Decision Making Ppt 2003

8/3/2019 Decision Making Ppt 2003

1/53

Decision Making

7 Cs of Decision Making Model


2/53

Decision Making

Management is the practice of consciously and continually

shaping formal organizations, and the art of decision making iscentral to doing that.

It involves identifying and selecting a course of action to deal with

a specific problem (when the actual state of affairs differs from

the normal course) or take advantage of the opportunityis animportant part of managers job.

Problems and opportunities are generally intertwined and can be

clarified as something that problemendangers organizations

ability toreachits objectives while opportunity offers a chanceto exceedthe objectives

Peter Drucker makes it clear that opportunities rather than

problems are key to the success of an organization


3/53

The problem and its threshold finding

Problem finding is not always easy and straightforward. The

three main categories of pitfalls are (a) false association ofevents, (b) false expectation of events and (c) false self

perception and self image (the case of mainframe computers and

evolution of laptops).

How big is the gap between the actual and the desired state ofaffairs (for this the managers need to be always updated with

reliable information). The value base and the backgrounds of the

managers influence the magnitude and the type of problems

(economic, environmental, political - or a source of personaladvancement)

Alert managers often sense problems early


4/53

Decisions in Management Functions

Decision making, therefore, is the study of identifying and

choosing alternatives based on the values and preferences

(goals, desires, lifestyle) of the decision maker.

Planning: Long-term / short term objectives, strategies to meet

the objectives and fixing individual goals and targets.

Organizing: Organization structure and line of command,

decentralization / delegation , job definition, change

management

Leading: Motivation, conflict resolution, leadership style,

efficiency booster

Controlling: How and what activities need to be controlled,

setting performance deviation tolerance limit, use of

communication network and up-gradation


5/53

Decision Environment

Every decision is made within a decision making environment,

defined as collection of information, alternatives, values and

preferences available at the time of decision making. Both

information and alternatives are constrained by time and effort.

Since the decisions are to be made within the constrainedenvironment, the major challenge of decision making is the

uncertainty and the major goal is to reduce the uncertainty

Time (past experiences, future projections / implications) and

human relationships (one does not take decision in isolation) arecritical to the process of decision making.


6/53

Delaying a decision

Since the environment continues to expand with time, itis advisable to put off decision making close to thedeadline. Armed with the new information andalternatives, hind-sighters can look back many times andmake better decisions

Delaying a decision has the following benefits:1. There is time for more thoughtful and extended analysis

2. New alternatives might be recognized or created

3. The decision makers preference might change

4. With greater maturity, may be in a position to make amore pragmatic choice.


7/53

Decision making is a Recursive Process

Decision making is a nonlinear, recursive process. Most

decisions are made by moving back and forth between the

choice of criteria (characteristics we want our choice to

meet) and the identification of the alternatives (the

possibilities we can choose from among).

decision whether select criteria identify alternatives

make a choice

Example: Should I get married?


8/53

The Nature of Decision Making

Business is a series of decision linked by implementation

and follow-up.It sets the pace and direction Decision making is process driven. Being smart and hard

working does not ensure the quality of output. When the

process is right, quality will improve. Different type of

problems require different types of decision making;programmed (solutions to routine problems determined

by rule, procedure or habit) and non-programmed

decision (specific solutions created through an

unstructured process to deal with non routine problems).

As one moves up the ladder, the ability to make non

programmed decisions becomes more important.

Training will improve the output.


9/53

Programmed decision

Non programmed

decision

Well Structured

Ill Structured

Problem type Level inOrganization

Lower

Top

Problems / Decisions /Levels


10/53

Kinds of Decisions

Simple straight forward decision having short termrepercussion(assigning work or space to a subordinate)

Complex decision having long term connotations(changing the quality of the material used and change ofsupplier)

Decisions whether: This is Yes / No. Made be weighing

pros and cons. Should I buy a new TV ? Should I take aholiday?

Decisions which: Involve a choice of one or morealternatives from amongst a set of possibilities. Eatvegetarian / non vegetarian food.

Contingent Decisions: Decisions that have already beenmade but put on hold until some conditions are met. Shallbuy a car if the price is right.


11/53

Group versus individual decisions Positives of group decisions

pooling of resources

specialization of labor

usually results in greater acceptance

Negatives of group decisions

potential to waste time

group conflict

intimidation by leaders or assertive members

Not a good option when dealing with crisis

(Time taken = Decision making + Explaining + Acceptance)

Groups are superior to even the best individuals.However,during CRISIS it has to be leader driven


12/53

Decision Making Models

A model is a simplified description of a process, relationship, or

other phenomenon and focuses on a few key features of aproblem to examine carefully how they work while ignoring

other complicating and less important factors The kind of

predictive models are as varied as the decision problems to

which they are applied. Many rest on economic relationship,

some on engineering, statistical, legal, biological and scientific

relationships

Organizational level decisions involve several managers. Problem

identification and solution involve many departments, multiple

view points and even organizations which are beyond the scope

of an individual manager.

1. Management science approach / model, 2. Carnegie model, 3.

Incremental decision process model, 4. Garbage can model


13/53

Management Science Approach

This model is analog to the rational approach by individual

decision maker and came into being during the WW II.

Mathematical and statistical techniques were applied to large

scale military problems that were beyond the ability of

individual decision makers. This system is applied to

problems that are analyzable, measurable, and can bestructured in a logical way.

Amongst is limitations, it can not sense qualitative date like

competitor reactions, customer taste, product warmth

etc that can not be incorporated in any mathematical model.


14/53

Carnegie Model

Organization level decision making involve many managers

and that final choice is based on a coalition among themanagers, rather than by the one at the top based on

information fed to them. A coalition is an alliance among

several managers and stakeholders (managers from line depts,

staff specialists, powerful customers, union leaders, bankers,external groups etc) who agree about the organizational goals

and priorities. Two reasons why coalitions are made

1. Organizational goals are often ambiguous and operative

goals of the departments are inconsistent

2. Managers do not have time, resources and mental capacity

to identify all dimensions and process all information for

decision making.


15/53

Carnegie Model Contd.

Under this model the decisions are made to satisfice rather

than optimize problem solutions. The coalition will accept asolution that is perceived as satisfactory to all coalition

members

Managers are concerned with immediate problems and their

immediate solutions. They dont expect a perfect solution in aconflict laden and ill defined situation

One of the best and most visible coalition builders of recent

times was George W Bush who sought a broad based coalition

before the start of the war in Iraq to gain agreement for hisvision of a new world order


16/53

Uncertainty

Information is limitedManagers have many

constraints

ConflictManagers have

diverse goals, opinions,

values, experience

Coalition formation

Hold joint discussions

and interpret goals and

problems

Share opinion

Establish problem

prioritiesObtain support for

problem solution

Search

Conduct a simple

local searchUse established

procedure if

Appropriate

Create solutions if

needed.

Satisficing decision behavior

Adopt the first alternative

That is acceptable to the

coalition

Choice Process In Carnegie Model


17/53

Incremental Decision Process Model

Most of the organization choices are a series of small choices

(series of nibbles) that combine to produce major decisions (bigbite). They move through several decision points and may hitbarriers (decision interrupts). Case of firing of a TV / Radioannouncer. Three major stages have been identified

1. Identification phase (problem flagged by complaints from

viewers, advertisers, colleagues)2. Development stage (what the organization had done last time or

what is done by other similar organizations)

3. Selection phase (make a choice from available options; in case of

difference of opinion bargaining takes place and may have totake recourse to Carnegie model)

Finally the decision needs to be authorized by the competentauthority

(The case of evolution of Mach III Turbo blades by Gillette)


18/53

Garbage Can ModelIt deals with the pattern or flow of multiple decisions within the

organization that experience extremely high uncertainty about

growth and change. Such a state is called Organized Anarchyand are not guided by the vertical hierarchy but by the followingfactors:

1.Problem preferences (goals, problems, alternatives and ambiguity

at every stage)2.Unclear or poorly understood technology (explicit database that

facilitates decision making not available)

3.Turnover (experiences high attrition and the past experiencebrought on the table is fluid)

The unique characteristic of this model is that the decisionprocess is not seen as a sequence of events that begins with aproblem and ends with a solution (problem identification,potential solutions, participants and menu of options for decisionmaking


19/53

Consequences of GCM of decision making

1. Solutions may be proposed even when problems do not exist

(an employee may be sold on to some idea may try to sellthis to others eg introduction of computers)

2. Choices are made without solving the problems (peopledecide to quit, organization budget is slashed, new policy isissued; these may be oriented towards a problem but do not

necessarily solve them)

3. Problems may persist without solving them (organizationparticipants get used to certain kind of problems and give uptrying to solve them or may not have the technology or

wherewithal to solve them)4. A few problems are solved (the process works in aggregate,

not all problems are solved but the organization moves in thedirection of problem reductioncase of the filmCassablanca)


20/53

Rationality in Decision Making

Managerial decisions are assumed to be rational (consistent, value

maximizing choices within the specified limits, fully objectiveand logical). Moreover, the steps in the decision making processwould consistently lead towards selecting the alternative thatmaximizes the goal. The factors contributing are:

Problem clarity : Clear and unambiguous

Goal Orientation: Single, well defined goal; no conflict

Known options: Creative, aware of all viable options and therelevant criteria.

Clear Preferences: Ranked according to importance

Constant Preferences: Specific decision criteria are constant andthe weights assigned are stable over time

No time or cost constraints

Maximum payoffs


21/53

Rationality Flowchart

The problem is clear and unambiguous A single well

defined goal All alternatives and consequences are

known Preferences are clear Preferences are stable

and constant No time or cost constraintsFinal choice will maximize economic payoff

Lead To

Rational Decision Making


22/53

Bounded Rationality

In reality the problems seeking decisions are complex and the

decision making do not meet all these tests. Research suggest

that the decision making usually isnt the logical, consistent and

systematic process that the rationality implies

Bounded rationality is a behavior that is rational within the

parameters of a simplified model that captures the essential

features of a problem. This theory points out that decision

makers must cope with inadequate information about the nature

of the problem and its possible solutions, lack of time and

money to compile more complete information, inability toremember large volumes of information and limits to their own

intelligence.


23/53

Factors Limiting Rationality

1. Limits to individual capacity to information processing

2. Decision makers tend to intermix solutions with problems3. Perpetual biases can distort problem identification (managers sometime

do not see what they believe cant be there)

4. Selective information gathering based on accessibility than quality

5. Commit themselves prematurely to a specific alternative early in the

decision making process

6. Evidence of fallibility of previous solution does not always result in

search for new alternatives (Challenger episode)

7. Prior decision precedents constrain current choices

8. Divergent interest groups make it difficult to have a common goal

9. Time and cost constraints

10. Despite the potential for diversity, a strong bias exists in most

organizational culture; they reinforce status quo, discourages risk taking

and innovation


24/53

Decision Making Strategies --1

There are many solutions to a given problem and thedecision makers task is to choose one of them. There are

several strategies for choosing; some of them are:

Optimizing: Choose from the best possible solution to the

problem. Optimizing may be dependent on

Importance of the problem

Time available for solving it

Cost involved with alternative solutions

Availability of resources, expertise\Personal psychology,values

Full realization of all the parameters are seldom possible,

hence limitations are placed on the alternatives


25/53

Strategies -- 2

Satisficing: In this strategy (satisfactory and sufficient),

the first satisfactory alternative is chosen rather than the

best alternative. In many small decisions, such as where topark, what to drink, which pen to use, which tie to wear

and so on, staistificing strategy is normally used.

Example: Kaun banega krorepati


26/53

Strategy -- 3

Maximax:This stands for maximizing the maximums.

This strategy focuses on evaluating and then choosing the

alternatives based on maximum possible pay off. This is

sometimes described the policy of the optimist, because offavorable outcomes and high potentials are the areas of

concern. This is a good strategy for use when risk taking is

most acceptable, when the go for broke philosophy is

reigning freely.


27/53

Strategy -- 4

Maximin:This stands for maximizing the minimums. In

this strategy, that of a pessimist, the worst possible

outcome of each decision is considered and the decision

with the highest minimum is chosen. The Maximinorientation is good when the consequences of a failed

decision are particularly harmful or undesirable. Maximin

concentrates on the salvage value of the decision, or

guaranteed return of the decision. It is the philosophybehind the saying a bird in hand is better than two in the

bushes


28/53

Heuristics

Researchers have extended the concepts of Bounded

Rationality and demonstrated that people rely onheuristic principles (rule of thumb) to simplify decisionmaking. (Case of loan officers). Three heuristics arerecognized

1. Availability: Judge events likelihood by testing against

their memory

2. Representative -ness: Likelihood of an occurrence bytrying to match with preexisting category (Employeeethnic mix)

3. Anchoring and adjustment: People do not pull outdecision out of thin air. They start with some initialvalue (anchor). Case Salary hikes


29/53

Deciding Adaptively

Rational decision making proceeds on the belief that

managers can transform a complicated web of facts,assumptions, objectives and educated guesses into a

clear decision that people in the organization can act on.

This has been now challenged. More and more adaptive

approach has emerged which stipulates that the result ofa decision action are jointly produced by what your

organization does and what other organizations are doing

at the same time (price war amongst airlines)

Two versions of adaptive approach are(a) Game theory

(b) Chaos theory


30/53

The Two Theories

Game theory:Is thestudy of the people making

independent choices. The

perspective requires that we

view decision making as

interaction of processes of two

decision makers adapting toeach other at the same time.

(Driving on the highway). We

view decision making as a

process of two decision makers

adopting to each otherspresence simultaneously

Chaos theory:Is thestudy of the dynamic patterns in a

large social system.. It has three

states: equilibrium, disequilibria

and bounded instability. The

decision maker tries to keep the

organization in the third stage as itoffers maximum scope for

innovation. Decision making

becomes a continual process of

adaptation to forces largely beyond

the decision makers control. It islike surfing a huge wave off

Diamond Head, a wave that never

hits the shore


31/53

5/3/2012

Leaders

Crisis Growth / opportunity

Others Relief

Shock

Denial / disbelief

Anger

Guilt / Remorse

Bargaining

Panic

Depression

Resignation to the situation

Acceptance of reality

Building

The Grieving Cycle

New direction


32/53

General model of Decision-making Process

1. Identify the problemthis is the mostcritical step inorganizational decision-making.

2. Define objectivesestablishing the parameters (criteria) ofsuccess.

3. Make a pre-decision (allocating weights to the criteria)mostcritical in mitigating decision biases and errors.

4. Generate and select alternatives

5. Evaluate alternatives balanced view

6. Make a choice

7. Implement the chosen alternative

8. Follow-up; Evaluate decision effectiveness (case studycakemixture)


33/53

Context refers to the environment of interpersonal

relationships and behaviors within which decisions are made.

The right context is critical to making successful choices

A healthy context includes the right people, puts them in an

appropriate physical setting, ensures that they agree how

decisions will be made and support diverse views and healthy

debate.

Group should include person / persons in authority to allocate

resources and make the decision stick.

Limit the number of people in the group (6 to 7)

The spectrum of decision making approaches include consensus,

qualified consensus, majority rule, and directive leadership.

Advocacy is antithetical to effective decision making; should

encourage rational and open minded inquiry


34/53

Frame is a mental window through which we view a

particular problem, situation or opportunity.

Frames are prisms through we view the world . They

determine both what we see and how we interpret it (direct sales

or through vendors)

If the situation is framed incorrectly, it would lead to a bad

decision; correct would lead halfway to a good decision

Some people will try to frame the issues to suit their personal

agenda

Never be in a hurry to accept the initial frame; actively seek

alternates

Look for biases and false assumptions in all frames.


35/53

Good decisions emerge from a set of feasible alternatives.

Decision makers in these situations dont simply say yes or

no to a single choice

As a decision maker, your job is to identify a manageable set of good

alternatives.

Good alternatives are broadly constructed, genuine, feasible, and

sufficiently numerous to give decision makers a real set of choices. Brainstorming is a useful technique for generating alternatives and

problem solutions. However, it will work when the people feel

comfortable speaking their minds.

Hybrid alternatives are welcome which combines the best of two or

more alternatives. Get people on board with diverse skills and view points. This will

generate creative (positive) conflicts; your job is to turn this conflict

into a productive direction.

O th t f lt ti id tifi d th h t


36/53

Once the set of alternatives are identified, they have to

be evaluated vis--vis the established objectives.

Ask the most respected and objective members to act as the devils

advocates; they may build a case why the preferred option shouldnot be accepted.

Acknowledge and discuss minority point of view; include morethan one person with a divergent view. A lone dissenter may bereluctant to speak up.

In business, uncertainty of outcome is synonymous with risk; thismust be factored in evaluation.

Strategic and capital budgeting decisions to be examined usingfinancial tools eg. NPV, IRR, break even analysis, sensitivity

analysis etc. A prioritization matrix, trade off table or a decision tree provides a

way to compare how each alternative achieves your objectives.

Specialized soft-wares have been developed to help decisionmakers handle huge volume of data


37/53

Decision making is not an easy process; some could be

committed to one option, others may be blind to merit and

shortcomings of the alternatives. Some may disagree with the

basic assumptions while unresolved uncertainties may forceto dither

Proven management tools Catch-the-ball, Point-counter-Pointor the Intellectual Watchdog Technique may be used to arrive at

a decision. Avoid ending the deliberation too early or too late. Ending too

early may leave promising opportunities unexplored; prolongingmay fuddle the issues

After the decision is made, it needs to be communicated to the

concerned team members and other concerned persons. Whilecommunicating, show consideration for the views of others,explain the thinking behind the decision.

Implementation will be more effective if the people affected by it

view the decision process as fair.


38/53

Promoting a Fair Process

Be a good listener; do not interrupt

Make eye contact with team members and actively participate in

the process

Take notes

Make clear that though not all of the groups suggestions will be

adopted, every one receive a fair consideration.

Promote understanding, foster debate, promote new ideas

Do not show preference to a segment of the members

If you are responsible for making the final decision, let the groupmembers know that their point of view affected the outcome and

explain why you preferred to differ.


39/53

Decision Making Tools

Researchers have identified various decision making toolswhich can be utilized to proceed to decision making. Someof the important ones are:

Pareto Analysis

Grid Analysis

Paired Comparison Analysis

Decision Trees

PMI (Plus / Minus / Interesting)

Force Field Analysis

Six Thinking Hats

Cost Benefit Analysis


40/53

Pareto Analysis

It uses the Pareto principlethe idea that by doing 20% of

the work you can generate 80% of the advantage of doing

the entire job. This is mostly used technique for finding the

changes that will give the maximum benefits.

Example: Rejuvenation of a failing service center.

This is a simple technique that helps identify the most

important problem to solve; also gives you a score

showing how severe the problem is.


41/53

Grid Analysis

Also known as Decision Matrix Analysis is particularly

powerful where you have a number of good alternatives to

choose from and many different factors to take into

account.

Example: Deciding on the type of car to buy.


42/53

Paired Comparison Analysis

Helps you work out the importance of the number of

options relative to each other. It is an ideal tool to

compare apples with oranges

Example: An entrepreneur is looking at expanding

his / her business. She has limited resources and the

following options

1. Expand into overseas market

2. Expand into home markets

3. Improve customer service

4. Improve quality


43/53

Decision Trees

Decision trees are useful tools for helping you to choose

between several courses of action. They provide a highly

effective structure within which you can explore options,

and investigate the possible outcomes of those options.They also help you to form a balanced picture of the risks

and rewards associated with each possible course of action.

This makes them particularly useful for choosing between

different strategies, projects and investment opportunities,particularly when your resources are limited.


44/53

PMI (Plus / Minus / Interesting)

It is a valuable improvement to the weighing pros and

cons technique used for centuries. PMI is a good way of

weighing the pros, cons and implications of a decision.

When you have taken a decision, PMI is a good techniqueto check its implication.

Example: A young professional is deciding where to live. The

question is, should she move to a big city?


45/53

Force Field Analysis

This is a useful technique for looking at all the forces for

and against a decision. By carrying out the analysis one

can plan to strengthen the forces supporting the decision

and reduce the impact of opposition to it.

Example: Organizational up-gradation


46/53

Six Thinking Hats

This is a powerful tool that helps you to look atimportant decisions from a number of differentperspectives. It helps you making better decisions bypushing you to move outside your habitual ways ofthinking. A such it helps you understand the full

complexity of a decision and spot issues andopportunities which you might not otherwise notice.

Successful people think positive and rational. Oftenthey may fail to look at problems from emotional,

intuitive, creative or negative view points. This canmean that they underestimate resistance to change, donot make creative leaps and fail to make essentialcontingency plans.


47/53

Cost Benefit Analysis

You may have been intensely creative in generatingsolutions to a problem and rigorous in your selection

of the best. However, this solution still may not be

worthy implementing as the investment of time and

money may not be worth the effort.

Costs are either one off are ongoing. Benefits are for

most part received over a period of time. We build

this effect of time into our analysis by calculating apayback period.

Decision Making Process Two Views


48/53

Decision Making ProcessTwo Views

Decision making step Perfect Rationality Bounded Rationality

Problem identification Problem identified Commensurate withmanagers background

Decision criteria Criteria identified Limited set of criteriaidentified

Criteria value Values assigned Managers trademarkmodel identified

Identify Alternatives Comprehensive list Limited set identified

Analyze alternatives Consequences of eachvariable known

Begins with favored

alternative

Alternatives Selection Maximizing decision Satisficing decision

Implementation High acceptability Politics and power comeinto play

Evaluation Objectively evaluated Rarely evaluatedobjectively

D i i M ki S l


49/53

Decision Making StylesTwo differentperspectives

There are three different waysmanagers approach problems in

work place:

Problem avoider: Ignores

information that points to

problems Problem solver: Tries to solve

problems when they come up.

Problem seekers: Actively

seek out problems to solve or

new opportunities to pursue

The second perspective takesinto account the two dimensionsof human behavior viz the waythey think and their tolerancefor ambiguity leading to fourdifferent styles:

Directive: Make fast decisionsfocusing on the short run

Analytic: careful decisionmakers with ability to cope withunique situations

Conceptual: Very broad inoutlook; find creative solutions

Behavioral: Team players;sensitive to the feeling of others

Most managers have characteristics of more than one style

D i i M ki S l


50/53

Analytic

Directive

Conceptual

Behavioral

Low

High

Rational Intuitive

Tolerance for

ambiguity

Way of thinking

Decision Making Style

Organi ational Traps


51/53

Organizational Traps

We are social animals and our judgments are influenced by the

environment The judgment of some is influenced by (i) the desire to please

others, (ii) to avoid conflict, to be in step with others and avoidconflict or future criticism

Groupthink is a potential side effect of strong team identity. The

highlighting of similarities in thinking and suppression oravoidance of differences characterize groupthink.

Be wary of undue optimism. It must have a factual basis.

Groups generally make better decisions than individuals. Under

optimum conditions a diversity of opinion, the independence ofgroup members, decentralization and the presence of amechanism to convert individual judgment into decision helpsdoing this.


52/53

Smart Decision

Improved decisions by the employees at every levelcan have a major impact on the value of the business.Even small improvements make a big difference

To improve decisions, adopt a rational decisionprocess, train personnel to use the process and thetools, and improve implementation of the processthrough repeated use.

When you introduce a new decision process, startsmall and expand the process as it demonstrates itsvalue. Enlist top management support, but localizecontrol and responsibility

Encourage improvement.


53/53

QUESTIONS ?

Documents

Decision Making Ppt 2003