HBL
Presented By: Viqar A. Usmani
Recommended Book:
Making Management Decisionsby Steve Cooke ,Nigel Slack
Presented By: Viqar A. Usmani
Please write a one sentence definition of decision making.
The process of examining your possibilities options, comparing them, and choosing a course of action.
Presented By: Viqar A. Usmani
The word decision has been derived from the Latin word
"decidere" which means "cutting off".
Thus, decision involves cutting off of alternatives between those
that are desirable and those that are not desirable.
In the words of George R. Terry,
"Decision-making is the selection based on some criteria from
two or more possible alternatives".
Presented By: Viqar A. Usmani
Characteristics of Decision Making• Decision making implies that there are various
alternatives and the most desirable alternative is chosen to
solve the problem or to arrive at expected results.• The decision-maker has freedom to choose an alternative.• Decision-making may not be completely rational but may bejudgmental and emotional.
• Decision-making is goal-oriented.• Decision-making is a mental or intellectual process because
the final decision is made by the decision-maker.
(Cont.)
Presented By: Viqar A. Usmani
• A decision may be expressed in words or may be implied frombehavior.
• Choosing from among the alternative courses of operation implies
uncertainty about the final result of each possible course of
operation.
• Decision making is rational.
It is taken only after a thorough analysis and reasoning and
weighing the consequences of the various alternatives.
Presented By: Viqar A. Usmani
Decision making: the process by which managers respond to opportunities and threats by analyzing options, and making decisions about goals and courses of action.
Decisions in response to opportunities:managers respond to ways to improve organizational performance.
Decisions in response to threats: occurs when managers are impacted by adverse events to the organization.
Presented By: Viqar A. Usmani
Programmed Decisions: routine, almost automatic process. Managers have made decision many times before. There are rules or guidelines to follow.
Programmed decisions are routine and repetitive and are made within the
framework of organizational policies and rules.
These policies and rules are established well in advance to solve
recurring problems in the organization.
Programmed decisions have short-run impact.
Example: Deciding to reorder office supplies.Presented By: Viqar A. Usmani
Presented By: Viqar A. Usmani
Non-programmed Decisions:unusual situations that have not been often addressed.No rules to follow since the decision is new.These decisions are made based on information, and a manger’s intuition, and judgment.Non-programmed decisions are decisions taken to meet non-repetitive
problems.
Non-programmed decisions are relevant for solving unique/ unusual
problems in which various alternatives cannot be decided in advance.
A common feature of non-programmed decisions is that they are novel and non-
recurring and therefore, readymade solutions are not available.
Example: Should the firm invest in a new technology?
Classical model of decision making:a prescriptive model that tells how the decision should be made.
Assumes managers have access to all the information needed to reach a decision.
Managers can then make the optimum decision by easily ranking their own preferences among alternatives.
Unfortunately, mangers often do not have all (or even most) required information.
Presented By: Viqar A. Usmani
Rank each alternative from low to high
Select bestalternative
List alternatives & consequences
Assumes all informationis available to manager
Assumes manager canprocess information
Assumes manager knowsthe best future course of
the organization
Presented By: Viqar A. Usmani
Administrative Model of decision making:Challenges the classical assumptions that managers have and process all the information. As a result, decision making is risky.
Bounded rationality: There is a large number of alternatives and information is vast so that managers cannot consider it all. Decisions are limited by people’s cognitive abilities.
Incomplete information:most managers do not see all alternatives and decide based on incomplete information.
Presented By: Viqar A. Usmani
Uncertainty& risk
AmbiguousInformation
Time constraints &information costs
IncompleteInformation
Presented By: Viqar A. Usmani
Recognize need for a decision
Frame the problem
Generate & assess alternatives
Choose among alternatives
Implement chosenalternative
Learn from feedback
Presented By: Viqar A. Usmani
1. Recognize need for a decision: Managers must first realize the need for which a decision must be made.
Presented By: Viqar A. Usmani
A problem is a felt need, a question which needs a solution. In the words
of Joseph L Massie
"A good decision is dependent upon the recognition of the right
problem".
The objective of problem identification is that if the problem is
precisely and specifically identifies, it will provide a clue in finding
a possible solution. A problem can be identified clearly, if managers
go through diagnosis and analysis of the problem.
Recognize need for a decision
Frame the problem
Generate & assess alternatives
Choose among alternatives
Implement chosenalternative
Learn from feedback
Presented By: Viqar A. Usmani
2. Frame the problem:managers must frame problem for whichdecision is to be made.
Recognize need for a decision
Diagnosing the real problem implies knowing the gapbetween what is and what ought to be,
Diagnosis gives rise to analysis. Analysis of a problem requires:
• Who would make decision?
• What information would be needed?
• From where the information is available?
Presented By: Viqar A. Usmani
Recognize need for a decision
Frame the problem
Generate & assess alternativesChoose among alternatives
Learn from feedback
Presented By: Viqar A. Usmani
3. Generate alternatives: managers must develop feasiblealternative courses of action.
▪ If good alternatives are missed, the resultingdecision is poor.
▪ It is hard to develop creative alternatives, somanagers need to look for new ideas.
Evaluate alternatives: what are the advantages and disadvantages of each alternative?
▪ Managers should specify criteria, then evaluate.Presented By: Viqar A. Usmani
Recognize need for a decision
Frame the problem
Generate & assess alternatives
Choose among alternatives
Implement chosenalternative
Learn from feedback
Presented By: Viqar A. Usmani
4. Choose among alternatives: managers rank alternatives and decide.
▪ While ranking, all information needs to be considered.
Presented By: Viqar A. Usmani
The decision maker must check proposed alternatives against limits,
and if an alternative does not meet them, he can discard it.
Having narrowed down the alternatives which require serious
consideration The decision maker will go for evaluating how each
alternative may contribute towards the objective supposed to be
achieved by implementing the decision
Presented By: Viqar A. Usmani
A decision maker can use several sources for identifying
alternatives:
• His own past experiences• Practices followed by others and• Using creative techniques.
Recognize need for a decision
Frame the problem
Generate & assess alternatives
Choose among alternatives
Implement chosenalternative
Learn from feedback
Presented By: Viqar A. Usmani
5. Implement choose alternative: managers must now carry out the alternative.
▪ Often a decision is made and not implemented.
Presented By: Viqar A. Usmani
Once the alternative is selected, it is put into action.
The actual process of decision making ends with the choice of an
alternative through which the objectives can be achieved
Presented By: Viqar A. Usmani
Recognize need for a decision
Frame the problem
Generate & assess alternatives
Choose among alternatives
Implement chosenalternative
Learn from feedback
Presented By: Viqar A. Usmani
6. Learn from feedback: managers should consider what went right and wrong with the decision and learn for the future.
▪ Without feedback, managers never learn from experience and might repeat the same mistake.
When the decision is put into action, it brings certain results.These results must correspond with objectives, the starting point of
decision process, if good decision has been made and implemented
properly.
Thus, results provide indication whether decision making and its
implementation is proper.
Presented By: Viqar A. Usmani
Is the possible course of action:
Legal?
Ethical ?
Economical?
Practical?
Presented By: Viqar A. Usmani
Is it legal? Managers must first be sure that an alternative is legal both in this country and abroad for exports.
Is it ethical? The alternative must be ethical and not hurt stakeholders unnecessarily.
Is it economically feasible? Can our organization’s performance goals sustain this alternative?
Is it practical? Does the management have the capabilities and resources to do it?
Presented By: Viqar A. Usmani
Presented By: Viqar A. Usmani
So Far we have seen the decision making as a process, a series of linked activities, But it does not bring about the elements contained within a decision.Without these key elements it is difficult to understand a decision fully or to discriminate between the different types of management decision.
Presented By: Viqar A. Usmani
The key elements in a decision are: The decision body. Who is the person or group of people having authority to make the final decision? The decision options. What are the alternative courses of action between which a choice will be made? The uncontrollable factors.What are the factors which will affect the consequences of a decisionbut which cannot be controlled directly by the decision body? The consequences of each option.In what terms can the possible results of each of the alternative optionsbe described?
Presented By: Viqar A. Usmani
The Decision Body
By this rather formal term we simply mean the individual or set of individuals who make the decision. We assume that, since decision making involves some commitment to action, the decision body has a reasonable chance of taking the decision through to implementation.The most straightforward decision body to understand is the single decision maker. Where only one decision maker is involved it is that individual’s task to carry through the decision making process, to evaluate the information available and interpret the organization’s objective.When more than one decision maker carries responsibility for the decision, the decision is said to have a “multi-decision maker” decision body. The committee is a typical example of a multi-decision maker decision body.
Presented By: Viqar A. Usmani
The Decision Options
Decision options are the alternative courses of action between which the decision body must choose. Options lie at the heart of decision making because, unless there is more than one way to proceed, then there is no choice to be made and therefore no decision.The number of options in a decision can be anything between two and infinity. In this sense the simplest decision is that which involves taking a course of action or doing nothing–the Yes/No decision.options within a decision can turn out to be a mixture taken from a continuum which goes between “totally defined at the beginning of the decision process”, to “completely novel and developed specifically for the decision in question”
Presented By: Viqar A. Usmani
Uncontrollable Factors
The uncontrollable factors are those parts of the decision which, although having an influence on the final outcome, cannot be controlled directly by the decision body. For example, if we are deciding how much production capacity to allocate to a new product, one of the factors which will influence our decision is the likely demand for the new product.One way of coping with this is to treat demand as a “state of nature”, that is, a state in which the environment takes after, and independent of, the decision itself.When more than one uncontrollable factor is involved there could be a state of nature corresponding to every possible combination of the levels which the uncontrollable factors can take.
Presented By: Viqar A. Usmani
Consequences
For each combination of a decision option and the state of nature, there will be a consequence. Thus, if we have N alternative options and M mutually exclusive “states of nature” there will be N x M possible consequences.
Presented By: Viqar A. Usmani
Mack distinguishes between three levels of consequence.
Primary consequences, which are the straightforward statements of the operational results of an event.
Surrogate consequences,which are the interpretation of the event expressed in whatever measures we are using to describe the outcomes.
Evaluated consequences, which are a measure of the worth or utility of the outcome to the decision body. This latter set of consequences will be a reflection of the decision body’s preference or value structure.
DECISION MAKING UNDER VARIOUS CONDITIONS
The conditions for making decisions can be divided into three types.
Namely
a) Certainty
b) Uncertainty and
c) Risk
Virtually all decisions are made in an environment to at least some
uncertainty However;
the degree will vary from relative certainty to great uncertainty.
There are certain risks involved in making decisions.
Presented By: Viqar A.Usmani
a) Certainty:In a situation involving certainty, people are reasonably sure
about what will happen when they make a decision.
The information is available and is considered to be
reliable, and the cause and effect relationships are known.
b) UncertaintyIn a situation of uncertainty, on the other hand, people have only a
meager database, they do not know whether or not the data are
reliable, and they are very unsure about whether or not the situation
may change.Presented By: Viqar A.Usmani
Moreover, they cannot evaluate the interactions of the different
variables.
For example, a corporation that decides to expand its Operation to an
unfamiliar country may know little about
the country, culture, laws, economic environment, and politics.
The political situation may be volatile that even experts cannot predict
a possible change in government.c) RiskIn a situation with risks, factual information may exist, but it may be
incomplete.
To improve decision making One may estimate the objective probability of
an outcome by using, for example, mathematical models On the other hand,
subjective probability, based on judgment and experience may be usedPresented By: Viqar A.Usmani
All intelligent decision makers dealing with uncertainty
like to know the degree and nature of the risk they are
taking in choosing a course of action.
One of the deficiencies in using the traditional
approaches of operations research for problem solving
is that many of the data used in model are merely
estimates and others are based on probabilities.
The ordinary practice is to have staff specialists coming
up with best estimates.Presented By: Viqar A.Usmani
Suggests decision makers use heuristics to deal with bounded rationality. A heuristic is a rule of thumb to deal with complex
situations. If the heuristic is wrong, however, then poor
decisions result from its use.Systematic errors can result from use of an incorrect heuristic. These errors will appear over and over since the
rule used to make decision is flawed.
Presented By: Viqar A. Usmani
Prior Hypothesis
Representativeness
Illusion of Control
Escalating Commitment
Cognitive Biases
Presented By: Viqar A. Usmani
Prior hypothesis bias: manager allows strong prior beliefs about a relationship between variables and makes decisions based on these beliefs even when evidence shows they are wrong.
Representativeness: decision maker incorrectly generalizes a decision from a small sample or one incident.
Illusion of control: manager over-estimates their ability to control events.
Escalating commitment: manager has already committed considerable resource to project and then commits more even after feedback indicates problems
Presented By: Viqar A. Usmani
Many decisions are made in a group setting. Groups tend to reduce cognitive biases and can call
on combined skills, and abilities.There are some disadvantages with groups:Group think: biased decision making resulting
from group members striving for agreement. Usually occurs when group members rally around
a central manger’s idea (CEO), and become blindly committed without considering alternatives.
The group tends to convince each member that the idea must go forward.
Presented By: Viqar A. Usmani
Devil’s Advocacy: one member of the group acts as the devil’s advocate and critiques the way the group identified alternatives. Points out problems with the alternative selection.
Dialectical inquiry: two different groups are assigned to the problem and each group evaluates the other group’s alternatives. Top managers then hear each group present their
alternatives and each group can critique the other. Promote diversity: by increasing the diversity in a
group, a wider set of alternatives may be considered.
Presented By: Viqar A. Usmani
Devil’s Advocacy
Presentation of alternative
Critique of alternative
Reassessalternative
accept, modify, reject
Dialectic Inquiry
Alter. 1
Debate the two alternatives
Reassessalternatives
accept 1 or 2, combine
Alter. 2
Presented By: Viqar A. Usmani
Organizational Learning: Managers seek to improve member’s ability to understand the organization and environment so as to raise effectiveness. The learning organization: managers try to improve the
people’s ability to behave creatively to maximize organizational learning .
Creativity: is the ability of the decision maker to discover novel ideas leading to a feasible course of action. A creative management staff and employees are the key to
the learning organization.Presented By: Viqar A. Usmani
Develop PersonalMastery
Build SharedVision
Build complex, challenging
mental models
Promote TeamLearning
EncourageSystems Thinking
Presented By: Viqar A. Usmani
Presented By: Viqar A. Usmani
Peter Senge’s vision of a learning organization is a group of people who are continually enhancing their capabilities to create what they want to create.
Peter M. Senge (1947- ) was named a ‘Strategist of the Century’ by the Journal of Business Strategy, one of 24 men and women who have ‘had the greatest impact on the way we conduct business today’
According to Peter Senge (1990: 3) learning organizations are:…organizations where people continually expand their capacity to create the results they truly desire, where new and expansive patterns of thinking are nurtured, where collective aspiration is set free, and where people are continually learning to see the whole together.
Senge suggests top managers follow several steps to build in learning: Personal Mastery: managers empower employees and
allow them to create and explore. Mental Models: challenge employees to find new, better
methods to perform a task. Team Learning: is more important than individual learning
since most decisions are made in groups. Build a Shared Vision: a people share a common mental
model of the firm to evaluate opportunities. Systems Thinking: know that actions in one area of the
firm impacts all others.
Presented By: Viqar A. Usmani
Organizations can build an environment supportive of creativity. Many of these issues are the same as for the learning organization.
Managers must provide employees with the ability to take risks.
If people take risks, they will occasionally fail. Thus, to build creativity, periodic failures must be rewarded. This idea is hard to accept for some managers.
Presented By: Viqar A. Usmani
Brainstorming: managers meet face-to-face to generate and debate many alternatives.
▪ Group members are not allowed to evaluate alternatives until all alternatives are listed.
▪ Be creative and radical in stating alternatives.▪ When all are listed, then the pros and cons of each
are discussed and a short list created. Production blocking is a potential problem
with brainstorming.▪ Members cannot absorb all information being
presented during the session and can forget their own alternatives.
Presented By: Viqar A. Usmani
Nominal Group Technique: Provides a more structured way to generate alternatives in writing.
▪ Avoids the production blocking problem.▪ Similar to brainstorming except that each member is
given time to first write down all alternatives he or she would suggest.
▪ Alternatives are then read aloud without discussion until all have been listed.
▪ Then discussion occurs and alternatives are ranked.
Presented By: Viqar A. Usmani
Delphi Technique: provides for a written format without having all managers meet face-to-face.
▪ Problem is distributed in written form to managers who then generate written alternatives.
▪ Responses are received and summarized by top managers.
▪ These results are sent back to participants for feedback, and ranking.
▪ The process continues until consensus is reached. Delphi allows distant managers to participate.
Presented By: Viqar A. Usmani
Presented By: Viqar A. Usmani
After going through the details lets answer the following question:How central decision making is in management activity?The truth may well be, that we still now know very little of the answers to this question. Although a great deal has been written on the role of the manager, very little of it has examined what managers actually do in practice.In most of the books and written material, authors tends to describe and stress in What managers Ought to do, instead, what managers actually do.We will study in detail, this phenomenon in coming lectures, but lets us have a picture of what is a Manager?
Presented By: Viqar A. Usmani