INDIVIDUAL DECISION MAKING

PROBLEM & OPPORTUNITY

Problem: Something that endangers the organizations ability to reach its objectives, and an opportunity as something that offers the chance to exceed objectives - David B Gleicher

Opportunities rather than problems are the key to organizational and managerial success Solving a problem merely restores normality, whereas the exploitation of opportunities leads to progress
- Peter Drucker

PROBLEM SOLVING AND DM

Decision-making deals with problems

Problem arises when an actual state of affairs differs from a desired state of affairs. Examples of problem situations: - A deviation from past experience - A deviation from a set plan or standard - Other peoples problems or decisions - The performance of competitors.

DESCRIPTIVE APPROACH Refers to methodology of arriving at decisions regardless of their efficiency

Identifying individual, interpersonal, group and social factors that affect the decision
PRESCRIPTIVE/NORMATIVE APPROACH Concerned with optimal decision making Provides a preferred course of action according to decision criteria that may be objectively measured

OPTIMAL SOLUTION

Alternative or approach that best fits the situation, employs resources in a most effective and efficient manner, and yields the highest possible return under the circumstances. Any tinkering with an optimum decision makes it only worse. Very few optimal solutions can be found by statistical analysis or formulae, most require cut-and-try (experimental) approach

- BusinessDictionary.com (http://www.businessdictionaty.com

DECISION CLASSIFICATION

Based on complexity of situation, purpose to the organization and based on hierarchical level

CLASSIFICATION BASED ON PURPOSE TO ORG

CORPORATE PLANNING DECISIONS STRATEGIC PLANNING DECISIONS

TACTICAL PLANNING DECISIONS

ACTIVITY DECISIONS

ISSUES IN DECISION MAKING

EXISTENCE OF A PROBLEM EXISTENCE OF OPTIONS/ALTERNATIVES ENVIRONMENT RESOURCES INFORMATION DECISION MAKER DECISION PROCESS INEVITABILITY

DECISIONS: HIERARCHY-BASED

MAJOR

EXTERNAL

UNCERTAIN

COMPLEX

LONG TERM

UNPROGRAMMED (CREATIVE)

TOP

IMPACT

INFORMATION

ENVIRONMENT
MID

NATURE OF PROBLEM

TIME

DECISION TYPE

LOW

MINOR

INTERNAL

CERTAIN

SIMPLE

SHORT TERM

PROGRAMMED (ANALYTICAL)

DECISION MAKING MODELS

Econological or Economic Man Model Bounded Rationality or Administrative Man Model Implicit Favourite or Gamesman Model

ECONOLOGICAL/ECONOMIC MAN MODEL

Represents the earliest attempt to model decision process. Rests on two assumptions:
- People are economically rational: will select the decision or course of action that has the greatest advantage or payoff from among the many alternatives - People attempt to maximize outcomes in an orderly manner Steps in the decision process: - Discover the symptoms of the problem or difficulty - Determine the goal to be achieved or define the problem to be solved - Identify all alternative courses of action - Develop a criterion against which alternative solutions can be evaluated -Consider consequences of each alternative as well as likelihood of occurrence - Choose the best alternative by comparing the consequences of each alternative with the decision criterion - Act or implement the decision

BOUNDED RATIONALITY MODEL

Presented by Herbert Simon - Decision making is characterized by: limited information processing, use of rules of thumb or shortcuts and satisficing decisions - Sequential attention to alternative solutions: instead of identifying all possible solutions and selecting the best: various alternatives are identified and. evaluated one at a time - Use of heuristics: to reduce large problems to manageable proportions so that decisions can be made rapidly: look for obvious solutions or previous solutions that worked in similar situations - A heuristic is a rule which guides the search for alternatives into areas that have a high probability for yielding solutions. - Satisficing: Whereas the econological model focuses on the decision maker as an optimizer, this model sees her or him as a satisficer - Claimed that the bounded rationality model is descriptive: describes how decision makers actually arrive at the identification of solutions to organizational problems. - Another aspect of bounded rationality is intuition: represents a quick apprehension of a decision situation based on past experiences and the reinforcement associated with these experiences, which is devoid of conscious thought (Myers, 2002)

PRINCIPLE OF SATISFICING
Involves choosing the first alternative that satisfies minimal standards of acceptability without exploring all possibilities: the usual approach taken by decision makers Most human decision making, whether individual or organizational, is concerned with the discovery and selection of satisfactory alternatives; only in exceptional cases is it concerned with the discovery and selection of optimal alternatives - (Nielsen, 2011), Simon (1997) Maximizers try to make an optimal decision whereas satisficers simply try to find a solution that is good enough - Herbert Simon

BOUNDED RATIONALITY:DEFINITION
Concept that decision-makers (irrespective of their level of intelligence) have to work under three unavoidable constraints: (a) Only limited, often unreliable, information is available regarding possible alternatives and their consequences (b) Human mind has only limited capacity to evaluate and process the information that is available (c) Only a limited amount of time is available to make a decision. Therefore even individuals who intend to make rational choices are bound to make satisfying (rather than maximizing or optimizing) choices in complex situations. These (bounds) on rationality also make it nearly impossible to draw up contracts that cover every contingency, necessitating reliance on rules of thumb - Proposed by the US Nobel-laureate economist Herbert Simon (1916-2001) in his 1982 book Models Of Bounded Rationality And Other Topics In Economics.'.

ORG OBJECTIVES

COMPETITIVE / CONFLICTING INFORMATION

ENVIRONMENTAL INFORMATION

IMPERFECT INFORMATION TIME & COST CONSTRAINTS

PERMEABLE BOUNDARIES

COGNITIVE LIMITATIONS

RATIONAL DECISION MAKER

SATISFICING DECISION

TECHNICAL KNOWLEDGE ORG OBJECTIVES

MANAGEMENT INFORMATION LEADERS EXPERIENCE

IMPLICIT FAVOURITE/GAMESMAN MODEL

Developed by Soelberg (1967) - implicit favourite identified very early in the choice process during generation of alternatives - best alternative known as the confirmation candidate quickly selected - decision rules generated to demonstrate unequivocally that the implicit favorite is superior to the alternative confirmation candidate through perceptual distortion of information and weighing systems designed to highlight positive features of the implicit favourite - decision rules designed to contain only those one or two dimensions in which the implicit favorite shown to be superior Steps in the process: - set goal - identify implicit favourite - compare and rank implicitly rejected alternatives - identify confirmation candidate - if decision does not justify implicit favorite repeat steps 4 and/or 5 - announce decision - act

DECISION MAKING

Decision making comprises three principal phases: finding

information for making a decision; finding possible courses

of action and choosing among courses of action -Herbert A Simon

DECISION MAKING PROCESS

SETTING OBJECTIVES EVALUATING ALTERNATIVES

SELECTING ALTERNATIVE

GATHERING INFORMATION

GENERATING ALTERNATIVES

SEARCH ACTIVITY

DESIGN ACTIVITY

CHOICE ACTIVITY

TYPES OF DECISIONS
1. 2. 3. Personal and Organizational Decisions Basic and Routine Decisions Programmed and Non-programmed Decisions JUDGEMENTAL DECISIONS ADAPTIVE DECISIONS

HIGH U N C E R T A I N I T Y LOW

J
INVESTMENT, PERSONNEL PROBLEMS MECHANISTIC DECISIONS

A
R & D, LONG TERM STRATEGIC PLANNING ANALYTICAL DECISIONS

M
DAILY ROUTINES SCHEDULED ACTIVITIES

A
COMPLEX PRODUCTION & ENGINEERING PROBLEMS

LOW

COMPLEXITY

HIGH

CERTAINTY, RISK, UNCERTAINTY, AMBIGUITY

Certainty Risk
All information the decision maker needs is fully available decision has clear-cut goals good information is available future outcomes associated with each alternative are subject to chance (probability) managers know which goals they wish to achieve information about alternatives and future events is incomplete managers may have to come up with creative approaches to alternatives by far the most difficult decision situation goals to be achieved or the problem to be solved is unclear alternatives are difficult to define information about outcomes is unavailable

Uncertainty

Ambiguity

CONSTITUENTS OF AN EFFECTIVE DECISION

QUALITY (COMPETENCE, ATTITUDES AND DECISION PROCESS) ACCEPTABILITY (SOCIAL AND CULTURAL FACTORS MOTIVATION, COMN AND UNDERSTANDING) PRACTICALITY (POTENTIAL TO PUT INTO OPERATION) DECISION EFFECTIVENESS ( (Q) x (A) x (P) )

HUMAN FACTORS IN DECISION MAKING

Self-concept Tolerance for ambiguity Risk taking Locus of control

SELF CONCEPT
Determines the method of adjustment of life, mature direction and intensity of human behaviour, identity, security, stability and social status of the individual

CHARACTERISTICS OF A PERSON WITH HIGH SELF CONCEPT

Confident and outgoing personality

Creative Readily accepts other people Has high motive for achievement Likes positive feedback Has a balanced and positive orientation towards authority Hearty and Cheerful

CHARACTERISTICS OF A PERSON WITH LOW SELF-CONCEPT

Contributes little in group discussions

Self-conscious: preoccupied with internal problems More suggestive: a conformist Insecure and unloved Uncomfortable when appreciated

Socially withdrawn and self-centered

Chooses either too easy or too difficult tasks

CHARACTERISTICS OF A PERSON WITH HIGH TOLERANCE FOR AMBIGUITY

Likes to solve complex problems

Enjoys autonomous functioning Believes in delegation Displays empathy Temperamentally balanced

Comfortable with change

Accepts adverse feedback

CHARACTERISTICS OF A PERSON WITH LOW TOLERANCE FOR AMBIGUITY

Active in discussions
Concentrates on petty issues Fails to delegate

Irritable and meticulous when faced with difficulties

Makes either hasty decisions or unduly delays them Cannot accept defeat gracefully

CHARACTERISTICS OF HIGH RISK SITUATIONS

Inadequate relevant and validated data-base: only trends discernable by indicators and logic

Large numbers of variables judgmentally quantifiable or qualitatively definable

Cause-effect relationships not discernable

Complex interdependencies
Decision options qualitative and not quantitative

CHARACTERISTICS OF LOW RISK SITUATIONS

Adequate data-base: both qualitative and Quantitative: amenable to analysis Cause-effective relationships clear: interdependencies and linkages can be readily comprehended Small numbers of variables: easily quantifiable, qualitatively definable Decision options largely quantitative

ATTITUDINAL INHIBITORS
Rigid value systems Intolerance to complexity and ambiguity Parochialism and prejudices Avoidance orientation Tenure phobia

Fear of failure

LOCUS OF CONTROL
A locus of control orientation is a belief about whether the outcomes of our actions are contingent on what we do (internal control orientation) or on events outside our personal control (external control orientation). External LOC: Individual believes that his/her behaviour is guided by fate, luck or other external circumstances Internal LOC: Individual believes that his/her behaviour is guided by his/her decisions and efforts