Decision Making- An Essence to Problem Solving

By: RONALDO F. PALOMA

Ed. 203: Management

DECISION MAKING is defined as identifying and selecting a course of action to deal with a specific problem or take advantage of an opportunity. - An important part of every managers job.

PROBLEM is defined as a situation that occurs when an actual state of affairs differs from a desired state of affairs. - in many cases, it may be an opportunity in disguise

Organisational Decision making

the process of responding to a problem by searching for and selecting a solution or course of action that will create value for organisational stakeholders. y There are basically two kinds of decision that managers called upon to make:
y

Programmed and nonprogrammed

Types of Problems and Decisions

y

Structured problems -Involved goals that clear. -Are familiar(have occurred before) -Are easily and completely definedinformation about the problem is available and complete. Programmed decision -A repetitive decision the can be handled by a routine approach.

Problems and Decisions ( contd)

y

Unstructured problems -Problems that are new or unusual and for which information is ambiguous or incomplete. - Problems that will require custommade solutions. Non-programmed decisions - Decision that are unique and nonrecurring. - Decision that generate unique responses.

Types of Programmed Decisions

Policy - a general guideline for making a decision about a structured problem. y Procedure - A series of interrelated steps that a manager can use to respond ( applying a policy) to a structured problem. y Rule -an explicit statement that limits what a manager or employee can or cannot do.
y

Programmed vs. Non-programmed NonDecisions

Characteristics Type of problem Managerial level Frequency Information Time frame for solution Solution relies on Programmed decisions Structured Lower level Repetitive Readily available Short Procedures,rules, and policies Non-programmed decisions Unstructured Upper level New,unusual Ambiguous or incomplete Relatively long Judgment and creativity

The DecisionMaking Process

Define the Problem

Evaluate Alternatives

Implement the chosen Alternative Follow up and evaluate the chosen alternative.

Gather facts and develop alternatives.

Select the best alternative.

Identify a problem and decision criteria and allocating weights to the criteria. y Developing, analyzing, and selecting an alternative that can resolve the problem. y Implemented and selected alternatives. y Evaluating the decisions effectiveness.
y

Decision Making Process

Problem - A discrepancy between an existing and desired state of affairs. y Characteristics of Problems - A problem becomes a problem when a manager becomes aware of it. - there is a pressure to solve the problem. -the manager must have the authority, information, or resources needed to solve the problem.
y

Step 1: Identifying the Problem

Decision criteria are factors that are important ( relevant) to resolving the problem. - Costs that will be incurred (investment required). - Risks likely to be encountered ( chance of failure). - Outcomes that are desired ( growth of the firm).

Step 2: Identify the Decision Criteria

Decision criteria are not of equal importance: - Assigning a weight to each item. - Places the items in the correct priority order of their importance in the decision making process.

Step 3: Allocating Weights to the Criteria

Identifying viable alternatives. - Alternatives are listed (without evaluation) that can resolve the problem

Step 4: Developing Alternatives

Appraising each alternatives strengths and weaknesses - An alternatives appraisal is based on its ability to resolve the issues identified in step 2 and step 3.

Step 5: Analyzing the alternatives

Choosing the best alternative. - the alternative with the highest total weight is chosen.

Step 6. Selecting the alternative

y Putting

the decision to and gaining comment from those whose will carry out the decision.

Step 7: Implementing the alternative

y The

soundness of the decision is judged by its outcomes. -How effectively was the problem resolved by outcomes resulting from the chosen alternatives? - if the problem was not resolve, what went wrong?

Step 8: Evaluating the decisions effectiveness

The decision making process-Example

Identification of a problem

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Identification of Decision Criteria

Allocation of weights to criteria

Development of alternatives

Analyzing of alternatives

Selection of alternatives

Implementation of alternatives

Evaluation of decision alternatives

INTUITIVE DECISION MAKING

- Making decisions on the basis of experience, feelings and accumulated judgment.

The Role of Intuition

What is Intuition ?
Their past experiences Ethical values and culture Values or ethicsbased Decisions Subconscious mental processing

Experience-based Decisions intuition

Feelings or emotions

Affect-Initiated Decisions Cognitive-Based Decisions

Data from subconscious mind

Skills,knowledge, and training

CERTAINTY - A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known. y Risk - A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives.
y

Decision Making Conditions

UNCERTAINTY - limited information prevents estimation of outcome probabilities for alternatives associated with the problem and may force managers or rely on intuition, hunches, and gut feelings. -Maximax: The optimistic managers choice to
maximize the maximum payoff. -Maximin : The pessimistic managers choice to maximize the minimum payoff. -Minimax: The managers choice to minimize maximum regret.

DecisionDecision-making Conditions

Dimensions of decision-making styles -Ways of thinking - Rational,orderly, and consistent. - Intuitive, creative, and unique. Tolerance of ambiguity -Low tolerance: require consistency and order. -High tolerance: multiple thoughts simultaneously.

DecisionDecision-making styles

DecisionDecision-Making Styles (contd)

y

Types of Decision Makers Directive - Use minimal information and consider few alternatives. Analytic - Make careful decisions in unique situations. Conceptual - Maintain a broad outlook and consider many alternatives in making decisions. Behavioral - Avoid conflict by working well with others and being receptive to suggestions.

Common decision-Making errors decisionand Biases

Overconfidence Hindsight Self-serving Sunk costs Randomness representation Availability framing Decision-Making Errors & Biases Immediate Gratification Anchoring Effect Selective Perception Confirmation

y y y y y y

It focuses on what is important It is logical and consistent. It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking. It requires only as much information and analysis as is necessary to resolve a particular dilemma. It encourages and guides the gathering of relevant information and informed opinion. It is straightforward, reliable, easy to use, and flexible.

Characteristics of an Effective DecisionDecision-Making

A GeneralDecision Making Model

A General Decision-Making model

 Improving the Flow of Knowledge
The flow of constructive tacit knowledge

between coworkers is a priority. Knowing what you know, what you dont know, and how to find what you know yields better and more timely decisions.

 Knowledge Management (KM): A Tool for Improving the Quality of Decisions

Developing a system to improve the creation

and sharing of knowledge critical for decision making. Tacit knowledge: personal, intuitive, and undocumented private information. Explicit knowledge: readily sharable public information in verbal, textual, visual, or numerical form.

Rational (Logical) Decision Model Steps

Scanning the situationidentifying a signal that a decision should be made. Receipt of authoritative communications from superiors. Cases referred for decision by subordinates. Cases originating from the manager. Classify the decision as routine, apply the appropriate decision rule; as nonprogrammed, begin comprehensive problem solving. Monitor and follow-up as necessary.

Individual Models of Decision-Making

Cognitive style Underlying personality dispositions toward the treatment of information, selection of alternatives, and evaluation of consequences. Systematic decision makers people who approach a problem by structuring it in terms of some formal method. Intuitive decision makers people who approach a problem with multiple methods in an unstructured manner, using trail and error to find a solution. Organizational models of decision making Models of decision making that take into account the structural and political characteristics of an organization.

Organizational Models of Decision-Making

Bureaucratic models of decision making where decisions are shaped by the organizations standard operating procedures(SOPs). Political models of decision making where decisions result from competition and bargaining among the organizations interest groups and key leaders. Garbage can model where states that organizations are not rational and that decisions are solutions that become attached to problems for accidental reasons.

Challenges for Decision Makers

 Decision Making
The process of identifying and choosing alternative courses of action to meet the demands of a situation.

 Trends in Decision Making

The pace of decision making is accelerating: managers report making more decisions and having less time to make them.
Complex streams of decisions Sources of decision complexity Perceptual and behavioral decision traps

(Contd)  Dealing with Complex Streams of Decisions

Multiple criteria to be satisfied by a decision. Intangibles that often determine decision alternatives. Risk and uncertainty about decision alternatives. Long-term implications of the effects of the choice of a particular alternative. Interdisciplinary input increases the number of persons to be consulted before a decision is made.

(Contd)
Pooled decision making increases the number of
persons playing a part in the decision process.

Value judgments by differing participants in the

process create disagreement over whether a decision is right or wrong, good or bad, and ethical or unethical.

Unintended consequences occur because the

results of purposeful actions cannot always be predicted.

Managers and Decision-Making

Classical model of management
Traditional description of management that focused on its formal functions of planning, organizing, coordinating, deciding and controlling.

Behavioral models
Descriptions of management based on behavioral scientists observations of what managers actually do in their jobs.

Guideline for making decision more effective

 Categorical interpretation- the problem should be
defined properly.

 Application of limiting factor- limiting factor should

be taken into account in order to analyze the external S & W.

 Adequate information- more quantity of reliable

information leads to effective decision making.

 Considering other views- various views at the same

point are taken into account for quality decision.

 Timeliness- decision should be ,made at proper time to

meet the competitive advantages.

Techniques for improving decision making

 Brainstorming idea generation for decision making.  Nominal group technique (NGT)- problem outlined,
presentation of solution in written form, discussion over written solutions, and final decision.

 Delphi technique- decision made on the basis of

questionnaire filled by the respondents.

 Consensus mapping- decision made on the basis of the

report presented by the representative of each group after