You are on page 1of 54

DECISION MAKING

DR AZMMAT GOWHER KHAN


DEFINITION

• A DECISION IS A CHOICE BETWEEN TWO OR


MORE OPTIONS.
• Decision making involves identifying and
choosing alternatives depending on the
values and preferences of the decision
maker.
According to Drucker

• DECISION making is a judgment, is a choice


between right and wrong. It is at best a choice
between almost right and probably wrong·
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
organizational stakeholders”.
CHARACTERISTICS OF A DECISION

1.GOAL DIRECTED
2.INTEGERAL PART OF MANAGEMENT
3.INTELLECTUAL ACTIVITY
4.INVOVES CHOICE
TYPES OF DECISIONS

• CAN BE CLASSIFIED IN MANY WAYS SOME


ARE
TYPES OF DECISIONS

• 1 PROGRAMMED AND NON PROGRAMMED


DECISIONS
PROGRAMMED DECISION

• PROGRAMMED DECISIONS ARE MADE IN


ACCORDANCE WITH SOME POLICY,RULE OR
PROCEDURE SO THAT THEY DO NOT HAVE
TO BE HANDELED de novo EACH TIME THEY
OCCUR
TYPES OF PROGRAMMED DECISIONS
• Policy
* a general guideline for making a decision about a structured
problem.
• Procedure
* A series of interrelated steps that a manager can use to respond (
applying a policy) to a structured problem.
• Rule
* an explicit statement that limits what a manager or employee
can or cannot do.
PROGRAMMED VS NON PROGRAMMED
DECISIONS
CHARACTERISTICS PROGRAMMED NON PROGRAMMED

TYPE OF PROBLEM STRUCTURED UNSTRUCTURED

LEVEL OF MANAGEMENT LOWER LEVEL UPPER LEVEL

FREQUENCY REPITITIVE NEW ,UNUSUAL

INFORMATION READILY AVAILABLE AMBIGUOUS,INCOMPLETE

TIME FAME FOR SOLUTION SHORT RELATIVELY LONG

SOLUTION RELIES ON PROCEDURES, RULES AND JUDGEMENT AND CREATIVITY


POLICIES
OTHER TYPES DECISIONS

• 2 ROUTINE AND STRATEGIC DECISIONS

• ROUTINE ,TACTICAL OR HOUSE KEEPING DECISIONS ARE THOSE


THAT ARE SUPPORTIVE RATHER THAN CENTRAL TO THE COMPANYS
OPERATIONS.EXAMPLES ARE
• BETTER LIGHTENING ,PARKING FACILITIES ,DEPUTING EMPLOYES
ARE ALL ROUTINE TYPE.
• ON THE OTHER HAND INSTALLING OF AN AUTOMATIC PLANT ARE
STRATEGIC DECISIONS.
DECISIONS

• 3 MAJOR AND MINOR DECISIONS .


CRITERIA FOR A MAJOR DECISION
• THERE ARE FOUR CRITERIAS
CRITERIAS
• FUTURITY OF A DECISION . A DECISION HAVING LONG RANGE
IMPACT IS A MAJOR DECISION

• IMPACT ON OTHER FUNCTIONAL AREAS.IF A DECISION


INVOLVES ONLY ONE FUNCTIONAL AREA IT IS A MINOR
DECISION
CRITERIAS
• QUALITATIVE FACTORS THAT ENTER THE DECISION.
• A DECISION INVOLVING CERTAIN SUBJECTIVE FACTORS
IS AN IMPORTANT DECISION.THESE INCLUDE BASIC
PRINCIPLES OF CONDUCT,ETHICAL VALUES ,SOCIAL AND
POLITICAL BELIEFS.
• RECURRENCE OF DECISION.DECISIONS WHICH
ARE RARE AND HAVE NO RULES OR PRECEDENTSAS
GUIDES MAY BE REGARDED AS MAJOR .THESE HAVE TO
BE MADE AT HIGH LEVEL.
TYPES

• 4 INDIVISUAL AND GROUP DECISIONS.


DECISION BASED ON LEVEL OF MANAGEMENT

STRATEGIC
DECISIONS BOARD OF
DIRECTORS
DECISION BASED ON LEVEL OF MANAGEMENT

TACTICAL
DECISIONS MANAGERS
DECISION BASED ON LEVEL OF MANAGEMENT

OPERATIONAL
DECISIONS MOST
EMPLOYES
DIFFERENCES
STRATEGIC TACTICAL OPERATIONAL
DECISIONS DECISIONS DECISIONS
LESS FREQUENT .FUTURE NOT FREQUENT TAKEN DAILY
PLANNING IS CONCERNED

LONG TERM MEDIUM TERM SHORT TERM

ORGANISATIONAL MISSION IN ACCORDANCE WITH ACCORDING TO TACTICAL


AND VISION IS CONSIDERED STRATEGIC DECISIONS DECISIONS

RELATED TO OVERALL RELATED TO PRODUCTION RELATED TO WORKING OF


PLANNING OF ORGANIZATION EMPLOYES

DEALS WITH GROWTH OF DEALS WITH PRODUCTION DEALS WITH WELFARE OF


ORGANIZQATION EMPLOYES
DECISION MAKING PROCESS
STEPS IN MAKING EFFECTIVE DECISION

• The University of Massachusetts-Dartmouth outlines


seven basic steps in effective decision-making.
• Identify the decision to be made
• Gather relevant information
• Identify alternatives
• Weigh evidence
• Choose among alternatives
• Take action
• Review decision and consequences
DEFINE THE
PROBLEM

IMPLEMENT DIAGNOSE AND


THE CHOSEN ANALYSE THE
ALTERNATIVE CAUSE

DECISION
MAKING
PROCESS
SELECT THE SEEK THE
BEST ALTERNATIV
ALTERNATIVE ES

EVALUATE
THE
ALTERNATIV
ES
TOOLS FOR DECISION MAKING

• As is the case with so many other areas of management, a whole


host of tools and techniques have been invented over the years to
help managers make better decisions. Some of these tools are
very simple, some are more complex. Some are useful, others less
so. How helpful any tool is, of course, depends on who is using it
and for what purpose.
Brainstorming
• A well-known technique to help groups develop new ideas
• and approaches to problems. Group members are convened and
• encouraged to contribute any and all ideas that they may have, to
• combine and build upon the good ideas offered by others, and not
to
• analyze, criticize, or otherwise interfere with the spontaneous
flow
• of ideas. Volume, speed, and uninhibited flow of idea generation
are
• paramount to the success of this technique
Brown papering (process mapping)

• Typically, process mapping involves interviewing the people who carry out the
work at each stage to understand the main activities, information flows, and
connections. The next stage is to pin up a long sheet of brown paper – usually
between four and six meters long – and map out the process using post-it notes,
sheets of paper, and key documents. The people originally interviewed are then
invited to review their part of the process to ensure that what has been
constructed is an accurate description. Once this stage has been completed, the
people involved in the process or affected by it are invited to ‘‘walk through the
brown paper model,’’ adding suggestions for improvements on post-it notes as
they go. Once this has been done, the comments form the basis of the next
stage: re-drawing the brown paper process diagram to eliminate problems. The
beauty of this technique is that improvements can be tested by asking people to
walk the new process, before any expensive final decisions are made.
Decision tree
• – Probably the best known of all decision-making tools, a decision
tree is a graphic representation of the options flowing from an
initial decision or set of decisions. It is used to map out
alternative courses of action and assess the implications (e.g.
financial) of such decisions
Fishbone diagram (the Ishikawa method)

• Named for its appearance, the fishbone diagram (originally


invented by Professor Kaoru Ishikawa of the University of Tokyo,
hence references to the ‘‘Ishikawa method’’) is a diagnostic tool.
It helps the user to understand the relationship between cause
and effect and is especially useful in situations where the causes
of a problem or crisis cannot be easily measured. In such
situations, a fishbone diagram can help clarify the major issues
involved in a decision
Flipping a coin
FLIPPING A COIN
• One of the oldest and perhaps most under-rated decision-making
techniques, there’s more to this technique than meets the eye.
It’s important to recognize that a tool is only as good as the
purpose for which it is used. Flipping a coin is only effective as a
tool when a decision involves choosing between competing
alternatives. It has absolutely no diagnostic or analytical
properties
Flow chart
• A pictorial representation of the flow of information, ideas, or
components through a system.
• USED FOR
• » identify steps in a process that can be eliminated to reduce
costs or save time; » determine more efficient ways to order or
organize the process; and » see if the whole process needs to be
re-engineered to bring it up to date, or even completely
eliminated
Mind map
• – A completely unstructured way to visually represent the various
strands of a complex issue in order to generate ideas, and/or to
communicate those ideas to others. First, the central idea,
problem, or issue is written in the middle of a large sheet of
paper. Next, ideas triggered by the main theme are represented as
a series of lines coming out from the center, with subsidiary ideas
or issues coming off these. It begins to look like a spider’s web, or
the root system of a tree, with lines spreading out towards the
edge of the paper in all directions
MIND MAP
• Mind mapping frees people from the need to order their thoughts
or to impose prior logic. This allows them to approach problems
quite literally with a blank sheet of paper. In many ways,
GLOSSARY 105 mind mapping is the pictorial equivalent of
brainstorming
Nominal group technique

• A technique for generating ideas, evaluating alternatives, and


anonymously voting on solutions. Group members are convened to
discuss a problem or issue. Once it has been discussed, each
individual writes down his or her ideas for potential solutions,
then offers one idea from their list to the group. Ideas are
recorded on a flip chart without discussion in a series of rounds
until all ideas have been shared. Then the group discusses the
ideas and offers their agreement or disagreement. Each member
may defend or criticize any idea. Group members then vote
anonymously on their top three choices. The technique promotes
balanced participation and representation
Prioritization
• There are many tools and techniques for helping managers
prioritize. The ABC method is a common, simple, and effective
approach. Pending tasks and decisions are designated as A, B, or C
according to their level of importance and/or urgency, with A
being top priority and/or most urgent
Tools for strategic analysis and decision
making

• ABC analysis (Activity-Based Costing).


• – A relatively recent and important method of ensuring that all
costs, and especially indirect costs and overheads, are properly
allocated to particular products. Traditional costing methods
allocated indirect costs via cost centers, which tended to under-
allocate cost to special products and services that used a lot of
indirect cost; it resulted in standard products being priced too
high and specials too low. ABC better allocates indirect costs by
identifying the cost drivers for each activity.
ABM (Activity-Based Management)

• – An extension of ABC Analysis that takes customers’ needs into


consideration and determines where the extra cost of special
products or services can be fully or more than fully recovered
from customers
Boston Matrix
• A simple two-by-two matrix used for analyzing the strategic
position of a particular business within a portfolio. It measures
market growth and relative market share for all of the businesses
in the company’s portfolio. Each business can be placed on the
matrix and classified as Stars (businesses with high growth rates
and high market share), Cash Cows (low growth, high market share
cash generators), Question Marks (high growth and low market
share), or Dogs (the worst combination low market share and low
growth).
BOSTON MATRIX

• . Decisions are then made as follows:


• » Stars build
• Cash cows harvest
• Question Marks hold and monitor
• Dogs withdraw
Cost-Benefit Analysis (CBA)

• – A monetary assessment of a project’s worth that compares all of


its costs and benefits. CBA is often used GLOSSARY 107 to assess
public sector projects where an attempt is made to quantify social
benefits. It can also be used by private sector managers to take
account of soft benefits of a major project
Porter’s Five Competitive Forces

• These five forces (the barriers to market entry, the threat of


substitutes, the bargaining power of buyers and suppliers, and
rivalry among existing competitors) provide a way for companies
to understand the competitive markets in which they operate.
They can be interpreted as the ‘‘rules of the game’’ that have to
be acted on and challenged if a company is to change its
competitive position within its marketplace. In other words, they
are the levers upon which any strategy must act in order to be
successful
Scenario planning

• Scenario planning may prove to be one of the most important


decision-making tools in the manager’s toolbox. It can be viewed
as a way to facilitate lateral thinking in an organization. Although
sometimes confused with disaster planning or contingency
planning, which deals with how a company should respond when
things go wrong, scenario planning is a way to identify both
threats and opportunities that flow from decisions
SWOT analysis
• Perhaps the best known and most basic of the analytic tools,
SWOT analysis involves a review of Strengths, Weaknesses,
Opportunities, and Threats. Generally, Strengths and Weaknesses
will pertain to the organization itself; whereas Opportunities and
Threats are more likely to arise from features of the external
environment. SWOT analysis might be used, for example, when
deciding whether to enter a new market in Eastern Europe.
Through SWOT analysis, a clearer picture of the likely outcome of
the decision should emerge.
WEB-BASED KNOWLEDGE PORTALS FOR
DECISION MAKING

• Appreciative Inquiry Resource E-Centre.


• DSSResources.com
• Data Warehousing Information Center.
• The Natural Step
ASSOCIATIONS AND ORGANIZATIONS FOR
DECISION MAKING
1. Activity Based Costing Benchmarking
Association
2. DAS (Decision Analysis Society)
3. Data Warehousing Institute
4. International Society for Decision
Support Systems
5. SJDM (Society for Judgment and
Decision-Making) –
ASSOCIATIONS CONTD

• EADM (European Association for Decision-Making)


Decision Making Styles

• Not all managers make decisions the same way.


•Directive style
•Analytical style
•Conceptual style
•Behavioral style
DIRECTIVE STYLE

 People who prefer simple, clear-cut solutions to


problems
 Make decisions quickly
 May consider only one or two alternatives
 Efficient and rational
 Prefer rules or procedures
Analytical Style

 Carefully consider alternatives


 Base decision on objective, rational data from
management control systems and other sources
 Search for best possible decision based on
information available
Conceptual style

Consider a broad amount of information


More socially oriented than analytical style
Like to talk to others about the problem and
possible solutions
Consider many broad alternatives
Relay on information from people and systems
Solve problems creatively
Behavioral Style

 Have a deep concern for others as individuals


 Like to talk to people one-on-one
 Understand their feelings about the problem and the
effect of a given decision upon them
 Concerned with the personal development of others
 May make decisions to help others achieve their goals
TEN STEPS TO EFFECTIVE DECISION MAKING
• Do what works
• Ask the right questions
• Enter and engage the decision process from a centered
place.
• Listen
• Involve others
• Learn from the best
• Create easy access to high quality data.
• Include the bigger picture; include the planet.
• Make implementation your mantra
• Be brave, be humble, and share the pain and the glory
1916-2001
•THANK YOU