Notes #4 - Managerial Decision Making

8/9/2019 Notes #4 - Managerial Decision Making

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Decision Making Process

The intelligence phase

Finding / Identifying / Formulating problems

The design phase

Develop alternative decisions The choice phase

Chose the best decision from the pool

Types of Decisions

Based on convenience

Structured

Well defined decision making procedure where every decision

is broken down in distinct stages of evaluation, alternative

search, elimination and acceptance criteria. Semi Structured

It is a mixed kind of situation where very limited amount of

structuring is maintained at some areas of operation but

otherwise no segmenting and structuring is done.

Unstructured

All three phases of decision making are unstructured and

clustered. Any one of the functions (Input, Output or Internal

Process) is not readily available because the decision must be

very rare or new so that it was not extensively studied to

incorporate procedures to deal with it within the system Based on criticality

Strategic

Affect the entire organization or a major part of it. These are

quite long-term decisions and generally made at upper level

of management

Tactical

This is also called management control decisions and affects

only a part of the organization. This is taken by middle level

management with the objective to meet the strategic plan.

Operational Affect only one or two functional areas at a time. These are

very short term and made at lower management levels.

Based on availability

Certainty / Uncertainty / Risk

Based on programmability

Programmed

All resources for decision making are already available and

the system can respond on the go.

Non Programmed

All resources are not available for instant decision making.

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Decision Making Models

Rational Decision Making Mode

o Consists of a structured four-step sequence

identifying the problem

generating alternative solutions

selecting a solution

implementing and evaluating the solution

Political Decision Making Model

o Assumes that people bring preconceived notions and biases into the

decision-making situation

o Self-interest may block people from making the most rational choice

o Sometimes it is difficult to determine if a decision maker is

operating rationally or politically

Normative Model of Decision Making Simons Model

o Based on premise that decision making is not rational

o Decision making is characterized by

limited information processing

use of judgmental heuristics

sacrificing

Problem Solving Techniques

Problem solving is a mental process and is part of the

larger problem process that includes problem finding and problemshaping. Considered the most complex of all intellectual functions,

problem solving has been defined as higher order cognitive process that

requires the modulation and control of more routine or fundamental skills.

Problem solving occurs when an organism or an artificial

intelligence system needs to move from a given state to a desired goal

state.

More Problem-solving techniques

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Abstraction: solving the problem in a model of the system before applying

it to the real system.

Analogy: using a solution that solved an analogous problem.

Brainstorming: (especially among groups of people) suggesting a large

number of solutions or ideas and combining and developing them until an

optimum is found.

Divide and conquer: breaking down a large, complex problem into

smaller, solvable problems.

Hypothesis testing: assuming a possible explanation to the problem and

trying to prove (or, in some contexts, disprove) the assumption.

Lateral thinking: approaching solutions indirectly and creatively.

Means-ends analysis: choosing an action at each step to move closer to

the goal.

Method of focal objects: synthesizing seemingly non-matching

characteristics of different objects into something new.

Morphological analysis: assessing the output and interactions of an

entire system.

Reduction: transforming the problem into another problem for which

solutions exist.

Research: employing existing ideas or adapting existing solutions to similar

problems.

Root cause analysis: eliminating the cause of the problem.

Trial-and-error: testing possible solutions until the right one is found.

How Decisions are being supported

Man-Machine System DSS is man-machine system for decision making

purposes. Man part is more open and probabilistic while the machine partis more closed and deterministic. E.g. DSS for deciding PRICE and

ADVERTISING levels

Closed-loop system with feedback external to system DSS uses feedback

to adjust output. Feedback is not internal like an elevator. The user

provides judgmental inputs to DSS.

DSS components: Database, model base, knowledge base, interfaces

which interact with each other and the user.

(Judgmental) Heuristics


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Availability Heuristic: A decision makers tendency to base

decisions on information that is readily available in memory.

Representativeness Heuristic: The tendency to assess the

likelihood of an event occurring based on ones impressions about

similar occurrences.

Decision Styles

Tuckmans Five-Stage Theory of group development


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Group Decision MakingIt is decision making in groups consisting of multiple members/entities. The

challenge of group decision is taking into consideration the various opinions of

the different individuals and deciding what action a group should take. There arevarious systems designed to solve this problem.

Formal systems

o Consensus decision-making tries to avoid "winners" and "losers".

Consensus requires that a majority approve a given course of

action, but that the minority agrees to go along with the course of

action. In other words, if the minority opposes the course of action,

consensus requires that the course of action be modified to remove

objectionable features.

o Voting-based methods

Range voting lets each member score one or more of theavailable options. The option with the highest average is

chosen. This method has experimentally been shown to

produce the lowest Bayesian regret among common voting

methods, even when voters are strategic.

Majority requires support from more than 50% of the

members of the group. Thus, the bar for action is lower than

with unanimity and a group of losers is implicit to this rule.

Plurality, where the largest block in a group decides, even if it

falls short of a majority.

o Dictatorship, where one individual determines the course of action.Group Decision Making balance:

Advantages Disadvantages

Greater pool of knowledge

Different perspectives

Greater comprehension

Increased acceptance

Training ground

Social pressure

Minority domination

Logrolling

Goal displacement

Groupthink

Group Decision Support System (GDSS)

This mainly has three reasons to come into being and become widely acceptedwithin a very short span of time. The various reasons associated with GDSS are:

Task related reasons: It may be the case where one single person is not

viable for a decision making and needs a consensus from various

participants of the same level. Again, one single person may not have the

expertise to deal with situations.

Organizational reasons: Organizations were going into a grouped work

environment, problem solving and decision making mode which pushed

the IT market to comply with industrial requirements.

Technical reasons: Connecting through GDSS became much more

economical than distributed group policy system where different

databases are individually connected together in a central location

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Disadvantages of GDSS

Cost infrastructure costs to provide the hardware and

software/room/network connectivity can be very expensive

Security especially true when companies rent the facilities for GDSS;

also, the facilitator may be a lower-level employee who may leakinformation to peers

Technical Failure power loss, loss of connectivity, relies heavily on

bandwidth and LAN/WAN infrastructure properly setup system should

minimize this risk

Keyboarding Skills reduced participation may result due to frustration

Training learning curve is present for users, varies by situation

Perception of messages lack of verbal communication could lead to

misinterpretation

Application of CBIS PPT Retail

Railway

Aviation

Education

Hotel

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Notes #4 - Managerial Decision Making