CHAPTER-6(Six) CONCEPT OF DECISION MAKING CONCEPT OF DECISION MAKING

CHAPTER-6(Six)CHAPTER-6(Six)

CONCEPT OF DECISION CONCEPT OF DECISION MAKINGMAKING

Decision Making & Decision Decision Making & Decision Making ProcessMaking Process

Decision making is an act of choosing one Decision making is an act of choosing one alternative from among a set of alternative from among a set of alternatives.alternatives.

Decision making process indicates Decision making process indicates recognizing and defining the nature of a recognizing and defining the nature of a decision situation, identifying alternatives, decision situation, identifying alternatives, choosing the “best” alternative, and putting choosing the “best” alternative, and putting it into practice.it into practice.

DEFINITION OF DECISION DEFINITION OF DECISION MAKINGMAKING

Decision making is defined as the selection Decision making is defined as the selection of a course of action from among of a course of action from among alternatives: it is the core of planning.alternatives: it is the core of planning.

The process leading to making a decision The process leading to making a decision might be though of as-might be though of as-

i)i) premising, premising,

ii)ii) identifying alternatives, identifying alternatives,

iii)iii) evaluating alternatives in terms of the evaluating alternatives in terms of the goal sought, andgoal sought, and

iv)iv) choosing an alternative, that is, making choosing an alternative, that is, making a decision.a decision.

Last of all we can say, Decision making is Last of all we can say, Decision making is the act of choosing one alternative from the act of choosing one alternative from among a set of alternatives.among a set of alternatives.

TYPES OF DECISIONS:TYPES OF DECISIONS:

Managers must make many different types Managers must make many different types of decision. In general, most decision of decision. In general, most decision fall into one of two categories: fall into one of two categories: programmed and non-programmed.programmed and non-programmed.

i)i) Programmed DecisionsProgrammed Decisions are used for are used for structured or routing work.structured or routing work.

Example Example of a programmed decision is the of a programmed decision is the reordering of standard inventory items.reordering of standard inventory items.

ii) ii) Non-programmed DecisionsNon-programmed Decisions are used are used for unstructured, novel, and ill-defined for unstructured, novel, and ill-defined situation of a nonrecurring nature. situation of a nonrecurring nature. Examples, deciding whether to merge Examples, deciding whether to merge with another company, how to replace an with another company, how to replace an executive who died unexpectedly, executive who died unexpectedly, whether a foreign branch should be whether a foreign branch should be opened. opened.

DECISION-MAKING DECISION-MAKING CONDITIONS:CONDITIONS:

Decision making is the act of choosing one Decision making is the act of choosing one alternative from among a set of alternative from among a set of alternatives. Most decision take place alternatives. Most decision take place under conditions of certainty, risk, or under conditions of certainty, risk, or uncertainty. uncertainty. The decision maker The decision maker

faces conditions of.faces conditions of.

CertaintyCertainty RiskRisk UncertaintyUncertainty

1.State of certainty:1.State of certainty: A condition in which A condition in which the decision maker knows with the decision maker knows with reasonable certainty what the alternative reasonable certainty what the alternative are and what conditions are associated are and what conditions are associated with each alternative.with each alternative.

2. State of risk:2. State of risk: A condition in which the A condition in which the availability of each alternative and its availability of each alternative and its potential payoffs and costs are all potential payoffs and costs are all associated with probability estimates.associated with probability estimates.

3. State of uncertainty:3. State of uncertainty: A condition in A condition in which the decision maker does not know which the decision maker does not know all the alternatives, the risks associated all the alternatives, the risks associated with each, or the consequences each with each, or the consequences each alternative is likely to havealternative is likely to have

STEPS IN RATIONAL STEPS IN RATIONAL DECISION MAKING:DECISION MAKING:

A manager who really wants to approach a A manager who really wants to approach a decision rationally and logically should try decision rationally and logically should try to follow the steps in rational decision to follow the steps in rational decision making. These steps in rational decision making. These steps in rational decision making help keep the decision maker making help keep the decision maker focused on facts and logic and help focused on facts and logic and help guard against inappropriate assumption guard against inappropriate assumption and pitfalls.and pitfalls.

Steps in decision making are as follows:Steps in decision making are as follows:1.1. Recognizing and defining the decision Recognizing and defining the decision

situation.situation.2.2. Identifying alternatives.Identifying alternatives.3.3. Evaluating alternatives.Evaluating alternatives.4.4. Selecting the best alternative.Selecting the best alternative.5.5. Implementing the chosen alternative.Implementing the chosen alternative.6.6. Following up and evaluating the results.Following up and evaluating the results.

1.Recognizing and defining the decision 1.Recognizing and defining the decision situation:situation: Some stimulus indicates that Some stimulus indicates that a decision must be made. The stimulus a decision must be made. The stimulus may be positive or negative.may be positive or negative.

Example-Example-A plant manager sees that A plant manager sees that employee turnover has increased by 5 employee turnover has increased by 5 percent.percent.

2. Identifying alternatives:2. Identifying alternatives: Both obvious Both obvious and creative alternatives are desired. In and creative alternatives are desired. In general, the more important the general, the more important the decision, the more alternatives should decision, the more alternatives should be generated.be generated.

`Example-`Example- The plant manager can The plant manager can increase wages, increase benefits, or increase wages, increase benefits, or change hiring standards.change hiring standards.

3. Evaluating alternatives:3. Evaluating alternatives: Each Each alternative is evaluated to determine its alternative is evaluated to determine its feasibility, its satisfactoriness, and its feasibility, its satisfactoriness, and its consequences.consequences.

Example-Example-Increasing benefits may not be Increasing benefits may not be feasible, Increasing wages and feasible, Increasing wages and changing hiring standards may satisfy changing hiring standards may satisfy all conditions.all conditions.

4.Selecting the best alternative:4.Selecting the best alternative: Consider all situational factors and Consider all situational factors and choose the alternative that best fits the choose the alternative that best fits the manager’s situation.manager’s situation.

Example:Example: Changing hiring standards will Changing hiring standards will take an extended period of time to cut take an extended period of time to cut turnover, so increase wages.turnover, so increase wages.

5.Implementing the chosen alternative:5.Implementing the chosen alternative: The chosen alternative is implemented The chosen alternative is implemented into the organizational system.into the organizational system.

Example-The plant manager may need Example-The plant manager may need permission from corporate permission from corporate headquarters. The human resource headquarters. The human resource department establishes a new wage department establishes a new wage structure.structure.

6. Following up and evaluating the 6. Following up and evaluating the results:results: At some time in the future, the At some time in the future, the manager should ascertain the extent to manager should ascertain the extent to which the alternative chosen in step 4 which the alternative chosen in step 4 and implemented in step 5 has worked.and implemented in step 5 has worked.

ExampleExample- The plant manager notes that, - The plant manager notes that, six months later, turnover dropped to its six months later, turnover dropped to its previous level.previous level.

How does a manager How does a manager select an Alternative?select an Alternative?

When selecting from among alternatives, When selecting from among alternatives, manager can use three basic approaches:manager can use three basic approaches:

1.1. Experience.Experience.

2.2. Experimentation, and Experimentation, and

3.3. Research and analysis.Research and analysis.

1.Experience:1.Experience: Reliance on past experience probably plays a Reliance on past experience probably plays a

large part than it deserves in decision making. large part than it deserves in decision making. Experienced managers usually believe, often Experienced managers usually believe, often without realizing it, that the things they have without realizing it, that the things they have successfully accomplished and the mistakes successfully accomplished and the mistakes they have made furnish almost infallible guides they have made furnish almost infallible guides to the future. This attitude is likely to be more to the future. This attitude is likely to be more pronounced the more experience a manager pronounced the more experience a manager has had and the higher he or she has risen in has had and the higher he or she has risen in an organization.an organization.

2.Experimentation:2.Experimentation: Experimentation is an Experimentation is an obvious way to decide among alternatives is to obvious way to decide among alternatives is to try one of them and see what happens. try one of them and see what happens. Experimentation is often used in scientific Experimentation is often used in scientific inquiry. People often argue that it should be inquiry. People often argue that it should be employed more often in managing and that the employed more often in managing and that the only way a manager can sure some plans are only way a manager can sure some plans are right especially in view of the intangible factors- right especially in view of the intangible factors- is to try the various alternatives and see which is to try the various alternatives and see which is best.is best.

3. Research and analysis:3. Research and analysis: One of the most One of the most effective techniques for selecting from effective techniques for selecting from alternatives when major decisions are involved alternatives when major decisions are involved is research and analysis. This approach means is research and analysis. This approach means solving a problem by first comprehending it. It solving a problem by first comprehending it. It thus involves a search for relationship among thus involves a search for relationship among the more critical of the variables, constraints, the more critical of the variables, constraints, and premises that bear upon the goal sought. It and premises that bear upon the goal sought. It is the pencil-and-paper approach to decision is the pencil-and-paper approach to decision making.making.

DECISION MAKING MODELDECISION MAKING MODEL

Classical Model of Decision-makingClassical Model of Decision-making Administrative Model of Decision-makingAdministrative Model of Decision-making

Group Decision Making Group Decision Making In OrganizationsIn Organizations

Interacting groupInteracting group Delphi groupDelphi group Nominal groupNominal group

CREATIVITY & INNOVATIONCREATIVITY & INNOVATION

An important factor in managing people is An important factor in managing people is creativity. A distinction can be made creativity. A distinction can be made between creativity and innovation.between creativity and innovation.

The term The term creativity creativity usually refers to the usually refers to the ability and power to develop new ideas.ability and power to develop new ideas.

On the other hand, On the other hand, InnovationInnovation usually usually means the use of these (new) ideas.means the use of these (new) ideas.

BRAINSTORMINGBRAINSTORMING

Alex F. OsbornAlex F. Osborn has been called the has been called the father of brainstorming. The purpose of father of brainstorming. The purpose of the Brainstorming is to improve problem the Brainstorming is to improve problem solving by finding new and unusual solving by finding new and unusual solutions. In the solutions. In the Brainstorming Brainstorming session, session, a multiplication of ideas is sought. The a multiplication of ideas is sought. The rules are as follows:rules are as follows:

* No ideas are ever criticized.No ideas are ever criticized.

The more radical the ideas are, the better.The more radical the ideas are, the better. The quantity of idea production is stressed.The quantity of idea production is stressed. The improvement of ideas by others is The improvement of ideas by others is

encouraged.encouraged.

Brainstorming,Brainstorming, which emphasizes group which emphasizes group thinking, was widely accepted after its thinking, was widely accepted after its introduction.introduction.