DECISION MAKING

and

PROBLEM SOLVING

Discussant: Christopher G. Aguilar

Take a look at these illustrations. What do you see?

The square on the right is obviously larger in area than the one on the left, isn’t it? How about the circles? Which looks larger in circumference and diameter? The oneon the right? Not so! If you measure them, you’ll see that they are identical in size. 

ISSUE: Identify the best location for new school site.If after evaluating each of the primary locations only one viable choice remains, then there is really no decision left to make. But if three locations each meet the basic requirements and have different relative strengths, the president will then have to make a decision from among the options.

** most of our interest relates to decision making**

What is DECISION MAKING?

Is the process of choosing one alternative from among several.

What is PROBLEM SOLVING?

Is finding the answer to a question.

Basic Elements of DECISION MAKING . Goal

. Courses of action outcomes

. Information (available) Alternatives

.. each has an outcome likely to occur

.. Value of each outcome relative to goal

. Decision maker chooses alternative on the basis of his her evaluation of the information

Information

ActionOutcome

Probabilities

Value of Out-Comes RelativeTo Goals

Choice of One

alternative

Alternative Actions

Goals

Action 1

Action 2

Action 3

Outcome 1.1Outcome 1.2Outcome 1.3

Outcome 2.1Outcome 2.2

Outcome 3.1Outcome 3.2Outcome 3.3

Elements of Decision Making

Decisions made in organizations can be classified according to:

FREQUENCY - how often a particular decision situation recurs

INFORMATION – are conditions describe how much information is available about the likelihood of various outcomes

Types of DECISIONS on the frequency of recurrence

1. Programmed decision – recurs often enough for decision rules to be developed.

- usually are highly structured :

a. goals are clear and well known;

b. decision-making procedure is already established; and

c. sources and channels of information are clearly defined

Types of DECISIONS on the frequency of recurrence

2. Nonprogrammed decision – when a problem or decision situation has not been encountered before, however, a decision maker cannot rely on previously established decision rules

- requires problem solving (a special form of decision making in which the issue is unique – it requires developing and evaluating alternatives without the aid of a decision rule.

** one key element of nonprogrammed decisions is that they require good judgment on the part of leaders and decision makers.

Characteristics Programmed

Decisions

Nonprogrammed

Decisions

Type of Decision Well structured Poorly structured

Frequency Repetitive and routine

New and unusual

Goals Clear, specific Vogue

Information Readily available Not available, unclear channels

Consequences Minor Major

Organizational level Lower levels Upper levels

Time for solution Short Relatively long

Basis for solution Decision rules, set procedures

Judgment and creativity

Characteristics of Programmed and Nonprogrammed Decisions

Information required for DECISION MAKING

1. Complete certainty - when all alternative outcomes are known

2. Complete uncertainty - when all alternative outcomes are unknown

3. Condition of Risk (points between the two extremes)

- the decision maker has some information about the possible outcomes and may be able to estimate the probability of their occurrence

- the outcome of a given action is not known but has enough information to estimate the probabilities of various outcomes

Information conditions

Alternatives

Probability of outcome occurring

Outcome Goal: To Maximize Profit

Certainty Promote

Do not Promote

1.0

1.0

5,000 Php

500 Php

5,000 Php

500 Php

Risk Promote

Do not Promote

Large market: 0.6Small market: 0.4

Large market: 0.6Small market:0.4

5,000 Php500 Php

500 Php150 Php

3000 Php200 PhpExpected value 6000 Php

300 Php60 Php Expected value360 Php

Uncertainty Promote

Do not promote

??????

Uncertain Uncertain UncertainUncertainUncertainUncertain

Outcomes unknown

Outcomes unknown

Alternative Outcomes Under Different Information Conditions

Approaches to DECISION MAKING

Rational Approach - assumes that managers follow a systematic , step-by-step process from goals to implementation, measurement, and control. It further assumes the organization is dedicated to making logical choices and doing what makes the most sense economically and managed by decision makers who are entirely objective and have complete information.

* actual decision making often is not wholly rational process

Steps in Rational Approach

1. State the Situational Goal

the rational decision-making process begins with the statement of a situational goal-that is a goal for a particular situation.

2. Identify the Problem

the purpose of problem identification is to gather information that bears on the goal. If there is discrepancy between the goal and the actual state, action maybe stated.

3. Determining Decision Type

decision makers must determine if the problem represents a programmed or a nonprogrammed decision.

4. Generate Alternatives

decision makers may rely on education and experience as well as knowledge of the situation to generate alternatives

5. Evaluate Alternatives

decision maker must examine each alternative for evidence that it will reduce the discrepancy between the desired state and the actual state.

6. Choose Alternative

choosing consists of selecting the alternative with the highest possible payoff, based on the benefits, costs, risks, and uncertainties of all alternatives.

7. Implement the Plan

implementation requires the proper use of resources and good managerial skills;

the success depends on the leadership, the reward structure, the communications system, and group dynamics.

8. Control: Measure and Adjust

the outcomes of the decision are measured and compared with the desired goal

The BEHAVIORAL APPROACH

- acknowledges the role and importance of human behavior in the decision-making process

- decision makers operate with bounded rationality rather with the perfect rationality assumed by the rational approach

BEHAVIORAL APPRAOCH is characterized by:

1. the use of procedures and rules of thumb – initially reduced uncertainty in

decision making

2. suboptimizing - is accepting less than the possible outcome - - - frequently, it is not feasible to make the ideal decision in a real-world situation given organizational constraints

3. satisficing - is examining alternatives only until a solution that meets minimal requirements is found and then ceasing to look for a better one

PERSONAL APPROACH

- Janis-Mann concept called the conflict model (Irving Janis and Leon Mann)

- based on research in social psychology and individual decision processes

Characteristics of Personal Approach

1. it deals with important life decisions

* marriage, schooling, career, and

major organizational decisions

Characteristics of Personal Approach

2. It recognizes that procrastination and rationalizations are mechanisms by which people avoid making difficult decisions and coping with the associated stress

3. It explicitly acknowledges that some decisions probably will be wrong and that the fear of making an unsound decision can be a deterrent to making any decision at all

Characteristics of Personal Approach

4. It provides for self-reaction – comparisons of alternatives with internalized moral standards

5. It recognizes that at times the decision maker is ambivalent about alternative courses of action

Start: Challenging or

negative feedback or an opportunity

Additional information about losses

from continuing unchanged

Q. 1. are the risks serious if I don’t make a change?

Unconflicted Adherence

Information about losses

from changing

signs of more information

available and of other unused

resources

Q.2. are the risks serious if I do

make a change?

Unconflicted Change

Q.3. is it realistic to hope to fid a better solution?

Defensive Avoidance

Information about deadline

and time pressure

Q. 4. is there sufficient time to

search and dileberate?

Hypervigilance

Vigilance

End: Incomplete

search appraised,

and contingency planning

End: thorough

search/appraised,and

contingency planning

Antecedent Conditions

Mediating Processes Consequences

No

No

No

No

Maybe or Yes

Maybe or Yes

Maybe or Yes

Maybe or Yes

Thank U !!!