Management Concepts and Meaning-Decision Making

Decision making

Ms Mahima Gupta

Management – Concept & Meaning

OVERVIEW

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Jagan Institute of Management Studies (JIMS) www.JimsIndia.org

1. Describe the steps in the decision-making process.

2. Identify the assumptions of the rational decision-making model.

3. Explain the limits to rationality.

4. Define certainty, risk, and uncertainty as they relate to decision making.

5. Describe the actions of the bounded-rational decision maker.

Learning OutcomesAfter reading this chapter, I will be able to:

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6. Identify the two types of decision problems and the two types of decisions that are used to solve them.

7. Define heuristics and explain how they affect the decision-making process.

8. Identify four decision-making styles.

9. Describe the advantages and disadvantages of group decisions.

10. Explain three techniques for improving group decision making.

Learning Outcomes (cont’d)After reading this chapter, I will be able to:

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• Decision-making process• A set of eight steps that includes identifying a problem, selecting a solution, and

evaluating the effectiveness of the solution• Problem

• A discrepancy between an existing and a desired state of affairs• Decision criteria

• Factors that are relevant in a decision

Classical Management Theory

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What are the organization’s long-term objectives?What strategies will best achieve those objectives? What should the organization’s short-term objectives be? What is the most efficient means of completing tasks? What might the competition be considering?What budgets are needed to complete department tasks?How difficult should individual goals be?

Examples of Planning-Function Decisions

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The Decision-Making Process

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• Decision implementation• Putting a decision into action; includes conveying the decision to the persons who will

be affected by it and getting their commitment to it.

Decision-making (cont’d)

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Making Decisions: The Rational Model• Certainty

• The implication that the outcome of every possible alternative is known.• Uncertainty

• A condition under which there is not full knowledge of the problem and reasonable probabilities for alternative outcomes cannot be determined.

• Risk• The probability that a particular outcome will result from a given decision.

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Assumptions of Rationality

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What Is Creative Potential?• Expertise

• Understanding, abilities, knowledge, proficiencies, necessary in the field of creative endeavor.

• Creative-thinking skills• The personality characteristics associated with creativity, the ability to use analogies, as

well as the talent to see the familiar in a different light.• Intrinsic task motivation

• The desire to work on something because it’s interesting, involving, exciting, satisfying, or personally challenging.

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Three Elements of Creativity

CreativityThe ability to produce novel and useful ideas

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Making Decisions: The Rational Model• Rational

• Describes choices that are consistent and value-maximizing within specified constraints.• Bounded rationality (Herbert Simon)

• Behavior that is rational within the parameters of a simplified model that captures the essential features of a problem.

• Satisfice• Making a “good enough” decision: choosing the first-identified alternative that

satisfactorily and sufficiently solves the problem.

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Common Decision-making Errors• Heuristics: Using judgmental shortcuts

• Availability heuristic• The tendency to base judgments on information that is readily available.

• Representative heuristic• The tendency to base judgments of probability on things (objects or events) that are

familiar• Escalation of commitment

• An increased commitment to a previous decision despite negative information about the decision’s present outcomes.

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How Do Problems Differ?• Well-structured problems

• Straightforward, familiar, easily defined problems• Ill-structured problems

• New problems in which information is ambiguous or incomplete• Programmed decision

• A repetitive decision that can be handled by a routine approach• Non programmed decisions

• Decisions that must be custom-made to solve unique and nonrecurring problems

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Programmed Decision-Making Aids• Policy

• A general guide that establishes parameters for making decisions about recurring problems.

• Procedure• A series of interrelated sequential steps that can be used to respond to a well-

structured problem (policy implementation).• Rule

• An explicit statement that tells managers what they ought or ought not to do (limits on procedural actions).

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Types of Problems, Types of Decisions, and Level in the Organization

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Technology And Decision Making• Expert systems

• Software that acts like an expert in analyzing and solving ill-structured problems• Use specialized knowledge about a particular problem area rather than

general knowledge • Use qualitative reasoning rather than numerical calculations• Perform at a level of competence higher than that of nonexpert humans.

• Neural networks• Software that is designed to imitate the structure of brain cells and connections

among them

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Decision Making: Styles• Directive style

• Characterizes the low tolerance for ambiguity and a rational way of thinking of individuals who are logical and efficient and typically make fast decisions that focus on the short term.

• Analytic style• Characterizes the high tolerance for ambiguity combined with a rational way of

thinking of individuals who prefer to have complete information before making a decision.

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Decision Making: Styles (cont’d)

• Conceptual style• Individuals who tend to be very broad in outlook, to look at many alternatives, and

to focus on the long run and often look for creative solutions. • Behavioral style

• Individuals who think intuitively but have a low tolerance for uncertainty; they work well with others, are open to suggestions, and are concerned about the individuals who work for them.

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Decision-Making Styles

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• Advantages• Make more accurate decisions• Provides more complete information• Offers a greater diversity of experiences

and perspectives• Generates more alternatives• Increases acceptance of a solution• Increases the legitimacy of a decision.

Group Decision Making• Disadvantages

• Is more time-consuming and less efficient

• Minority domination can influence decision process

• Increased pressures to conform to the group’s mindset (groupthink)

• Ambiguous responsibility for the outcomes of decisions

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• Creativity• Groups tend to be more creative than individuals.

• Acceptance of the final solution• Groups help increase the acceptance of decisions.

• Effectiveness of group decision making• Groups of five to seven members are optimal for decision process speed and quality.

When Are Groups Most Effective?

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• Brainstorming• An idea-generating process that encourages alternatives while withholding criticism.

• Nominal group technique• A decision-making technique in which group members are physically present but

operate independently.• Electronic meeting

• A type of nominal group technique in which participants are linked by computer.

Improving Group Decision Making

Jagan Institute of Management Studies

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Leadership & Management

Management Concepts and Meaning-Decision Making