tool The Stepladder Technique has five basic steps. Here's how it works. Tip: The Stepladder Technique is similar to the Delphi Method, another tool that's often used in groups to prevent Groupthink and to encourage participation. While both tools have the same objective, they differ in a few key ways: In the Delphi Method, an objective facilitator or leader manages the group. In the Stepladder Technique, all members are equal. The Delphi Method keeps members anonymous. The facilitator manages the flow of information, and members may have no idea who else is in the group. The Stepladder Technique involves face-to-face meetings, so everyone knows who the other members are. The Delphi Method is a lengthy process, while the Stepladder Technique is much quicker. The Delphi Method is often used for major decisions that need input from a large number of people. The Stepladder Technique works best with smaller groups that make a wide range of decisions. Tip: Groups can begin to lose their effectiveness and ability to make good quality decisions if they have too many members. Keep your group small – four to seven team members – to maximize effectiveness. Key Points The Stepladder Technique is a step-by-step approach that helps you ensure that all members of a group participate and are heard. The technique allows shy, quiet people to present their ideas before other group members can influence them, and it allows everyone to hear many different viewpoints before reaching a final decision.
- #20 How to Use the Tool The Stepladder Technique has five basic steps. Here's how it works. Tip: The Stepladder Technique is similar to the Delphi Method, another tool that's often used in groups to prevent Groupthink and to encourage participation. While both tools have the same objective, they differ in a few key ways: In the Delphi Method, an objective facilitator or leader manages the group. In the Stepladder Technique, all members are equal. The Delphi Method keeps members anonymous. The facilitator manages the flow of information, and members may have no idea who else is in the group. The Stepladder Technique involves face-to-face meetings, so everyone knows who the other members are. The Delphi Method is a lengthy process, while the Stepladder Technique is much quicker. The Delphi Method is often used for major decisions that need input from a large number of people. The Stepladder Technique works best with smaller groups that make a wide range of decisions. Tip: Groups can begin to lose their effectiveness and ability to make good quality decisions if they have too many members. Keep your group small – four to seven team members – to maximize effectiveness. Key Points The Stepladder Technique is a step-by-step approach that helps you ensure that all members of a group participate and are heard. The technique allows shy, quiet people to present their ideas before other group members can influence them, and it allows everyone to hear many different viewpoints before reaching a final decision.