Decision - Making: An Essence To Problem Solving

DECISION –MAKING: An
essence to problem solving

Meaning of a Decision
Types of Decisions
Steps in Rational Decision-Making
 Models of Decision-Making
 Behavior Environment of Decision-Making
 Common Difficulties in Decision-Making
DECISION:
 DM is process by which individuals select a course of action among alternatives to
produce results.
 It is a process of using inputs effectively in the solution of selected problems & creation
of outputs that have utility.
 A choice made from available alternatives, Choice between two or more alternatives.
 It is a key part of manager’s activity, to allocate resources & accomplishes goals.
 To decide what to do on the basis of some conscious & deliberate logic or judgment.
 Decision requires wisdom & experience to evaluate alternatives.
 Managers have some purpose in mind to make decisions.
 Good D M is vital for good management.
Characteristics of Decision-Making:
1. Goal-oriented 6. Continuous activity
2. Alternatives 7. Commitment of time, effort &
3. Analytical-intellectual money.
4. Dynamic process 8. Human & social process
5. Pervasive function 9. Integral part of planning

TYPES OF DECISION:
1. Programmed & Non-Programmed Decisions
 Programmed decisions-
 Solutions are made in accordance with some policy, rule, procedures.
 Problems are routine & repetitive
 Conditions are highly certain
 Made by lower-level people
 Non-Programmed decisions-
 Problems are novel & non-repetitive, unique
 No pre-established policies or procedures, each problem needs creative
solution
 Conditions are highly uncertain.
 Top management responsibility
2. Major & Minor Decisions
 Relative significance of a decision in four ways:
1. Degree of Futurity of Decision
2. Impact of the Decision on Other Functional Areas
3. Qualitative Factors that Enter the Decision
4. Recurrence of Decision
3. Routine & Strategic Decisions
 Routine
 Strategic
 Which are supportive, repetitive
 Concerning unique problems
 Concerned with short-term
commitment  Demanding large investments
 Central to companies operations  Creativeness & good judgment on

the part of higher level managers
 Relate to present
 Affect the future of the
 Primary purpose to achieve high organization
degree of efficiency
 Require little deliberation & money
4. Individual & Group Decisions
 Individual Decisions
 Taken by individual in their individual capacity.
 These can’t be delegated
 Affect the organization in indirect way
 Definite procedure to deal with the problem
 Analysis of variable is simple
 Group Decisions
 Taken by managers as in their formal or official capacity as allocators &
controllers, can be delegated
 Aimed at furthering the interests of the organization
 These are strategic & important decisions, result into change in org.
 Result of decisions open for public view.
Advantages: Disadvantages:
Increased acceptance by Group decisions take longer
those affected Groups can be indecisive
Easier coordination Groups can compromise
Easier communication Groups can be dominated
More information processed
Approaches to Group Decision Making:

Discussion or Interacting Group
Nominal Group Technique
Delphi Technique
Dialectic Method
Devils Advocacy
STEPS IN RATIONAL DECISION MAKING:
(3)
(1) (2)
Diagnosing the
Recognizing problems Deciding priorities problem
feedback
(6) (5)
(4)
Decision Implementation Measuring & Comparing
Developing Alternative
& Follow up Consequences
Solutiuons
External Environment
Flow diagram of the rational decision-making process

1. RECOGNISING PROBLEMS
 1st search the environment for existence of problem

 When Deviation from past experience
 When Deviation from plans
 When Other people bring problems
 When competitor’s outerperform
2. DECIDING PRIORITIES
 Find some of the problems which can be best solved by subordinates as

they are close to them
 Find problems that need to be referred upward
 Some problems allowed to be solved without any efforts
3. DIAGNOSING THE PROBLEM
 What is the problem?

 Which problem to solve?
 What is the real cause of problem? symptoms
4. DEVELOPING ALTERNATIVE SOLUTIONS
- Review the past experiences

- Scrutinize the practice of others
Inventors & scientist indicate 5 stages of creative process:
 Must make familiar with the problem- Saturation
 Think problem from several view points- Deliberation
 No fruitful solution, turn-off conscious search & relax- Incubation
 Flash of insight take place & get new ideas- Illumination
 Refines ideas into a usable proposal- Accommodation
5. MEASURING & COMPARING CONSEQUENCES
 Comparison of the quality & acceptability of various solutions

 Taking in consideration all the consequences
 If information is not available about quality & acceptability advisable to
experiment on small scale i.e. Pilot-testing
6. DECISION IMPLEMENTATION & FOLLOW UP
 Translate the decision into action

 Requires communication of decisions
 Secure acceptance of decision
 Associate employees in DM to get whole hearted participation & improve
quality.
MODELS OF DECISION-MAKING BEHAVIOUR
I. ECONOMIC MAN MODEL
• Dev. by classical economist, believed that man is rational being.
• Make search for best alternative for achieving optimum solution to a

problem in planned, orderly & logical manner.
• Gather all necessary information for decision.
• Mentally store the information
• Accurately recall the information
• Do series of complex calculations
• Rank all consequences
• Criticism: lacks realism, not portray how decisions actually made.
• Mgmt. decisions in all areas can be made rationally.
Assumptions of Rational Decision Making:
Decision-making is a goal-oriented process
All choices are known
Order of preference
Maximum advantage
Factors effecting in being perfectly rational:

 Impossible to state the problem accurately
 Not fully aware about problems
 Imperfect knowledge
 Limited time & resources
 Cognitive limits
 Politics
II. ADMINISTRATIVE MAN MODEL
• Dev. By Herbert Simon, more realistic description
• Man uses limited rationality because of limited information processing

skills.
• Look for the one which is good enough (may promote paralysis by
analysis)
• Administrative man satisfies rather than maximizes
• Not required to search& evaluate to initiate search to find possible
alternative solutions.
• search feasible alternatives one by one, if 1st do not work search for
another.
• as soon as workable alternative found, discontinues search
• Search for alternatives is guided by experiences & past records.
Eight steps in Bounded Rationality Model :
1. Set the goal , define the problem
2. Establish criteria to judge the acceptability of a solution
3. use heuristics & identify a feasible solution
4. If no feasible solution identified, lower the criteria to judge a7 begin
the search, repeating the step 3.
5. If feasible solution identified, to determine acceptability
6. If solution found acceptable, implement it
7. If solution found unacceptable, initiate search for new solution ,
repeating steps 3to 5.
8. Following implementation, evaluate degree of difficulty, set the
criteria to judge for future decisions of this type
I. SOCIAL MAN/ POLICAL MODEL
• Dev. by Classical psychologist
• Freud says –” That man being a bundle of feelings, emotions, instincts is

guided by his unconscious desires.
• Decisions also subject to social pressures & influences.
• Strong social pressures forces to choose wrong alternatives
• Decisions cannot be termed as organizationally rational
• Decisions may be sometimes personally rational.
• Useful for non-programmed decisions-
 when conditions are uncertain
 Information is limited
 disagreement among managers about goals & course of actions.
When the outcomes are not clear, gain support through
negotiation, discussions & bargaining.
ENVIRONMENT OF DECISION-MAKING
The condition of knowledge is referred to as the environment of decision-making

CERTAINITY-
- Consequences of particular decision are specified.

- Conditions associated with alternatives are known to the decision-
maker.
RISK-
- Consequences not specified with certainty.
- Decisions has clear goals, incomplete but reliable & factual information
available.
- Future outcomes associated with each outcomes are subject to chance.
- Evaluation by calculating expected value of the pay off.
- Objective probabilities derived mathematically from historical data.
- Subjective probabilities estimated from past experience & judgments.
UNCERTAINITY-
- Not known with the probabilities of possible outcomes.

- Conditions of complete ignorance.
Three basis that can be used –
Maximin- pessimistic or cautious approach. Choose that decision act that
maximizes the minimum.
Minimax- optimistic , choose that decision act which maximizes the
maximum
Minimax Regret- neither optimistic nor pessimistic.
AMBIGUITY-
- Goals & problems are unclear

- Alternatives are not properly defined
- Information about outcomes is not available
COMMON DIFFICULTIES IN DECISION-MAKING
Incomplete Information
Unsupporting Environment
Non-Acceptance by Subordinates
Ineffective Communication
Incorrect Timing
“It is better to light a candle, than to
curse the darkness.”
“Be a part of solution not a part of problem”

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DECISION –MAKING: An

essence to problem solving

4. Dynamic process 8. Human & social process

5. Pervasive function 9. Integral part of planning

 Central to companies operations  Creativeness & good judgment on

Approaches to Group Decision Making:

Flow diagram of the rational decision-making process

 1st search the environment for existence of problem

 Find some of the problems which can be best solved by subordinates as

 What is the problem?

4. DEVELOPING ALTERNATIVE SOLUTIONS

- Review the past experiences

 Comparison of the quality & acceptability of various solutions

6. DECISION IMPLEMENTATION & FOLLOW UP

 Translate the decision into action

I. ECONOMIC MAN MODEL

• Dev. by classical economist, believed that man is rational being.

• Make search for best alternative for achieving optimum solution to a

Factors effecting in being perfectly rational:

• Dev. By Herbert Simon, more realistic description

• Man uses limited rationality because of limited information processing

• Dev. by Classical psychologist

• Freud says –” That man being a bundle of feelings, emotions, instincts is

The condition of knowledge is referred to as the environment of decision-making

- Consequences of particular decision are specified.

- Not known with the probabilities of possible outcomes.

- Goals & problems are unclear

“Be a part of solution not a part of problem”

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