Decision making basic concepts

DECISION
MAKING
BASIC CONCEPTS
Dr. Ahmed-Refat AG Refat
SBCM-EPI 2015

Contents
–Definition - Levels
–Models - Styles
–Problems types
–Intuitive - Rationale
–Uncertainty ,Risk, and Probability
–Eight Steps Process
– DM Environment
–DM Factors
Dr.Ahmed-Refat 20152

Decision-Making
Identifying and choosing
alternatives based on
the values and preferences
of the decision maker.
3 Dr.Ahmed-Refat 2015

Decision-Making
•A cognitive process
resulting in the selection
of a course of action
among several
alternative possibilities.

The objective of the
decision-maker is
to choose the best
alternative.
Making Justifiable,
Defensible Decisions

Decision Levels
1. Strategic
2. Tactical
3. Operational

Decision Levels
1. Strategic decisions (the highest level)
• Concerns general direction, long term
goals, philosophies and values.
• Least structured and most imaginative;
• Most risky and of the most uncertain
outcome, partly because they reach so far
into the future and partly because they are
of such importance.

Decision Levels
• 2. Tactical D.
• Tactical decisions support
strategic decisions.
• They tend to be medium range,
medium significance,
• with moderate consequences.

Decision Levels
• 3. Operational.
• Every day decisions,
• used to support tactical decisions.
• Structured.
• Their impact is immediate, short term, and
usually low cost.
• The consequences of a bad operational
decision will be minimal, although a series of bad or sloppy
operational decisions can cause harm..

All organizations are in a
need for more effective
decision making
at all levels

Policy & Decision Making
• Logically, policies shape the subsequent plans,
programs and projects that put those policies into
practice.
Policies are at the top of
the decision-making
hierarchy.
• Decision to formulate a policy
• Decision to formulate rules
• Decision to put a specific plan and procedures

Policy & Decision Making
Dr.Ahmed-Refat 2015

•Procedure
•Rule
•Policy

Procedures
• A procedure is a series of interrelated
sequential steps that a manager can use for
responding to a structured problem.
• The only real difficulty is in identifying the
problem. Once the problem is clear, so is the
procedure.
• The decision-making process in this case is
merely executing a simple series of sequential
steps.
Dr.Ahmed-Refat 2015

Rule
• A rule is an explicit statement that tells
a manager what he/she can or cannot do.
• Managers frequently use rules when they
confront a structured problem because
they are simple to follow and ensure
consistency.
• For example, rules permit supervisors to
make disciplinary decisions rapidly and
with a relatively high degree of fairness
Dr.Ahmed-Refat 2015

Policy
• A policy provides guidelines to channel
a manager’s thinking in a specific
direction.
• In contrast to a rule, a policy establishes
parameters for the decision maker rather than
specifically stating what should or should not
be done.
• Policies typically contain an ambiguous term
that leaves interpretation up to the decision
maker
Dr.Ahmed-Refat 2015

Decision-Making
Models
Dr.Ahmed-Refat 2015

Decision-Making Models
• Intuitive decision model
• Predisposed decision model
• The ‘garbage-can’ decision model
• Rational Decision Model
Dr.Ahmed-Refat 2015

1.Intuitive decision making
Subconscious process of making
decisions on the basis of
experience and accumulated
judgment
•does not rely on a systematic or thorough
analysis of the problem
•generally complements a rational analysis
© Prentice Hall, 2002
Dr.Ahmed-Refat 2015

1.Intuitive Decision Model
• The managers who use this approach
avoid statistical analysis and logical
processes.
• These managers rely on their feelings
about a situation.
Dr.Ahmed-Refat 2015

What Is Intuition?
Decisions based
on experience
Decisions based
on feelings and
emotions
Decisions based
on ethical values
or culture
Decisions based
on
subconscious
data
Decisions based
on skills,
knowledge,
or training
Intuition
Affect-
initiated
decisions
Experienced-
based decisions
Values or
ethics-based
decisions
Subconscious
mental
processing
Cognitive-
based
decisions
Dr.Ahmed-Refat 2015

2. Predisposed decision model
• A manager who decides on a solution and then
gathers material to support the decision.
• Decision makers using this approach do not
search out all possible alternatives.
• Rather, they identify and evaluate alternatives
only until an acceptable decision is found.
Having found a satisfactory alternative, the
decision maker stops searching for additional
solution
• ‘Rational up-to-a-point’ decision making
•
Dr.Ahmed-Refat 2015

3.The garbage-can symbol
describes the confused, complex and
disordered way in which, at a particular
moment in time, all decision makers are
simultaneously involved in a range of activities
and not just in a single decision-making
process.
• These concurrent activities are all thrown
together in the minds of decision makers, like
in the jumble of a garbage can.
Dr.Ahmed-Refat 2015

3.The garbage-can symbol
In such disordered situations particular
‘problems’ and ‘solutions’ often
become attached to each other
because of their spatial and/or
temporal proximity to each other,
not because of rational choice.
Dr.Ahmed-Refat 2015

Rational Decision Making Model
4.Rational decision…later..
making processes consist of
a sequence of steps
designed to rationally develop
a desired solution
from Identification to ImplementationDr.Ahmed-Refat 2015

Decision-Making
Study of identifying and
choosing alternatives
based on the values and
preferences of the decision
maker.
Dr.Ahmed-Refat 2015

INFORMATION
CRITERIA
ALTERNATIVES
PREFERENCES
KEY CONCEPTS
Dr.Ahmed-Refat 2015

1. Information
•Decision-making requires
the availability of better
information and
knowledge on the problem
Dr.Ahmed-Refat 2015

1.Information
•Data
•Information
•Knowledge
Dr.Ahmed-Refat 2015

1.Information
• Data is …..crude information
• Data becomes information, when
it becomes relevant to your
decision problem.
• Knowledge is what we know well.
Dr.Ahmed-Refat 2015

1.Information
The significant instrumental
knowledge is expressed
together with some
statistical degree of
confidence.
Dr.Ahmed-Refat 2015

Four states of information possession
Not HavingHaving +
Information you
know you don't
have
Information you
know you have
K+
Information you
don't know you
don't have
Information you
don't know you
have
K-

Processing the Knowledge
The collected information is
evaluated and integrated for
its relevance, validity and
interconnectedness.

•1- Information
• 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
Dr.Ahmed-Refat 2015

Processing the Knowledge

• Many situations require decisions to be
made with incomplete and/or insufficient
information.
• Often management requires quick decision
making, or judgments made under
pressure.
• It is in this context that a more intuitive
approach often develops
Information needed for Decision

2. Alternatives.
• Potential solution, option or
choice.
• decision analysis provides insight
into how the defined alternatives
differ from one another and then
generates suggestions for new and
improved alternatives
Dr.Ahmed-Refat 2015

• 2. Alternatives.
• A… are the possibilities one has to
choose from. A….can be identified
(that is, searched for and located)
or even developed (created where
they did not previously exist).
Merely searching for preexisting
alternatives will result in less effective
decision making.
Dr.Ahmed-Refat 2015

3. Criteria.
These are the characteristics or
requirements that each
alternative must possess to a
greater or lesser extent.
Dr.Ahmed-Refat 2015

4- Preferences.
These reflect the philosophy
and moral hierarchy of the
decision maker
Dr.Ahmed-Refat 2015

4. Rational
Decision Making
Model
Dr.Ahmed-Refat 2015

Assumptions of Rationality –
–decision maker would:
–be objective and logical
–carefully define a problem
–have a clear and specific goal
–select the alternative that maximizes
the likelihood of achieving the goal
managerial decision making seldom meets all
these assumptions
© Prentice Hall, 2002 6-43
Dr.Ahmed-Refat 2015

Rational Decision Making
–Decisions are consistent, value-
maximizing choices within
specified constraints
–Managers assumed to make
rational decisions
Dr.Ahmed-Refat 2015

A comprehensive, 8-step process
–Step 1 - Identifying a Problem
–Step 2 - Identifying Decision Criteria
–Step 3 - Allocating Weights to the Criteria
–Step 4 - Developing Alternatives
–Step 5 - Analyzing Alternatives
–Step 6 - Selecting an Alternative
–Step 7 - Implementing the Alternative
–Step 8 - Evaluating Decision Effectiveness
Decision Making Process
Dr.Ahmed-Refat 2015

–Step 1 - Identifying a Problem
• problem - discrepancy between an existing
and a desired state of affairs
–must be such that it exerts pressure to act
–manager is unlikely to characterize a situation
as a problem unless s/he has resources
necessary to act
Dr.Ahmed-Refat 2015

• Step 2: Identify decision criteria—
once the manager has identified a problem that
needs attention, the decision criteria important
to resolving the problem must be identified.
That is, managers must determine what’s
relevant in making a decision.
Dr.Ahmed-Refat 2015

• Step 3: Allocating weights to the criteria—
at this step, the decision maker must weigh the
items in order to give them the correct priority
in the decision. A simple approach is to give the
most important criterion a weight of 10 and
then assign weights to the rest against that
standard.
Dr.Ahmed-Refat 2015

• Step 4: Developing alternatives—
the fourth step requires the decision maker to
list the viable alternatives that could resolve the
problem. No attempt is made in this step to
evaluate the alternative, only to list them.
Dr.Ahmed-Refat 2015

• Step 5: Analyzing alternatives—
once the alternatives have been identified, the
decision maker must critically analyze each one.
From this comparison, the strengths and
weaknesses of each alternative become evident.
Dr.Ahmed-Refat 2015

• Step 6: Selecting an alternative—
the sixth step is the important act of choosing
the best alternative from among those
considered. All the pertinent criteria in the
decision have now been determined and
weighted, and the alternatives have been
identified and analyzed.
Dr.Ahmed-Refat 2015

• Step 7: Implementing the alternative—
implementation involves conveying the decision
to those affected by it and getting their
commitment to it. If the people who must carry
out a decision participate in the process, they’re
more likely to enthusiastically support the
outcome than if they are just told what to do.
Dr.Ahmed-Refat 2015

• Step 8: Evaluating decision effectiveness—
the last step in the decision-making process
involves appraising the outcome of the decision
to see if the problem has been resolved. Did the
alternative chosen and implemented accomplish
the desired result? If not, the manager may
consider returning to a previous step or may
even consider starting the whole decision
process over.
Dr.Ahmed-Refat 2015

Dr.Ahmed-Refat 2015
Rational
Decision
Making

Assumptions of Rationality –
–decision maker would:
–be objective and logical
–carefully define a problem
–have a clear and specific goal
–select the alternative that maximizes
the likelihood of achieving the goal
•managerial decision making
seldom meets all these
assumptionsDr.Ahmed-Refat 2015

Assumptions Of Rationality
Rational
Decision
Making
Problem is
clear and
unambiguous
Single, well-
defined goal
is to be achieved
All alternatives
and
consequences
are known
Preferences
are clear
Preferences
are constant
and stable
No time or cost
constraints exist
Final choice
will maximize
payoff
Dr.Ahmed-Refat 2015

Bounded Rationality and Satisficing
• Certain aspects of the decision-making
process are not realistic as managers
make decisions.
• Instead, managers tend to operate under
assumptions of bounded rationality; that
is, they behave rationally within the
parameters of a simplified decision-
making process that is limited by an
individual’s ability to process
information.

Bounded rationality and satisficing
• Managers satisfice, rather than
maximize, because they can’t possibly
analyze all the information on all of
the alternatives.
• That is, they accept solutions that are
“good enough.”
• They are being rational within the
limits of their information-processing
ability.© Prentice Hall, 2002

Bounded rationality and satisficing
• Bounded Rationality
– behave rationally within the parameters of a
simplified decision-making process that is limited by
an individual’s ability to process information
– Satisfice - accept solutions that are “good enough”
– The term satisfice describes a course of action that satisfies
the minimum requirements to meet a goal rather than
trying to achieve the maximum (biggest) or optimal (best)
outcome
– Escalation of commitment - increased
commitment to a previous decision despite evidence
that it may have been wrong
• refusal to admit that the initial decision may have
been flawed

Types of Problems and Decisions
–Well-Structured Problems -
straightforward, familiar, and easily
defined
–Programmed Decisions - used to
address structured problems
–minimize the need for managers to use
discretion
–facilitate organizational efficiency

–Poorly-Structured Problems - new, unusual
problems for which information is ambiguous or
incomplete
–Nonprogrammed Decisions - used to address
poorly- structured problems
• produce a custom-made response
• more frequent among higher-level managers
– few decisions in the real world are either fully
programmed or nonprogrammed

Types Of Problems, Types Of Decisions,
And Level In The Organization
Programmed
Decisions
Nonprogrammed
Decisions
Level in
Organization
Top
LowerWell-structured
Ill-structured
Type of
Problem

Uncertainty ,
Probability
& Risk
Dr.Ahmed-Refat 2015
63
UNCERTAINTY , PROBABILITY & RISK

• Decision-Making Conditions
–Certainty - outcome of every alternative is
known
• idealistic rather than realistic
–Risk - able to estimate the probability of
outcomes stemming from each alternative
Uncertainty , Probability & risk

UNCERTAINTY VS VARIABILITY
Uncertainty: A lack of knowledge
about certain factors which can
reduce the confidence in conclusions
drawn from data;
it is opposed to variability which is a
result of true variation in
characteristics of the environment.
Dr.Ahmed-Refat 2015
65

ONE PROBLEM WITH DIFFERENT SOLUTIONS
For any given problem, the degree
of certainty varies among managers
depending upon how much
knowledge each one has about the
same problem.
This reflects the recommendation
of a different solution by each
person.
Dr.Ahmed-Refat 2015
66

 In very few decision making situations is
perfect information - all the needed facts -
available.
 Most decisions are made in the face of
uncertainty.
 Probability enters into the process by
playing the role of a substitute for
certainty - a substitute for complete
knowledge.
Dr.Ahmed-Refat 2015
67

Probability levels vs Uncertainty state
• Humans can understand, compare, and
manipulate numbers. Therefore, in order to
create a decision analysis model, it is
necessary to create the model structure and
assign probabilities and values to fill the
model for computation. This includes the
values for probabilities, the value functions
for evaluating alternatives, and the risk
preference.

The Dynamics of a System:
 A system that does not change is a static (i.e.,
deterministic)
 However, in probabilistic models, the decision-
maker is concerned not only with the outcome
value but also with the amount of risk each
decision carries
Dr.Ahmed-Refat 2015
69

UNCERTAINTY
 Risk.. outcomes for a given event which can be
assigned probabilities..……some historical data .
UNCERTAINTY : the outcomes of given
event which are too unsure to be
assigned probabilities
 Uncertainty exists when the decision maker has
no historical data from which to develop a
probability distribution and must make intelligent
guesses in order to develop a subjective
probability distribution
Dr.Ahmed-Refat 2015
70

CONTINUUM OF PURE UNCERTAINTY AND
CERTAINTY
 This depends upon the degree of knowledge
we have about the outcome of our actions
Dr.Ahmed-Refat 2015
71

UNCERTAINTY & PROBABILITY
Probability is an instrument used to
measure the likelihood of occurrence
for an event.
By using probability to express
uncertainty, the deterministic side
has a probability of 1 (or zero), while
the other end has a flat (all equally
probable) probability.
Dr.Ahmed-Refat 2015
72

. USEFUL INFORMATION MOVES THE
LOCATION OF A PROBLEM FROM THE
PURE UNCERTAIN "POLE" TOWARDS THE
DETERMINISTIC "POLE
Dr.Ahmed-Refat 2015
74

DM UNDER UNCERTAINTY
 Depending on the amount of knowledge we have,
the three most widely used types of DM are:
1. Decision-making under pure uncertainty
2. Decision-making under risk
3. Decision-making by buying information
(pushing the problem towards the
deterministic "pole")
Dr.Ahmed-Refat 2015
75

Decision-Making Styles
Decision
Making
Styles

1. Directive - fast, efficient, and logical
2. Analytic - careful and able to adapt or
cope with new situations
3. Conceptual - able to find creative
solutions
4. Behavioral - seek acceptance of
decisions

• Directive style
• Low tolerance for ambiguity
• Rational in their way of thinking.
• Efficient and logical.
• Make fast decisions and focus on the short
run.
• Making decisions with minimal information
and assessing few alternatives.

• Analytic style
• have much greater tolerance for ambiguity
than do directive types.
• They want more information before making a
decision and
• consider more alternatives than a directive
decision maker does.
• Analytic decision makers are characterized as
careful decision makers with the ability to
adapt or cope with unique situations.

• Individuals with a conceptual style tend to be
very broad in their outlook and
• look at many alternatives.
• They focus on the long run and
• are very good at finding creative solutions to
problems.

• Decision makers with a behavioral style work
well with others.
• They are concerned about the achievements
of those around them and are receptive to
suggestions from others.
• They often use meetings to communicate,
although they try to avoid conflict.
• Acceptance by others is important to this
decision-making style.
•

Analytic
Directive Behavioral
Rational Intuitive
Way of Thinking
Conceptual
High
Low
ToleranceforAmbiguity

Overview Of Managerial Decision Making
Decision-Making
Process
• Well-structured
- programmed
• Poorly structured
- nonprogrammed
Decision-Making Conditions
• Certainty
• Risk
• Uncertainty
Decision Maker Style
• Directive
• Analytic
• Conceptual
• Behavioral
Making Approach-Decision
•Rationality
•Bounded Rationality
•Intuition
Decision
• Choose best
alternative
- maximizing
- satisficing
• Implementing
• Evaluating

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.
An ideal decision environment would
include
all possible information, all of it
accurate, and every possible alternative.

Decision-Making
Factors

Multidimensional characteristics of
Decision Making
•?
•?
•?
•?

Decision-Making Factors
a) Scientific factors
b) Economic factors
c) Laws and legal decisions
d) Social factors
e) Technological factors
f) Political factors
g) Public values

a) Scientific factors
provide the basis for the risk
assessment, including
information drawn from
………………, epidemiology,
ecology, mathematics, etc.

b) Economic factors inform the
manager on the cost of risks
and the benefits of reducing
them

c) Laws and legal decisions are
factors that define the basis
for the Agency’s risk
assessments, management
decisions

d) Social factors, such as income
level, ethnic background,
community values, land use,
zoning, availability of health
care, life style, and
psychological condition of the
affected populations

e) Technological factors include
the feasibility, impacts, and
range of options

f) Political factors are based on
the interactions among
branches of the government,
with other, state, and local
government entities, and
even with foreign
governments

g) Public values reflect the
broad attitudes of society
about the problem

Approaches to risk control

ReferencesCited
• http://www.who.int/heli
• WHO (200) .Decision-Making in Environmental Health From
evidence to action Edited by C. CorvalPn, D. Briggs, and G.
Zielhuis Published y E & FN Spon London .
• Robert Staib (2005 ). Environmental Management and
Decision Making for Business . First published byPALGRAVE
MACMILLAN
• THE GLOBAL DEVELOPMENT RESEARCH CENTER GDRC
.Environmental Decision-Making
• http://www.gdrc.org/decision/edm-documents.html
• http://www.open.edu/openlearn/nature-
environment/introducing-environmental-decision-
making/content-section-0

Decision making basic concepts

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