Decision Making By: Dr. Mohammad Bashaar Ulfat MD, MBA Q1.What is the process of decision making? Discuss how does decision making fit into managerial activity? Decision-making is a process of choosing among alternative courses of action in order to attain goals and objectives. Nobel laureate Herbert Simon wrote that the whole process of managerial decision-making is synonymous with the practice of management.1 Decision-making is at the core of all managerial functions. Planning, for example, involves deciding what should be done? When? How? Where? and By whom? Other managerial functions, such as organizing, implementing, and controlling rely heavily on decision-making. Todays fast changing and global environment dictates that a successful enterprise has a rich decision-making process. This means not only gathering and processing data, but also making decisions with the support of state-of-the-art decision methods. Decision-making is the very foundation of an enterprise, and sound decision-making is absolutely necessary for gaining and maintaining a competitive advantage. In many enterprises the decision process entails great time and effort in gathering and analyzing information. Much less time and effort go into evaluating alternative courses of action. The results of the analyses (there are often many, for example financial, marketing, operations, and so on) are intuitively synthesized to reach a decision. Research has shown that although the vast majority of everyday decisions made intuitively are adequate, perception alone is not sufficient for making complex, crucial decisions. Organizations that use modern decision support methods can gain and maintain a competitive edge in leading and managing global business relationships that are influenced by fast changing technologies and complicated by complex interrelationships between business and governments. An individual can solve problems more realistically when he/she uses a decisionmaking process. This process, when understood and applied, can assist you in making study and vocational decision(s) and future decisions, about your life. One thing to remember is that you are in charge of any decisions to be made. You may seek help and advice from other people and other sources, but the final decision must be made by you.

There are several steps involved in the decision-making process: 1. 2. 3. 4. 5. 6. Reaching a decision-point (Defining the problem) Exploration of the problem (Gathering information) Evaluation of information (Weighing the evidence) Choice of a plan of action (Choosing possible alternatives) Taking action on your plan Clarification and review of plans (Outgoing - Ongoing)

1. Reaching a Decision Point (Defining the Problem) A decision point is reached when you become aware of a specific problem and see the need to make a decision. Before you can solve a problem however, you have to know what the problem is. You must be able to interpret the entire picture so that the problem is clearly understood. For example, if you want to plan and

establish an educational plan to reach a career goal you might work toward arriving at well-considered answers to the following questions: 1. 2. 3. 4. For For For For what what what what kind kind kind kind of of of of career am I best suited? an alternative career am I best suited? education and training am I best suited? alternative education or training am I best suited?

2. Exploration of the Problem (Gathering Information) This is the initial activity of decision-making in which you think about all of the possibilities related to the problem and the decision. You must look for all the alternatives open to you before you make a decision. This is done by collecting relevant information. Some areas important to vocational decisionmaking which should be investigated are: 1. Physical attributes and health 2. Leisure experiences 3. Work experiences 4. Opinions of parents and others 5. Values and standards 6. Study - the amount of time and efficiency of your studying 7. Marital plans 8. Financial needs 9. Social status needs 10. Academic ability and achievement 11. Personality traits 12. Interests 13. Occupational and education facts (information about occupation, requirements of different kinds of jobs, educational level necessary, etc.) 3. Evaluation of Information (Weighing the Evidence) You should consider all of the alternatives open and how they are related to you. This step is the one in which each bit of information gathered is considered separately and then as a whole. You should be able to evaluate where you stand concerning the above individual areas and to the total picture. 4. Choice of Plan of Action (Choosing Possible Alternatives) In this step you choose between the alternatives open to you, remembering that the information you gathered will vary in importance to you. In this step you should be able to answer the following questions: 1. What is the best vocational choice you can make? 2. What is the second best choice? 3. What is the best educational course to follow? 5. Taking Action In this step you take action on the plans you made in step number 4. implement these plans (educationally, training, etc.)? 6. Clarification and Review of Plans In this step you make periodic examinations of your choice and plans. You should continually check to make sure your decision is the best one possible at the time. You may have to review your decision due to new information and new experiences. Therefore, at times, you may see the need to alter your plans. Also, reviewing How can you

will help you see that the decision-making process leads to sound plans and you will have logical reasons why you decided upon the educational and career objectives that you did.

The Need for Better Decision-making: Few people today would doubt the importance of relevant information when making vital decisions. Yet many people are unaware of the need for a logical approach to the decision itself. They consider it sufficient to collect data, analyze the data, and then simply think hard in order to arrive at a good decision. They use seat of the pants approaches or simplistic strategies for analyzing their decisions. In his book, Crucial Decisions, Irving Janis provided evidence that A poor-quality decision-making process (which characterizes simplistic strategies) is more likely than a high-quality process to lead to undesirable outcomes (including disastrous fiascoes). He asserted When all vital decisions are made on the basis of a simplistic strategy, the gross misperceptions and miscalculations that remain uncorrected are likely to lead to disaster sooner or later usually sooner rather than later.3 There are some who have already recognized the need for what Janis called vigilant decision-making. Janis stated: When executives are asked how they go about making the most consequential decisions, some of them acknowledge that when they believe the stakes are really very high, they do not stick to the seat-of-the pants approach that they ordinarily use in daily decision-making. In fact, their accounts of what they do in such circumstances are not very different from the analytic problem-solving approach recommended in most standard textbooks in management sciences. One of the difficulties in using the analytical problem solving approaches found in management science textbooks, however, is that they are predominantly quantitative approaches incapable of incorporating the qualitative factors so important in vital decisions. We will, in this book, look at and resolve the quandary posed by the need to synthesize quantitative and qualitative factors in a decision process. Decision-making is undoubtedly the most difficult and most essential task a manager performs4. Executives rate decision-making ability as the most important business skill, but few people have the training they need to make good decisions consistently. Some of these techniques are counter intuitive and therefore extremely difficult to learn by trial and error. Experienced golfers love to watch athletic baseball players step up to the tee and swing as hard as they can, only to miss the ball completely. A golf instructor can quickly teach the athletic baseball player what is not intuitive that the left arm (for a right-hander) should be kept almost straight, unlike during a baseball swing, and that swinging easier will usually make the golf ball go further. Techniques like keeping your head down (or eyes on the ball), work well in several sports, like golf, tennis and baseball. But someone who has not played any of these sports will intuitively lift their head to see where the ball is going before the swing is completed. Every decision making process produces a final choice. It can be an action or an opinion. It begins when we need to do something but we do not know what. Therefore, decision making is a reasoning process which can be rational or irrational, and can be based on explicit assumptions or tacit assumptions. Common examples include shopping, deciding what to eat, when to sleep, and deciding whom or what to vote for in an election or referendum. Decision making is said to be a psychological construct. This means that although we can never "see" a decision, we can infer from observable behaviour that a decision has been made. Therefore, we conclude that a psychological event that we call "decision making" has occurred. It is a construction that imputes commitment to action. That is, based on observable actions, we assume that people have made a commitment to affect the action.

Structured rational decision making is an important part of all science-based professions, where specialists apply their knowledge in a given area to making informed decisions. For example, medical decision making often involves making a diagnosis and selecting an appropriate treatment. Some research using naturalistic methods shows, however, that in situations with higher time pressure, higher stakes, or increased ambiguities, experts use intuitive decision making rather than structured approaches, following a recognition primed decision approach to fit a set of indicators into the expert's experience and immediately arrive at a satisfactory course of action without weighing alternatives. Due to the large number of considerations involved in many decisions, computerbased decision support systems have been developed to assist decision makers in considering the implications of various courses of thinking. They can help reduce the risk of human errors. The systems which try to realize some human/cognitive decision making functions are called Intelligent Decision Support Systems (IDSS), see for ex. "An Approach to the Intelligent Decision Advisor (IDA) for Emergency Managers, 1999". Decision-making process: 1. Define and clarify the issue - does it warrant action? If so, now? Is the matter urgent, important or both. See the Pareto Principle. 2. Gather all the facts and understand their causes. 3. Think about or brainstorm possible options and solutions. (See brainstorming process) 4. Consider and compare the pros and cons of each option - consult if necessary - it probably will be. 5. Select the best option - avoid vagueness or 'foot in both camps' compromise. 6. Explain your decision to those involved and affected, and follow up to ensure proper and effective implementation. Decision-making maxims will help to reinforce the above decision-making process whether related to problem-solving or not, for example: "In any moment of decision the best thing you can do is the right thing, the next best thing is the wrong thing, and the worst thing you can do is nothing

Decision making style According to behavior list, a person's decision making process depends to a significant degree on their cognitive style. Starting from the work of Carl Jung, Myers developed a set of four bi-polar dimensions, called the Myers-Briggs Type Indicator (MBTI). The terminal points on these dimensions are: thinking and feeling; extroversion and introversion; judgment and perception; and sensing and intuition. She claimed that a person's decision making style is based largely on how they score on these four dimensions. For example, someone that scored near the thinking, extroversion, sensing, and judgment ends of the dimensions would tend to have a logical, analytical, objective, critical and empirical decision making style. Every day we make decisions. A number of them are little one but others are significant. How to know that we have made a right decision? One way could be this to wait until the outcome of decision declares, if the results are good we would say that it was a good decision if the results were bad we might say that, if we would choose another course of action the results would be better then now.

The other way to judge good and bad decision is to see the process of decision making. Before we start elaborating the steps involve in decision making first we should mention that the definition of decision making is not restrict to the moment of choice itself, but decision making is process which take a period of time to take place. The decision making has number of steps which take place in order. Following are the steps in decision making: The process of decision making can be sighted as a sequence of steps. All models of these steps may not necessarily reflect how decisions are actually make in practice, but can indicate a rational procedure. In the total problem solving/decision making sequence a problem is first observed, after which it is formally recognized. Some interpretation or diagnosis is made, from which a decision is defined. The objectives of the decision are set, the options which form potential solutions to the problem are formulated, and their worth evaluated. One option is then selected and implemented. This implemented solution can be monitored and, if it proves derisory, the process starts over again. In practice, decision making will probably not follow quite such an orderly process. Steps may be missed and decision makers may jump backwards and forwards, one or two steps. Now I will go in a detail of the process of decision making: since one criterion of a good decision is the way it is made, we should examine the process in some detail. Decision making or problem solving Supervisors constantly make decisions that affect the work of others. Day-to-day situations involving supervisory decisions include employee morale, the allocation of effort, the materials used on the job, and the coordination of schedules and work areas. The supervisor must recognize problems, make a decision, initiate an action, and evaluate the results. In order to make decisions that are consistent with the overall goals of the organization, supervisors use guidelines set by top management. Thus, it is difficult for supervisors to make good decisions without good planning. An objective becomes a criterion by which decisions are made. A decision is a solution chosen from among alternatives. Decisions must be made when the supervisor is faced with a problem. The first decision is whether or not to take corrective action. A simple solution might be to change the objective. Yet, the job of the supervisor is to achieve objectives. Thus, supervisors will attempt to solve most problems. A problem exists whenever there is a difference between what actually happens and what the supervisor wants to have happen. Some of the problems faced by the supervisor may occur frequently. The solutions to these problems may be systematized by establishing policies that will provide a ready solution to them. In these repetitive situations, the problem solving process is used once and then the solution (decision) can be used again in similar situations. Exceptions to established routines or policies become the more difficult decisions that supervisors must make. When no previous policy exists, the supervisor must invent a solution. Problem solving is the process of taking corrective action in order to meet objectives. Some of the more effective decisions involve creativity. To get better ideas, the supervisor follows the steps in the problem solving process. The steps are built on a logical analysis. The supervisor can think through all aspects of the problem by answering the following questions. What seems to be the trouble? Why is it causing the trouble? What are the causal factors? What can be done in all possibilities? Are all these possibilities workable? What are the probabilities of success for each of the solutions? What are the appropriate alternatives? What is the correct choice? Have I logically eliminated the other choices? When and how can the solution be implemented? What is the best way to implement the solution? Has the solution

solved the original problem? Have I planned, organized, and provided for the control of actions leading to solutions? The steps in the problem solving process are (1) define the problem, (2) identify decision criteria, (3) develop alternatives, (4) decide, (5) implement the decision, and (6) evaluate the decision. Step 1: Define the problem. The problem solving/decision-making process begins when the supervisor recognizes the problem, experiences pressure to act on it, and has the resources to do something about it. This means that the supervisor must correctly define the problem. Problem identification is not easy. The problem statement can be too broad or too narrow. Supervisors are easily swayed by a solution orientation that allows them to gloss over this first and most important step. Or, what is perceived, as the cause of a problem may actually be a symptom. The supervisor must solve the right problem. In order to define the problem, the supervisor must describe the factors that are causing the problem. These are the symptoms, visible as circumstances or conditions that indicate the existence of the problem -- the difference between what is desired and what exists. By not clearly defining the problem, ineffective action will be taken. Step 2: Identify decision criteria. The supervisor determines what is relevant in making a decision by isolating the facts pertinent to the problem. Since there is no single best criterion for decision making where a perfect knowledge of all the facts is present, a set of criteria must be used for the problem at hand. These decision criteria identify what will guide the decision-making process. They are the important facts relevant to the problem as defined. It is important that decision criteria be established early in the problem solving process because if the criteria are developed as analysis of data is taking place, the chances are good that the data will determine the criteria. Thus, setting the criteria early introduces objectivity. These facts can be tangible as well as intangible. Tangible facts might include the work assignments, the work schedules, or work orders. Intangible facts could include morale, motivation, and personal feelings and perceptions. This process is somewhat subjective, because what serves as important criteria for one supervisor may be less important for another. For instance, the decisionmaking criteria used to hire employees differs across departments; the sales department uses the number of new store openings in different geographic areas, while the manufacturing department uses how many units of the product needs to be produced and how quickly. Key uncertainties, the variables that result from simple chance, must be identified. Regardless of the solution chosen, key uncertainties are important because they can be plusses or minuses. What are the chance variables? Which way would these variables fall, relative to each of the workable solutions? Not all criteria have the same importance. (Criteria weights can vary among different supervisors as well.) Assigning weights indicates the importance a supervisor places on each criterion for resolving the problem and helps establish priorities. Criteria that are extremely important can be given more weight, while those that are least important can be given less weight. Step 3: Develop alternatives. The supervisor must identify all workable alternative solutions for resolving the problem. The term workable prevents alternative solutions that are too expensive, too time-consuming, or too elaborate. The best approach in determining workable solutions is to state all possible alternatives, without evaluating any of the options. This helps to ensure that a thorough list of possibilities is created. Generating alternative solutions requires divergent thinking (deviating from traditional.) Groups can be used to generate alternative solutions. Brainstorming is the process of suggesting as many alternatives as possible without evaluation. The group is presented with a problem and asked to develop as many solutions as possible. When brainstorming, employees should be encouraged to make wild, extreme suggestions. They build on suggestions made by others. None of the alternatives

are evaluated until all possibilities are exhausted. The supervisor must judge what would happen with each alternative and its effect on the problem. The strengths and weaknesses of each alternative are critically analyzed by comparing the weights assigned and then eliminating the alternatives that are not workable. Probability factors -- such as risk, uncertainty, and ignorance - must be considered. Risk is a state of imperfect knowledge in which the decision-maker judges the different possible outcomes of each alternative and can determine the probabilities of success for each. Uncertainty is a state in which the decision-maker judges the different possible outcomes of each alternative but lacks any feeling for their probabilities of success. Ignorance is a state in which the decision-maker cannot judge the different possible outcomes of each alternative, let alone their probabilities. Investigating all the possible alternatives helps to prevent eliminating the most appropriate one, because a decision is only as good as the best alternative evaluated. Step 4: Decide. The supervisor must make a choice among the alternatives. The alternative that rates the highest score should be the preferred solution. The decision can be assisted by the supervisor's experience, past judgment, advice from others, or even a hunch. Timing impacts the decision. The probable outcome and its advantages versus its disadvantages are affected at any given time. Which alternative is most appropriate at a given time? Decisions are made by consensus when solutions are acceptable to everyone in the group, not just a majority. Everyone is included, and the decision is a win-win situation. Consensus does not include voting, averaging, compromising, negotiating, or trading (win-lose situations). Every member accepts the solution, even though some members may not be convinced that it is the best solution. The "right" decision is the best collective judgment of the group as a whole. Consensus gives every person a chance to be heard and have their input weighed equally. All members accept responsibility for both listening and contributing. Disagreements are viewed as helpful rather than hindrances in reaching consensus. Each member monitors the decision-making process and initiates discussions about the process if it becomes ineffective. The smallest minority has a chance to change the collective mind if their input is keener. Group members do not give in just to reach an agreement. They support only those solutions that they can truthfully accept. If people exercise this power to go against the majority, they must have listened to the collective wisdom in good conscience. A block should not be used to place an individual's will above the group's. Consensus works in an environment of trust, where everyone suffers or gains alike from the decision. Everyone must listen, participate, get informed, be rational, and be part of the process from the beginning. Thus, consensus can be time consuming long and exhausting to the participants. Yet, consensus will result in synergism. Synergy is the combined action of the group, greater in total effect than the sum of their effects. The combined problem solving/decision making abilities of the group members produce a better decision than that of the individual member. Taking action requires self-confidence or courage. Only a person who is willing to take risks is able to assume responsibility for a decision involving action. The fact remains that the supervisor is held accountable for the outcome of the decision. Thus, he or she must be confident that the right problem has been defined and the most workable solution has been chosen. Self-confidence is the best element for a supervisor to possess at this stage. Step 5: Implement the decision. Once the solution is chosen, the decision is shared with those whose work will be affected. Ultimately, human beings will determine whether or not a decision is effectively implemented. If this fact is neglected, the solution will fail. Thus, implementation is a crucial part of the decision-making process. Including employees who are directly involved in the implementation of a decision, or who are indirectly affected by that decision,

will help foster their commitment. Without their commitment, gaining support and achieving outcomes becomes increasingly difficult. With this commitment, the supervisor has a reasonable degree of assurance that the decision will be accepted and has the necessary support. In order to implement the decision, the supervisor must have a plan for communicating it to those directly and indirectly affected. Employees must understand how the decision will affect them. Communication is most effective when it precedes action and events. In this way, events conform to plans and events happen when, and in the way, they should happen. Thus, the supervisor should answer the vital questions before they are asked. Communicating answers to these questions can overcome much of the resistance that otherwise might be encountered. Step 6: Evaluate the decision. The supervisor must follow up and appraise the outcomes from the decision to determine if desired results were achieved. If not, then the process needs to be reviewed from the beginning to determine where errors may have been made. Evaluation can take many forms, depending on the type of decision, the environment, working conditions, needs of managers and employees, and technical problems. Generally, feedback and reports are necessary to learn of the decision's outcome. Sometimes, corrections can be introduced for different steps. Other times, the entire decision-making process needs to start over. The main function of the follow up is to determine whether or not the problem has been resolved. Usually follow up requires a supervisory visit to the work area affected by the decision. The supervisor may have to repeat the entire decision process if a new problem has been generated by the solution. It is better to discover this failure during the follow up period rather than remain unaware of a new problem provoked by the implemented solution. Step of Decision Making Process Observe Observe is the first step of decision making process. The observe stage is not evidenced and much obvious and it starts with an individual manager feel that things are not correct, something is wrong and amiss. Although there is very little evidence in this stage but manger feels that some thing is wrong and need to be investigated. Very less action is seen in this step my decision makers. Following the observation there is another step which we call the reflection, gestation or incubation period. According to Lyles it is a period of waiting and interrelating diverse pieces of information, but usually little overt action is taken by the individual during this phase. Sometimes it can be characterized by minor activity, possibly in an attempt to make the problem go away. Formal Recognition After the incubation period the manager can not avoid the problem and formally recognize that there is need for a decision. In this stage the evidence are clearly demonstrable in type of deviation from standards or not achieving the desired state of work. According to Lyles this stage is called the triggering which means that the problem can not be ignored. Interpretation/Diagnosis This step is critical important in the decision making process. If this stage goes wrong a whole process of the decision making will go wrong. As the wrong answer for the right problem is less valuable same the right answer to the wrong problem is less valuable. In this stage the problem is understood and determined. The nature of the problem is studied. If the decision is structured and well understood, the diagnosis is straightforward and simple. If the decision is unstructured and ill-understood the diagnosis is difficult. Many problems are seen by different people in different ways, and this means that reaching agreement over the nature of the problem itself can become a decision process. When this type of situation arises, different

perceptions and models are presented by the participants and thus through negotiation and dialog decision body can reach to a conclusion. Definition After the problem is diagnosed it is necessary to give definition to the problem and for the first time formal request for decision is made in this step. The important feature of this step is that the boundaries of the decision are identified. The scope of the decision is defined and the attention of the decision makers is focused toward important aspects of the decision. Set Objectives In this step we set objectives for the decision. In simple words what we desire to achieve through decision is called the objectives of the decision. Such goals are best described in terms of the behavior of whatever part of the organization prompted an awareness of the problem in the first place. In many cases one decision serves for several objectives in this type of cases we have to give importance relatively to each other. The objectives are normally concerned with filling gaps between what has been observe and the desired state of the problem. The desired state of a problem is always seen in the light of overall goals of the organization. Determine the Options In this step we propose alternative courses of actions through which we will achieve objectives of our decision. This step is closely related to the earlier steps of the decision process. If the boundaries of the decision is defined narrowly then the options might be given (for example should do this thing or not.) If the boundaries of the decision is defined wide then many alternative options can be proposed. This step in the decision process is difficult to distinguish sometimes from the following step (evaluation) because many times we do some screening while selecting the option to apart the poor options. Evaluation Option This is also very important stage of the decision process. In this step we determine that into what extent a given alternative can meet the objectives of the decision. The result of each option is described in details. Decision models can be used in this stage. Select Option This stage is the heart of the decision process. All other stages which we studied above are devised to select the best option among alternatives which can meet the objectives of the decision into high degree. The procedure for selection will depend largely on the size and constitution of the decision making body. If there is one person in decision making body, so the selection will depend on his/her own wish. If there are more than one person in decision making body then other mechanisms can be used for example through political, debate, consultation, delegation and other, the option can be selected. Implementation In this stage we implement the decision, and if any change require we bring. The successful implementation of a decision largely depends on the skills of the person who is in-charged for the implementation and to the degree of implementability of the option itself. To study the implement-ability of the decision we have to study different attributes and features of an option. Monitor This is the last step in the process of decision making. If the decision is

implemented successfully and achieve its objectives then this step ends the decision making process. If a decision do not achieve the objectives, then we switch to the first step (observe) How does decision making fit into managerial activity The issues can be extracted from the two following headings; Managers and decision making: As the beginning of this chapter we posed the question of how central decision making is in management activity. This truth may well be, that we still now know very little of the answers to this question. Although a great deal has been written on the role of the manager, very little of it has examined what managers actually do in practice. In common with most writing on management authors concerned with managerial jobs tend to offer ideas about what managers ought to do, rather than describe what actually happens. Consideration of what ought to be is a very necessary process, especially if we are interested in improving management skills. The key thought, in coming to understand the part that decision making plays in a managers job, is to examine closely what it is that managers do in reality, and exactly how they spend their time. And the first thing we must do to achieve this, is to decide exactly what we mean by the term manager. And will be explained momentarily as follow: What is a manager? The idea of managing can be used in at least two very different ways. When we ask someone How are you managing? we usually mean it in the sense of Can you cope? or Are you keeping your head above water? used in this way, the notion of managing has almost a defensive quality about it. The accent is on mere survival, on riding out the storm and keeping losses, damage or injury to a minimum. There is certainly an element of this kind of management in almost all organizational activity, especially in harsh economic climates. But when we talk about management in organizational terms, we mean something rather more than this. For example, consider the following quotations: in general, our understanding of modern management is enhanced if we remember the fundamental managing process: managers perform basic management functions (of planning, organizing, staffing, influencing and controlling), which are facilitated by the fundamental thinking processes of decision making and communicating, to achieve the basic managerial purpose of organizational effectiveness. This statement of what managers do (or at least ought to do) contains no suggestion of defensiveness. On the contrary, the impression is one of very positive activity. A range of managerial functions is identified, given means, and an end. So, by identifying these roles within the organization where such functions are located, we can determine who, by this definition, are actually managers, as distinct from those who carry the title of manager Rosemary Stewart uses manager in the hierarchical sense, to mean all those above the level of foreman on the production side, and above first level supervisor in commercial and administrative work. Whilst this usage obviously includes many of those who can genuinely be said to be managers in the sense of the previous statement, it also includes some who are not. Furthermore, it clearly excludes some people who carry out managerial functions, even though they are not given the organizational status of managers. For example, the print room foreman at a local newspaper and printing company, quotes for and takes on work, schedules and products, makes decisions and communicate to his operatives, even though there is a well defined management structure above him. Many such first line supervisors are manager although they do not carry the little. What do managers do?

One of the most important studies, focusing on what managers actually do, was that carried out by Rosemary Stewart. One hundred and sixty senior and middle managers kept diaries recording their work activities for a four week period. Her study focused on such factors as hours worked, location, time spent alone and with other people, rather than investigating work content. So, for example, while the time spent in discussions with another person was recorded, little attempt was made to find out what the discussion involved, aside from logging the functional area concerned. For our purposes, perhaps the most useful outcome of the study is the identification of five management job profiles, on the basis of characteristic work patterns. These are: The emissaries: spending much of their time away form their own organization, dealing and talking with people from outside. They tend to have more time to themselves than other managers, working longer hours in a less fragmented pattern. This group includes Sales managers, and those who are required to work on behalf of their company in public relations and promotional activities. The writers: such managers spend a large proportion of their time by themselves writing, reading, and working on figures and other data. Much of their contact with other people is on a one-to-one basis, rather than in groups. They tend to be more specialized than other managers, spending much of their time in their own function. The group might typically include computer specialists, some kinds of accountants, and administrators whose main preoccupation is with paperwork. The discussers: a way variety of managers fit into this group. They spend a considerable amount of time with other people, particularly with colleagues. Managers in this group come form a wide range of functions. The trouble shooters: these managers have the most fragmented work pattern. They spend a lot of their time on problems needing a quick solution. Much time is spent with subordinates, rather than with colleague. Relative to other managers, trouble shooters spend a high proportion of their time on inspection tasks. Most managers in this group are responsible for a physical area or process. Production and factory managers are typical trouble shooters. The committeeman: managers in this group tend to have a wide range of contacts within the organization, and spend a great deal of their time in committee and group discussions. The come exclusively from large companies. Identification of the five job profiles suggests very clearly that we are not likely to come up with a simple answer to the question what do managers do? it may be that all managers do undertake activities from the same common range. The proportion of time, effort and energy devoted to each activity will vary considerably from profile to profile. The Managerial role and decision making To study the managers activities and decision making it is good to consider the Mintzbergs approach to classifying the managerial activities. This classification has then roles for mangers. These ten roles are clubbed in three categories: 123the interpersonal roles the informational roles the decisional roles

Interpersonal roles When a person is selected as a manager, he is given power, authority and prestige and status which give birth to interpersonal role of a manager. Three roles are classified in interpersonal roles. Figurehead: Leaders, particularly high-ranking managers, spend some part of their time engaging in ceremonial activities, or acting as a figurehead.

Four specific behaviors fit the figurehead role of a manager. a. Entering clients or customers as an official representative of the organization. b. Making on self available to outsiders as a representative of the organization. c. Serving as an official representative of the organization at gatherings outside the organization. d. Escorting official visitors. Leader: the manager provides direction, guidance and motivation to team members. Good managers train and develop their subordinates and make them able to lead. Leadership is the most acknowledged character of a manager. Liaison: the liaison role is concern with establishing linkages within organization and outside the organization. This role of manager links the organization or a part of an organization to its environment. Informational Roles Managers are in a good position in an organization. They have access to information. The managers perform two activities concerning the information 1) collector 2) disseminator; the manager collect information form inside the organization and outside of the organization and transfer it to his subordinates and same they spread information to environment and other part of the organization. Monitor This is an important role of a manager to collect information about the external and internal environment, raise his awareness about the opportunities and threats. So the monitoring role is very necessary to see what is going on around. Disseminator The manager plays a role of disseminator. It means that the manager transfer information to his group members which he get from outside and those which are generated inside the organization. Spoke-person As we discussed above that it is a managers role to disseminate information same the manager transfer the information to outside of organization. For example a public speech about the progress a new product etc. this role is concern to tell about the organization to public. Decisional Roles The remaining four roles of managers are categorized as decisional roles. These are the most crucial and important roles mentioned below. Entrepreneur In this role the manager bring positive changes in the organization. The manager does creativity and innovation. The entrepreneur role is concern to find new business and strategies. This role is also heavily depended on strong monitoring of inside and outside the organization. Disturbance Handler Many problems occur in the daily work routine which can drive out the company from business. The manager plays a role of disturbance handler to deal which problems and trouble which can affect the normal work flow. Some trouble may be occurred suddenly and unforeseen which are out of control of managers. Unexpected disturbances may occur where, although the change is planned, the full consequences may not be known. They can of course also occur as a result

of bad management through insensitive handling of the interpersonal and informational roles. In this type of the situation the manager calls for the coping mechanism. Resource Allocator Managers have to allocate resource to different projects and programs. This authority is given to manager by his/her position and status. Playing role of resources allocator the manager know better that what activities are completed need to be completed and what the top priorities. Negotiator To organize, utilize and disposition the resource the managers have to negotiate. With three different parties the mangers have to negotiate. 1) Their supervisor for more resources funds and equipments. 2) 2) With their colleges for organization of resource and common benefiting of them. 3) With suppliers for receiving the required resource on time and according to schedule Specialization and management activity In medium and large organizations, management structure usually involves some separation or delegation of function. Managers are appointed to deal with a particular process or range of operations. Many managers find themselves with responsibility for a sub-unit within the overall framework of the larger organization. For example, we often find a specialist manager in charge of production. Under him there may be shift managers, quality control managers, and a number of other specialist management positions. The same process of specialization occurs in other functional areas such as sales and finance. The result is an increase in the number of levels in the management hierarchy, and a widening of the differences between managements jobs within the organization. Faced with the problem of coordinating the activities of specialized subunits, those running large organizations need to develop structures or mechanisms which will allow those units to operate effectively, and in the interests of the organization as a whole. So we find specialist management roles which are concerned with monitoring, evaluating, and coordinating and those which exist to provide specialist services and support both to line and senior management. Management level In the same way that the importance of work roles varies with management function, we might expect variation according to the level which managers occupy in the organizational hierarchy. However, Mint berg holds that there is essentially no difference in kind between the jobs of top managers and of those at lower levels. He argues that the real difference is in orientation, and in the ends to which managerial activities are directed. Lower level managers are likely to be concerned more with maintaining a steady work flow within the unit or area for which they are held to be responsible. Work in likely to be focused around current issues and immediate problems. In addition, managers at lower levels in the organization are likely to be more specialized; that is, to be concerned with a much narrower range of issues than managers higher up in the organization. Given such an immediate emphasis on daily promotion and work flow, then the two decision roles of disturbance handler and negotiator are going to be particularly important. Senior managers, on the other hand, are likely to spend proportionately more of their time on strategic issues that relate the organization to its environment. They will be concerned with the longer term, rather than the day-today issues of the operational manager. As a result, senior managers and executives will play more of an entrepreneurial role than managers at lower levels. In some organization; the question of management level is not as relevant. Many small

companies, for instance, have only one person, often the owner, who might be considered to be a manager. Indeed, the range of the differences between management jobs within any organization is determined largely by its size. Managerial activity and discretion: Any formal statement of a managers functional responsibility will not alone determine the total range of activities which constitute the job. Take two individuals and place them in exactly the same managerial job, and they are likely to spend their time doing different things. There must be few, if any, management jobs, where some degree of discretion does not exist, either in what work is done, or how it is done. Stewart describes this discretion as choices- being the activities which a jobholder can do but does not have to do. They are the opportunities for one jobholder to do different work from mother, and do it in different ways. Constraints Constraint

Demands

The demands, constraints, choices model Jobs which have wide ranging demands but are highly constrained will have less discretion than jobs where demands are relatively few and constraints relaxed. So, for, example, a line production manager in a food processing plant might be required to be physically present, supervising the operations of the plant, for a large part of the working day. The place of decision making in management: we can see then, that the work content of any managers job can vary according to such factors as size of organization, level in the hierarchy, and the particular job function. Whilst all managers may indeed carry out all ten of Mintzbergs work roles, some of those roles will be very much more important than others for any individual manager. Equally, the type and nature of decision made will vary according to the position of the decision maker within his or her organization. Nonetheless, decision making is a key activity for management. Time spent in making decisions: an assessment of how much time managers spend on decision making will depend on how wide our view of decision making is. When managers choose or select one particular option, they make a decision. Whilst the time taken to make that act of choice may well vary according to the method used, relatively speaking, it is not a lengthy actively. After all, in common usage, decisiveness carries with it the implication of speed. When used in this very structured way, we might even suggest that managers spend hardly any time at all in making decision. Choice may only take up a small proportion of managerial time, but all the activities which go together to make up the total decision making/problem solving process can take up a great deal. As we described earlier, the total process includes all the stages of Observing,

Recognizing Interpreting diagnosing Defining Objective setting Determining options Evaluating Choosing Implementing and Monitoring.

The following figure illustrates the way in which several of Mintzbergs managerial roles might contribute to the decision making/problem solving process. tags in decision making/problem solving process major appropriate managerial roles Recognizing the need for a decision (Observe, recognize) Entrepreneur Liaison Monitor Defining the Problem (Interpret/Diagnose, Define, Objective Setting)Leader Liaison Monitor Disseminator Determining the Options Disseminator Leader Negotiator Evaluation Liaison Disseminator Making the choice Leader Leader Resource Allocator Disturbance Handler Spokesman Implementation and Monitoring Resource Allocator Monitor Leader Spokesman Not all aspects of each of the roles referred to in the illustration above relate directly to managerial decision making. The leadership role for example, includes most of a managers activities which relate to subordinates much of which has little to do with making decision. Nonetheless, when we regard decision making in its wider sense, it become s clear that a great deal of management effort throughout the organization is directly concerned with decision making. In addition, we should include the time that managers spend in monitoring the effects of decisions taken previously. This monitoring activity can go on for a considerable length of time before the effects of a decision are regarded as steady stable. Q2. Management decision may be regarded as being a continuum ranging from strategic and operational, where strategic decision which relate the organization to its environment and involve a large part of the organization. Discuss and

explain the term used? In order to better understand the decision making management it is critical to study the elements of a decision, which are the: 1) Decision body 2) Options 3) Uncontrollable factors 4) Consequences and the different types of the decision. The decision body is referred to individual or a group who will take the final decision. The simple and straightforward decision making body is one person decision making body. When there is more than one person involve in decision making process then we say multiple decision makers decision body. Options are the available alternative courses of action which are used to achieve the objectives of the decision. The number of options is between two and infinite. The simple and easy decisions are those, which have just two options (to do something or not to do something). For example should we buy new machine? Or not. Uncontrollable factors are those which can affect the result of the decision but are out of the control of the decision maker. For example the demand, this can not be controlled by the decision maker but can affect a decision while allocating the production capacity for a new product. For each combination of a decision option and the state of nature, there will be a consequence. The Strategic Decisions Many people still remain in the bondage of self-incurred tutelage. Tutelage is a person's inability to make his/her own decisions. Self-incurred is this tutelage when its cause lies not in lack of reason but in lack of resolution and courage to use it without wishing to have been told what to do by something or somebody else. Eventually human beings gained their natural freedom to think for themselves. However, this has been too heavy a responsibility for many people to carry. There has been an excess of failure. They easily give up their natural freedom to any cult in exchange for an easy life. The difficulty in life is the choice. They do not even have the courage to repeat the very phrases which our founding fathers used in the struggle for independence. What an ironic phenomenon it is that you can get men to die for the liberty of the world who will not make the little sacrifice that it takes to free themselves from their own individual bondage. Good decision-making brings about a better life. It gives you some control over your life. In fact, many frustrations with oneself are caused by not being able to use one's own mind to understand the decision problem, and the courage to act upon it. A bad decision may force you to make another one, as Harry Truman said, "Whenever I make a bum decision, I go out and make another one." Remember, if the first button of one's coat is wrongly buttoned, all the rest will be crooked. A good decision is never an accident; it is always the result of high intention, sincere effort, intelligent direction and skillful execution; it represents the wise choice of many alternatives. One must appreciate the difference between a decision and an objective. A good decision is the process of optimally achieving a given objective. When decision making is too complex or the interests at stake are too important, quite often we do not know nor are not sure what to decide. In many instances, we resort to informal decision support techniques such as tossing a coin, asking an oracle, visiting an astrologer, etc. However formal decision support from an expert has many advantages. The rationalist decision-making model is based on several assumptions. First, a set of possible outcomes is known and their expected optimal outcome can be known to a high degree of confidence. Next, calculations are based on similar past actions, assuming what affected past performance will similarly affect future performance. Traditional models are based on history. Feedback causes corrections

within the model for deviations to the plan. It is assumed that proliferation of information (input data) will lead to greater convergence. In other words, greater information lowers ambiguity and uncertainty can be reduced by gathering necessary information. This model relies greatly on the reliability of information gathered. Rationality also assumes a common experience base among those participating in the decision-making process. Finally, this model presumes to be objective. Criteria are established and weighted mathematically, and the factors are added up, thus reducing the chance for subjectivity to drive the decision Rational decisions are often made unwillingly, perhaps unconsciously. We may start the process of consideration. It is best to learn the decision-making process for complex, important and critical decisions. Critical decisions are those that cannot and must not be wrong. Ask yourself the objective: What is the most important thing that I am trying to achieve here? The decision-maker's style and characteristics can be classified as: The thinker, the cowboy (snap and uncompromising), Machiavellian (ends justifies the means), the historian (how others did it), the cautious (even nervous), etc. For example, political thinking consists in deciding upon the conclusion first and then finding good arguments for it. On a daily basis a manager has to make many decisions. Some of these decisions are routine and inconsequential, while others have drastic impacts on the operations of the firm for which he/she works. Some of these decisions could involve large sums of money being gained or lost, or could involve whether or not the firm accomplishes its mission and its goals. In our increasingly complex world, the tasks of decision-makers are becoming more challenging with each passing day. The decision-maker (i.e., the responsible manager) must respond quickly to events that seem to take place at an ever-increasing pace. In addition, a decision-maker must incorporate a sometimes-bewildering array of choices and consequences into his or her decision. Routine decisions are often made quickly, perhaps unconsciously without the need for a detailed process of consideration. However, for complex, critical or important managerial decisions it is necessary to take time to decide systematically. Being a manager means making critical decisions that cannot and must not be wrong or fail. One must trust one's judgments and accept responsibility. There is a tendency to look for scapegoats or to shift responsibility. Decisions are at the heart of any organization. At times there are critical moments when these decisions can be difficult, perplexing and nerve-wracking. Making decisions can be hard for a variety of structural, emotional, and organizational reasons. Doubling the difficulties are factors such as uncertainties, having multiple objectives, interactive complexity, and anxiety. Strategic decisions are purposeful actions. The future of your organization and the progress of your career might be profoundly affected by what you decide. Good decisions are made with less stress, and it is easier to explain the reasons for the decision that was made. Decisions should be made strategically. That is, one should make decisions skillfully in a way that is adapted to the end one wishes to achieve. To make strategic decisions requires that one takes a structured approach following a formal decision making process. Otherwise, it will be difficult to be sure that one has considered all the key aspects of the decision. Making good strategic decisions is learnable and teachable through an effective, efficient, and systematic process known as the decision-making process. This structured and well-focused approach to decision-making is achieved by the modeling process, which helps in reflecting on the decisions before taking any actions. Remember that: one must not only be conscious of his/her purposeful decisions, one must also find out the causes for which they are made. There is no such thing as "free-will". Those who believe in their free wills are in fact ignorant to the causes that impel them to their decisions. There is no such thing as arbitrary in any activity of man, least of all in his decision-making. Just as he has learned to be guided by objective criteria in making his physical tools, so

he is guided by unconscious objective criteria in forming his decision in most cases. In an organization the manager of a small manufacturing unit might make the following decision in a period of the time; 1) Should we buy a new machine or repair the current one 2) Should we hire new young staff and train them or we hire the experienced staff 3) Should be give priority to product A this week or to product B If we see the above mentioned decisions and the like, are taken in a situation where the daily work follow of the organization is concerned. If these decisions are not taken on time the organization immediately gets out of the business. These are called the operational decisions. The operational decisions are made in a routine manner and are repetitive decision thus we can make a common rule, how to deal with such kind of problem if occurs in future. Normally the low management level is involved in such type of the decision. The manager of the manufacturing unit may be involved in strategic decision but the unit level. Lets consider the following example. In the same organization the CEO of the organization might be involved in the following type of the decisions. 1) Do we have to relay on export to Europe or we should open a manufacturing unit. 2) Should we work in the centralized management system or we should move to decentralized management system. 3) Should we introduce high quality expensive goods production lines or we have to relay on the currently inexpensive massive goods products line. If we see the decisions which are taken by the CEO are important for the future of the whole organization. These are called strategic decisions which involve a big part of the organization; these are not repetitive and can not be done on routine manner. As we know that organization are facing a lot of challenges due to advancement of the technology, unstable environment increasing competition, and often changing ways of business. These challenges have made the strategic decisions vulnerable to risk and uncertainty. The strategic decisions can be differentiating from operational in that they a) b) relate the organization to its environment involve a large part of the organization

The first manager in our example can also make the strategic decisions for his/her working unit. For example if the manger change the two shifts to three shifts, it will change the position of the manufacturing unit in its environment (the organization is the environment for the manufacturing Unit.) although this decision is strategic for the manufacturing unit but still it is operational one for the organization. Strategic Planning he defines are: The process of deciding on objectives of the organization, on changes in these objectives, on the resources to obtain these objectives, and on the policies that are to govern the acquisition, use, and disposition of these resources Management Control is defined as: . The process by which the mangers assure that the resources are obtained and used effectively and efficiently in the accomplishment of the organizations

objectives. Operational Control is defined as: . The process of assuring that tasks are carried out effectively and efficiently If we study the Antonys framework the term strategic planning is used for strategic decisions while the operation and management is seen as control activities. This means that strategic decisions set the intended directions for the organization and the operational control decisions are dealing with detailed implementation plan. The operational decisions and Strategic decisions express a continuum than a straightforward dichotomy, a decision may be placed anywhere on each continuum of decision types. This means that theoretically there is infinite number of the decisions between these to ends of the continuum (operational end and strategic end). However, in order to examine the way in which the elements of decisions vary with decision type, we can make a generalization which greatly simplifies the task. This is that strategic decisions tend to be unstructured and dependent, whereas operational decisions tend to be structured and independent. This crude generalization is borne out when we see the characteristics of each decision element for the two categories of decision. This generalization does not mean that all strategic decisions are unstructured and dependent and all operation decisions are independent and structured. But we can say that most strategic decisions are unstructured and dependent and most operational decisions are structured and independent. The conclusion is, management decision may be regarded as being a continuum ranging from strategic to operational, where strategic decisions both relate the organization to its environment and involve a large part of the organization. They may also be classified as structured or unstructured, where structured means clear and unambiguous, and unstructured means ill-understood and difficult to tackle. Finally, decisions may be classed as being either dependent or independent. Decisions with a high degree of dependency will have to take account of past or possible future decisions in the same part of the organization, or decisions which have, or could, take place in other areas of the organization. Where any decision lies within these three dimensions will influence its decision elements. Decision which are strategic, unstructured and dependent will tend to have multi-person decision bodies, options which are not immediately apparent, uncontrollable factors which are both numerous and unpredictable, and multi-attribute consequences. Conversely, decisions which are operational, structured and independent can have single decision makers, apparent options, relatively few uncontrollable factors, and predictable consequences. The environment of a decision is particularly important when the decision concerns a task on the boundary of the organization. The state of the decision environment determines the perceived uncertainty surrounding the decision, and the amount or type of information available to the decision body. It can also determine the amount of time available in which to make the decision and hence the perceived stimulus of the decision. Q3. A model provides us with an abstraction of a more complex reality and managers communicate by means of models and use them in decision process. What are the different dimensions on which such models can be placed? Explain. Alternative to traditional mathematical models are provided by heuristic models which use common sense rules of thumb in a logical manner, and give good suboptimal solutions, or simulation models which follow procedures that describe the

underlying logic of a decision area. One particular class of simulation model is the corporate model which simulates financial systems over the long term. Finally, there are five dimensions on which models can be placed are proposed, these dimensions are: Optimizing-satisfying: models are used for evaluation both directly and indirectly. Direct evaluation requires the model to identify the single best option or alternatively identify an option that will prove satisfactory to the decision maker. Here they distinguished between the normative concept of man as the rational maximizing decision maker, and the descriptive view of limited rationality and satisfying behavior. The necessary operating conditions for the former, those of perfect knowledge and perfect judgment, are rendered unlikely in the light of: o The selective nature of the perceptual process which imposes limitations on the relationship between the decision maker and the decision situation. o The central position of values and value systems in the determination of human behavior and their effect on the decision making process. In real life, many decisions are made in circumstances where outcomes are uncertain and the manager must make a judgment in respect of probability without the aid of objective measures or statistical data. The combination of subjective probability with an assessment of utility for each outcome is suggested as forming the basis of individual decision making behavior under conditions of uncertainty. To this may be added the notion that risk taking itself has different utility or worth for different decision makers. Within the work organization, a significant feature of the decision environment for the manager is the presence of others. The strength of social pressure is felt by decision makers both as normative and informational influence and will vary according to perceptions of the role, status and significance of others within the work organization. The combination of imperfect knowledge and judgment, together with the desire to accommodate the needs of others around us points firmly to the notion of individual decision behavior as a satisfying process. Concrete-abstract: Closely associated with the iconic-analogue-symbolic classification used earlier, this scale refers to the degree of correspondence with reality that a model possesses. Similar scales have been developed. The following one is more differentiated, with five levels of abstraction based on the number of elements produced in the model, their faithfulness of reproduction and explicability o Level 0 the process, activity or situation on which the model is based o Level 1 A replication of the initial process or situation; examples of this are controlled run industry maneuvers in the area of military science, and drama (a model of a real or hypothetically real is situation). o Level 2 A controlled, laboratory-type models, capable of repetition; laboratory models of industrial processes, war games, and the cinema (as opposed to live drama) are examples of this. o Level 3 A completely synthetic extractions of essential elements of the initial situation; for example, computer models of industrial or military situations or play-script. o Level 4 A closed analytical models. Models at the concrete end of the scale can be useful as a first step towards more abstract models, as communication vehicles, or to stimulate creativity and insight, but they lack the power inherent in the more tractable abstractions of mathematical modeling. Normative-descriptive:

Normative models are those which are prescriptive in the sense that they contain within their structure the means to say what ought to be done. Normative models attempt to impose on the decision maker the values reflected in the assumptions of the model. Inevitably, they are more dominant in the decision maker model relationship than purely descriptive models, since they assume responsibility for the direct evaluation of feasible solutions. Not that all such models are designed to choose the best of all the possible solutions. In other words, normative models do not necessarily optimize. Heuristic models, for example, are clearly normative in as much as they prescribe what ought to be done; but their evaluation mechanism adopts a satisfying criterion for doing so. Descriptive models, on the other hand, tend to be more modest in their aspirations if not their complexity. They make no direct attempt to evaluate alternative decision solutions, they merely describe them. This does not mean that descriptive models lack value. On the contrary, as we have seen, they can aid understanding and predict future behavior. Furthermore, descriptive models can perform the first steps in the evaluative process by stating different feasible decision solutions in common units-for example, predicting the effect of all decision alternatives on a Companys total cost. However, nothing is descriptive in a totally objective way. A photograph may seem to be truthful and an objective representation. But it is an old argument in the communications business that by pointing a camera at one thing you are deliberately excluding everything else, and hence the photographer is adding an element of his own judgment. The camera cannot lie, but it cannot avoid selecting. Likewise, as discussed previously, a descriptive model will almost certainly contain some normative bias, since it is formed through the unique perception of the model builder. Static-dynamic:

One of the difficult challenges when discussing the productivity of dynamic languages is to make any sort of proof about said productivity. I believe this is because it's one of those synergistic, emergent systems, where everything taken together produces a surprising or unexpected result. But this makes it hard to come up with any kind of proof, and as a result we have a bunch of people who are primarily just speaking about their personal experiences trying to convince people who haven't had such experiences that it's a Good Thing One aspect of reality which the decision maker might choose to exclude or to simplify is time. This can be done in two broad ways. Time can be momentarily halted and a model constructed to describe the situation at that point in time in the same way as a photograph captures an instantaneous image. Alternatively, the model can describe the situation in terms of average or total values over a stated period of time. The balance sheet and the profit and loss account are two conveniently related examples of descriptive models using these two approaches. Models which do not include time as a variable are termed static models. Dynamic models, on the other hand, use time as a major element and whatever phenomena are examined are studied in relation to preceding and succeeding events. Thus, in a dynamic model, the values of endogenous variables in one time period can become the values of exogenous variables in the next. However, it is not always necessary to use dynamic models to represent a decision situation which is clearly time-related or on-going, provided it is operating at a steady state. That is, there are no major long term disturbances to the behavior or the decision situation which cause transient conditions to predominate. However, if it is specifically desired to examine non-steady state behavior or explore the response to external stimuli then any model used must be dynamic. Deterministic-stochastic:

Deterministic models use single estimates to represent the value of each variable

in the decision, whereas stochastic models use probability distributions, histograms, or some other description of the range of values which a variable can take. Stochastic models describe decisions in terms of the uncertainty inherent in them. Viewed in one way, of course, there is nothing certain in life but death and taxes, and as everything in life is uncertain to some extent, all models ought to be stochastic. However, this denies the modeler the normal license in modeling to simplify elements of what he observes, so as to present reality in a convenient and useful form. The decision approaches explained before can mean that deterministic models exclude the undoubted uncertainty present in everyday life for the sake of conveniences, clarity or tractability. Here we must distinguish between two types of stochastic model. First, those which model systems having elements which take different values according to an assumed or historically derived pattern and which predict a systems behavior, the prime determinant of which is the variability itself. Second, those models which use probability to describe the modelers ignorance of future occurrence in a more fundamentally way, where the nature of uncertainty is described much more tentatively. The two key dimensions: two questions are of particular importance when choosing decision models which relate directly to two of the scales discussed. Should an optimizing or a satisfying model be chosen? Do we want to treat the decision variables as being known with certainty or being best described as probabilities? The following figure classifies some of the types of models.

Optimizing -linear programming - decision trees Satisficing -most corporate modeling - CRAFT facilities layout technique - many heuristic models - queuing theory - stochastic simulations Such as the stock control simulation described -risk analysis

The fact that we select a model which optimize does not necessarily mean that we are trying to optimize in the real decision. We could obtain an optimal solution from the model, and then deliberately adapt that solution to fit the needs of reality- after all, a model does not optimize reality, it optimize its simplified version of reality. So using an optimizing model could be a perfectly legitimate tactical ploy in the search for a satisfactory solution. Likewise, deterministic models can provide valuable assistance to the decision makers, even though their reality is stochastic. We have used the term model to describe any explicit statement we make about our perception of reality. The concept of the model and modeling is particularly important in decision making, because the mental model we have of the decision represents our understanding of it, and therefore any move to make that understanding explicit will aid the decision maker in three waysnamely: 1. 2. 3. by enhancing understanding by simulating creativity By aiding the evaluation of possible solutions.

Building a symbolic model of the decision area involves three steps; Listing the input or exogenous variables to the decision, some of which are controllable and some uncontrollable, and listing the relevant endogenous variables that will be used to evaluate the decision. Indicating the existence of relationships between variables by means of a cause-effect model. Describing the form of those relationships in mathematical terms. Q4. Draw a decision matrix, highlighting its various components. Explain with the help of an example the following decision rules: For better understanding we will discuss the question in three parts: 1. First we will draw the decision matrix and then we will high lights its various components in details. Second, 2. We will study a practical example. Third, 3. With the help of an examples, we will explain the following decision rules: a. The optimistic decision rule b. The pessimistic decision rule c. The regret decision rule d. The expected value decision rules First lets draw the decision matrix and highlight its various components; the following illustration is the decision matrix with its various components

The decision matrix The decision matrix is a method of modeling relatively straightforward decisions under uncertainty in such a way as to make explicit the options open to the decision taker, the states of nature pertinent to the decision, and the decision rule used to choose between options. The optimistic decision rule: The optimist criterion attempts to describe the decision-making behavior of people who are overly optimistic in their expectations. An optimistic decision maker is attracted by large rewards and is willing to risk high losses in order to obtain them. It is possible to model the optimist profile with the MAXIMAX decision rule (when the payoffs are positive-flow rewards, such as profits or income. When payoffs are given as negative-flow rewards, such as costs or losses, the optimist decision rule is MINIMIM. Note that negative-flow rewards are expressed with positive

numbers.) Let's assume that ACME's managers are thoroughly optimistic. We would suppose they would therefore go for a large manufacturing facility in hopes of attaining the maximum profit. The psychological processes leading to such behavior can be captured by the two-step logic of the Maximax rule. Maximax decision rule 1. For each action alternative (matrix row) determine the maximum payoff possible. 2. From these maxima, select the maximum payoff. The action alternative leading to this payoff is the chosen decision. Using ACME's decision matrix defined previously: S A H M W Row Max Maximax Decision L 15 3 -6 15 15 L JR 9 4 -2 9 S 3 2 1 3 "Maximax" is shorthand for "Maximum of the (row) maxima." By convention, only one additional column is appended to the original matrix. The decision is shown by highlighting the maximax value, thus indicating the row of the chosen action alternative: S A H M W Maximax L 15 3 -6 15 b denotes decision is L JR 9 4 -2 9 S 3 2 1 3 The Minimim decision rule applies when the payoff matrix consists of negative-flow rewards, such as costs or losses. An optimistic decision maker would be attracted by lower costs. Critique of Maximax / Minimim Maximax / Minimim is not a rationally acceptable decision rule because it excludes most of the information available in the payoff matrix. Notice that the Maximax column above shows only three numbers (15, 9, 3) from which to select the course of action. Six payoffs were excluded from consideration in the choice. This means that ~67% of the data for the problem were neglected. Neglecting available information in a decision problem is not rational. Decide for yourself Consider the following situation: Would you risk getting nothing for a chance to obtain an extra $1 over a sure $99? Most people wouldn't. S1 S2 Maximax A1 0 100 100 A2 99 99 99 This approach to selecting the preferred option is to consider all possible circumstances and choose that option which yields the best possible outcome. For Tailed, the best unit cost is $2000. This occurs when method 1 is used and the annual sales volume is 3000 units. So the total optimist would choose method 1, because it provides the opportunity so achieve the best outcome. In detail, this decision rule involves examining each option, selecting the minimum cost outcome, and choosing the option which provides the lowest minimum cost. For this reason the rule is sometimes called the minimum cost rule (if we were dealing with revenues it would be the maximize revenue rule).

The pessimistic decision rule: The pessimist criterion attempts to describe the decision-making behavior of people who are overly pessimistic in their expectations. A pessimistic decision maker is averse to large losses and is willing to forgo attractive gains in order to avoid a large risk. It is possible to model the pessimist profile with the MAXIMIN decision rule (when the payoffs are positive-flow rewards, such as profits or income. When payoffs are given as negative-flow rewards, such as costs or losses, the pessimist decision rule is MINIMAX.) Let's assume that ACME's managers are diehard pessimists. We would suppose they would therefore opt for a small manufacturing facility in hopes of securing a profit, even though it may be small. The psychological processes leading to such behavior can be captured by the two-step logic of the Maximin rule. Wald's Maximin decision rule 1. For each action alternative (matrix row) determine the minimum payoff possible. This represents the worst possible outcome if that decision alternative were chosen. 2. From these minima, select the maximum payoff. The person may be pessimistic but is not a dunderhead: from among the bad outcomes, choose the least bad. The action alternative leading to this payoff is the chosen decision. Using ACME's decision matrix defined previously: S A H M W Row Min Maximin Decision L 15 3 -6 -6 JR 9 4 -2 -2 S 3 2 1 1 1 S "Maximin" is shorthand for "Maximum of the (row) minima." By convention, only one additional column is required. The decision is shown by highlighting the maximin value, thus indicating the row of the chosen action alternative: S A H M W Maximin L 15 3 -6 -6 JR 9 4 -2 -2 S 3 2 1 1 b denotes decision is S The Minimax decision rule applies when the payoff matrix measures negative-flow rewards, such as costs. A pessimistic decision maker would tend to avoid higher costs. The minimax rule guarantees the lesser of possible worst evils. It portrays a very conservative approach to risk. Critique of Maximin / Minimax Maximin / Minimax is not a rationally acceptable decision rule because it excludes most of the information available in the payoff matrix. In this example, six payoffs were excluded from consideration in making the choice. Since ~67% of the data for the problem were neglected, the decision process was not rational. A decision maker who took the very opposite view to the one described above would follow the reverse procedure. Each option would be examined, and the worst possible outcome for that option identified. The option would be selected which provided the best of the worst outcomes. In the case of Trailaid, the worst outcome would be a unit cost of $3300, if we choose manufacturing method 1, whereas if we choose manufacturing method 2 the worst outcome would be a unit cost of $3100. The better of these two outcomes is the unit cost of $3100 associated

with method 2. Thus a pessimist would assume that the worst is going to happen, and because the worst outcome with method 2 is better than the worst outcome with method 1, would choose method 2. Because this decision rule involves choosing the option which has the minimum of the maximum cost, it is often called the minimize cost rule. The regret decision rule: The regret decision rule is based on a deceptively simple but extremely useful question. That is if we decide on one particular option, then, with hindsight, how much would we regret not having chosen what turns out to be the best option for a particular set of circumstances? For example, suppose we choose method 1. If sales are 1000 units per year, then we would have made the wrong decision. Method 2 would have given us a lower unit cost. A measure of how much we would regret having chosen method 1 is given by the difference in unit costs between the two manufacturing methods at that level of sales volume. The regret at having chosen method 1 would be $3300-$3100=$200. If we had chosen manufacturing method 2, we would regret nothing, since at this particular level of sales volume this is the best method. Thus the regret would be zero. At the 3000 annual sales volume level the position reverses. If we choose method 1, then we regret nothing because it is the lowest cost method at this level of sales. However, if we had chosen method 2, then we would regret that decision by the difference between the unit costs, i.e. $2400-$200=$400. The following figure shows the table for this decision; the regrets are shown in brackets. Annual Sales Volume Maximum Regret 1000 units 3000 units Method1 Method2 $3300 $3100 $2000 (0) $2400 (400) 200* 400

Regret Table If we choose method 1, we suffer a regret of wither $200 or zero and if we choose method 2, we suffer a regret zero or $400, depending on the level of sales. Thus the maximum regret we could suffer if we chose method 1 is $200, whereas the maximum regret we could suffer if we chose method 2 is $400. Under the regret decision rule we would choose the option which gave us the minimum of the maximum regrets-method 1. The regret decision rule is a powerful and intuitively attractive idea. In attempts to minimize the embarrassment we might feel at making the wrong decision. It is closely related to the economists traditional concept of the opportunity cost of a decision; that is, by choosing one alternative course of action? Unfortunately, as a decision rule the concept has a major disadvantage; if we are

choosing the alternative which will gave us the least cause for regret when compared with another alternative, and then the degree of regret will depend upon which other options are considered. This can cause problems of logical inconsistency. Suppose that while the two options open to Trailaid are being considered, the purchasing manager of the company suggests a third alternative. This is to subcontract virtually everything; a special modified shell assembly could be manufactured by the existing shell supplier and all the internal fittings could be specially ordered and bought out. All that would be left to do in house would be to assemble the trailer-a brief operation. This option would require practically no fixed costs and give a unit cost of about $2800, no matter what production levels were required. If the new option, let us call it method 3, is included in the decision process, then it should be included with the other two in the decision matrix. The following illustration shows all three options, their respective unit costs, and the regret values for each outcome. Annual Sales Volume Regret 1000 units 3000 units Method1 Method2 Method3 $3300 (500) $3100 (200) $2800 (0) $2000 (0) $2400 (400) $ 2800 (400) 500 400* 800 Maximum

Unit cost and regret tables with when the third option is included For the low demand level the option with the lowest unit cost is the new proposal, method 3. This has a regret value of zero. Should manufacturing method 2 have been chosen, then we would regret it by $300. Likewise, if manufacturing method 1 had been chosen, then the regret would be $500. If the demand is at the high level, then method 1 would have been the best decision, and so have a regret of zero. Method 2 is $400 and method 3 $800 more expensive than method 1. So, if method 1 is chosen we will regret the choice of either $500 or zero, if method 2 is chosen we will regret the choice by either $300 or $400, and if method 3 is chosen we will regret the choice by either zero or $800. Using the mimiax regret decision rule we could choose method 2, since this is the lowest of the maximum regrets. However, surely this is an inconsistency. By including the third option we have shifted our decision from method 1 to method 2. Yet, even when it is included, method 3 is not the preferred option by the regret decision rule! Herein lies the major problem with opportunity costing-against what other opportunity are you going to evaluate a particular option?

The expected value decision rule: The three criteria so far described may go some way towards clarifying the decision for us, but they do not use one of the potentially most useful factors within any management decision. That is our estimate of the likelihood of a particular situation occurring. The principle of expectation weights each outcome by the likelihood of it occurring. Suppose that, as yet, Trail aid are unwilling to put a definite figure on their chances of gaining the developing agency contract. They can still explore the decision further by calculating the expected unit costs associated with each method as the probability of gaining the contract varies. Let us call the probability of gaining the contract p, and then the probability of not gaining the contract will be 1-p. For method 1: expected unit cost + 3300 (1-p) +2000p For method 2: expected unit cost = 3100(1-p) + 2400p For method 3: expected unit cost = 2800(1-p) + 2800p=2800 Q5. Discuss the imp