Decision Making

CHAPTER - 3

Decision

making

 Decision making is the most difficult part of

management process.  It is considered as a problem solving activity which ceases when a satisfactory solution is found.  Acc. To James Reason (1990) Decision making can be regarded as the mental processes resulting in the selection of a course of action among several alternative. Every decision making process produce a final choice.

Contd
 Decision making is not a separate function of management but collaborated with other function such as planning , coordinating & controlling. While conducting all the function decision have to be made at every step.

Characteristic Decision
1. Goal oriented 2. Alternative 3. Analytical intellectual 4. Dynamic process 5. Pervasive function 6. Continuous activity 7. Commitment of time ,effort & money 8. Human & social process 9. Integral part of planning

Theories of Decision Making

 Probability Theory  A probability is a number between 0 & 1

expressing the like hood that an event will occur. (1) 0 represent certainty that it will not occur. (2) 1 represent certainty that it will occur.  Probability theory is the language of uncertainty. It allow to reduce uncertainty about how uncertain one is about the course of event.

Game Theory
 Game theory is the key element in most decision

making process involving two or more people or organization.  This theory is quite helpful in making decision s under competitive situations.  The game theory was basically developed for use in wars so that action of army can be decided in the light of action s taken by opposite army.  It can predict the outcome of complex decision making process which can facilitate improvement of negotiation & decision making skill.

Contd
 Based on these theories ,there are several tools

such as zero sum games, mixed motive games and multi- person games, coalition and power .  The field of game theory came into being with 1944book Theories of game & economic behavior by John Von Newman & Oskar Morgenstern. (Common example ,Prisoner Dilemma).  Thus game theory can be used in competitive situation like election, advertising & marketing strategies , military battle.

Paradox of Choice
 It is observed in many cases that more choices may lead to a poorer decision or failure to make a decision at all.  It is sometime theorized to be caused by analysis paralysis, real or perceived, or perhaps from rational ignorance.  This analysis was popularized by Barry Schwartz in his 2004 book, The paradox of choice .

Queuing Theory or Waiting Line Theory

 It involve the mathematical study of queues or

waiting lines.  One would like to obtain balance between the cost associated with waiting time & idle time. This theory help in achieving this balance.  Well this theory does not directly solve the problem of minimizing the total waiting & service cost but it provide the management with necessary information to take relevant decision for this purpose.

Type of Decision
 Decision making is termed as problem solving approach being a process of recognizing a problem or opportunity and finding a solution to it.  Decision may be of various types based on their levels, period for which they have impact and various approaches towards problem solving.

Types of decision
Based on levels Strategic decision Tactical decision Operational decision Group decision

others irreversible reversible

Based on problem solving approach

programmed

Non programmed

experiment Made in stage

Trail & error

conditional delayed

continuous

Impediment in sound decision making

 Managers are required to make problem solving decision under three different condition i.e certainty , risk & uncertainty.  All managers make decision under each condition ,but risk and uncertainty are common to the more complicated & unstructured problem faced by top managers.

Contd .
 Some barriers to sound decision making process

-: A. The routine decision problem when problem

tend to arise on regular basis, a manager may address them through standard or prepared responses called programmed decision. B. The problem of innovation it is a call for change which implies criticism of existing performance, policies & personnel in the unit involved. C. Unstructured problem involve ambiguities -: it required novel solution. Unstructured & information deficiencies often occur as new or unexpected situation.

Step in decision making process

 Making a good decision is not an easy task.

Decision making follows 6 step - : 1. Recognize the problem or opportunity 2. Gather relevant information 3. State the cause of problem 4. Develop as many alternative as possible 5. Evaluate alternative to decide which is best. 6. Decide on and implement the best alternative 7. Follow up on the decision

Identify the problem 1.scanning 2. categorization 3.Diagnosis

Select an alternative( by experience, experimentation& research & analysis)

Identify resources & constraint

Implement the decision

Generate alternative solution (brainstorm)

Monitor the decision

Evaluate alternative (on the basis of feasibility, quality, acceptability , cost & ethics)