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Decision Making
- 2. INTRODUCTION
ïŹ The
word decision has been derived from the
Latin word "decidere" which means "cutting
off".
ïŹ Thus, decision involves cutting off of
alternatives between those that are desirable
and those that are not desirable.
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2
- 3. DEFINITION
ïŹ In
the words of Ray A Killian, "A decision in
its simplest form is a selection of
alternatives".
ïŹ Dr. T. G Glover defines decision "as a choice
of calculated alternatives based on
judgement".
ïŹ "Decision-making is the selection based on
some criteria from two or more possible
alternatives".
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3
- 4. Managerial Decision Making
ïŹ Decision
ïŹ It
â
â
â
making is not easy
must be done amid
ever-changing factors
unclear information
conflicting points of view
Managerâs Challenge: Tupperware
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4
- 5. Managerial
Decision Making
ïŹ Decision
Characteristics
ïŹ Decision-making
Models
ïŹ Steps
Executives Take Making Important
Decisions
ïŹ Participative
Decision Making
ïŹ Techniques
for Improving Decision Making in
Todayâs Organizations
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5
- 6. Decisions and Decision Making
ïŹ Decision = choice made from available
alternatives
ïŹ Decision
Making = process of identifying
problems and opportunities and resolving
them
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6
- 7. Categories of Decisions
ïŹ Programmed
Decisions
Situations occurred often enough to enable
decision rules to be developed and applied in
the future
â Made in response to recurring organizational
problems
ïŹ Nonprogrammed Decisions â in response to
unique, poorly defined and largely unstructured,
and have important consequences to the
organization
â
Ethical Dilemma: The No-Show Consultant
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7
- 8. Decisions and Decision Making
ïŹ Many
decisions that managers deal with
every day involve at least some degree of
uncertainty and require nonprogrammed
decision making
ï§
ï§
ï§
ï§
May be difficult to make
Made amid changing factors
Information may be unclear
May have to deal with conflicting points of view
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8
- 9. Certainty, Risk, Uncertainty, Ambiguity
â
Certainty
â
â
Risk
â
â
â
â
decision has clear-cut goals
good information is available
future outcomes associated with each alternative are subject to
chance
Uncertainty
â
â
â
â
all the information the decision maker needs is fully available
managers know which goals they wish to achieve
information about alternatives and future events is incomplete
managers may have to come up with creative approaches to
alternatives
Ambiguity
â
â
â
â
by far the most difficult decision situation
goals to be achieved or the problem to be solved is unclear
alternatives are difficult to define
information about outcomes is unavailable
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9
- 10. Conditions that Affect the Possibility
of Decision Failure
Organizational
Problem
Low
Possibility of Failure
Certainty
Risk
Uncertainty
Programmed
Decisions
Ambiguity
Nonprogrammed
Decisions
Problem
Solution
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10
High
- 11. Selecting a Decision Making Model
ïŹ Depends
on the managerâs personal
preference
ïŹ Whether the decision is programmed or
non-programmed
ïŹ Extent to which the decision is
characterized by risk, uncertainty, or
ambiguity
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11
- 12. Three Decision-Making Models
ï Classical Model
ï Administrative Model
ï Political Model
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12
- 13. Copyright © 2005 by South-Western, a division of Thomson Learning. All rights reserved.
13
- 14. Classical Model
Logical decision in the organizationâs best economic interests
Assumptions
ï§
ï§
ï§
ï§
Decision maker operates to accomplish goals that
are known and agreed upon
Decision maker strives for condition of certainty â
gathers complete information
Criteria for evaluating alternatives are known
Decision maker is rational and uses logic
Normative = describes how a manager should and
provides guidelines for reaching an ideal decision
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14
- 15. Administrative
Model
Herbert A. Simon
How nonprogrammed decisions are made--uncertainty/ambiguity
ïŒ
Two concepts are instrumental in shaping
the administrative model
â
Bounded rationality: people have limits or
boundaries on how rational they can be
â
Satisficing: means that decision makers choose
the first solution alternative that satisfies minimal
decision criteria
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15
- 16. Administrative Model
How nonprogrammed decisions are made--uncertainty/ambiguity
â
Managers actually make decisions in difficult situations
characterized by non-programmed decisions, uncertainty,
and ambiguity
â
â
Decision goals often are vague, conflicting and lack consensus
among managers;
Rational procedures are not always used
Managersâ searches for alternatives are limited
Managers settle for a satisficing rather than a maximizing solution
intuition, looks to past experience
â
Descriptive = how managers actually make decisions--not how
â
â
â
they should
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16
- 17. Political Model
Closely resembles the real environment
â
Closely resembles the real environment in which
most managers and decision makers operate
â
Useful in making non-programmed decisions
â
Decisions are complex
â
Disagreement and conflict over problems and
solutions are normal
â
Coalition = informal alliance among
manages who support a specific goal
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17
- 18. Characteristics of Classical, Political,
and Administrative Decision Making
Models
Classical Model
Administrative Model
Clear-cut problem and goals
Vague problem and goals
Pluralistic; conflicting goals
Condition of certainty
Condition of uncertainty
Condition of uncertainty/ambiguity
Full information about
Limited information about
Inconsistent viewpoints; ambiguous
alternatives and their outcomes
Alternatives and their outcomes
information
Rational choice by individual
Satisficing choice for resolving
Bargaining and discussion among
for maximizing outcomes
problem using intuition
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18
Political Model
coalition members
- 19. Six Steps in the Managerial
Decision-Making Process
ï
Evaluation
and
Feedback
Implementation
of Chosen
Alternative
ï
ï
ï
ï
Recognition of
Decision
Requirement
DecisionMaking
Process
Selection of
Desired
Alternative
ï
ï
Diagnosis
and Analysis
of Causes
Development of
Alternatives
ï
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19
- 20. Steps in Decision Making
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20
- 21. Six C's of Decision Making
ï 1. Construct.
ï 2. Compile.
ï 3. Collect.
ï 4. Compare.
ï 5. Consider.
ï 6. Commit.
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21
- 22. Six C's of Decision Making
ï
Construct a clear picture of
precisely what must be decided.
ï
Compile a list of requirements that must
be met.
ï
Collect information on alternatives that
meet the requirements.
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22
- 23. ï
Compare alternatives that meet
requirements.
ï
the
Consider the "what might go wrong"
factor with each alternative.
ï
Commit to a decision and follow through
with it.
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23
- 24. Diagnosis and Analysis of Causes
ïŹ Diagnosis = analyze underlying causal
factors associated with the decision situation
ïŹ Managers
make a mistake if they jump into
generating alternatives without first exploring
the cause of the problem more deeply
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24
- 25. Underlying Causes - Kepner /Tregoe
ïŹ
What is the state of disequilibrium affecting us?
ïŹ
When did it occur?
ïŹ
Where did it occur?
ïŹ
How did it occur?
ïŹ
To whom did it occur?
ïŹ
What is the urgency of the problem?
ïŹ
What is the interconnectedness of events?
ïŹ
What result came from which activity?
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25
- 26. Selection of Desired Alternatives
ïŹ Risk
Propensity = willingness to undertake
risk with the opportunity of gaining an
increased payoff
ïŹ Implementation
= using managerial,
administrative, and persuasive abilities to
translate the chosen alternative into action
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26
- 27. Decision Styles
ïŹ Differences
among people with respect to how
they perceive problems and make decisions
ïŹ Not
â
â
â
â
all managers make decisions the same
Directive style
Analytical style
Conceptual style
Behavioral style
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27
- 28. Personal Decision Framework
Situation:
· Programmed/nonprogrammed
· Classical, administrative,
political
· Decision steps
Personal Decision
Style:
·Directive
·Analytical
·Conceptual
·Behavioral
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28
Decision Choice:
·Best Solution to
Problem
- 29. Directive Style
ïŹ People
who prefer simple, clear-cut solutions
to problems
ïŹ Make decisions quickly
ïŹ May consider only one or two alternatives
ïŹ Efficient and rational
ïŹ Prefer rules or procedures
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29
- 30. Analytical Style
ïŹ Complex
solutions based on as much data
as they can gather
ïŹ Carefully consider alternatives
ïŹ Base decision on objective, rational data
from management control systems and other
sources
ïŹ Search for best possible decision based on
information available
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30
- 31. Conceptual Style
ïŹ
Consider a broad amount of information
ïŹ
More socially oriented than analytical style
ïŹ
Like to talk to others about the problem and possible
solutions
ïŹ
Consider many broad alternatives
ïŹ
Relay on information from people and systems
ïŹ
Solve problems creatively
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31
- 32. Behavioral Style
ïŹ
Have a deep concern for others as individuals
ïŹ
Like to talk to people one-on-one
ïŹ
Understand their feelings about the problem and the
effect of a given decision upon them
ïŹ
Concerned with the personal development of others
ïŹ
May make decisions to help others achieve their
goals
Experiential Exercise: Whatâs Your Personal Decision Style?
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32
- 33. Participation in
Decision Making
Vroom-Jago
Model
ïŹ Helps
gauge the appropriate amount of
participation for subordinates in process
â
Leader Participation Styles
ïŒ
Five levels of subordinate participation in decision
making ranging from highly autocratic to highly
democratic
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33
- 34. Participation in
Decision Making
Vroom-Jago
Model
ï Diagnostic
ïŒ
Questions
Decision participation depends on the
responses to seven diagnostic questions
about
â
â
â
the problem
the required level of decision quality
the importance of having subordinates commit to
the decision
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34
- 35. Seven Leader Diagnostic Questions
ï
ï
ï
ï
ï
ï
ï
How significant is the decision?
How important is subordinate commitment?
What is the level of the leaderâs expertise?
If the leader were to make the decision alone at what level
would subordinates be committed to the decision?
What level is the subordinateâs support for the team or
organizationâs objectives?
What is the memberâs level of knowledge or expertise
relative to the problem?
How skilled or committed are group members to working
together?
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35
- 36. New Decision Approaches
for Turbulent Times
New
Decision
Approaches
for Turbulent
Times
Brainsto
rming
on
D
i
Kno
w
ate
n,
ar
Le
ât
g
En
e
ag
i go
nR
r ou
b
De
s
th
ctice
Pra
Pu
ni
sh
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36
h
ive W
eF
W he
n to
Bail
ys
- 37. CHARACTERISTICS OF
EFFECTIVE DECISIONS
ïŹ
ïŹ
ïŹ
1. Action Orientation: Decisions are action-oriented and
are directed towards relevant and controllable aspects of the
environment. Decisions should ultimately find their utility in
implementation.
2. Goal Direction: Decision making should be goal-directed
to enable the organization to meet its objectives.
3 Effective in Implementation: Decision making should take
into account all the possible factors not only in terms of
external context but also in internal context so that a decision
can be implemented properly.
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37
- 38. BARRIERS IN MAKING DECISIONS
ïŹ Hasty-
Making quick decisions without having
much thought.
ïŹ Narrow - Decision making is based on very
limited information.
ïŹ Scattered - Our thoughts in making decisions
are disconnected or disorganized.
ïŹ Fuzzy - Sometimes, the lack of clarity on
important aspects of a decision causes us to
overlook certain important considerations.
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38