Decisionmaking 1

8/2/2019 Decisionmaking 1

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Decision Making Process

Lecture 1-4

Introduction to Management Science


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Project for the semester Quizes =10%

Project =30%

one sessional = 20%

End term exam = 40%


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Project description and

requirements Identify a real life business, social, economic,

engineering, medical sciences, IT or any

other area of your interest Collect data with 10 variables and 100

records for all of those ten variables.

Prefer numeric data , but some of thevariables could have text entries.

This is the complete population you have


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requirements Case definition:

You are going to solve this problem

Apply all the tools or most of thesewhich ever you feel appropriate inrelevant areas of case.

If you know any other tools you mayapply those also , but statpro and partlyexcel must be used


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requirements( report format) Title Abstract

Introduction, Case definitions Main body Findings

Conclusions References bibliography Your own biography


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requirements ( report format) Most important is that your

research data is real and fake(fabricated)

Important is you provide a solution

to the problem


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Contents What is Decision Making?

Some Definitions

Kinds of Decisions Decision Making is a Recursive Process

The Components of Decision Making

The Effects of Quantity on Decision Making

Decision Streams


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More Contents

Concepts & Definitions

Information.

Alternatives Criteria.

Goals

Value Preferences.

Decision Quality

Acceptance

Approaches

Authoritarian

Group

Decision Making Strategies

Optimising

Satisficing Maximax

Maximin


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More ContentsDecision making Procedure

Identify decision and goal

Getting Facts

Developing Alternatives

Rate each alternative Make the decision


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What is Decision Making? We all make decisions of varying importance

every day, so the idea that decision making

can be a rather sophisticated art is not valid Studies have shown that most people aremuch poorer at decision making than they

think!.

An understanding of what decision makinginvolves, together with a few effectivetechniques, will help produce better decisions


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Some DefinitionsDecision making is the

study of identifying andchoosing alternatives

based on the values andpreferences of thedecision maker


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Some DefinitionsDecision making is the

process of sufficientlyreducing uncertainty anddoubt about alternatives toallow a reasonable choice tobe made from among them.


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Kinds of DecisionsDecisions whether. This is

the yes/no, either/ordecision that must be

made before we proceedwith the selection of an

alternative


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Kinds of Decisions Decisions which. These involve

a choice of one or morealternatives from a set ofpossibilities, the choice being

based on how well eachalternative measures up to aset of predefined criteria


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Kinds of Decisions

Contingent decisions. These aredecisions that have been made but put

on hold until some condition is met. For example, I have decided to buy that

car if I can get it for the right price; I

have decided to write that article if Ican work the necessary time for it intomy schedule


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Kinds of Decisions(Habits of People)

Most people carry around a

set of already made,contingent decisions, justwaiting for the rightconditions or opportunity toarise.


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Kinds of Decisions(Habits of People)

Time, energy, price,

availability, opportunity,encouragement--all thesefactors can figure into thenecessary conditions thatneed to be met before we

can act on our decision


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Decision Making is a RecursiveProcess

Most decisions are made by movingback and forth between the choice ofcriteria

The characteristics we want our choice

to meet The identification of alternatives

The possibilities we can choose among


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Decision Making is a RecursiveProcess

The alternatives available

influence the criteria we apply tothem,

Similarly the criteria we establishinfluence the alternatives we willconsider


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decision whether ... select criteria ...identify alternatives ... make choice

Suppose someone wants to decide, Should Iget married? Notice that this is a decision

whether.A linear approach to decision making would

be to decide this question by weighing the

reasons pro and con (what are the benefitsand drawbacks of getting married) and thento move to the next part of the process,


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Decision whether ... select criteria ...identify alternatives ... make choice

The identification of criteria

(supportive, easy going, competent,affectionate, etc.).

Next, we would identify alternatives

likely to have these criteria (Kathy,Jennifer, Michelle, Julie, etc.).


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Decision whether ... select criteria ...identify alternatives ... make choice

Finally we would evaluate

each alternativeaccordingto the criteriaand choose

the one that best meetsthe criteria


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Contingent Decision

"I'll get married if I can find

the right person." It will thus be influenced by

the identification of

alternatives, which we usuallythink of as a later step in theprocess.


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Contingent Decision

Similarly, suppose we have arrivedat the "identify alternatives" stageof the process

when we discover that Jennifer

(one of the girls identified as analternative) has a wonderfulpersonality characteristic that we

had not even thought of before,


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Contingent Decision

but that we now really want to have in awife. We immediately add that characteristic

to our criteria. Thus, the decision making process continues

to move back and forth, around and around

as it progresses in what will eventually be alinear direction but which in its actualworkings is highly recursive.


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The Components of DecisionMaking

The Decision Environment:

Every decision is made within adecision environment, which isdefined as the collection of

information, alternatives, values,and preferences available at thetime of the decision.


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An ideal decision environmentwould include all possible

information, all of it accurate,and every possible alternative


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Information andalternatives are constrained

because time and effort togain information or identifyalternatives are limited.


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The time constraint means thata decision must be made by acertain time.

The effort constraint reflectsthe limits of manpower,

money, and priorities.


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The major challenge ofdecision making isuncertainty,

A major goal of decisionanalysis is to reduceuncertainty.


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We can almost never haveall information needed to

make a decision withcertainty, so most decisionsinvolve an undeniable

amount of risk.


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Why hindsight is so much moreaccurate and better at makingdecisions than foresight.

As time passes, the decisionenvironment continues to growand expand.


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New information and new alternatives

appear--even after the decision mustbe made.

Armed with new information after the

fact, the hindsighters can many timeslook back and make a much betterdecision than the original maker,because the decision environment has

continued to expand


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Since the decision environmentcontinues to expand as timepasses,

It is often advisable to put offmaking a decision until close

to the deadline.


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Information and alternativescontinue to grow as time passes,

So to have access to the most

information and to the bestalternatives, do not make thedecision too soon


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The Decision Environment:.

Now, since we are dealing with real

life, it is obvious that somealternatives might no longer beavailable if too much time passes;

That is a TENSION we have to workwith, a tension that helps to shape thecutoffdate for the decision.


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The Components of DecisionMaking (Delaying Decision)

The Decision Environment:.

The decision environment will be larger,

providing more information. There is alsotime for more thoughtful and extendedanalysis.

New alternatives might be recognized or

created. The decision maker's preferences might

change. With further thought, wisdom,maturity, you may decide not to buy car X

and instead to buy car Y


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The Effects of Quantity onDecision Making

Many decision makers have a tendency toseekmore information than required to make

a good decision. When too much informationis sought and obtained, one or more ofseveral problems can arise.

(1) A delay in the decision occurs because ofthe time required to obtain and process theextra information. This delay could impairthe effectiveness of the decision or solution.

(2) Information overload will occur.


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In this state, so muchinformation is available thatdecision-making abilityactually declines because the

information in its entirety canno longer be managed orassessed appropriately.


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A major problem caused byinformation overload is

forgetfulness.

When too much information is

taken into memory, especially in ashort period of time, some of theinformation (often that received

early on) will be pushed out


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The example is sometimes givenof the man who spent the day at

an information-heavy seminar.

At the end of the day,he was not

only unable to remember the firsthalf of the seminar buthe had alsoforgotten where he parked his car

that morning


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(3)Selective use of theinformation will occur. That is,the decision maker will choosefrom among all the information

availableonly those factswhich support a preconceivedsolution or position.


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(4)Mental fatigue occurs,

which results in slower workor poor quality work.

(5) Decision fatigue occurs,where the decision makertires of making decisions.


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Often the result is fast,careless decisionsor evendecision paralysis--no

decisions are made at all


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Decision Streams

A common misconception about decisionmaking is that decisions are made in

isolation from each other: you gather information, explore

alternatives, and make a choice, without

regard to anything that has gone before.


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Decision Streams

The fact is, decisions are

made in a context of otherdecisions.

The typical metaphor used toexplain this is that of astream.


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Decision Streams

There is a stream of decisionssurrounding a given decision,

Many decisions made earlier haveled up to this decision and made it

both possible and limited. Many other decisions will follow

from it


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Decision Streams

We might say, then,

(1) That every decision followsfrom previous decisions,

(2) Enables many future decisions,

and

(3) Prevents other future

decisions.


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Decision Streams

People who have trouble

making decisions aresometimes trapped by the

constraining nature ofdecision making


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Decision Streams

It is important to realize that everydecision you make affects the

decision stream

And the collections of alternatives

available to you both immediatelyand in the future.

Decisions have far reaching

consequences


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First assignment

Identify a company

And at least 5 problems

Prioritize these problems

Give variable of data

Nature of variables

Group your problems in specialties likemarketing, HR, finance and else

Next courses of action 52


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Next assigmnment

Give priority

Explain relationship of variables

Bring data means that you have to fill inone value for each variable

And a possible solution

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C d D fi i i


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Concepts and DefinitionsInformation

This is knowledge about the decision, theeffects of its alternatives, the probability of

each alternative, and so forth. While substantial information is desirable,

the statement that "the more information,

the better" is not true.Too much information can actually

reduce the quality of a decision.

C t d D fi iti


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Concepts and DefinitionsAlternatives.

These are the possibilities one has to choosefrom.

Alternatives can be identified (that is,searched for and located) or even developed(created where they did not previouslyexist).

Merely searching for pre existingalternatives will result in less

effective decision making .

C t d D fi iti


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Concepts and DefinitionsCriteria.

These are the characteristics orrequirements that each alternative

must possess to a greater or lesserextent.

Usually the alternatives are rated onhow well they possess each criterion.

For example, alternative Toyota ranks an8 on the criterion of economy, while

alternative Buick ranks a 6 on the same

criterion

C t d D fi iti


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Concepts and DefinitionsGoals.

What is it you want to accomplish?

Many decision makers collect a bunchof alternatives (say cars to buy orpeople to marry) and then ask, "Which

should I choose?" without thinkingfirst of what their goals are, whatoverall objective they want to achieve.

C t d D fi iti


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Concepts and DefinitionsGoals

Next time you find yourself asking,"What should I do? What should I

choose?" ask yourself first, "Whatare my goals?"

A component ofgoal identificationshould be included in every

instance of decision analysis

C t d D fi iti


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Concepts and DefinitionsValue

Value refers to how desirable

a particular outcome is, thevalue of the alternative,

whether in dollars,satisfaction, or other benefit

C t d D fi iti


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Concepts and DefinitionsPreferences

These reflect the philosophy andmoral hierarchy of the decision

maker.

We could say that they are thedecision maker's "values,

We would say that personal valuesdictate preferences

C t d D fi iti


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Concepts and DefinitionsPreferences

Some people prefer excitement tocalmness, certainty to risk, efficiency to

Aesthetics, quality to quantity. When one person chooses to ride the

wildest roller coaster in the park andanother chooses a mild ride,

Both may be making good decisions, if

based on theirindividual

preferences.

C t d D fi iti


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Concepts and DefinitionsDecision Quality

This is a rating of whether adecision is good or bad.

A good decision is a logical onebased on the available

information and reflecting thepreferences of the decisionmaker.

C t d D fi iti


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The quality of a decision is not relatedto its outcome: a good decision can

have either a good or a bad outcome.

A bad decision (one not based onadequate information or not reflectingthe decision maker's preferences) canstill have a good outcome.

Concepts and Definitions


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For example, if you do extensive analysisand carefully decide on a certain

investment based on what you knowabout its risks and your preferences,

Then your decision is a good one, even

though you may lose money on theinvestment.



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Similarly, if you throw a dar

at a listing of stocks and buthe one the dart hits,your

decision is a bad one,eventhough the stock may go upin value



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Good decisions that

result in bad outcomesshould thus not be a

cause for guilt or

recrimination Concepts and Definitions


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Concepts and DefinitionsJudging Decision Quality

In addition to concerns of logic, use ofinformation and alternatives, three

other considerations come into play:A. The decision must meet the stated

objectives most thoroughly and

completely.How well does thealternative chosen meet the goalsidentified?



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B. The decision must meet the statedobjectives most efficiently, with

concern over cost, energy, sideeffects. Are there negativeconsequences to the alternative that

make that choice less desirable?

We sometimes overlook thisconsideration in our search for thrills.



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C. The decision must take into accounvaluable by products or indirect

advantages. A new employeecandidate may also have extraabilities not directly related to the job

but valuable to the companynonetheless.

These should be taken into account.



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Concepts and DefinitionsAcceptance

Those who must implement the decision orwho will be affected by it must accept it

both intellectually and emotionally. Acceptance is a critical factor because it

conflicts with the quality criteria.

In such cases, the best thing to do may beto choose a lesser quality solutionthat has greater acceptance


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Approaches to Decision


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Approaches to DecisionMaking

Two major approaches to decisionmaking in an organization:

The authoritarian method inwhich an executive figure makes adecision for the group and

The group method in which thegroup decides what to do



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Approaches to DecisionMaking:Authoritarian

A manager makes decision based on theknowledge he can gather.

He then must explain the decision to thegroup and gain their acceptance of it.

Time breakdown for a typical operating

decision is something like this: Make decision, 5 min.; Explain decision,

30 min.; Gain acceptance, 30 min.



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Approaches to DecisionMaking: Group

The group shares ideas and analyses, andagrees upon a decision to implement.

Studies show that the group often hasvalues, feelings, and reactions quite

different from those the manager

supposes they have.



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No one knows the group and its tastesand preferences as well as the group

itself. And, interestingly, the time breakdown is

something like this:

Group makes decision, 30 min.;Explain decision, 0 min.; gain

acceptance, 0 min.



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From an efficiency standpoint, groupdecision making is better. people prefer to

implement the ideas they themselves thinkof.

Work harder and more energetically to

implement their own idea than they would

to implement an idea imposed on

them by others



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Decision Making StrategiesOptimizing.

Strategy of choosing the best possiblesolution to the problem, discovering asmany alternatives as possible and choosing the very best.

A.Importance of the problem

B. Time available for solving it

C. Cost involved with alternative solutions D. Availability of resources, knowledge

E. Personal psychology, values



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Decision Making StrategiesSatisficing

In this strategy, the first satisfactoryalternative is chosen rather than the

best alternative The word satisficingwas coined by

combining satisfactoryand sufficient.

For many small decisions, such as where topark, what to drink, which pen to use, whichtie to wear, and so on, the satisficingstrategy is perfect.



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Decision Making StrategiesMaximax.

This stands for "maximize themaximums.

This strategy focuses on evaluating and thenchoosing the alternatives based on theirmaximum possible payoff.

This is sometimes described as the strategy of

the optimist,because favorable outcomes

and high potentials are the areas of concern.

It is a good strategy for use when risk takingis most acceptable,



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Decision Making StrategiesMaximin

This stands for "maximize the

minimums. Strategy, that of the pessimist,

the worst possible outcome of each

decision is considered and thedecision with the highestminimum is chosen.



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Decision Making StrategiesMaximin

The Maximin orientation is good when the

consequences of a failed decision

are particularly harmful orundesirable. Maximin concentrates on the salvage value

of a decision, or of the guaranteed returnof the decision.

It's the philosophy behind the saying, "A birdin the hand is worth two in the bush.


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Quiz shows exploit the uncertaintymany people feel when they are notquite sure whether to go with a maximaxstrategy or a maximin one: "Okay, Mrs. Freen,

you can now choose to take what

you've already won and go home,or risk losing it all and find out what'sbehind door number three."


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Decision Making Procedure

Identify the decision to be madetogether with the goals it should

achieve Get the facts

Develop alternatives

Rate each alternative Rate the risk of each alternative

Make the decision


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D i i M ki P d


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Decision Making ProcedureIdentify the decision to be made

When thinking about the decision, be sure toinclude a clarification of goals:

We must decide whom to hire for our newsecretary, one who will be able to create anefficient and organized office.

Or, We must decide where to go on vacation,where we can relax and get some rest fromthe fast pace of society.



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Decision Making ProcedureGet the facts

Get as many facts as possible about adecision within the limits of time imposed

on you and your ability to process them, Remember that virtually every decision

must be made in partial ignorance.

Lack of complete information must notbe allowed to paralyze your decision.



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A decision based on partial knowledgeis usually better than not making the

decision when a decision is reallyneeded.

The proverb that "any decision isbetter than no decision," whileperhaps extreme, shows the

importance of choosing



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As part of your collection offacts, list your feelings, hunches,

and intuitive urges. Many decisions ultimately rely

on or be influenced by intuitionbecause of the remaining degreeof uncertainty involved in the

situation



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As part of your collection of facts:

Consult those who will be affected by

and who will have to implementyour decision.

Input from these people not only helps

supply you with information and helpin making the decision but it begins toproduce the acceptance



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Decision Making ProcedureDevelop alternatives

Make a list of all the possible choices you

have, including the choice ofdoing nothing.

Not choosing one of the candidates or one ofthe building sites is in itself a decision.

Often a non decision is harmful --notchoosing to turn either right or left is to choose todrive into the bridge.



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Decision Making ProcedureDevelop alternatives

The decision to do nothing is useful or at leastbetter than the alternatives, so it should alwaysbe consciously included in the decision makingprocess.

Think about not just identifying availablealternatives but creating alternativesthat don't yet exist.

For example, if you want to choose which major to pursuein college, think not only of the available ones in thecatalog, but of designing your own course of study.



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Decision Making ProcedureRate each alternative

This is the evaluation of the value of eachalternative.

Consider the negative of eachalternative (cost, consequences,problems created, time needed, etc.) and

The positive of each (moneysaved, time saved, added creativity orhappiness to company or employees, etc.).



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The alternative that you might likebest or that would in the best of all

possible worlds be an obviouschoice,

It however, not be functional in thereal world because of too muchcost, time, or lack of acceptance byothers



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Don't forget to include indirect factors inthe rating.

If you are deciding between machines X,Y, and Z and you already have anemployee who knows how to operate

machine Z, that fact should beconsidered.



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If you are choosing an investigativeteam to send to Japan to look at plant

sites and you have very qualifiedcandidates A, B, and C,

The fact that B is a very fast typist, a

superior photographer or has some otherside benefit in addition to being aqualified team member, should beconsidered.



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In fact, what you put on yourhobbies and interests line on your

resume is quite important when youapply for a job

Employers are interested in gettingpeople with a good collection ofadditional abilities



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Decision Making ProcedureRate the risk of each alternative

In problem solving, you hunt aroundfor a solution that best solves a

particular problem, and by such a huntyou are pretty sure that the solutionwill work.

In decision making, however, thereis always some degree of uncertaintyin any choice.



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Will Bill really work out as the newsupervisor? If we decide to expand into

Canada, will our sales and profitsreally increase? If you decide to marry person X or buy car

Y or go to school Z,will that be thebest or at least a successful

choice?



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Risks can be rated as:

Percentages, ratios, rankings,grades or in any other formthat allows them to be

compared.



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Decision Making ProcedureMake the decision

If you are making an individual decision, applyyour preferences (which may take intoaccount the preferences of others).

Choose the path to follow, whether it includesone of the alternatives, more than one ofthem (a multiple decision) or the decision to

choose none. Don't forget to implement the decision and

then evaluate the implementation, just as you

would in a problem solving experience


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gMake the decision

Implementers are much morewilling to support decisions whenthey:

(1) Understand the risks and

(2) Believe that they are beingtreated with honesty and like

adults



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gMake the decision

Remember also that very fewdecisions are irrevocable.

Don't cancel a decision prematurelybecause many new plans require

time to work--it may take years foryour new branch office in Paris to getprofitable



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gMake the decision

Don't hesitate to change directionsif a particular decision clearly is not

working out or is being somehowharmful.

You can always make anotherdecision to do something else.

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Decisionmaking 1