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Organisational Decision making

• “ the process of responding to a problem by searching for and selecting a solution or course of action that will create value for organisational stakeholders”.

• There are basically two kinds of decision that managers called upon to make:

Programmed and non-programmed

Types of Problems and Decisions

• Structured problems* Involved goals that clear.*Are familiar(have occurred before)*Are easily and completely defined- information about the problem is available and complete.

• Programmed decision*A repetitive decision the can be handled by a routine approach.

Problems and Decisions ( cont’d)• Unstructured problems

* Problems that are new or unusual and for which information is ambiguous or incomplete.

* Problems that will require custom-made solutions.

• Non-programmed decisions* Decision that are unique and nonrecurring.

* Decision that generate unique responses.

Types of Programmed Decisions

• Policy* a general guideline for making a decision about a

structured problem.• Procedure

* A series of interrelated steps that a manager can use to respond ( applying a policy) to a structured problem.

• Rule* an explicit statement that limits what a manager or employee can or cannot do.

Programmed vs. Non-programmed Decisions

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

The Decision-Making Process

Define the Problem

Evaluate Alternatives

Implement the chosen Alternative

Gather facts and develop

alternatives.

Select the best alternative.

Follow up and evaluate the chosen

alternative.

Decision Making Process

• Identify a problem and decision criteria and allocating weights to the criteria.

• Developing, analyzing, and selecting an alternative that can resolve the problem.

• Implemented and selected alternatives.

• Evaluating the decision’s effectiveness.

Step 1: Identifying the Problem

• Problem* A discrepancy between an existing and desired state

of affairs.

• Characteristics of Problems* A problem becomes a problem when a manager becomes aware of it.* there is a pressure to solve the problem.* the manager must have the authority, information, or resources needed to solve the problem.

Step 2: Identify the Decision Criteria

• Decision criteria are factors that are important ( relevant) to resolving the problem.* Costs that will be incurred (investment required).* Risks likely to be encountered ( chance of failure).* Outcomes that are desired ( growth of the firm).

Step 3: Allocating Weights to the Criteria

• Decision criteria are not of equal importance:

* Assigning a weight to each item.

* Places the items in the correct priority order of their importance in the decision making process.

Step 4: Developing Alternatives

• Identifying viable alternatives.* Alternatives are listed ( without evaluation) that can resolve the problem.

Step 5 :Analyzing alternatives• Appraising each alternative’s strengths and

weaknesses* An alternative’s appraisal is based on its ability to resolve the issues identified in step 2 and step 3.

Step 6: selecting the alternative

• Choosing the best alternative

* The alternative with the highest total weight is chosen.

Step 7: Implementing the Alternative• Putting the decision to and gaining comment

from those whose will carry out the decision.

Step 8: Evaluating the decision’s effectiveness

• The soundness of the decision is judged by its outcomes.

* How effectively was the problem resolved by outcomes resulting from the chosen alternatives?

* if the problem was not resolve, what went wrong?

The decision making process-Example

Identification of a problem

Identification of Decision Criteria

Allocation of weights to criteria

Development of alternatives

Analyzing of alternatives

Selection of alternatives

Implementation of alternatives

Evaluation of decision alternatives

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The role of intuition• Intuitive decision making

* Making decisions on the basis of experience, feelings, and accumulated judgment.

intuition

Experience-based Decisions

Affect-Initiated Decisions

Cognitive-Based Decisions

Subconscious mental processing

Values or ethics-based Decisions

Their past experiences

Feelings or emotions

Skills,knowledge, and training

Data from subconscious mind

Ethical values and culture

What is Intuition ?

Decision Making Conditions

• Certainty* A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known.

• Risk* A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives.

Decision-making Conditions

• Uncertainty* limited information prevents estimation of outcome probabilities for alternatives associated with the problem and may force managers or rely on intuition, hunches, and “gut feelings”.# Maximax: The optimistic manager’s choice to maximize

the maximum payoff.

# Maximin: The pessimistic manager’s choice to maximize the minimum payoff.

# Minimax: The manager’s choice to minimize maximum regret.

Decision-making styles

• Dimensions of decision-making styles

* Ways of thinking

* Rational,orderly, and consistent.

* Intuitive, creative, and unique.

• Tolerance of ambiguity

*Low tolerance:require consistency and order.

*High tolerance: multiple thoughts simultaneously.

Decision-Making Styles (cont’d)• Types of Decision Makers

* Directive# Use minimal information and consider few

alternatives.* Analytic# Make careful decisions in unique situations.

* Conceptual# Maintain a broad outlook and consider many

alternatives in making decisions.* Behavioral# Avoid conflict by working well with others and

being receptive to suggestions.

Characteristics of an Effective Decision-Making

• It focuses on what is important• It is logical and consistent.• It acknowledges both subjective and objective

thinking and blends analytical with intuitive thinking.• It requires only as much information and analysis as

is necessary to resolve a particular dilemma.• It encourages and guides the gathering of relevant

information and informed opinion.• It is straightforward,reliable, easy to use, and flexible.

A General-Decision Making Model

Individual Models of Decision-Making

Cognitive styleUnderlying personality dispositions toward the treatment of information, selection of alternatives, and evaluation of consequences.Systematic decision makerspeople who approach a problem by structuring it in terms of some formal method.Intuitive decision makerspeople who approach a problem with multiple methods in an unstructured manner, using trail and error to find a solution.Organizational models of decision makingModels of decision making that take into account the structural and political characteristics of an organization.

Bureaucratic models of decision makingwhere decisions are shaped by the organization’s standard operating procedures(SOPs).

Political models of decision makingwhere decisions result from competition and bargaining among the organization’s interest groups and key leaders.

“Garbage can” modelwhere states that organizations are not rational and that decisions are solutions that become attached to problems for accidental reasons.

Organizational Models of Decision-Making

Guideline for making decision more effective

Categorical interpretation- the problem should be defined properly.Application of limiting factor- limiting factor should be taken into account in order to analyze the external S & W.Adequate information- more quantity of reliable information leads to effective decision making.Considering other views- various views at the same point are taken into account for quality decision.Timeliness- decision should be ,made at proper time to meet the competitive advantages.

Techniques for improving decision making

Brainstorming – idea generation for decision making.

Nominal group technique (NGT)- problem outlined, presentation of solution in written form, discussion over written solutions, and final decision.Delphi technique- decision made on the basis of questionnaire filled by the respondents.Consensus mapping- decision made on the basis of the report presented by the representative of each group.