Decisionn Making
Decisionn Making
Decisionn Making
PDFelement
Chapter Twenty
Decision making
Objectives:
Types of Decisions
Introduction
Quality of the decisions that managers make is the yardstick of effectiveness. Management is decision
making; however, decision-making is also fundamentally a people process.
Types of Decisions
Managerial decision-making:
Decisions are the means to certain ends. They are the organizational mechanisms that attempt to
achieve a desired state. Decisions are organizational responses to problems and outcomes
of a dynamic process.
Objectives specify desired decision outcomes and serve as guidelines in the decision process.
2. Problem identification and definition-The problem comes to light when a gap exists between
performance levels specified by organizational objectives and actual levels.
Types of problems:
3. Establishing priorities-Scarce resources demand that managers deal with problems in order of
significance.
Significance determined by: i. Urgency—time pressure. ii. Impact—seriousness of the problem's effects.
iii. Growth tendency—future considerations.
4. Consideration of causes—the search for causes often leads to a new and better problem
statement.
5. Development of alternative solutions—a search process constrained by time and cost factors.
iii. Risk—you have some probabilistic estimate of the outcomes of each alternative.
This is the most common situation.
7. Solution selection: With multiple objectives, often the objectives can't be optimized
simultaneously; with two objectives, one is optimized, the other is sub-optimized. Situations exist where
attaining an organizational objective is done at the expense of a societal objective. In managerial
decision-making, optimal decisions are often impossible. Instead of an optimizer, the decision maker is
a satisfier, selecting the alternative that meets an acceptable standard.
iii. Changing the objective (it's unrealistic). iv. Changing the decision c and/or d (reactivate the entire
decision process).
Alternatives to Rational Decision Making-Decision makers do not always follow the letter of decision-
making. Time pressures, incomplete information, limited human resources, and many other factors are
involved. Herbert Simon called this approach to decision-making, Bounded Rationality. Within the
concept there is also selective perception.In this approach, the following assumptions are made: i.
Decision makers rarely have all the information they need or want. ii. Decision makers are not aware of
all possible alternatives and cannot predict consequences. iii. Early alternatives and solutions are quickly
adopted because of constraints and limitations. iv. The organization’s goals constrain decision-making. v.
Conflicting goals of different constituents can restrict decisions, forcing a compromise solution.
Sometimes managers make decisions based on a ‘gut’ feeling or intuition. Intuitive decision-making
occurs frequently because of high levels of uncertainty, there is no history or past experience to draw
on, time pressure is intense, and there can be an excessive number of alternatives to examine.
A. Values: Values are the guidelines used when confronting a situation that requires a choice.
Values are acquired early in life and exert a profound influence on the decision-making
process, influencing:
c. Selecting an alternative.
Rather than admit the mistake, the decision maker often reduces dissonance by:
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All individuals bring their style to the decision making process. Research has found that there are four
broad types of styles:
The four styles emerge from the premise that people differ along two broad dimensions :
(a) Way of thinking : (i) logical rational, serial way of thinking, (ii) Creative, intuitive, holistic
(b)Tolerance for ambiguity : Some people are uncomfortable with broad overlapping, and blurred
boundary issues; they have a need for structure, compartments and interconnections.
Whilst some are quite comfortable with situations with ambiguous and overlapping
components, and can process many thoughts at the same time.
People using the Directive style have low tolerance for ambiguity.
People with conceptual style tend to have broad outlooks and normally good at taking creative
decisions after generating several alternatives.
Persons with behavioural style work well with others and readily accept suggestions. They work
best in a group setting with good communications and many meetings to obtain consensus and
avoid conflict.
Groups usually take more time to decide than do individuals. Mutually reinforcing impact of
specialists and experts results in better decisions. Research indicates that consensus decisions with five
or more participants are superior to individual decision-making, majority vote, and leader decisions.
a. Pressure to conform.
c. "Status incongruity," which inhibits lower status participants and may cause
them to "go along" with the experts even when they think their own ideas are
better.
Groups make more effective non-programmed decisions because the group benefits from pooled talent.
Concerning each step of the decision process:
d. Groups accept more risk than individuals at the point of solution selection and
the solution is more likely to be accepted.
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An atmosphere fostering group creativity can be created. Creativity is a process by which an individual,
group, or team produces novel and useful ideas to solve a problem or capture an opportunity. Use
lateral, not linear thinking.
Creative decision makers share some common characteristics such as:
a. Perseverance.
b. Risk-taking propensity.
c. Openness.
d. Tolerance for ambiguity.
ii. Approach each idea as belonging to the group and build upon the ideas of others.
ii. A questionnaire is sent to participants via mail, completed surveys are returned and responses
summarized by analysis.
iii. Participants receive a written summary (again by mail), along with a second questionnaire for
reassessment.
v. Analysts typically go with tabulated results as the decision after the second or third round.
iii. After five minutes, each member presents an idea in round robin fashion until all ideas are
presented (a recorder writes all ideas on chart before the group). No discussion.
v. After discussion, each member votes (privately) by ranking alternatives. The group decision is the
mathematically pooled vote outcome.
2. Carnegie Model
It is the analog to the rational approach by individual managers . It came into prominence during World
War II for military application, e.g. Naval Gunnery. Later it diffused into corporations and business
schools. Today many corporations have assigned departments to develop and use these techniques for
problem solving. It is very effective where problems are analyzable quantitatively and the variables can
be identified and measured, e.g. transportation networks optimizations, scheduling of employees etc.
Weakness is that quantitative data does not convey tacit knowledge as human experience and judgment
does and can lead to erroneous results. It is very useful for composite decision approach – where the
quantitative results can be given to managers as an input for decision making which would result from
discussions on qualitative aspects also.
Organization level decisions involves many managers. A final decision choice is based on a coalition
among those many managers. A Coalition is an alliance among several managers who agree about
organizational goals and problem priorities. Management coalitions are needed because Organisational
goals and departmental operative goals are often inconsistent requiring bargaining to focus on specific
problems and priorities for solving. It is based on the principle of “many heads are better than one”.
· PROBLEMATIC SEARCH : concern with the immediate environment, search to quickly resolve a
problem : speed rather than perfection.
Discussion and bargaining are specially important in the problem identification stage of the decision
making. Unless coalition members perceive a problem, no action will be taken. Building agreement
through a managerial coalition is a major part of organizational decision making. This is especially true at
upper management levels.Organizations suffer when managers are unable to build a coalition around
goals and problem priorities.
Search
Coalition
Uncertainty formation Conduct simple
local search
Information is limited Hold joint
discussions and Use established
Managers have many interpret goals procedures, if
constraints and problems appropriate
Satisficing decision
The incremental decision process model tells more about the structured sequence of activities
undertaken from the discovery of a problem to its solution. It places less emphasis on the political and
social factors of the Carnegie Model. In this decision process, a series of small choices combine to
produce the major decision. Organisations move through several decision points and may hit barriers
along the way. These barriers may be called decision interrupts. An interrupt may mean an
organization has to cycle back through a previous decision and try something new.
Identification Phase
Managers become aware of a problem and the need to take a decision. This is called the recognition .
This is usually stimulated by a problem or an opportunity.The second step is diagnosis. Here, more
information is gathered as needed to define the problem situation.
A solution is shaped to solve the problem defined in the identification phase. This can be done by -
· Design : If the problem is new and has no precedents, then the solution has to be
custom-made in a groping, incremental procedure, building a solution, brick by brick .
Selection Phase : Here, the solution is chosen.The choice is often not a selection of one solution
amongst alternatives, but rather a single, tailor made solution. Most decisions do not involve systematic
analysis and evaluation of alternatives. Judgement form of selection is used when the final choice falls
upon a single decision maker. When the decision makers are a group of people, bargaining
occurs.When a decision is formally accepted by the organization, authorization takes -place, by
someone usually high up in the hierarchy.
Learning Organisation Decision Processes when Problem Identification and Problem Solution are
uncertain
PROBLEM IDENTIFICATION
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When Problem Identification is uncertain, Carnegie Model applies. Here Political and Social Process is
needed. Build coalition, seek agreement, and resolve conflict about goals and problem priorities.
PROBLEM SOLUTION
When Problem Solution is uncertain, Incremental Process Model applied. Incremental trial and error
process is needed to solve big problems in little steps. It should be recycled and tried again when
blocked. It is characterized by rapid change, and a collegial, non-bureaucratic environment.
4.GARBAGE CAN MODEL- Combining the Incremental Process and the Carnegie Models, The Garbage
Can Model deals with the pattern of flow of multiple decisions within organizations whereas, the
Incremental and the Carnegie Models focus on how a single decision is made. The Garbage Can Model
helps the decision maker to think about the whole organization and the frequent decisions being made
by managers throughout. The Garbage Can Model was developed to explain the pattern of decision
making in organizations that experience extremely high uncertainty, such as the growth and change
required in a learning organization. Michael Cohen, James March and Johan Olsen, the originators of the
model called the highly uncertain conditions, organized anarchy. Organised anarchies do not rely on
the normal vertical hierarchy of authority and bureaucratic decision rules. They are caused by :
(a) Problematic Preferences : goals, problems, alternatives and solutions are ill defined. Ambiguity
characterizes each step of a decision process.
(b) Unclear, poorly understood technology : Cause-and-effect relationships within the organization
are difficult to identify. An explicit data base that applies to decisions is not available.
(c) Turnover : Organisational positions experience turnover of participants. In addition, employees are
busy and have only limited time to allocate to any one problem or decision. Participation in any given
decision will be fluid and limited.
Two characteristics of organizations that determine the use of decision approaches are
It refers to agreement among the managers about the nature of a problem or an opportunity, and about
which goals and outcomes to pursue. This variable ranges from complete agreement to complete
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disagreement. When managers agree, there is little uncertainty – the problems and goals of the
organization are clear and so are the standards of performance. And when managers disagree,
organization direction and performance expectations are in dispute, creating a situation of high
uncertainty.
This refers to understanding and agreement about how to solve problems and reach organization. When
means are well understood, appropriate alternatives can be identified and calculated with some degree
of certainty. When the means are poorly understood, potential solutions are ill defined and uncertain.
Intuition, judgement, and trial and error become the basis for decisions.
When problem consensus is certain and solution knowledge is certain the individual decision making
approach is rational approach computation, organizational approach is management science.
When problem consensus is uncertain and solution knowledge is certain the Individual decision making
approach is bargaining and coalition formation, Organizational approach is Carnegie model.
When problem consensus is certain and solution knowledge is uncertain the individual decision making
approach is judgment, trial and error, organizational approach is Incremental decision process model.
When problem consensus is uncertain and solution knowledge is uncertain the Individual decision
making approach is bargaining and judgement, inspiration and imitation; Organizational approach is
Carnegie model and Incremental decision process model, evolving to garbage can model.
Flow Charts
Run Charts
Pareto Charts
Fishbone Diagrams
Scatter Diagrams
Pie Chart
Control Chart
Force Field Analysis
Affinity Diagram
Tree Diagram
Interrelationship Digraph
Matrix Diagram
Six Hat Thinking
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Pareto Analysis
Pareto analysis is a very simple technique that helps to choose the most effective
changes to make.
It uses the Pareto principle – the idea that by doing 20% of work one can generate 80%
of the advantage of doing the entire job*. Pareto analysis is a formal technique for
finding the changes that will give the biggest benefits. It is useful where many possible
courses of action are competing for your attention.
Paired Comparison Analysis helps to work out the importance of a number of options
relative to each other. It is particularly useful where there is no objective data to base
this on.
This makes it easy to choose the most important problem to solve, or select the solution
that will give the greatest advantage. Paired Comparison Analysis helps to set priorities
where there are conflicting demands on your resources.
Grid Analysis
Grid Analysis (also known as Decision Matrix Analysis, Pugh Matrix Analysis or MAUT,
which stands for Multi-Attribute Utility Theory) is a useful technique to use for making a
decision.
It is particularly powerful where there are a number of good alternatives to choose from,
and many different factors to take into account. This makes it a great technique to use
in almost any important decision where there isn't a clear and obvious preferred option.
PMI
Force Field Analysis is a useful technique for looking at all the forces for and against a
decision. In effect, it is a specialized method of weighing pros and cons.
"Six Thinking Hats" is a powerful technique that look at important decisions from a
number of different perspectives. It helps to make better decisions by pushing one to
move outside habitual ways of thinking. As such, it helps to understand the full
complexity of a decision, and spot issues and opportunities which one might otherwise
not notice.
Each "Thinking Hat" is a different style of thinking. These are explained below:
White Hat:
With this thinking hat, focus is on the data available. One has to look at the
information at hand, and see what one can learn from it,look for gaps in knowledge,
and either try to fill them or take account of them.This is where one analyzes past
trends, and try to extrapolate from historical data.
Red Hat:
Wearing the red hat, one looks at the decision using intuition, gut reaction, and
emotion. Also trying to think how other people will react emotionally, and trying to
understand the intuitive responses of people who do not fully know one’s reasoning.
Black Hat:
When using black hat thinking, one looks at things pessimistically, cautiously and
defensively. One tries to see why ideas and approaches might not work. This is
important because it highlights the weak points in a plan or course of action. It allows
one to eliminate them, alter approach, or prepare contingency plans to counter
problems that arise.
Yellow Hat:
The yellow hat helps to think positively. It is the optimistic viewpoint that helps to see
all the benefits of the decision and the value in it, and spot the opportunities that
arise from it. Yellow Hat thinking helps to keep one going when everything looks
gloomy and difficult.
Green Hat:
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The Green Hat stands for creativity. This is where one can develop creative
solutions to a problem. It is a freewheeling way of thinking, in which there is little
criticism of ideas.
Blue Hat:
The Blue Hat stands for process control. This is the hat worn by people chairing
meetings. When running into difficulties because ideas are running dry, they may
direct activity into Green Hat thinking. When contingency plans are needed, they will
ask for Black Hat thinking, and so on.
Starbursting
Asking questions like these is a valuable way of understanding the new idea, and of
challenging it to ensure that all of the relevant aspects of it have been considered before
any work begins on implementing it. To get the most out of this approach, it's important
that the questions are asked in a systematic and comprehensive way.
Stepladder Technique
The Stepladder Technique is a simple tool that manages how members enter the
decision-making group. Developed by Steven Rogelberg, Janet Barnes-Farrell and
Charles Lowe in 1992, it encourages all members to contribute on an individual level
BEFORE being influenced by anyone else. This results in a wider variety of ideas, it
prevents people from "hiding" within the group, and it helps people avoid being "stepped
on" or overpowered by stronger, louder group members.
Decision Trees are useful tools for helping you to choose between several courses of
action.
They provide a highly effective structure within which one can explore options, and
investigate the possible outcomes of choosing those options. They also help one to
form a balanced picture of the risks and rewards associated with each possible course
of action.This makes them particularly useful for choosing between different strategies,
projects or investment opportunities, particularly when your resources are limited.
Choosing the best strategic way forward. Organizations spend a lot of time and effort on
strategy formulation. Often, there are several different approaches or strategies that the
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organization could follow. But how to decide which option is best? Does one rely on
intuition, or take a more objective approach?
The Quantitative Strategic Planning Matrix (QSPM) helps to address this question. It
gives a systematic approach for evaluating alternate strategies, and helps to decide
which strategy is best suited to the organization.
Deciding How to Decide. How to go about making a decision that can involve as many
choices as the decision itself. Sometimes one have to take charge and decide what to
do on own. Other times its better to make a decision using group consensus. How does
one decides which approach to use?
Making good decisions is one of the main leadership tasks. Part of doing this is
determining the most efficient and effective means of reaching the decision.
The Vroom-Yetton-Jago Decision Model provides a useful framework for identifying the
best leadership style to adopt for the situation one is in
Simple decisions usually need a simple decision-making process. But difficult decisions
typically involve issues like these:
A logical and systematic decision-making process helps to address the critical elements
that result in a good decision. By taking an organized approach, one is less likely to
miss important factors, and one can build on the approach to make decisions better and
better.
Organizational Constraints
(1) PERFORMANCE EVALUATION : Managers are quite often influenced in their decision-making,
keeping at the back of their minds how different decisions will affect their own performance
evaluation which their superior will make. E.g. if a college dean believes that if good instruction
is given, then no more than about 10% of the students would fail, then each of the instructors
would more likely than not, ensure that this happens, so as to avoid poor evaluations for
themselves.
(2) REWARD SYSTEMS : If the organization rewards innovations and risks taken by managers, then
they will tend to take such decisions to enhance their personal rewards – and vice versa.
(3) FORMALISATION : Rules and procedures limit and direct a manager’s decision making process.
(4) TIME AND COST DEADLINES : Such deadlines limit the decision making process.
(5) HISTORICAL PRECEDENTS : Are very powerful moulders of decision making, particularly in
large bureaucratic organizations
Different cultures have different value systems. Components of the decision making process like time
deadlines, role of the group, role of the senior, acceptance co-efficients of situations, rational approach
vs. intuitive approach etc., have a strong role in decision making, across cultures. Managers working in
Multinational organizations need to be sensitized to this aspect.
Questions
1. What are the different types of decisions? In this connection describe the managerial
decision making in the organization.
2. Describe the decision making process in the organization. What are behavioral
Influences on Decision-Making. In this connection describe the different Decision
Making Styles
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3. Compare the Individual Decision Making and the Group Decision Making process. What
is Creativity in group decision-making? Describe the various creative decision making
processes.
6. Write short notes on (a) the Organizational Constraints on Decision making (b)Cultural
Differences in Decision-Making