Fundamentals of DecisionMaking

Concept
Decision- Making is a process to arrive at a decision, the process by which an individual or organization selects one position or action from several alternatives.

Decision-Making , connects the organizations present circumstances to actions that will take the organization into future.

Characteristics of DecisionMaking
Integral Part of Planning Goal Oriented. Search Alternatives. choice Analytical-Intellectual. Pervasive Function and a continuous activity. Human and Social Process.

Types of Decisions

Basic and Routine Decisions.

Programmed and Non-Programmed Decisions.

Programmed Decisions
Are one which are of Routine and
repetitive in nature. Deal with Situations that occur often enough to enable decision rules to be developed and applied in the future Made in response to recurring organizational problems. e.g. A hospital establishes a procedure for admitting new patients.and A supervisor administers disciplinary actions against workers reporting late at work.

Non-Programmed Decisions
Deal with Unique and Unusual problems. The decision maker has to make a decision , in a poorly structured situation. Situations are Novel and nonrecurring. e.g Deciding to take over a sick unit , how to restructure the organization to improve efficiency. Where to locate a new warehouse.

Linking levels with the type of Plan

Un structured Top

Type Of Problem

NonProgrammed Decision Programmed Decision

Level In Organization

Well structured

Lower

Decision-Making Process

The Decision-making Process

Identification of a problem I need to decide the best Franchisee to Purchase. -Financial Qualifications. -Franchisor History. -Start up Costs . -Suitable Geographical Locations. Start up Costs --------------------------10 Financial qualification ----------------8 Franchisor History --------------------6 Suitable geographical Locations----4 McDonalds Pizza Corner Caf Coffee Day Barista Pizza Hut KFC

Identification of a decision criteria. Allocation of weights to criteria Development of alternatives

The Decision-making Process

Analysis Of Alternatives Selection Of an Alternative Implementation Of an Alternative McDonalds Pizza Corner Caf Coffee Day Barista McDonalds Pizza Corner Caf Coffee Day Barista Pizza Hut KFC

Pizza Hut KFC

McDonalds

Evaluation of Decision Effectiveness

Identification of a problem

Evaluating Alternatives
Drop the alternative
No

Drop the alternative

Yes Is the alternative Feasible Yes Is the alternative Satisfactory No

No

Drop the alternative

Will the alternative have +ive /Neutral Consequences

Yes Conduct further evaluations

Continuum of Decision-Making Conditions

Certainty Risk Uncertainty

HIGH Managerial Control

LOW

Bounded Rationality
Bounded rationality: The concept that manager make the most logical decisions they can within the constraints or limited information and ability.

Satisficing: Means that decision makers choose the first solution alternative that satisfies minimal decision criteria.

Decision-Making Styles
High
Tolerance For Ambiguity

Analytic

Conceptual

Directive

Behavioral

Low Rational

Way Of Thinking Intuitive

Directive
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

Analytic
Complex solutions based on as much data as they can gather 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
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
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

Common Decision-Making Errors and Biases

Overconfidence

Immediate Gratification

Self-serving

Anchoring Effect

Sunk Costs

Decision-Making Errors and Biases

Selective Perception

Randomness

Availability