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8/4/2019 Lecture Process
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Decision Making Process
Lecture 1-4jan 09
Introduction to Management Science
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Project for the semester
(30%) Quizes =10%
Project =30%
Two sessional = 20%
One sessional = theoretical = 10%
Second sessional based on project work
= 10 % End term exam = 40% ( out of which
20% theoretical and 20% project work)
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Project description and
requirements Identify a real life business, social, economic,
engineering, medical sciences, IT or any
other area of your interest Collect data with 10 variables and 100
records for all of those ten variables.
Prefer numeric data , but some of thevariables could have text entries.
This is the complete population you have
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Project description and
requirements Case definition:
You are going to solve this problem
Apply all the tools or most of thesewhichevery you feel appropriate inrelevant areas of case.
If you know any other tools you mayapply thse alos , but Istatpro and partlyexcel
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Project description and
requirements( report format) Title Abstract
Introduction, Case definitions Main body Findings
Conclusions References bibliography Your own biography
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Project description and
requirements ( report format) Most important is that your
research data is real and fake(fabricated)
Important is you provide a solution
to the problem
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How to do your project (start) Identify /think which job you want to do in future Look for a company that gives job in your preferred
speciality
Try to find a company nearest you home Write down what area of interest you have in that
company Look at their website /brochures and get to know
that company as best as you can Make a write up of telephone call with thast person
and talk with full confidence Set an appointment with them by calling the
appropriate person in that company
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Contents What is Decision Making?
Some Definitions
Kinds of Decisions Decision Making is a Recursive Process
The Components of Decision Making
The Effects of Quantity on DecisionMaking
Decision Streams
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More Contents
Concepts & Definitions
Information.
Alternatives Criteria.
Goals
Value Preferences.
Decision Quality
Acceptance
Approaches
Authoritarian
Group
Decision Making Strategies
Optimising
Satisficing Maximax
Maximin
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More ContentsDecision making Procedure
Identify decision and goal
Getting Facts
Developing Alternatives
Rate each alternative Make the decision
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What is Decision Making? We all make decisions of varying importance
every day, so the idea that decision making
can be a rather sophisticated art is not valid Studies have shown that most people aremuch poorer at decision making than they
think!.
An understanding of what decision makinginvolves, together with a few effectivetechniques, will help produce better decisions
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Some DefinitionsDecision making is the
study of identifying andchoosing alternatives
based on the values andpreferences of thedecision maker
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Some DefinitionsDecision making is the
process of sufficientlyreducing uncertainty anddoubt about alternatives toallow a reasonable choice tobe made from among them.
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Kinds of DecisionsDecisions whether. This is
the yes/no, either/ordecision that must be
made before we proceedwith the selection of an
alternative
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Kinds of Decisions Decisions which. These involve
a choice of one or morealternatives from a set ofpossibilities, the choice being
based on how well eachalternative measures up to aset of predefined criteria
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Kinds of Decisions
Contingent decisions. These aredecisions that have been made but put
on hold until some condition is met. For example, I have decided to buy that
car if I can get it for the right price; I
have decided to write that article if Ican work the necessary time for it intomy schedule
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Kinds of Decisions(Habits of People)
Most people carry around a
set of already made,contingent decisions, justwaiting for the rightconditions or opportunity toarise.
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Kinds of Decisions(Habits of People)
Time, energy, price,
availability, opportunity,encouragement--all thesefactors can figure into thenecessary conditions thatneed to be met before we
can act on our decision
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Decision Making is a RecursiveProcess
Most decisions are made by movingback and forth between the choice ofcriteria
The characteristics we want our choice
to meet The identification of alternatives
The possibilities we can choose among
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Decision Making is a RecursiveProcess
The alternatives available
influence the criteria we apply tothem,
Similarly the criteria we establishinfluence the alternatives we willconsider
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decision whether ... select criteria ...identify alternatives ... make choice
Suppose someone wants to decide, Should Iget married? Notice that this is a decision
whether.A linear approach to decision making would
be to decide this question by weighing the
reasons pro and con (what are the benefitsand drawbacks of getting married) and thento move to the next part of the process,
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Decision whether ... select criteria ...identify alternatives ... make choice
The identification of criteria
(supportive, easy going, competent,affectionate, etc.).
Next, we would identify alternatives
likely to have these criteria (Kathy,Jennifer, Michelle, Julie, etc.).
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Decision whether ... select criteria ...identify alternatives ... make choice
Finally we would evaluate
each alternativeaccordingto the criteriaand choose
the one that best meetsthe criteria
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Contingent Decision
"I'll get married if I can find
the right person." It will thus be influenced by
the identification of
alternatives, which we usuallythink of as a later step in theprocess.
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Contingent Decision
Similarly, suppose we have arrivedat the "identify alternatives" stageof the process
when we discover that Jennifer
(one of the girls identified as analternative) has a wonderfulpersonality characteristic that we
had not even thought of before,
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Contingent Decision
but that we now really want to have in awife. We immediately add that characteristic
to our criteria. Thus, the decision making process continues
to move back and forth, around and around
as it progresses in what will eventually be alinear direction but which in its actualworkings is highly recursive.
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The Components of DecisionMaking
The Decision Environment:
Every decision is made within adecision environment, which isdefined as the collection of
information, alternatives, values,and preferences available at thetime of the decision.
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The Components of DecisionMaking
The Decision Environment:
An ideal decision environmentwould include all possible
information, all of it accurate,and every possible alternative
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The Components of DecisionMaking
The Decision Environment:
Information andalternatives are constrained
because time and effort togain information or identifyalternatives are limited.
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The Components of DecisionMaking
The Decision Environment:
The time constraint means thata decision must be made by acertain time.
The effort constraint reflectsthe limits of manpower,
money, and priorities.
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The Components of DecisionMaking
The Decision Environment:
The major challenge ofdecision making isuncertainty,
A major goal of decisionanalysis is to reduceuncertainty.
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The Components of DecisionMaking
The Decision Environment:
We can almost never haveall information needed to
make a decision withcertainty, so most decisionsinvolve an undeniable
amount of risk.
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The Components of DecisionMaking
The Decision Environment:
Why hindsight is so much moreaccurate and better at makingdecisions than foresight.
As time passes, the decisionenvironment continues to growand expand.
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The Components of DecisionMaking
The Decision Environment:
New information and new alternatives
appear--even after the decision mustbe made.
Armed with new information after the
fact, the hindsighters can many timeslook back and make a much betterdecision than the original maker,because the decision environment has
continued to expand
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The Components of DecisionMaking
The Decision Environment:
Since the decision environmentcontinues to expand as timepasses,
It is often advisable to put offmaking a decision until close
to the deadline.
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The Components of DecisionMaking
The Decision Environment:
Information and alternativescontinue to grow as time passes,
So to have access to the most
information and to the bestalternatives, do not make thedecision too soon
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The Components of DecisionMaking
The Decision Environment:.
Now, since we are dealing with real
life, it is obvious that somealternatives might no longer beavailable if too much time passes;
That is a TENSION we have to workwith, a tension that helps to shape thecutoffdate for the decision.
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The Components of DecisionMaking (Delaying Decision)
The Decision Environment:.
The decision environment will be larger,
providing more information. There is alsotime for more thoughtful and extendedanalysis.
New alternatives might be recognized or
created. The decision maker's preferences might
change. With further thought, wisdom,maturity, you may decide not to buy car X
and instead to buy car Y
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The Effects of Quantity onDecision Making
Many decision makers have a tendency toseekmore information than required to make
a good decision. When too much informationis sought and obtained, one or more ofseveral problems can arise.
(1) A delay in the decision occurs because ofthe time required to obtain and process theextra information. This delay could impairthe effectiveness of the decision or solution.
(2) Information overload will occur.
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The Effects of Quantity onDecision Making
In this state, so muchinformation is available thatdecision-making abilityactually declines because the
information in its entirety canno longer be managed orassessed appropriately.
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The Effects of Quantity onDecision Making
A major problem caused byinformation overload is
forgetfulness.
When too much information is
taken into memory, especially in ashort period of time, some of theinformation (often that received
early on) will be pushed out
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The Effects of Quantity onDecision Making
The example is sometimes givenof the man who spent the day at
an information-heavy seminar.
At the end of the day,he was not
only unable to remember the firsthalf of the seminar buthe had alsoforgotten where he parked his car
that morning
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The Effects of Quantity onDecision Making
(3)Selective use of theinformation will occur. That is,the decision maker will choosefrom among all the information
availableonly those factswhich support a preconceivedsolution or position.
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The Effects of Quantity onDecision Making
(4)Mental fatigue occurs,
which results in slower workor poor quality work.
(5) Decision fatigue occurs,where the decision makertires of making decisions.
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The Effects of Quantity onDecision Making
Often the result is fast,careless decisionsor evendecision paralysis--no
decisions are made at all
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Decision Streams
A common misconception about decisionmaking is that decisions are made in
isolation from each other: you gather information, explore
alternatives, and make a choice, without
regard to anything that has gone before.
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Decision Streams
The fact is, decisions are
made in a context of otherdecisions.
The typical metaphor used toexplain this is that of astream.
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Decision Streams
There is a stream of decisionssurrounding a given decision,
Many decisions made earlier haveled up to this decision and made it
both possible and limited. Many other decisions will follow
from it
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Decision Streams
We might say, then,
(1) That every decision followsfrom previous decisions,
(2) Enables many future decisions,
and
(3) Prevents other future
decisions.
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Decision Streams
People who have trouble
making decisions aresometimes trapped by the
constraining nature ofdecision making
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Decision Streams
It is important to realize that everydecision you make affects the
decision stream
And the collections of alternatives
available to you both immediatelyand in the future.
Decisions have far reaching
consequences
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First assignment
Identified a company
And at least 5 problems
Prioritize these problems
Give variable of data
Nature of variables
Group your problems in specialties likemarketing, HR, finance and else
Next courses of action 52
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Next assigmnment
Give priority
Explain relationship of variables
Bring data means that you have to fill inone value for each variable
And a possible solution
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C d D fi i i
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Concepts and DefinitionsInformation
This is knowledge about the decision, theeffects of its alternatives, the probability of
each alternative, and so forth. 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.
C t d D fi iti
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Concepts and DefinitionsAlternatives.
These are the possibilities one has to choosefrom.
Alternatives can be identified (that is,searched for and located) or even developed(created where they did not previouslyexist).
Merely searching for pre existingalternatives will result in less
effective decision making .
C t d D fi iti
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Concepts and DefinitionsCriteria.
These are the characteristics orrequirements that each alternative
must possess to a greater or lesserextent.
Usually the alternatives are rated onhow well they possess each criterion.
For example, alternative Toyota ranks an8 on the criterion of economy, while
alternative Buick ranks a 6 on the same
criterion
C t d D fi iti
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Concepts and DefinitionsGoals.
What is it you want to accomplish?
Many decision makers collect a bunchof alternatives (say cars to buy orpeople to marry) and then ask, "Which
should I choose?" without thinkingfirst of what their goals are, whatoverall objective they want to achieve.
C t d D fi iti
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Concepts and DefinitionsGoals
Next time you find yourself asking,"What should I do? What should I
choose?" ask yourself first, "Whatare my goals?"
A component ofgoal identificationshould be included in every
instance of decision analysis
C t d D fi iti
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Concepts and DefinitionsValue
Value refers to how desirable
a particular outcome is, thevalue of the alternative,
whether in dollars,satisfaction, or other benefit
C t d D fi iti
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Concepts and DefinitionsPreferences
These reflect the philosophy andmoral hierarchy of the decision
maker.
We could say that they are thedecision maker's "values,
We would say that personal valuesdictate preferences
C t d D fi iti
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Concepts and DefinitionsPreferences
Some people prefer excitement tocalmness, certainty to risk, efficiency to
Aesthetics, quality to quantity. When one person chooses to ride the
wildest roller coaster in the park andanother chooses a mild ride,
Both may be making good decisions, if
based on theirindividual
preferences.
C t d D fi iti
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Concepts and DefinitionsDecision Quality
This is a rating of whether adecision is good or bad.
A good decision is a logical onebased on the available
information and reflecting thepreferences of the decisionmaker.
C t d D fi iti
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Concepts and DefinitionsDecision Quality
The quality of a decision is not relatedto its outcome: a good decision can
have either a good or a bad outcome.
A bad decision (one not based onadequate information or not reflectingthe decision maker's preferences) canstill have a good outcome.
Concepts and Definitions
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Concepts and DefinitionsDecision Quality
For example, if you do extensive analysisand carefully decide on a certain
investment based on what you knowabout its risks and your preferences,
Then your decision is a good one, even
though you may lose money on theinvestment.
Concepts and Definitions
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Concepts and DefinitionsDecision Quality
Similarly, if you throw a dar
at a listing of stocks and buthe one the dart hits,your
decision is a bad one,eventhough the stock may go upin value
Concepts and Definitions
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Concepts and DefinitionsDecision Quality
Good decisions that
result in bad outcomesshould thus not be a
cause for guilt or
recrimination Concepts and Definitions
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Concepts and DefinitionsJudging Decision Quality
In addition to concerns of logic, use ofinformation and alternatives, three
other considerations come into play:A. The decision must meet the stated
objectives most thoroughly and
completely.How well does thealternative chosen meet the goalsidentified?
Concepts and Definitions
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Concepts and DefinitionsJudging Decision Quality
B. The decision must meet the statedobjectives most efficiently, with
concern over cost, energy, sideeffects. Are there negativeconsequences to the alternative that
make that choice less desirable?
We sometimes overlook thisconsideration in our search for thrills.
Concepts and Definitions
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Concepts and DefinitionsJudging Decision Quality
C. The decision must take into accounvaluable by products or indirect
advantages. A new employeecandidate may also have extraabilities not directly related to the job
but valuable to the companynonetheless.
These should be taken into account.
Concepts and Definitions
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Concepts and DefinitionsAcceptance
Those who must implement the decision orwho will be affected by it must accept it
both intellectually and emotionally. Acceptance is a critical factor because it
conflicts with the quality criteria.
In such cases, the best thing to do may beto choose a lesser quality solutionthat has greater acceptance
Concepts and Definitions
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Concepts and DefinitionsAcceptance
The need to feel useful and a
contributor is one of the mostbasic of human needs.
Thus, while the new solutionmay be less efficient intheoretical terms, it will be
much more acce table
Approaches to Decision
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Approaches to DecisionMaking
Two major approaches to decisionmaking in an organization:
The authoritarian method inwhich an executive figure makes adecision for the group and
The group method in which thegroup decides what to do
Approaches to Decision
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Approaches to DecisionMaking:Authoritarian
A manager makes decision based on theknowledge he can gather.
He then must explain the decision to thegroup and gain their acceptance of it.
Time breakdown for a typical operating
decision is something like this: Make decision, 5 min.; Explain decision,
30 min.; Gain acceptance, 30 min.
Approaches to Decision
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Approaches to DecisionMaking: Group
The group shares ideas and analyses, andagrees upon a decision to implement.
Studies show that the group often hasvalues, feelings, and reactions quite
different from those the manager
supposes they have.
Approaches to Decision
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Approaches to DecisionMaking: Group
No one knows the group and its tastesand preferences as well as the group
itself. And, interestingly, the time breakdown is
something like this:
Group makes decision, 30 min.;Explain decision, 0 min.; gain
acceptance, 0 min.
Approaches to Decision
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Approaches to DecisionMaking: Group
From an efficiency standpoint, groupdecision making is better. people prefer to
implement the ideas they themselves thinkof.
Work harder and more energetically to
implement their own idea than they would
to implement an idea imposed on
them by others
Decision Making Strategies
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Decision Making StrategiesOptimizing.
Strategy of choosing the best possiblesolution to the problem, discovering asmany alternatives as possible and choosing the very best.
A.Importance of the problem
B. Time available for solving it
C. Cost involved with alternative solutions D. Availability of resources, knowledge
E. Personal psychology, values
Decision Making Strategies
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Decision Making StrategiesSatisficing
In this strategy, the first satisfactoryalternative is chosen rather than the
best alternative The word satisficingwas coined by
combining satisfactoryand sufficient.
For many small decisions, such as where topark, what to drink, which pen to use, whichtie to wear, and so on, the satisficingstrategy is perfect.
Decision Making Strategies
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Decision Making StrategiesMaximax.
This stands for "maximize themaximums.
This strategy focuses on evaluating and thenchoosing the alternatives based on theirmaximum possible payoff.
This is sometimes described as the strategy of
the optimist,because favorable outcomes
and high potentials are the areas of concern.
It is a good strategy for use when risk takingis most acceptable,
Decision Making Strategies
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Decision Making StrategiesMaximin
This stands for "maximize the
minimums. Strategy, that of the pessimist,
the worst possible outcome of each
decision is considered and thedecision with the highestminimum is chosen.
Decision Making Strategies
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Decision Making StrategiesMaximin
The Maximin orientation is good when the
consequences of a failed decision
are particularly harmful orundesirable. Maximin concentrates on the salvage value
of a decision, or of the guaranteed returnof the decision.
It's the philosophy behind the saying, "A birdin the hand is worth two in the bush.
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Decision Making Strategies
Quiz shows exploit the uncertaintymany people feel when they are notquite sure whether to go with a maximaxstrategy or a maximin one: "Okay, Mrs. Freen,
you can now choose to take what
you've already won and go home,or risk losing it all and find out what'sbehind door number three."
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Decision Making Procedure
Identify the decision to be madetogether with the goals it should
achieve Get the facts
Develop alternatives
Rate each alternative Rate the risk of each alternative
Make the decision
D i i M ki P d
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Decision Making ProcedureIdentify the decision to be made
Determine the scope and limitations of thedecision.
Is the new job to be permanent ortemporary or is that not yet known (thusrequiring another decision later)?
Is the new package for the product to beput into all markets or just into a testmarket?
How might the scope of the decision bechanged--that is, what are its possibleparameters?
D i i M ki P d
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Decision Making ProcedureIdentify the decision to be made
When thinking about the decision, be sure toinclude a clarification of goals:
We must decide whom to hire for our newsecretary, one who will be able to create anefficient and organized office.
Or, We must decide where to go on vacation,where we can relax and get some rest fromthe fast pace of society.
Decision Making Procedure
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Decision Making ProcedureGet the facts
Get as many facts as possible about adecision within the limits of time imposed
on you and your ability to process them, Remember that virtually every decision
must be made in partial ignorance.
Lack of complete information must notbe allowed to paralyze your decision.
Decision Making Procedure
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Decision Making ProcedureGet the facts
A decision based on partial knowledgeis usually better than not making the
decision when a decision is reallyneeded.
The proverb that "any decision isbetter than no decision," whileperhaps extreme, shows the
importance of choosing
Decision Making Procedure
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Decision Making ProcedureGet the facts
As part of your collection offacts, list your feelings, hunches,
and intuitive urges. Many decisions ultimately rely
on or be influenced by intuitionbecause of the remaining degreeof uncertainty involved in the
situation
Decision Making Procedure
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Decision Making ProcedureGet the facts
As part of your collection of facts:
Consult those who will be affected by
and who will have to implementyour decision.
Input from these people not only helps
supply you with information and helpin making the decision but it begins toproduce the acceptance
Decision Making Procedure
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Decision Making ProcedureDevelop alternatives
Make a list of all the possible choices you
have, including the choice ofdoing nothing.
Not choosing one of the candidates or one ofthe building sites is in itself a decision.
Often a non decision is harmful --notchoosing to turn either right or left is to choose todrive into the bridge.
Decision Making Procedure
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Decision Making ProcedureDevelop alternatives
The decision to do nothing is useful or at leastbetter than the alternatives, so it should alwaysbe consciously included in the decision makingprocess.
Think about not just identifying availablealternatives but creating alternativesthat don't yet exist.
For example, if you want to choose which major to pursuein college, think not only of the available ones in thecatalog, but of designing your own course of study.
Decision Making Procedure
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Decision Making ProcedureRate each alternative
This is the evaluation of the value of eachalternative.
Consider the negative of eachalternative (cost, consequences,problems created, time needed, etc.) and
The positive of each (moneysaved, time saved, added creativity orhappiness to company or employees, etc.).
Decision Making Procedure
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Decision Making ProcedureRate each alternative
The alternative that you might likebest or that would in the best of all
possible worlds be an obviouschoice,
It however, not be functional in thereal world because of too muchcost, time, or lack of acceptance byothers
Decision Making Procedure
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Decision Making ProcedureRate each alternative
Don't forget to include indirect factors inthe rating.
If you are deciding between machines X,Y, and Z and you already have anemployee who knows how to operate
machine Z, that fact should beconsidered.
Decision Making Procedure
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Decision Making ProcedureRate each alternative
If you are choosing an investigativeteam to send to Japan to look at plant
sites and you have very qualifiedcandidates A, B, and C,
The fact that B is a very fast typist, a
superior photographer or has some otherside benefit in addition to being aqualified team member, should beconsidered.
Decision Making Procedure
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Decision Making ProcedureRate each alternative
In fact, what you put on yourhobbies and interests line on your
resume is quite important when youapply for a job
Employers are interested in gettingpeople with a good collection ofadditional abilities
Decision Making Procedure
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Decision Making ProcedureRate the risk of each alternative
In problem solving, you hunt aroundfor a solution that best solves a
particular problem, and by such a huntyou are pretty sure that the solutionwill work.
In decision making, however, thereis always some degree of uncertaintyin any choice.
Decision Making Procedure
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Decision Making ProcedureRate the risk of each alternative
Will Bill really work out as the newsupervisor? If we decide to expand into
Canada, will our sales and profitsreally increase? If you decide to marry person X or buy car
Y or go to school Z,will that be thebest or at least a successful
choice?
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Decision Making ProcedureRate the risk of each alternative
Risks can be rated as:
Percentages, ratios, rankings,grades or in any other formthat allows them to be
compared.
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Decision Making ProcedureMake the decision
If you are making an individual decision, applyyour preferences (which may take intoaccount the preferences of others).
Choose the path to follow, whether it includesone of the alternatives, more than one ofthem (a multiple decision) or the decision to
choose none. Don't forget to implement the decision and
then evaluate the implementation, just as you
would in a problem solving experience
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ec s o a g ocedu eMake the decision
One important item often overlooked inimplementation:
When explaining the decision to thoseinvolved in carrying it out or those who will beaffected by it, don't just list the projected
benefits. Frankly explain the risks and the drawbacks
involved and tell why you believe the
proposed benefits outweigh the negatives
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gMake the decision
Implementers are much morewilling to support decisions whenthey:
(1) Understand the risks and
(2) Believe that they are beingtreated with honesty and like
adults
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gMake the decision
Remember also that very fewdecisions are irrevocable.
Don't cancel a decision prematurelybecause many new plans require
time to work--it may take years foryour new branch office in Paris to getprofitable
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gMake the decision
Don't hesitate to change directionsif a particular decision clearly is not
working out or is being somehowharmful.
You can always make anotherdecision to do something else.