Decision Making Report (Final)

7/31/2019 Decision Making Report (Final)

1/25

GENERAL

MODELS

OF

DECISION

MAKING


2/25

What is a decision?A decision takes place when a person

chooses among two or more alternatives in

order to solve a problem.

What is a problem?

A problem is a discrepancy between the idealand the real.


3/25

Types of Decisions

1. Programmed versus Non-programmed

Decisions

Programmed decisions routine decisions

standard responses to uncomplicated problems

procedures already exist for how to appropriately

handle the problem (there are rules or guidelines tofollow)

handled by lower-level managers

Examples: a.) Reordering office supplies; b.) Accepting

a check; c.) Granting an employee a day of personal


4/25

Types of Decisions

Non-programmed decisions non-routine decisions

unique responses to complicated problems

requires imaginative or creative thinking handled by higher-level managers

Examples: a.) How to reduce costs in operating a store;

b.) Should the firm invest in a new technology?


5/25

Types of Decisions

2. Decision EnvironmentCertainty

exists when the facts are well known and the outcome

can be predicted accurately Example: A retail store manager might predict with

certainty that more hours of operation will lead to more

sales.

Decision making is easiest under conditions ofcertainty.


6/25

Types of Decisions

Decision making is easiest under conditions

ofcertainty. Risk

involves incomplete certainty regarding the outcomes of various

alternative courses of action there is some awareness of the probability associated with the

alternatives

based on past experiences, predictions can be made about thevarious outcomes

Example: The management might be able to estimate howemployees will react to an early retirement program based onprevious company experience.

Uncertainty

exists when a decision must be based on limited or no factualinformation


7/25


8/25

1. Rational Model / Classical decision model

views the environment as certain and stable

views the manager as rational

the decision maker: a.) faces a clearly defined

problem, b.) knows all possible actionalternatives and their consequences, and c.)

chooses the optimum alternative

often used as a model of how managersshould make decisions

Many economists view decision making in this

manner.


9/25

2. Simons Normative Model / Bounded Rationality Model /Behavioral decision model

the decision maker accepts a world with boundedrationality

points out that decision makers have cognitive

limitations and act only in terms of what theyperceive in a given situation

the decision maker: a.) faces a problem that is not

clearly defined, b.) has limited knowledge of possible

action alternatives and their consequences, c.)chooses a satisfactory alternative

encourages satisficing decision making


10/25

BOUNDED RATIONALITYpeoples finite (limited)mental abilities, combined with external influences

over which they have little or no control, preventthem from making entirely rational decisions.

Emphasizes that humans use problem-solving

strategies that are reasonably rapid, reasonably

accurate, and that fit the quantity and type ofinformation available. People do the best with

what they have while making decisions.


11/25

SATISFICING Decision Making decisions

that suffice in providing a minimumstandard of satisfaction. Managers explore a limited number of options

and choose an acceptable decision rather thanthe optimum decision.

This is the response of managers when dealingwith incomplete information.

Managers assume that the limited options theyexamine represent all options.

HEURISTICS a rule of thumb in decisionmaking.


12/25


13/25

The seven steps in the process reflectboth the classical and behavioralmodels.

1.Identify and diagnose the problem identifying a gap between desired and actual conditions

a thorough diagnosis of the problem is important because thereal problem may be different from the one suggested at first

look

2. Establish decision criteria what constitutes a good decision

decision criteria the standards of judgment used to evaluate

alternatives

the more explicit the criteria, the better the decision will be


14/25


3. Develop creative alternatives

all kinds of possibilities are explored in this step even ifthey seem unrealistic

failed decisions often result from a limited search for

alternatives

creativity is such a key part of decision making


15/25

The seven steps in the process reflect boththe classical and behavioral models.

"What really is our problem?"

Identify and diagnose the problem

"What are we trying to accomplish?"

Establish decision criteria

"Let's dream up some great ideas."Develop creative alternatives

"Some of these ideas are good; some are wacko."

Evaluate the alternatives

"This alternative is a winner."

Choose one alternative

"Now let's take action."

Implement the decision

"How really good was that idea?

Evaluate and control Repeat if necessary


16/25

4. Evaluate the alternatives compare the relative value of the alternatives

examine the pros and cons of each alternative and consider

its feasibility compare each pros and cons against the decision criteria

established

5. Choose one alternative to actually make a decision an important factor influencing this step is the degree of

uncertainty associated with it

people who prefer not to take risks choose alternatives that

have the most certain outcomes risk takers are willin to choose alternatives with uncertain



17/25

6. Implement the decision convert the decision into action

many decisions represent wasted effort because nobody is

held responsible for implementing them a decision is not a good one if employees resist its

implementation

7. Evaluate and control evaluate how effectively the chosen alternative solved the

problem and met the decision criteria

a fruitful way of evaluating a decision is to observe itsimplementation

results of the decision obtained are controlled when they arethe ones set forth durin the roblem-identification sta e


INFLUENCES ON DECISION MAKING


18/25

Intuition

a key personal characteristic that influencesdecision making

Personality and Cognitive Intelligence

Emotional Intelligence how effectively you manageyour feelings and read other people affect the quality of

decisions Quality and Accessibility of Information

Political Considerations present an ethical challenge Crisis and Conflict less rational and more emotional

Values of the Decision Maker Value on the personal welfare of employees

Pursuit of excellence

Attempting to preserve the status quo

Procrastinationdelay taking action without a valid

reason

INFLUENCES ON DECISION MAKINGCONTRIBUTING TO BOUNDED

RATIONALITY

INFLUENCES ON DECISION MAKING


19/25

INFLUENCES ON DECISION MAKINGCONTRIBUTING TO BOUNDED

RATIONALITY

OVERCONFIDENCE BIAS

leads to predictable mistakes because thesame errors are repeated systematically

personality traits, values, political factors overconfidence do not acknowledge the

true uncertainty


20/25

THE NATURE OF CREATIVITY

Creativity

process of developing good ideas

To be an effective decision maker, you must

think creatively.Three Perspectives:

Steps in the creative process:

1. Opportunity or problem recognition

2. Immersion

3. Incubation

4. Insight

5. Verification and application


21/25

THE NATURE OF CREATIVITY

Characteristics of creative people

Knowledge

Intellectual abilities

Personality

Conditions necessary for creativity

Expertise, Creative-Thinking Skills, and InternalMotivation

Environmental Needs

Conflict and Tension

Encouragement from others and having creativecoworkers

Mood

Moderate Time Pressures


22/25

ENHANCING AND IMPROVINGCREATIVITY

Creative problem solving requires an ability toovercome traditional thinking

Brainstormingdevelop mental flexibility

Idea quotas demand that workers come up

with good ideas Heterogeneous groups diverse group brings

various viewpoints

Financial Incentives likely to spur imaginative

thinking Architecture and physical layout to fire up

creativity, harness energy, and enhance the flowof knowledge and ideas

Inspiration

Creativity training


23/25

GROUP DECISION MAKING

Groups tend to reduce cognitive biases andcan call on combined skills and abilities

Role of synergy group members stimulate

new solutions through the process of mutualinfluence and encouragement in the group

Role of social decision schemes


24/25

Advantages Disadvantages

1. Greater pool of knowledge 1. Social pressure

2. Different perspectives 2. Minority domination3. Greater comprehension 3. Amount of time

required

4. Increased acceptance 4. Goal displacement

Advantages and Disadvantages

of Group-Aided Decision

Making


25/25

Documents

Decision Making Report (Final)