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Managing Decision Making

and Problem Solving


Chapter 09

City University of Science and Information


Technology

Faisal Ghani

The Nature of Decision Making


Decision Making
The act of choosing one alternative
from among a set of alternatives.

Chapter 09

Managing Decision

City University of Science and Information


Technology

Faisal Ghani

The Nature of Decision Making


Decision Making Process
Recognizing and defining the nature of
decision situation, identifying
alternatives, choosing the best
alternative and putting it into practice.

Chapter 09

Managing Decision

City University of Science and Information


Technology

Faisal Ghani

The Nature of Decision Making


Types of Decisions
Programmed Decision
A decision that is fairly structured or
recurs with some frequency or both.
Non-Programmed Decision
A Decision that is relatively
unstructured and occurs much less
often than a programmed decision.

Chapter 09

Managing Decision

City University of Science and Information


Technology

Faisal Ghani

The Nature of Decision Making

Decision Making Under Certainty


State of Certainty: A Condition in which the decision
maker knows with reasonable certainty what the
alternatives are and what conditions are associated
with each alternative.
Decision Making Under Risk
State of Risk: A condition in which the availability of
each alternative and its potential payoffs and costs are
all associated with probability estimates.
Decision Making Under Uncertainty
State of Uncertainty: A Condition in which decision
maker does not know all the alternatives, the risk
associated with each, or the consequences each
alternative is likely to have.

Chapter 09

Managing Decision

City University of Science and Information


Technology

Faisal Ghani

The Nature of Decision Making


The decision
maker faces
conditions of

Certainty

Risk

Uncertainty

Level of ambiguity and chances of making a bad decision.

Lower
Chapter 09

Moderate
Higher
Decision-making Conditions
Managing Decision

City University of Science and Information


Technology

Faisal Ghani

Rational Perspective on Decision


Making
Most managers like to think of
themselves as rational decision makers.
And indeed, many experts argue that
mangers should try to be as rational as
possible in making decisions.

Chapter 09

Managing Decision

City University of Science and Information


Technology

Faisal Ghani

Rational Perspective on Decision


Making

1.

2.
3.

The Classical Model of Decision Making


A prescriptive approach that tells managers how
they should make decisions. It assumes that
managers are logical and rational and that they
always make decisions that are in the best
interest of the organization.
Decisions makers have complete information
about the decision situation and possible
alternatives.
They can effectively eliminate uncertainty to
achieve a decision condition of uncertainty.
They evaluate all aspects of the decision
situation logically and rationally.

Chapter 09

Managing Decision

City University of Science and Information


Technology

Faisal Ghani

Rational Perspective on Decision


Making
The Classical Model of Decision Making

Obtain complete and


When faced with
and end up with
perfect information
a decision situation,
decision that best
Eliminate uncertainty
managers should
serve the interest
Evaluate everything
of the organization
rationally and logically.

Chapter 09

Managing Decision

City University of Science and Information


Technology

Faisal Ghani

Rational Perspective on Decision


Making
1.
2.
3.

4.
5.
6.

Steps in Rational Decision Making


Recognize and define the decision situation;
Identify appropriate alternatives;
Evaluate each alternative in terms of its
feasibility, satisfactoriness, and
consequences;
Select the best alternative;
Implement the chosen alternative;
Follow-up and evaluate the results of the
chosen alternative.

Chapter 09

Managing Decision

10

City University of Science and Information


Technology

Faisal Ghani

Rational Perspective on Decision


Making
Steps in Rational Decision Making
Steps

Details

Examples

Step 1:
Recognize and
define the decision
situation

Some stimuli
indicate that a
decision must be
made. The stimuli
must be positive or
negative.

A plant manager
sees that employee
turnover has
increased by 5
percent

Step 2:
Identify appropriate
alternatives

Both obvious and


creative alternatives
are desired. In
general, the more
important the
decision, the more
alternatives should
be generated.

The plant manager


can increase wages,
increase benefits, or
change hiring
standards.

Chapter 09

Managing Decision

11

City University of Science and Information


Technology

Faisal Ghani

Rational Perspective on Decision


Making
Steps in Rational Decision Making
Steps

Details

Examples

Step 3:
Evaluate
alternatives (see
diagram)

Each alternative is
evaluated to
determine its
feasibility, its
satisfactoriness, and
its consequence.

Increasing benefits
may not be feasible.
Increasing wages
and changing hiring
standards may
satisfy all conditions.

Step 4:
Selecting the best
alternative

Consider all
situational factors,
and choose the
alternative that best
fits the managers
situation.

Changing hiring
standards will take
an extended period
of time to cut
turnover, so increase
wages.

Chapter 09

Managing Decision

12

City University of Science and Information


Technology

Faisal Ghani

Rational Perspective on Decision


Making
Steps in Rational Decision Making
Evaluate Alternatives in the Decision Making Process

Are the alternatives


Is the alternative Is the alternative
Retain the furthe
Yes
Yes consequences Yes
feasible?
satisfactory?
consideration.
affordable?
No

No

No

Eliminate from
consideration.

Eliminate from
consideration.

Eliminate from
consideration.

Chapter 09

Managing Decision

13

City University of Science and Information


Technology

Faisal Ghani

Rational Perspective on Decision


Making
Steps in Rational Decision Making
Steps

Details

Examples

Step 5:
Implementing the
chosen alternative

The chosen
alternative is
implemented into
the organizational
system.

The plant manager


may need
permission from
corporate
headquarters. The
human resource
department
establishes a new
wage structure.

Step 6:
Following up and
evaluating the
results

At some time in the


future, the manager
should ascertain the
extent to which the
alternative chosen in
step
4 and Decision
Managing

The plant manager


notes that, six
months later,
turnover has
dropped to its
previous level.
14

Chapter 09

City University of Science and Information


Technology

Faisal Ghani

Behavioral Perspective on Decision


Making
The Administrative Model
A decision making model that argues that
decision makers (1) have incomplete and
imperfect information, (2) are constraint
by bounded rationality, and (3) tend to
satisfice when making decisions.

Chapter 09

Managing Decision

15

City University of Science and Information


Technology

Faisal Ghani

Behavioral Perspective on Decision


Making
The Administrative Model
Bounded Rationality
A concept suggesting that decision
makers are limited by their values and
unconscious reflexes, skills and habits.
Satisficing
The tendency to search for alternatives
only until one is found that meets some
minimum standard of sufficiency.
Chapter 09

Managing Decision

16

City University of Science and Information


Technology

Faisal Ghani

Behavioral Perspective on Decision


Making
The Administrative Model

When faced with a


decision situation
managers actually

use incomplete and and end up with a


imperfect information decision that may
are constrained by or may not serve the
bounded rationality interests of the
tend to satisfice
organization.

The Administrative Model of Decision Making


Chapter 09

Managing Decision

17

City University of Science and Information


Technology

Faisal Ghani

Behavioral Perspective on Decision


Making

Other behavioral forces that can influence decisions


Political Forces in Decision Making

Intuition and Escalation of Commitment

Intuition: An innate belief about something, without


concision consideration.
Escalation of Commitment: A decision makers
staying with a decision even when it appears to be
wrong.

Risk Propensity and Decision Making

Coalition: An informal alliance of individuals or groups


formed to achieve a common goal.

Risk Propensity: The extent to which a decision


maker is willing to gamble when making a decision.

Ethics and Decision Makings

Chapter 09

Managing Decision

18

City University of Science and Information


Technology

Faisal Ghani

Group and Team Decision Making in


Organizations

Forms of Groups and Team Decision Making


Interacting Group
A decision-making group in which members
openly discuss, argues about, and agree on the
best alternatives.
Delphi Group
A form of group decision making in which a
group is used to achieve a consensus of expert
opinion.
Nominal Group
A structured technique used to generate
creative and innovative alternatives and ideas.

Chapter 09

Managing Decision

19

City University of Science and Information


Technology

Faisal Ghani

Group and Team Decision Making in


Organizations
Forms of Groups and Team Decision Making

Advantages

Disadvantages

1.

More information &


knowledge are available

2.

More alternatives are


likely to be generated

3.

More acceptance of the


final decision is likely

4.

Enhanced communication
of the decision may result

5.

Better decisions

Chapter 09

1.

The process takes


longer, so it is more
costly

2.

Compromise decisions
due to indecisiveness
may emerge

3.

One person may


dominate the group

4.

Groupthink may occur

Managing Decision

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