Transcript Decision Making

Decision Making
Upul Abeyrathne,
Dept. of Economics,
University of Ruhuna,
Matara
Nature of Decision Making in
Organization
• At anytime organizations identify problems
• The managers implement alternatives for hundreds of
decisions.
• However, managers muddle through these processes.
• Decision making is regarded as brain-nervous system of
organizational setting.
• Decision making is the end use of information and
control systems
• Decisions are made about organization strategy,
structure, innovation and acquisition.
Defining Decision making
• Organizational decision making is the process
of identifying and solving problems
Stages of the Decision making Process.
1. Problem identification: Information about
environment and organizational conditions is
monitored to determine if performance is
satisfactory and to diagnose the cause of
shortcomings.
2. Problem solution: Alternative courses of
action are considered and one alternative is
selected and implemented.
Programmed and Nonprogrammed
Decisions
• Organizational decisions vary in complexity.
• Programmed Decisions: Repetitive, well defined
and procedure for resolving the problem.
• They are well structured because criteria of
performance are normally clear, good
information is available about current
performance, alternatives are easily specified and
there is relative certainty that the chosen
alternative will be successful.
Nonprogrammed Decisions
• They are novel and poorly defined and no
procedure exists for solving the problem.
• They are used when an organization has not
seen a problem before and may not know how
to respond.
• Clear cut decision criteria are not available.
Alternative are fuzzy.
• There is uncertainty where proposed solution
solve the problem
Nonprogrammed Decisions
• Many of nonprogammed decisions involves
strategic planning due to the fact uncertainty is
great and decisions are complex.
• Complex nonprogrammed decisions are regarded
as “wicked” Simply defining the problem can turn
into a major task.
• Wicked decisions are associated with managers
conflict over objectives and alternatives, rapidly
changing circumstnances and unclear linkages
among decision elements
Nonprogrammed Decisions
• Present day managers and organizations are
dealing with a higher percentage of
nonprogrammed decisions because of the
rapidly changing environment.
Individual Decision Making
• Managers decision making process can be
viewed from two perspectives
1. Rational Approach
2. Bounded Rationality Approach/perspective
The first suggest how managers should try to
make decisions
Second describe how decisions are made
actually under severe time and resource
constrains.
Rational Approach
• This approach stresses the need for systematic
analysis of a problem followed by choice and
implementation in a logical step by step
sequence.
• It is an ideal and not fully achievable in real
world.
• However, it helps managers to think about
decisions more clearly and rationally.
• Managers should try to use systematic decision
making whenever possible.
Eight Steps
• 1. Monitor the Decision Environment. – Monitor
internal and external information that will indicate
deviations from planned or acceptable behaviour.
• 2. Define the decision problem: The manager responds
to deviation , by identifying essential details of the
problem where, when who involved, who was affected
and how current activities are influenced
• 3. Specifying decision objectives: The manger
determines what performance outcomes should be
achieved by a decision
Eight Steps
• 4. Diagnose the problem: In this step, the
manager digs below the surface to analyze the
cause of the problem.
• 5. Develop alternative solutions
• 6. Evaluate alternative solutions
• 7. Chose the best alternative
• 8. Implement chosen alternative
Eight Steps
• The first four steps relate to problem
identification state.
• The remaining four relate to problem solution
decision making state.
Bounded Rationality
• When organizations are facing little competition and
are dealing with well understood issues, managers
generally use rational procedures to make decisions.
• However, managers cannot have ideal situation arrive
at decisions
• Many decisions are to be taken quickly.
• There are wide factors affecting a decision.
• Ill Defined nature of problems make systematic
decisions impossible.
• Attempt at rational is bounded by enormous
complexity of many problems and time.
Constrains and Tradeoffs
• Not only complexity of problems but also
many others make it difficult to engage in
rational decisions
• Limited Time, information and resources with
complex multi-dimensional issues
• Organizational Constrains: Level of agreement,
shared perspectives, cooperation or support,
corporate culture and structures and ethical
values
Constrains and Tradeoffs
• Personal Constrains: Personal desire for
prestige, success, personal decision style, and
desire to satisfy emotional needs, cope with
pressure, maintain self concept.
Role of Intuition
• Decisions are affected by intuition
• In intuition decision making process is
experience, and judgment rather than
sequential logic or explicit reasoning are used.
• It is not arbitrary or irrantional because it is
based on experience. It is stored in sub
consciousness.
Role of Intuition
• Situation of complexity and ambiguity,
previous experience and judgment are needed
to incorporate intangible elements at both
problem level and problem solution level.
• Too simplification of problems tends to be
failed.
• A manager needs to walk a fine line between
two extremes.
Organizational Decision Making
• Organizational level decisions are not made by
a single managers
• Organizational Decisions are dependent on
internal structures as well as on the degree of
stability or instability of the external
environment.
• The literature helps to identify four types of
organizational decision making.
Management Science Approach
• It is the analogy to the rational decision making.
• It came to being in the context of 2nd World War.
• Mathematical Statistical techniques were used to
analyze urgent, large scale military problems.
• To analyses many problems
• Operation Research Department use
mathematical models to quantify relevant
Variables and develop quantitative
representations of alternative solutions and the
probability of solving problems
Four Type of Model
•
•
•
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Management Science
Carnegie Model
Incremental Model
Garbage
Management Science
• It is excellent when problems are analyzable
and when the variables can be identified and
measured.
Carnegie Model
• Richard Cyert, James March, Herbert Simon.
• The name came After Carnegie Mellon
University.
• The insight provided is that decision making in
organization involve a coalition of managers.
• Management Coalition are need for two
reasons.
Two Reasons
• Organizational Goals are ambiguous and
operative goals of department are often
inconsistent.
• Managers tend to be rational but operate with
human cognitive limitations.