Organizational Dynamics

Faculty : Dr. G. Revathi

Planning

Planning is…

• Defining goals, establishing strategies, developing plans to coordinate activities

• It’s concerned with both ends (what has to be done) and means (how it is to be done)

Why Plan ?

• To provide direction• To reduce uncertainty• To minimize waste and redundancy• To set the standards to be used in controlling

• Planning establishes the basis for all the other managerial functions; in fact, without planning, managers wouldn’t know what to organize, lead or control

Decision Making is at the core of

planning

Decisions and Decision Making

• A Decision is a choice from two or more alternatives

• Decision making is however, more complex than just choosing from among alternatives; it is a process

The Decision Making Process

1. Identification of a Problem (i.e. a discrepancy between an existing and a desired state of affairs)

2. Identification of Decision Criteria (what’s relevant in making a decision)

3. Allocation of Weights to Criteria (give a weight of 10 to the most important criterion)

4. Development of Alternatives (list the various choices)5. Analysis of Alternatives (appraising against the criteria: give

a score of 10 for maximum favourableness)6. Selection of An Alternative7. Implementation of the Alternative8. Evaluation of Decision Effectiveness

DM process - Example

Criteria ------------ Options

6 (Wt.)Salary

7Location

8Job

Profile

7Company

BrandTotal Score

TCS7(Score)

42

7

49

7

56

8

56 203

Cognizant 8

48

10

70

9

72

9

63 253

Infosys 9

54

9

63

8

64

9

63 244

Problem: To decide which company to join

Detailed steps of the Decision Making process

1. State the Problem− What are you trying to decide on?

2. Identify the Decision Criteria − What are the factors that you consider relevant in making this

decision?− List and explain 4 to 6 factors

3. Allocate Weights to these Criteria − Use a 10-point scale and give a weight of 10 to the most important

criterion, and so on4. Explain these weights

− Why are some of the factors more important to you (i.e. assigned higher weights) than the others?

5. Develop Alternatives − List 4 to 6 possible options

Decision Making process (contd.):

6. Draw up a matrix with rows representing the alternatives and columns representing the criteria

7. Considering one criterion at a time, appraise the favorableness of each alternative with respect to that criterion, by giving it a score on a 10-point scale

− Give a score of 10 for maximum favorableness− Do the above for all the criteria

8. Explain the highest and lowest scores under each criterion9. Calculate the total score for each alternative as follows:

a. Multiply the score in each cell by the weight previously assigned to the corresponding criterion

b. For each alternative add all the products obtained above to get its total score

10. Select the alternative with the highest total score

Types of Problems and Decisions• Structured problems – straightforward,

familiar and easily definedThese are solved using

• Programmed decisions – repetitive decisions using a routine approach; these could be– Procedures (series of steps to follow)– Rules (statements on what to do or not to do)– Policies (guidelines)

Types of Problems and Decisions (contd.)

• Unstructured Problems – new or unusual with ambiguous or incomplete informationHave to be solved by making

• Nonprogrammed decisions – unique decisions that require custom-made solutions

Most decisions fall in between these two extremes; they are usually a mix of both kinds

How are Decisions made ?A. Through Rationality

Assumptions of rationality:– The problem is clear and unambiguous– There is a single, well-defined goal– All alternatives and consequences are known– Preferences are clear, constant and stable– There are no time or cost constraints– The final choice will maximize payoff

How are Decisions made ? (contd.)

B. Through Bounded Rationality– Making rational decisions bounded (i.e.

limited) by one’s ability to process information– Involves “satisficing”, rather than maximising,

i.e. choosing an alternative that is “good enough”

How are Decisions made ? (contd.)

C. Through Intuition– Judgement based on feelings and

subconscious processing, as well as experience, abilities, knowledge

Decision-making Styles

Tolerance for Ambiguity

Way of Thinking

High

Low

Rational

Intuitive

II.Analytic

III.Conceptual

I. Directive

IV. Behavioral

Decision Style Model (Rowe & Mason,1987)

Some Decision Making Errors and Biases

• Overconfidence– Tendency to think we know more than we do

• Immediate Gratification– Desire for immediate rewards or avoidance of

immediate costs• Anchoring Effect

– Fixating on initial information and failing to adjust for subsequent information

• Availability– Remembering events that are most recent in our

memories

Some Decision Making Errors and Biases

• Confirmation– Seeking information that reaffirms past choices

and discounting information that contradicts the same

• Representation– Seeing identical situations where they don’t exist

• Sunk costs– Fixating on past expenditures of time, money, or

effort rather than on future consequences• Escalation of Commitment

– Increased commitment to a decision in spite of evidence that it may be wrong, due to unwillingness to admit this

Decision-making conditions

• Certainty• Risk• Uncertainty

Decision Making under Certainty

• The outcome of every alternative is known– E.g. Interest income on deposits

• Decisions will be accurate• However such conditions do not always occur

Decision Making under Risk

• The likelihood of certain outcomes can be estimated

• Example:

Event Expected Demand

Mild Summer

600

Moderate Summer

1200

Severe Summer

1800

Plain Average: 1200

Probability

0.2

0.3

0.5

Average Demand that can be expected over time if the probabilities hold: 1380

Times in last 10 years

2

3

5

Expected Value of each alternative

120

360

900

Decision Making under Uncertainty

C1 C2 C3

S1 13 14 11

S2 9 15 18

S3 24 21 15

S4 18 14 28

Competitor’s Strategy

Our Strategy

PAYOFF MATRIX

Neither certainty nor reasonable probability estimates availableExample:

Decision Making under Uncertainty: Maximax (optimistic) strategy

C1 C2 C3

S1 13 14 11

S2 9 15 18

S3 24 21 15

S4 18 14 28

Competitor’s Strategy

Our Strategy

PAYOFF MATRIX

Maximax Strategy: S4

Decision Making under Uncertainty: Maximin (pessimistic) strategy

C1 C2 C3

S1 13 14 11

S2 9 15 18

S3 24 21 15

S4 18 14 28

Competitor’s Strategy

Our Strategy

PAYOFF MATRIX

Maximin Strategy: S3

Decision Making under Uncertainty: Minimax strategy

C1 C2 C3

S1 13 14 11

S2 9 15 18

S3 24 21 15

S4 18 14 28

Competitor’s Strategy

Our Strategy

C1 C2 C3

S1 24-13 = 11 21-14 = 7 28-11 = 17

S2 24-9 = 15 21-15 = 6 28-18 = 10

S3 24-24 = 0 21-21 = 0 28-15 = 13

S4 24-18 = 6 21-14 = 7 28-28 = 0

REGRET MATRIX

Decision Making under Uncertainty: Minimax strategy

C1 C2 C3

S1 24-13 = 11 21-14 = 7 28-11 = 17

S2 24-9 = 15 21-15 = 6 28-18 = 10

S3 24-24 = 0 21-21 = 0 28-15 = 13

S4 24-18 = 6 21-14 = 7 28-28 = 0

Competitor’s Strategy

Our Strategy

REGRET MATRIX

Minimax Strategy: S4 (minimise the maximum regret)