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DECISION MAKING

by:
Ambuj Kumar Tiwari
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DEFINITION

 “ A CHOICE FROM TWO

 OR

 MORE ALTERNATIVES ”
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CHARACTERISTICS
vALL POSSIBLE ALTERNATIVES ARE
CONSIDERED, ANALYSED, AND
EVALUATED.
v
vDECISION IS A SELECTION PROCESS.
v
vDECISION MAKING IS A MENTAL PROCESS.
v
v



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CHARACTERISTICS CONTD…

vAFFECTS THE FUTURE ONLY.

v
vWIDE RANGING, LONG TERM AND LASTING
EFFECT.
v
vTOOLS OF MANAGEMENT.
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DECISION MAKING PROCESS

“ A SET OF EIGHT STEPS THAT

INCLUDE IDENTIFYING A PROBLEM,

DEVELOPING AN ALTERNATIVE,AND

EVALUATING THE DECISION’S

EFFECTIVENESS ”
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1. IDENTIFYING AND DIAGNOSING THE PROBLEM
2.
3. IDENTIFICATION OF DECISION CRITERIA
4.
3. ALLOCATION OF WEIGHTS TO CRITERIA
1.
 4. DEVELOPING ALTERNATIVES
1.
 5. ANALYSING ALTERNATIVES
1.
7. SELECTING AN ALTERNATIVE
8.
 7. IMPLEMENTING THE ALTERNATIVE
4.
 8. EVALUATING DECISION EFFECTIVENESS
4.


1.
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EXPERIMENTATION

Reliance on the pastHow to select from among alternatives

Choice
made

Research and Analysis

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"Sir, What is the secret of your success?" a reporter asked

a bank president.
"Two words."
"And, sir, what are they?"
“Good Decision."
"And how do you make good decisions?"
"One word."
"And sir, what is that?"
"Experience."
"And how do you get Experience?"
"Two words."
"And, sir, what are they?"
"Bad decisions."
Anon
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Asking 3 Questions on each approach

ü
üWill the Alternative be Effective?
ü
üCan the Alternative be Implemented ?
ü
üWhat are the Organizational
Consequences of the Alternatives?
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Implementation

ØAnnouncing the Decisions

ØGiving the appropriate orders
ØAssigning specific tasks
ØAllocating resources
ØMonitoring the progress of
the Decision
ØMaking follow up Decisions
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MANAGER AS DECISION DECISION MAKING 10/27/10

MAKER
PLANNING LEADING
 Organization's long term objectives ?  How doI handle employees who appear to be low in
 motivation ?
 What strategies will best achieve those objectives ? 

  Most effective leadership style in a given situation ?

 What should the organization's short –term objective 

be ?  How will a specific change affect worker productivity ?



 How difficult should individual goals be ?

ORGANIZING CONTROLLING
 Howmuch centralization should there be in the organization What activities in the organization need


 to be controlled ?
 How should jobs be designed ?
  How should those activities be
 When should the organization implement a different controlled ?
structure ?
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MAKING DECISIONS
1.
2.RATIONALITY.
3.
4.BOUNDED RATIONALITY.
5.
6.INTUITION.
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Rationality
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Rationality

Rationality – the quality of being consistent with or based

on logic
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Rational Decision Making

Decision making behavior , where choices are consistent and

value maximizing within specified constraints.
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Acceptable
Decisions
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Bounded Rationality

Decision making behavior that is rational , but limited

(bounded) by an individual’s ability to process
information.
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Satisficing:

accepting solutions that are “good enough”

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Intuition : feeling it in gut

: listening to heart

You are more connected to your emotions .

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Intuitive Decision Making:

making decisions on the basis of experience,

feelings and accumulated judgement.
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REFERENCE
v Management
 Stephen P. Robbins
 Mary Coulter
v Management
 John A. PearceII
 Richard B. Robinson,Jr.
v Management
 Heinz Weihrich
 Mark V Cannice
 Harold Koontz
vwww.decision-confidence.com
vwww.google.com

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TYPES OF PROBLEMS AND

DECISIONS

A.
vSTRUCTURED PROBLEMS AND PROGRAMMED
DECISIONS.
A.
vUNSTRUCTURED PROBLEMS AND
NONPROGRAMMED DECISIONS.
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vSTRUCTURED PROBLEM:
Straight forward ,familiar and easily defined problems
v
vPROGRAMMED DECISION:
A repetitive decision that can be handled by a routine
approach.
v
v
vUNSTRUCTURED PROBLEM:
Problems that are new or unusual and for which
information is ambiguous or incomplete.
v
vNON PROGRAMMED DECISION:
A unique decision that requires a custom made solution.
v
v
v
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
UNSTRUCTURED TOP



NONPROGRAMMED
 DECISIONS


TYPE OF
PROBLEM LEVEL IN
ORGANISATION

 PROGRAMMED

DECISIONS


 WELL STRUCTURED LOWER

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Decision making Approaches

Approach Key Idea

Centralized As many decisions as possible are

Decentralized made by top management.
The delegation of authority is
Group encouraged.
Two or more people work together to
Individual makemanager
One decisions.
makes the decisions.
Participatory Managers solicit input from others.
Nonparticipatory Managers do not solicit input from
Democratic others.
Decisions are made on basis of
Consensus majority rule.
Many participants are involved , but
general agreement is sought.
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Techniques for Decision Making

• Decision tree


• Break even technique


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DECISION-MAKING CONDITIONS
DECISION MAKING 10/27/10

vCERTAINTY.
1.
vRISK.
1.
vUNCERTAINTY.
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CERTAINTY

A situation in which a manager can make accurate decisions

because all outcomes are known.
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“IYAD-WYAD-YAG-WYAG”
 If You Always Do – What You have Always Done,
You will Always Get What You have Always Got!!
 So if your life is ever going to improve , you’ll have
to take chances.
 -----“Anonymous”
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RISK
 A situation in which the decision maker is able
to estimate the likelihood outcomes.
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Techniques for decision making under

conditions of RISK

v Expected Value
 EV = CV X p
v Pay –off Approach


•
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Example of
Expected Value:
Imagine a company whose profits depend on competitive bidding for
construction contracts. This company is faced with deciding whether
to bid on contract A or contract B . It can bid on only one of the two
contracts. Contract A is worth $250,000 and the probability of
securing it is estimated to be 0.25 Contract B is worth $175,000 and
the probability of securing it is estimated to be 0.30 The expected
value (EV) for each alternative is worked out as follows:

Contract A EV = $250000 X 0.25

= $62500
Contract B EV = $175000 X 0.30
= $52500
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Example Pay off approach:

For example, an organization of fast-food outlets might be considering

three possible growth alternatives: (1) build a new outlet ,(2) lease
additional space, or(3) expand an existing outlet.
State of Nature
N-1 N-2 N-3
Options RECESSI STABILI UPSWIN Expected Choice
ON TY G Payoff
O-1: Build new outlet -$1000 $200 $700 -$10
O-2: Lease available -$500 $300 $250 $45 √
space
O-3:Expand current -$400 $200 $200 $20
outlet
Probability of .30 .40 .30
occurrence for each
state of nature
EP = -1000(.30) + 200(.40) + 700(.30)
= -$10
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Uncertainty

 A situation in which decision maker has neither

certainty nor reasonable probability estimates
available
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Techniques for decision making under

conditions of Uncertainty
• Laplace criterion
• Pessimism criterion
• Optimism criterion
• Regret criterion
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LAPLACE CRITERION:

Option Total Pay-Off X Equal Probability Choice

O- 1 -$100 x 0.33 = -$33.33
O- 2 $50 x 0.33 = $16.67 √
O-3 0 x .33 = 0

The formula for calculating this answer was as follows: (-

$1,000+$200+$700) x 0.33 = -$33.33
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PESSIMISM CRITERION:

Option Worst Condition Pay-Off Choice

O- 1 N-1 -$1,000
O- 2 N-1 -$500
O-3 N-1 -$400 √
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OPTIMISM
CRITERION:

Option Best Condition Pay-Off Choice

O- 1 N-3 $700 √
O- 2 N-2 $300
O-3 N-2, N-3 $200
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REGRET CRITERION:

High minus Low

Option Conditional
N-1 N-2 Values
N-3 Maximum Choice
O- 1 $600 $100 0 Regret
$600
O- 2 $100 0 $450 $450 √
O-3 $0 $100 $500 $500

The object is to select the option such that no matter which state of nature occurs ,
the decision maker’s regret over not having had the foresight to select the best
option is minimized.
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Decision making Styles

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DECISION MAKING MATRIX:

High To
ler
an
Analytic Conceptual
ce
fo
r
a Directive Behavioral
m
Low bi
gu
Way of Thinking
ity

Rational Intuitive
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Situation

Decision Making

Train Trac
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Decision making
Errors
and
Biases
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Decision making for Today’s

World
vUnderstand cultural Differences
vKnow when it’s time to call it quits.
vUse an effective decision making process

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REFERENCE
v Management
 Stephen P. Robbins
 Mary Coulter
v Management
 John A. PearceII
 Richard B. Robinson,Jr.
v Management
 Heinz Weihrich
 Mark V Cannice
 Harold Koontz
vwww.decision-making-confidence.com
vwww.google.com
vwww.bized.co.uk
v

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