Managing

Session 5 Tuesday, September 6th 2011 NIAM, Jaipur

Decision Making
Decision-Making Techniques Source: This presentation was drawn mainly from Management by Dunham & Pierce, Scott, Foresman & Co. and Essentials of Management-An Asian Perspective by Putti, Koontz & Weihrich, McGraw Hill

Boss
Based on Tannenbaum and Schmidts Leadership Continuum

Highly Authoritarian Still Authoritarian

Increase in Authority of Boss

Employee

No Participation Boss convinces subordinate of his decision

Authoritarian
Reversible Authority

Boss clarifies his decision

Decision made by Boss is subject to change
Increase in Opportunity for Subordinates Participation

Authority in terms of Approval

Limited Authority

Subordinates input received & then only decisions are made

Group decision within the limits prescribed by the boss

Little or no authority exercised

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Highly Participative

Amar Chegu

Degree of Certainty & Decision Making

Uncertainty Unawareness of all alternatives Unawareness of outcomes even for known alternatives Risk Certainty

Awareness of
all alternatives

Awareness of
all alternatives

Unawareness of
outcomes for each alternative

Awareness of
outcomes related to each alternative

Decision requires creativity and willingness to take risk in the face of uncertainty

Decision requires
educated guesses for alternative outcomes

Decision can
identify the best solution

Circumstances Completely Unknown

Level of Certainty
Amar Chegu

Circumstances Completely Known

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A Contingency Approach: The Need for Flexibility

Outcome Preferences
Agree Disagree

Agree

Computational

Compromise

Belief About Causation

Disagree Judgmental Inspirational

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Amar Chegu

Chester I. Barnard purposes of mental effort

Irwin D.J. Bross decision steps Step 1: Biological and cultural response to environmental condition

Peter F.Drucker decision steps

Herbert A.Simon decision phases Phase 1: Intelligence (finding conditions calling for a solution)

Joseph W.Newman decision steps

The systems approach Step 1: Select the problem

The military approach The scientific Operations estimate of the method expressed The nine - phase research approach situation as a process decision process Step 1: Intelligence Phase 1: Phase 1: Monitor Observation the decision environment

Step 1: Define the problem

Step 1: Recognize a Step 2: Define the Step 1: Define the situation that calls problem - quantify problem for decisive action when possible Step 2: State the mission Step 3: Determine causal relationships (facts for solutions) Step 2: Determine Step 3: Consider variables and the situation factors affecting the problem

Phase 2: Phase 2: Define Formulation of the the decision problem problem or situation Phase 3: State the research objectives Phase 4: Determine causal relationships Phase 3: Specify decision objectives Phase 4: Diagnose the decision problem or situation

Step 2: Define expectations Purpose 1: Ascertain the truth

Step2: Determine Step 3: Develop mutually exclusive alternative or alternative solutions courses of action

Phase 2: Design (inventing, developing, and analyzing courses of action)

Step2: Identify and Step 4: Determine Step 3: Develop develop iterative alternative alternative courses alternatives for solutions of action solution

Step 4: Develop Phase 5: Formulate Phase 5: Develop possible courses of hypothesis alternative action solutions or courses of action
Phase 6: State research methodology Phase 6: Establish the methodology or criteria for appraising alternatives

Phase 7: Appraise alternative solutions or courses of action Purpose 2: Step 3: Select a Phase 3: Choice Step 4: Choose one Step 5: Select Step 6: Select best Phase 8: Formulate Phase 8: Choose Determine a course of action to (select a course of of the alternatives optimum solution course of action conclusions the best course of action achieve some action) alternative specific purpose solution or course of action Purpose 3: Step 4: Know what Step 5: Implement Step 6: Describe Step 6: Step 7: Execution Phase 9: Phase 9: Persuade to do with the the selected and document Recommend Communicate the Implement the decision after it is course of action procedure for action and findings best alternative reached further evaluation implement solution or course of action September6, 2011 Amar Chegu 6

Step 3: Evaluate alternatives

Step 5: Test the Step 4: Analyze potential solutions alternatives

Step 5: Consider Phase 7: Test the possible courses of hypothesis action

Source: Earnest B. Archer, "How to make a Business Decision", Management Review, February 1980

Decision Making

Choice Making
Step 1 Recognizing the need for a decision Step 2 Generating alternative solutions Step 3 Evaluating the alternatives Step 4 Choosing an alternative Step 5 Implementing the chosen alternative Step6 Monitoring and maintaining the solution

Problem Solving
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Selecting the best alternative

Experience : Past experience will serve as a guide in selecting the best alternative. Intuition : Intuition is related to experience. This involves recalling from the memory of the decision-maker and projecting it for the future. Advice from others : The decision-maker must seek help and guidance from fellow employees, supervisor and subordinates. Experimentation : Wherever possible, this method of testing the alternative can be used. Such experimentation should not be costly and time-consuming.

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Amar Chegu

4 Decision Making Models

The Irrational Person The Creative/ Self-Actualizing Person

Has a variety of fears, anxieties, and drives. Decisions are driven by the unconscious motives underlying these fears and anxieties.
The Rational/Economic Person

Pursues total development of inner self. Decisions are driven by desire to develop the self even at the expense of external factors.
The Administrative person

Is rational and deals with objective facts. Is economically motivated Decisions are driven by objective rationality and a search for the best possible alternative.
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Is aware of only certain alternatives Is limited by restricted cognitive capacity. Decisions are driven by a desire to identify and select the first acceptable alternative.
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Amar Chegu

Assets & Liabilities of Group Decision Making

Assets Liabilities

Greater knowledge and information More perspectives on issues More alternatives identified Great acceptance of decisions Better problem comprehension

Negative Social pressure Premature decisions Individual domination Interference o personal goals

Assets or Liabilities Disagreements can generate ideas or cause hard feelings Diverse interests can broaden perspectives or cause conflict Increased risk taking can be beneficial or costly Increased time spent can improve decisions or waste time
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