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Decision Making

Decision Making. Technology Management. FUNDAMENTALS OF DECISION MAKING. Problem A discrepancy between an existing and a desired state of affairs. PROBLEM. FUNDAMENTALS OF DECISION MAKING. Types of Problems Crisis Problem A situation that urgently requires an immediate action.

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Decision Making

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  1. Decision Making Technology Management

  2. FUNDAMENTALS OF DECISION MAKING Problem A discrepancy between an existing and a desired state of affairs

  3. PROBLEM

  4. FUNDAMENTALS OF DECISION MAKING Types of Problems Crisis Problem A situation that urgently requires an immediate action. Non-crisis Problem A problem that requires resolution but less urgently than a crises problem. Opportunity Problem A situation that can be dealt in a way that has a positive effect on the organization and its performance. Opportunity for organizational gain IF appropriate action taken

  5. FUNDAMENTALS OF DECISION MAKING Decision Making a choice from two or more alternatives • All organizational members make decisions. • A Decision is not allowing events to take their course (route) willy-nilly. • If you don’t decide, an outcome would still occur BUT?

  6. FUNDAMENTALS OF DECISION MAKING Types of Decisions Programmed decisions A decision made when the situation occurred frequently enough or is sufficiently solved by applying predetermined decision rules. Non-Programmed decisions A decision made in a situation where predetermined decision rules cannot be applied because the situation is less structured, occurs rarely, or is unique.

  7. conditions under which decisions are made • Certainty • A situation in which a manager(decision maker) can make accurate decisions because he has complete information about the problem ,the alternatives and the outcome of every alternative is known. • Risk • A situation in which the manager understands the problem and the alternatives and has only enough information to estimate the probability that the available alternatives will lead to the desired outcome.

  8. Conditions Under which decisions are made • Uncertainty • A situation in which the manager understands the problem but has incomplete information about the alternatives and the probable consequences of each alternative. • may force managers to rely on intuition, and “gut feelings”

  9. Effective Decision making Decision Making ‘The process by which managers identifies organizational problems and try to resolve them.’ Decision Taking ‘The process by which managers take actions to effect the decision.’ • Unless this step is taken, no real decision has been made and it has been an exercise in futility.

  10. The Decision-Making Process It is a process of: • Identifying a problem and decision criteria and allocating weights to the criteria • Developing, analyzing, and selecting an alternative that can resolve the problem • Implementing the selected alternative • Evaluating the decision’s effectiveness

  11. Identify a Problem Identify Decision Criteria Allocate Weights to Criteria Develop Alternatives Analyze Alternatives Select an Alternative Implement the Alternative Evaluate Decision Effectiveness The Decision-Making Process

  12. Step 1: Identification of a Problem Problem • A situation in which the existing circumstances differ significantly from the preferred situation. • Characteristics of Problems • A problem becomes a problem when a manager becomes aware of it • There is pressure to solve the problem • The manager must have the authority, information, or resources needed to solve the problem

  13. Step 2: Identification of Decision Criteria • Decision criteria are factors that are important (relevant) to resolving the problem: • Costs that will be incurred (investments required) • Risks likely to be encountered (chance of failure) • Outcomes that are desired (growth of the firm) Step 3: Allocation of Weights to Criteria • Decision criteria are not of equal importance: • Assigning a weight to each item places the items in the correct priority order of their importance in the decision- making process

  14. Step 4: Development of Alternatives • Identifying possible alternatives • Alternatives are listed (without evaluation) that can resolve the problem Step 5: Analysis of Alternatives • Assessing each alternative’s strengths and weaknesses • An alternative’s assessment is based on its ability to resolve the issues identified in steps 2 and 3.

  15. Step 6: Selection of an Alternative • Choosing the best alternative • The alternative with the highest total weight is chosen STEP 7: IMPLEMENTATION OF THE ALTERNATIVE • Putting the chosen alternative into action • Conveying the decision to and gaining commitment from those who will carry out the decision

  16. Step 8: Evaluation of Decision Effectiveness • The soundness of the decision is judged by its outcomes: • How effectively was the problem resolved by outcomes resulting from the chosen alternatives? • If the problem was not resolved, what went wrong?

  17. THE DECISION-MAKING PROCESS Identifying a Problem My sales representatives need new computers. Reliability Service Warranty Period On-site Service Price Case Style Identifying the Decision Criteria Allocating Weights To Criteria • Reliability • Service • Warranty Period • On-site Service • Price • Case Style 10 8 5 5 4 3

  18. Developing Alternatives NEC Compaq Fujitsu AST Sharp IBM HP TI • Reliability • Service • Warranty Period • On-site Service • Price • Case Style Compaq Fujitsu Analyzing Alternatives NEC IBM AST Sharp HP TI Selecting an Alternative The Fujitsu is the best. Implementing Decision Evaluation of Decision Effectiveness

  19. Decisions in Management Functions

  20. Making Decisions • Decisions are made on the basis of: • Rationality • Bounded Rationality • Intuition Rationality Intuition Bounded Rationality

  21. Making Decisions • Rationality • Managers make consistent, value-maximizing choices within specified constraints.

  22. Assumptions of Rationality Lead to The problem is clear and unambiguous. Rational A single, well-defined goal is to be achieved. Decision All alternatives and consequences are known. Making Preferences are clear. Preferences are constant and stable. No time or cost constraints exist. Final choice will have maximize payoff.

  23. Tickets; $7.95 $1.00 Discount for Children & Seniors Tickets; $6.95 $1.00 Extra for Middle Aged People ...Decisions Are Not Always “Rational”

  24. Making Decisions (cont’d) • Bounded Rationality • Managers make decisions rationally, but are limited (bounded) by their ability to process information • Assumes decision makers: • Will not seek out or have knowledge of all alternatives • Will satisfice • Can be influenced by escalation of commitment

  25. Making Decisions (cont’d) • Bounded Rationality • Satisficing Acceptance of solutions that are “good enough” • Escalation of Commitment An increased commitment to a previous decision despite evidence that it may have been wrong.

  26. Making Decisions (cont’d) Bounded Rationality Four constraint on rational decision making • Limited Resources • Information overload • Memory problem • Expertise problem

  27. Making Decisions (cont’d) • Role of Intuition • Intuitive decision making • Making decisions on the basis of experience, feelings, and accumulated judgment • One-third of managers and other employees said they emphasized “gut feeling” over cognitive problem solving

  28. Managers make decisions based on their past experiences Managers make Managers make decisions based on decisions based on ethical values or culture feelings or emotions Experience-based decisions Values- or ethics- Affect-initiated based decisions decisions Intuition Subconscious Cognitive-based mental processing decisions Managers make Managers use data from decisions based on skills, subconscious mind to knowledge, and training help them make decisions What Is Intuition? Source: Based on L.A. Burke and M.K. Miller. “Taking the Mystery Out of Intuitive Decision Making.” Academy of Management Executive. October 1999. pp. 91–99.

  29. Decision-Making Styles • Dimensions of Decision-Making Styles • Ways of thinking • Rational, orderly, and consistent versus • Intuitive, creative, and unique • Tolerance for ambiguity • Low tolerance: require consistency and order versus • High tolerance: multiple thoughts simultaneously

  30. High Analytic Conceptual Tolerance For Ambiguity Directive Behavioural Low Way of Thinking Rational Intuitive Decision-Making Styles Source: S.P. Robbins and D.A. DeCenzo, Supervision Today. 2nd ed. (Upper Saddle River, NJ: Prentice Hall, 1998), p. 166.

  31. Decision-Making Styles (cont’d) • Types of Decision Makers • Directive • Use minimal information and consider few alternatives • Analytic • Make careful decisions in unique situations • Conceptual • Maintain a broad outlook and consider many alternatives in making long-term decisions • Behavioural • Avoid conflict by working well with others and being receptive to suggestions

  32. Overview of Managerial Decision Making Decision-Making Approach • Rationality Decision-Making • Bounded rationality Errors and Biases • Intuition Types of Problems and Decisions • Well structured — programmed • Unstructured — nonprogrammed Decision • Choosing best alternative Decision-Making - maximizing Process - satisficing • Implementing • Evaluating Decision-Making Conditions • Certainty • Risk • Uncertainty Decision Maker’s Style • Directive • Analytic • Conceptual • Behavioural

  33. Enough for today. . .

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