Decision-making October 1, 2007
Decision Making • Process of identifying problems and opportunities and resolving them. • Management decisions can be made by managers, teams, or individual employees, depending on: • The scope of the decision, and • The design and structure of the organization. • conditions of risk and uncertainty • lack of information and a limited amount of time available • Procrastinating and not making a decision sometimes has greater risk than making it.
Characteristics of Management Decision Making Programmed Decisions- established Routines and procedures Programmability Non-programmed Decisions- Unique situation with no previous routines Certainty-all information needed to make decision is available Uncertainty Uncertainty- incomplete information is available about a particular decision
Characteristics of Management Decision Making • Risk – occurs when the outcome of management decision is uncertain • Risk has positive and negative aspects • Decision environment for risk vary depending upon company culture and size • Conflict – occurs when there are opposing goals, scares resources, or differences in priorities • Crisis – a situation that involves small amounts of time to make a decision that can impact the survival of the organization
Characteristics of Management Decision Making • Decision Scope – the effect and time horizon of a decision • Strategic Decisions – long term perspective of 2-5 years . affect on the organization • Tactical Decisions – short term perspective of 1 year or less . focus on subunits • Operational Decisions – shortest time perspective, generally less than a year, often measured on a daily or weekly basis
Stages of Decision Making Identifying and diagnose the problem Generate alternative solutions Evaluate alternatives Selecting the best alternative Implementing the decision Evaluating the decision
Evaluating Alternatives • Decision criteria should be related to the performance goals of the organization and its subunits. • Decision criteria can include: • Costs • Profits • Timeliness • Whether the decision will work • Fairness
Evaluating Alternatives(cont) • A practical way to apply decision criteria is to consider: • Decisionquality –aspect of decision making based on such facts as costs, revenues, and product design specifications. • Decision acceptance –aspect of decision making based on people’s feelings.
Approaches to selecting the best alternative • Optimizing – selecting the best alternative from among multiple criteria. • Satisficing – selecting the first alternative solution that meets a minimum criterion. Ask of the alternative : • Feasible? • Satisfactory quality? • Satisfactory acceptance?
Successful implementation • Providing resources (staff, budgets, office space) that will be needed for the activities that are required for successful implementation. • Exercising leadership to persuade others to move the implementation forward. • Developing communication and information systems that enable management to know if the decision alternative is meeting its planned objectives. • Recognition and rewards for individuals and teams that are successful with implementation.
Rational Decision Making Process- Assumptions • The problem is clear and unambiguous. • There is a single, well-defined goal that all parties agree to. • Full information is available about criteria. • All the alternatives and their consequences are known. • The decision preferences are clear. • The decision preferences are constant and stable over time. • There are no time and cost constraints affecting the decision. • The decision solution will maximize the economic payoff