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7/26/2019 Nature of IT Decisions
http://slidepdf.com/reader/full/nature-of-it-decisions 1/35
The Nature of Decision Making
Making effective decisions, as well asrecognizing when a bad decision has beenmade and quickly responding to mistakes, is akey ingredient in organizational effectiveness.
ome e!perts believe that decision making isthe most basic and fundamental of allmanagerial activities.
Decision making is most closely linked with the
"lanning function.#owever, it is also part of $rganizing, %eading and &ontrolling.
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'hat is Decision Making(
) Decision making is theact of choosing onealternative from among a
set of alternatives.
) 'e have to first decidethat a decision has to be
made and then secondlyidentify a set of feasiblealternatives before weselect one.
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Decision*Making "rocess
) Decision*Making "rocess includes+
recognizing and defining the nature of a decision
situation
identifying alternatives
choosing the best- most effective/ alternative andputting it into practice.
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Decision*Making "rocess. . .(continued)
ometimes effective decisions must be
made to+
) $ptimize some set of factors such as profits, sales,
employee welfare and market share or
) Minimize loss, e!penses or employee turnover or
) elect best method for going out of business,laying off employees, or terminating a strategic
alliance.
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Decision*Making "rocess. . .(continued)
Managers make decisions about both
problems 0undesirable situations1 and
opportunities 0desirable situations1.&utting costs by 234
%earning that the company has earned higher*
than*pro5ected profits
6t may take a long time before a managercan know for sure if the right decision was
made.
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Types of Decisions
) "rogrammed decision is
one that is fairly
structured or recurs with
some frequency 0or both1.
) Nonprogrammed decision
is one that is unstructured
and occurs much less
often than a programmed
decision.
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"rogrammed Decisions. . .
Many decisions regarding basic operating
systems and procedures and standard
organizational transactions fall into this
category.McDonald-s employees are trained to make the 7ig
Mac according to specific procedures.
tarbucks, and many other organizations, useprogrammed decisions to purchase new supplies
coffee beans, cups and napkins/.
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Nonprogrammed Decisions. . .
Most of the decisions made by top managersinvolving strategy and organization design arenonprogrammed.
Decisions about mergers, acquisitions and takeovers, new
facilities, new products, labor contracts and legal issues arenonprogrammed decisions.
Managers faced with nonprogrammed decisionsmust treat each one as unique, investing greatamounts of time, energy and resources into
e!ploring the situation from all views.6ntuition and e!perience are ma5or factors inthese decisions.
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Decision*Making &onditions
) Decision Making 8nder
&ertainty
) Decision Making 8nder
9isk
) Decision Making 8nder8ncertainty
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Decision Making 8nder &ertainty
: state of certainty e!ists when a decision maker
knows, with reasonable certainty, what the
alternatives are and what conditions are
associated with each alternative.;ery few organizational decisions, however, are
made under these conditions.
The comple! and turbulent environment in which
businesses e!ist rarely allows for such
decisions.
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Decision Making 8nder 9isk
: state of risk e!ists when a decision maker makes
decisions under a condition in which the availability of
each alternative and its potential payoffs and costs are
all associated with probability estimate.
Decisions such as these are based on past e!periences,
relevant information, the advice of others and one-s own
5udgment.
Decision is calculated- on the basis of which alternative
has the highest probability of working effectively. union
negotiations, "orsche-s 8; focus vs high*performance sports cars/
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Decision Making 8nder 8ncertainty
: state of uncertainty e!ists when a decision maker doesnot know all of the alternatives, the risks associated witheach, or the consequences each alternative is likely tohave.
Most of the ma5or decision making in today-sorganizations is done under these conditions.
To make effective decisions under these conditions,managers must secure as much relevant information aspossible and approach the situation from a logical andrational view.
6ntuition, 5udgment and e!perience always play ma5orroles in the decision*making process under theseconditions.
See Figure 9.1, page 279.
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: ;iew of Decision*Making
&onditions
Certainty Risk Uncertainty
Leve o! a"#iguity and c$ances o! "aking a #ad decision
Lo%er &oderate 'ig$er
$e decision
"aker !aces
conditions o!
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9ational "erspectives on Decision Making
<eys to Decision Making
&lassical
Decision
Model
9ationalDecision
Making
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&lassical Decision Model
) :n approach to decision making that tells
managers how they should make decisions.
) :pproach assumes that managers are logical
and rational.) :pproach assumes that managers- decisions will
be in the best interests of the organization.
) &onditions suggested in this approach rarely, ifever, e!ist.
See Figure 9.2, page 2*1.
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+#tain co"pete and
per!ect in!or"ation.
i"inate uncertainty.
vauate everyt$ing
rationay and ogicay-
The &lassical Model of Decision
Making
$en !aced %it$ adecision situation,
"anagers
s$oud-
-and end up %it$ a
decision t$at #est
serves t$e interests
o! t$e organi/ation.
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9ational Decision Making
Consists o! si0 () steps t$at keep t$e
decision "aker !ocused on !acts and ogic
and $ep guard against inappropriate
assu"ptions and pit!as.
esigned to $ep t$e "anager approac$ a
decision rationay and ogicay.
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9ational Decision Making. . .(continued)
21 9ecognizing and defining the decision
situationa1 Need to define- precisely what the problem is.
b1 Manager must develop a completeunderstanding of the problem.
c1 Manager must carefully analyze and consider the
situation.
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9ational Decision Making. . .(continued)
=1 6dentifying alternativesa1 Managers must realize that their alternatives may
be limited by legal, moral and ethical norms,
authority constraints, available technology,economic considerations and unofficial social
norms.
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9ational Decision Making. . .(continued)
>1 ?valuating alternativesa1 ?ach alternative must pass successfully through three
stages before it may be worthy of consideration as asolution.
2. @easibility A 6s it financially possible( 6s it legally possible(
:re there limited human, material andBor informationalresources available(=. atisfactory A Does the alternative satisfy the conditions of
the decision situation( C34 increase in sales/
>. :ffordability A #ow will this alternative affect other parts ofthe organization( 'hat financial and non*financial costsare associated(
b1 The manager must put price tags- on the consequences ofeach alternative.
c1 ?ven an alternative that is both feasible and satisfactorymust be re5ected if the consequences are too e!pensive forthe total system.
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9ational Decision Making. . .(continued)
1 electing an alternativea1 &hoosing the best alternative is the real test of
decision making.
b1 $ptimization is the goal because a decision islikely to affect several individuals or departments.
c1 @inding multiple acceptable alternatives may be
possibleE selecting one and re5ecting the others
may not be necessary.
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9ational Decision Making. . .(continued)
C1 6mplementing the chosen alternativea1 Managers must consider people-s resistance to
change when implementing decisions.
b1 @or some decisions, implementation is easyE forothers, very difficult or time consuming.
c1 $perational plans are very useful in implementing
alternatives.
d1 Managers must also recognize that even when allof the alternatives and their consequences have
been evaluated as precisely as possible,
unanticipated consequences are still likely.
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9ational Decision Making. . .(continued)
F1 @ollowing up and evaluating the resultsa1 Managers must evaluate the effectiveness of their decisions
A did the chosen alternative serve its original purpose(
#) 3! t$e i"pe"ented aternative appears not to #e
%orking, t$e "anager $as severa c$oices1. 4not$er previousy identi!ied aternative "ig$t #e
adopted or
2. Recogni/e t$at t$e situation %as not correcty de!ined
and start t$e process a over again or
5. ecide t$at t$e aternative $as not #een given enoug$ti"e to %ork or s$oud #e i"pe"ented in a di!!erent
%ay.
6See Figure 9.5 and a#e 9.1
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@igure G.>+ ?valuating :lternatives
in the Decision*Making "rocess
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7ehavioral :spects of Decision Making
) ometimes decision making must reflect
sub5ective considerations 0tastes, etc.1
) $ther behavioral aspects include+ political
forces, intuition, escalation ofcommitment, risk propensity and ethics.
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7ehavioral :spects. . . (continued)
The :dministrative Model of Decision Making
#erbert : imon, a Nobel "rize winner in ?conomics,
developed the model to describe how decisions are
often made rather than to prescribe how they should be
made.
:rgues that decision makers have incomplete and
imperfect information, are constrained by bounded
rationality- and tend to satisfice- when making decisions.
7ounded rationality suggests that decision makers arelimited by their values and unconscious refle!es, skills
and habits. :merican vs foreign automakers/
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7ehavioral :spects. . . (continued)
atisficing is the tendency to search foralternatives only until one is found that meets
some minimum standard of sufficiency.
9ather than conducting an e!haustive searchfor the best possible alternative, decision
makers tend to search only until they identifyan alternative that meets some minimumstandard of sufficiency.
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...and end up %it$ a
decision t$at "ay or
"ay not serve t$e
interests o! t$e
organi/ation.
The :dministrative Model of
Decision Making
Use inco"pete and
i"per!ect 3n!or"ation.
4re constrained #y
#ounded rationaity.
end to satis!ice-$en !aced %it$ a
decision situation
"anagers
actuay-
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7ehavioral :spects. . . (continued)
The &lassical and :dministrative Models paint quite a
different picture of decision making. #owever, each
may be used to better understand how managers
make decisions.
The &lassical Model attempts to e!plain how
managers can at least attempt to be more rational
and logical in their approach to decisions.
The :dministrative Model can be used by managers
to develop a better understanding of their inherentbiases and limitations.
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7ehavioral @orces 6nfluencing Decisions
"olitical @orces in Decision Making
&oalition * an informal alliance of individuals or
groups formed to achieve a common goalstockholders,
directors, parliament blocs, etc/
6mpact of a coalition may be positive or negative.
Managers must recognize when to use coalitions,
how to assess if they are acting in the bestinterest of the organization and how to control
their negative effects.
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7ehavioral @orces 6nfluencing Decisions
6ntuition A is an innate belief about something,
without conscious consideration.
Deciding to do something because it feels right-
or one has a hunch-.
@eeling is based on years of e!perience and
practice in making decisions in similar situationsE
may help managers make occasional decisions without going through an a*to*z process.
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7ehavioral @orces 6nfluencing Decisions
?scalation of &ommitment A occurs when a
decision maker stays with a decision even
when it appears to be wrong. "an :m holdings/
Decision makers must guard against
sticking too long with an incorrect
decision.
#owever, managers should not bail out- of
a seemingly incorrect decision too soon.
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7ehavioral @orces 6nfluencing Decisions
9isk "ropensity A thee!tent to which adecision maker iswilling to gamblewhen making adecision.
$rganizational culture isa prime ingredient inencouraging differentlevels of risk.
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7ehavioral @orces 6nfluencing Decisions
?thics
Managerial ethics involves a
wide variety of decisions+
9elationships of the firm
to its employees closing a dept
to save money/
9elationships of the
employees to the firm9elationships of the firm
to other economic agents