Decision Making Process

Lecture 1-4 jan 09

Introduction to Management Science

Project for the semester (30%)

Quizes =10% Project =30% Two sessional = 20% One sessional = theoretical = 10% Second sessional based on project work = 10 % End term exam = 40% ( out of which 20% theoretical and 20% project work)
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Project description and requirements

Identify a real life business, social, economic, engineering, medical sciences, IT or any other area of your interest Collect data with 10 variables and 100 records for all of those ten variables. Prefer numeric data , but some of the variables could have text entries. This is the complete population you have
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Project description and requirements

Case definition: You are going to solve this problem Apply all the tools or most of these whichevery you feel appropriate in relevant areas of case. If you know any other tools you may apply thse alos , but Istatpro and partly excel
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Project description and requirements( report format)

Title Abstract Introduction, Case definitions Main body Findings Conclusions References bibliography Your own biography
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Project description and requirements ( report format)

Most important is that your research data is real and fake (fabricated) Important is you provide a solution to the problem

How to do your project (start)

Identify /think which job you want to do in future Look for a company that gives job in your preferred speciality Try to find a company nearest you home Write down what area of interest you have in that company Look at their website /brochures and get to know that company as best as you can Make a write up of telephone call with thast person and talk with full confidence Set an appointment with them by calling the appropriate person in that company
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Contents

What is Decision Making? Some Definitions Kinds of Decisions Decision Making is a Recursive Process The Components of Decision Making The Effects of Quantity on Decision Making Decision Streams
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More Contents
Concepts & Definitions Approaches Information. Authoritarian Alternatives Group Criteria. Decision Making Strategies Goals Optimising Value Satisficing Preferences. Maximax Decision Quality Maximin Acceptance 9

More Contents
Decision making Procedure Identify decision and goal Getting Facts Developing Alternatives Rate each alternative Make the decision
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What is Decision Making?

We all make decisions of varying importance every day, so the idea that decision making can be a rather sophisticated art is not valid Studies have shown that most people are much poorer at decision making than they An understanding of what decision making involves, together with a few effective techniques, will help produce better decisions
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think!.

Some Definitions

Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker
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Some Definitions

Decision making is the process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them.
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Kinds of Decisions

Decisions whether. This is the yes/no, either/or decision that must be made before we proceed with the selection of an alternative

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Kinds of Decisions

Decisions which. These involve a choice of one or more alternatives from a set of possibilities, the choice being based on how well each alternative measures up to a set of predefined criteria
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Kinds of Decisions

Contingent decisions. These are decisions that have been made but put on hold until some condition is met.

For example, I have decided to buy that car if I can get it for the right price; I have decided to write that article if I can work the necessary time for it into my schedule
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Kinds of Decisions (Habits of People)

Most people carry around a set of already made, contingent decisions, just waiting for the right conditions or opportunity to arise.
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Kinds of Decisions (Habits of People)

Time, energy, price, availability, opportunity, encouragement--all these factors can figure into the necessary conditions that need to be met before we can act on our decision
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Decision Making is a Recursive Process

Most decisions are made by moving back and forth between the choice of criteria The characteristics we want our choice to meet The identification of alternatives The possibilities we can choose among
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Decision Making is a Recursive Process The alternatives available influence the criteria we apply to them, Similarly the criteria we establish influence the alternatives we will consider

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decision whether ... select criteria ... identify alternatives ... make choice

Suppose someone wants to decide, Should I get married? Notice that this is a decision whether. A linear approach to decision making would be to decide this question by weighing the reasons pro and con (what are the benefits and drawbacks of getting married) and then to move to the next part of the process,
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Decision whether ... select criteria ... identify alternatives ... make choice

The identification of criteria (supportive, easy going, competent, affectionate, etc.). Next, we would identify alternatives likely to have these criteria (Kathy, Jennifer, Michelle, Julie, etc.).

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Decision whether ... select criteria ... identify alternatives ... make choice

Finally we would evaluate each alternative according to the criteria and choose the one that best meets the criteria
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Contingent Decision
"I'll get married if I can find the right person." It will thus be influenced by the identification of alternatives, which we usually think of as a later step in the process.

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Contingent Decision
Similarly, suppose we have arrived at the "identify alternatives" stage of the process when we discover that Jennifer (one of the girls identified as an alternative) has a wonderful personality characteristic that we had not even thought of before,

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Contingent Decision

but that we now really want to have in a wife. We immediately add that characteristic to our criteria. Thus, the decision making process continues to move back and forth, around and around as it progresses in what will eventually be a linear direction but which in its actual workings is highly recursive.
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The Components of Decision Making

The Decision Environment: Every decision is made within a decision environment, which is defined as the collection of information, alternatives, values, and preferences available at the

time of the decision.

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The Components of Decision Making The Decision Environment: An ideal decision environment would include all possible information, all of it accurate, and every possible alternative
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The Components of Decision Making

The Decision Environment: Information and alternatives are constrained because time and effort to gain information or identify alternatives are limited.
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The Components of Decision Making

The Decision Environment: The time constraint means that a decision must be made by a certain time. The effort constraint reflects the limits of manpower, money, and priorities.

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The Components of Decision Making

The Decision Environment:

The major challenge of decision making is uncertainty,

A major goal of decision analysis is to reduce uncertainty.
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The Components of Decision Making

The Decision Environment: We can almost never have all information needed to make a decision with certainty, so most decisions involve an undeniable amount of risk.

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The Components of Decision Making

The Decision Environment: Why hindsight is so much more accurate and better at making decisions than foresight. As time passes, the decision environment continues to grow and expand.
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The Components of Decision Making

The Decision Environment: New information and new alternatives appear--even after the decision must be made. Armed with new information after the fact, the hindsighters can many times look back and make a much better decision than the original maker,

because the decision environment has continued to expand 34

The Components of Decision Making

The Decision Environment: Since the decision environment continues to expand as time passes, It is often advisable to put off making a decision until close to the deadline.

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The Components of Decision Making

The Decision Environment: Information and alternatives continue to grow as time passes, So to have access to the most information and to the best alternatives, do not make the decision too soon
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The Components of Decision Making

The Decision Environment:. Now, since we are dealing with real life, it is obvious that some alternatives might no longer be available if too much time passes; That is a TENSION we have to work with, a tension that helps to shape the cutoff date for the decision.
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The Components of Decision Making (Delaying Decision)

The Decision Environment:. The decision environment will be larger, providing more information. There is also time for more thoughtful and extended analysis. New alternatives might be recognized or created. The decision maker's preferences might change. With further thought, wisdom, maturity, you may decide not to buy car X and instead to buy car Y

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The Effects of Quantity on Decision Making

Many decision makers have a tendency to seek more information than required to make a good decision. When too much information is sought and obtained, one or more of several problems can arise. (1) A delay in the decision occurs because of the time required to obtain and process the extra information. This delay could impair the effectiveness of the decision or solution. (2) Information overload will occur. 39

The Effects of Quantity on Decision Making

In this state, so much information is available that decision-making ability actually declines because the information in its entirety can no longer be managed or assessed appropriately.
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The Effects of Quantity on Decision Making

A major problem caused by information overload is forgetfulness. When too much information is taken into memory, especially in a short period of time, some of the information (often that received early on) will be pushed out

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The Effects of Quantity on Decision Making

The example is sometimes given

of the man who spent the day at an information-heavy seminar.

At the end of the day, he was not only unable to remember the first half of the seminar but he had also forgotten where he parked his car that morning

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The Effects of Quantity on Decision Making

(3) Selective use of the information will occur. That is, the decision maker will choose from among all the information available only those facts which support a preconceived solution or position.
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The Effects of Quantity on Decision Making

(4) Mental fatigue occurs, which results in slower work or poor quality work. (5) Decision fatigue occurs, where the decision maker tires of making decisions.
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The Effects of Quantity on Decision Making

Often the result is fast, careless decisions or even decision paralysis--no decisions are made at all
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Decision Streams

A common misconception about decision making is that decisions are made in isolation from each other: you gather information, explore alternatives, and make a choice, without regard to anything that has gone before.

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Decision Streams

The fact is, decisions are made in a context of other decisions. The typical metaphor used to explain this is that of a stream.

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Decision Streams

There is a stream of decisions surrounding a given decision, Many decisions made earlier have led up to this decision and made it both possible and limited. Many other decisions will follow from it
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Decision Streams
We might say, then, (1) That every decision follows from previous decisions, (2) Enables many future decisions, and (3) Prevents other future decisions.

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Decision Streams

People who have trouble making decisions are sometimes trapped by the constraining nature of decision making
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Decision Streams

It is important to realize that every decision you make affects the decision stream And the collections of alternatives available to you both immediately and in the future. Decisions have far reaching consequences

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First assignment

Identified a company And at least 5 problems Prioritize these problems Give variable of data Nature of variables Group your problems in specialties like marketing, HR, finance and else Next courses of action 52

Next assigmnment

Give priority Explain relationship of variables Bring data means that you have to fill in one value for each variable And a possible solution

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Concepts and Definitions Information

This is knowledge about the decision, the effects of its alternatives, the probability of each alternative, and so forth. While substantial information is desirable, the statement that "the more information, the better" is not true.

Too much information can actually reduce the quality of a decision.

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Concepts and Definitions Alternatives.

These are the possibilities one has to choose from. Alternatives can be identified (that is, searched for and located) or even developed (created where they did not previously exist).

Merely searching for pre existing alternatives will result in less effective decision making .

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Concepts and Definitions Criteria.

These are the characteristics or requirements that each alternative must possess to a greater or lesser extent. Usually the alternatives are rated on how well they possess each criterion. For example, alternative Toyota ranks an 8 on the criterion of economy, while alternative Buick ranks a 6 on the same criterion 56

Concepts and Definitions Goals.

What is it you want to accomplish? Many decision makers collect a bunch of alternatives (say cars to buy or people to marry) and then ask, "Which should I choose?" without thinking first of what their goals are, what overall objective they want to achieve.
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Concepts and Definitions Goals

are my goals?" A component of goal identification

Next time you find yourself asking, "What should I do? What should I choose?" ask yourself first, "What

instance of decision analysis

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should be included in every

Concepts and Definitions Value

Value refers to how desirable a particular outcome is, the value of the alternative, whether in dollars, satisfaction, or other benefit
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Concepts and Definitions Preferences

These reflect the philosophy and moral hierarchy of the decision maker. We could say that they are the decision maker's "values, We would say that personal values dictate preferences
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Concepts and Definitions Preferences

Some people prefer excitement to calmness, certainty to risk, efficiency to Aesthetics, quality to quantity. When one person chooses to ride the wildest roller coaster in the park and another chooses a mild ride, Both may be making good decisions, if
based on their

individual preferences.

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Concepts and Definitions Decision Quality

This is a rating of whether a decision is good or bad. A good decision is a logical one based on the available information and reflecting the preferences of the decision maker .

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Concepts and Definitions Decision Quality

The quality of a decision is not related to its outcome: a good decision can have either a good or a bad outcome. A bad decision (one not based on adequate information or not reflecting the decision maker's preferences) can still have a good outcome.
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Concepts and Definitions Decision Quality

For example, if you do extensive analysis and carefully decide on a certain investment based on what you know about its risks and your preferences, Then your decision is a good one, even though you may lose money on the investment.
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Concepts and Definitions Decision Quality

Similarly, if you throw a dart at a listing of stocks and buy the one the dart hits, your decision is a bad one, even though the stock may go up in value
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Concepts and Definitions Decision Quality

Good decisions that result in bad outcomes should thus not be a cause for guilt or recrimination
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Concepts and Definitions Judging Decision Quality

In addition to concerns of logic, use of information and alternatives, three other considerations come into play:

A. The decision must meet the stated objectives most thoroughly and completely. How well does the
alternative chosen meet the goals identified?
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Concepts and Definitions Judging Decision Quality

B. The decision must meet the stated objectives most efficiently, with concern over cost, energy, side effects. Are there negative

consequences to the alternative that make that choice less desirable? We sometimes overlook this consideration in our search for thrills.
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Concepts and Definitions Judging Decision Quality

C. The decision must take into account valuable by products or indirect advantages. A new employee
candidate may also have extra abilities not directly related to the job but valuable to the company nonetheless. These should be taken into account.
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Concepts and Definitions Acceptance

Those who must implement the decision or who will be affected by it must accept it both intellectually and emotionally. Acceptance is a critical factor because it conflicts with the quality criteria. In such cases, the best thing to do may be to choose a lesser quality solution

that has greater acceptance

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Concepts and Definitions Acceptance

The need to feel useful and a contributor is one of the most basic of human needs. Thus, while the new solution may be less efficient in theoretical terms, it will be much more acceptable.

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Approaches to Decision Making

Two major approaches to decision making in an organization: The authoritarian method in which an executive figure makes a decision for the group and The group method in which the group decides what to do
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Approaches to Decision Making: Authoritarian

A manager makes decision based on the knowledge he can gather. He then must explain the decision to the group and gain their acceptance of it. Time breakdown for a typical operating decision is something like this:

Make decision, 5 min.; Explain decision, 30 min.; Gain acceptance, 30 min.

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Approaches to Decision Making: Group

The group shares ideas and analyses, and agrees upon a decision to implement. Studies show that the group often has values, feelings, and reactions quite

different from those the manager supposes they have.

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Approaches to Decision Making: Group

No one knows the group and its tastes and preferences as well as the group itself. And, interestingly, the time breakdown is something like this:

Group makes decision, 30 min.; Explain decision, 0 min.; gain acceptance, 0 min .
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Approaches to Decision Making: Group

From an efficiency standpoint, group decision making is better. people prefer to

implement the ideas they themselves think of.

Work harder and more energetically to implement their own idea than they would to implement an idea imposed on

them by others

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Decision Making Strategies Optimizing.

Strategy of choosing

the best possible solution to the problem, discovering as

A. Importance of the problem

many alternatives as possible and choosing the very best.

B. Time available for solving it C. Cost involved with alternative solutions D. Availability of resources, knowledge E. Personal psychology, values
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Decision Making Strategies Satisficing

the first satisfactory alternative is chosen rather than the

In this strategy,

best alternative The word satisficing was coined by combining satisfactory and sufficient. For many small decisions, such as where to park, what to drink, which pen to use, which tie to wear, and so on, the satisficing strategy is perfect.
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Decision Making Strategies Maximax.

"maximize the maximums.

This stands for

This strategy focuses on evaluating and then choosing the alternatives based on their maximum possible payoff.

This is sometimes described as the strategy of the optimist, because favorable outcomes and high potentials are the areas of concern.

It is a good strategy for use when is most acceptable,

risk taking

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Decision Making Strategies Maximin

This stands for "maximize

minimums.

the

Strategy, that of the pessimist, the worst possible outcome of each decision is considered and the

decision with the highest minimum is chosen.

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Decision Making Strategies Maximin

The Maximin orientation is good when the

consequences of a failed decision are particularly harmful or undesirable.

Maximin concentrates on the salvage value

of a decision, or of the guaranteed return of the decision.

"A bird in the hand is worth two in the bush.

It's the philosophy behind the saying,
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Decision Making Strategies

exploit the uncertainty many people feel when they are not
Quiz shows

quite sure whether to go with a maximax strategy or a maximin one: "Okay, Mrs. Freen, you can now choose to take what

you've already won and go home, or risk losing it all and find out what's
behind door number three."
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Decision Making Procedure

Identify the decision to be made together with the goals it should achieve Get the facts Develop alternatives Rate each alternative Rate the risk of each alternative Make the decision

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Decision Making Procedure

Identify the decision to be made

Determine the scope and limitations of the decision. Is the new job to be permanent or temporary or is that not yet known (thus requiring another decision later)? Is the new package for the product to be put into all markets or just into a test market? How might the scope of the decision be changed--that is, what are its possible parameters?

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Decision Making Procedure

Identify the decision to be made

When thinking about the decision, be sure to include a clarification of goals: We must decide whom to hire for our new secretary, one who will be able to create an

efficient and organized office.

Or, We must decide where to go on vacation,

where we can relax and get some rest from the fast pace of society.

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Decision Making Procedure Get the facts

Get as many facts as possible about a

decision within the limits of time imposed on you and your ability to process them,

Remember that virtually every decision must be made in partial ignorance. Lack of complete information must not be allowed to paralyze your decision.
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Decision Making Procedure Get the facts

A decision based on partial knowledge is usually better than not making the decision when a decision is really needed.
The proverb that "any

decision is better than no decision," while

perhaps extreme, shows the importance of choosing
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Decision Making Procedure Get the facts

As part of your collection of facts, list your feelings, hunches, and intuitive urges. Many decisions ultimately rely on or be influenced by intuition because of the remaining degree of uncertainty involved in the situation

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Decision Making Procedure Get the facts

As part of your collection of facts:

and who will have to implement your decision.

Consult those who will be affected by

Input from these people not only helps supply you with information and help in making the decision but it begins to

produce the acceptance

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Decision Making Procedure Develop alternatives

Make a

list of all the possible choices you

have, including the choice of

doing nothing.

Not choosing one of the candidates or one of the building sites is in itself a decision.

Often a non decision is harmful --not

choosing to turn either right or left is to choose to drive into the bridge.

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Decision Making Procedure Develop alternatives

is useful or at least better than the alternatives, so it should always be consciously included in the decision making process.
The decision to do nothing

Think about not just

that don't yet exist.

alternatives but creating alternatives

For example, if you want to choose which major to pursue in college, think not only of the available ones in the catalog, but of designing your own course of study.
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identifying available

Decision Making Procedure Rate each alternative

This is the evaluation of the value of each alternative.

negative of each alternative (cost, consequences,

Consider the

problems created, time needed, etc.) and

The positive of each (money saved, time saved, added creativity or happiness to company or employees, etc.).
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Decision Making Procedure Rate each alternative

The alternative that you might like best or that would in the best of all possible worlds be an obvious choice, It however, not be functional in the real world because of too much cost, time, or lack of acceptance by others

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Decision Making Procedure Rate each alternative

Don't forget to include indirect factors in the rating. If you are deciding between machines X, Y, and Z and you already have an employee who knows how to operate machine Z, that fact should be

considered.

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Decision Making Procedure Rate each alternative

If you are choosing an investigative team to send to Japan to look at plant sites and you have very qualified candidates A, B, and C, The fact that B is a very fast typist, a superior photographer or has some other side benefit in addition to being a qualified team member, should be considered. 95

Decision Making Procedure Rate each alternative

In fact, what you put on your hobbies and interests line on your resume is quite important when you apply for a job Employers are interested in getting people with a good collection of additional abilities
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Decision Making Procedure

Rate the risk of each alternative

In problem solving, you hunt around for a solution that best solves a particular problem, and by such a hunt you are pretty sure that the solution will work. In decision making, however, there is always some degree of uncertainty
in any choice.
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Decision Making Procedure

Rate the risk of each alternative

Will Bill really work out as the new supervisor? If we decide to expand into Canada, will our sales and profits

really increase?

If you decide to marry person X or buy car Y or go to school Z, will that be the

best or at least a successful choice?

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Decision Making Procedure

Rate the risk of each alternative

Risks can be rated as: Percentages, ratios, rankings, grades or in any other form that allows them to be compared.
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Decision Making Procedure Make the decision

If you are making an individual decision, apply your preferences (which may take into account the preferences of others). Choose the path to follow, whether it includes one of the alternatives, more than one of them (a multiple decision) or the decision to choose none. Don't forget to implement the decision and then evaluate the implementation, just as you would in a problem solving experience. 100

Decision Making Procedure Make the decision

One important item often overlooked in implementation: When explaining the decision to those involved in carrying it out or those who will be affected by it, don't just list the projected benefits. Frankly explain the risks and the drawbacks involved and tell why you believe the proposed benefits outweigh the negatives. 101

Decision Making Procedure Make the decision

Implementers are much more willing to support decisions when they: (1) Understand the risks and (2) Believe that they are being treated with honesty and like adults.

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Decision Making Procedure Make the decision

Remember also that very few decisions are irrevocable. Don't cancel a decision prematurely because many new plans require time to work--it may take years for your new branch office in Paris to get profitable

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Decision Making Procedure Make the decision

Don't hesitate to change directions if a particular decision clearly is not working out or is being somehow harmful. You can always make another decision to do something else.

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