Post on 09-Apr-2018
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DECISION MAKING
Principles of Management
M. Salman Anjum
Module # 2
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1. Define decision making
2. Outline the steps in the decision-making process3. Identify few decisions at managers make while performing
managerial functions
4. Contrast programmed and nonprogrammed decisions andtheir application at different management levels
5. Contrast the three decision-making conditions
6. Advantages and disadvantages of group decision making
7. Identify few effective group decision making tools
Learning Objectives of Module
Learning Objectives of Module
After studying this chapter, you should be able to:
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Manager & Decision Making - Quote
Manager & Decision Making - Quote
~ The one wordhat makes a good manager -- decisiven
Lee Iacocca
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The process of identifying andchoosing alternative courses of
action to meet the demands ofa situation.
The pace of decision making isaccelerating: managers makingmore decisions and havingless time to make them.
Decision Making
Decision Making
2.1
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Decision Making Process
Decision Making Process
1Define andDiagnose
Problem
1Define andDiagnoseProblem
7Implementing the
Alternative
7Implementing the
Alternative
6Selecting anAlternative
6Selecting anAlternative
5Analyzing
Alternatives
5Analyzing
Alternatives
4DevelopingAlternatives
4DevelopingAlternatives
3Allocating Weights
to Criteria
3Allocating Weights
to Criteria
2Identifying
Decision Criteria
2Identifying
Decision Criteria
8Evaluating Decision
Effectiveness
8Evaluating Decision
Effectiveness
2.2
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Decision Making Process - Example
Decision Making Process - Example
2.2
Identification of a problem
Identification of Decision Criteria
Allocation of weights to criteria
Development of alternatives
Analyzing of alternatives
Selection of alternatives
Implementation of alternatives
Evaluation of decision alternatives
My sales Reps need new Laptops!
Memory and Storage, Display Quality,
BetterLife,Warranty, Carrying weight
Memory and Storage-10, Display Quality-8,Better Life-6,Warranty-4, Carrying weight-
3
Toshiba, HP, Soni Vaio, Qosmio, Gateway,
Apple iBook, Dell
Toshiba, HP, Soni Vaio, Qosmio, Gateway,Apple iBook, Dell
Toshiba, HP, Soni Vaio, Qosmio,
Gateway, Apple iBook, Dell
Toshiba!
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Problem
A discrepancy between an existing and desired
state of affairs. Characteristics of Problems
A problem becomes a problem when a managerbecomes aware of it.
There is pressure to solve the problem.
The manager must have the authority, information,or resources needed to solve the problem.
Step 1: Identifying the ProblemStep 1: Identifying the Problem
2.2.1 Decision Making Process
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Decision criteria are factors thatare important (relevant) to
resolving the problem. Costs that will be incurred
(investments required)
Risks likely to be encountered
(chance of failure)
Outcomes that are desired (growthof the firm)
Step 2: Identifying Decision CriteriaStep 2: Identifying Decision Criteria
2.2.2 Decision Making Process
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Decision criteria are not
of equal importance: Assigning a weight to
each item places theitems in the correct
priority order of theirimportance in thedecision making process.
Step 3: Allocating Weights to CriteriaStep 3: Allocating Weights to Criteria
2.2.3 Decision Making Process
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Identifying viablealternatives Alternatives are listed
(without evaluation) thatcan resolve the
problem.
Step 4: Developing AlternativesStep 4: Developing Alternatives
2.2.4 Decision Making Process
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Appraising each alternatives strengths andweaknesses
An alternatives appraisal is based on its ability toresolve the issues identified in steps 2 and 3.
Step 5: Analyzing AlternativesStep 5: Analyzing Alternatives
2.2.5 Decision Making Process
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Choosing the best
alternative The alternative with the
highest total weight ischosen.
Step 6: Selecting an AlternativesStep 6: Selecting an Alternatives
2.2.6 Decision Making Process
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Putting the chosenalternative into action. Conveying the decision to and
gaining commitment from thosewho will carry out the decision.
Step 7: Implementing the DecisionStep 7: Implementing the Decision
2.2.7 Decision Making Process
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The soundness of thedecision is judged by its
outcomes. How effectively was the
problem resolved byoutcomes resulting from the
chosen alternatives? If the problem was not
resolved, what went wrong?
Step 8: Evaluating the Decisions EffectivenessStep 8: Evaluating the Decisions Effectiveness
2.2.8 Decision Making Process
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Programmed Decisions for Structured ProblemsProgrammed Decisions for Structured Problems
Structured Problems
Straightforward
Are familiar (have occurred before), Are easily and completely defined
information about the problem isavailable and complete
Customer returning purchase to store
Programmed Decision
A repetitive decision that can behandled by a routine approach.
2.4.1 Types of Problems & Decisions
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Types of Programmed DecisionsTypes of Programmed Decisions
Policy
A general guideline for making a decision about a structuredproblem.
Accept all customer-returned merchandise.
Procedure A series of interrelated steps that a manager can use to respond
(applying a policy) to a structured problem.
Follow all steps for completing merchandise returndocumentation.
Rule
An explicit statement that limits what a manager or employee can orcannot do in carrying out the steps involved in a procedure.
Only managers can approve all refunds over $50.00.
No credit purchases are refunded for cash.
2.4.1 Types of Problems & Decisions
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Nonprogramed Decisions for Unstructured ProblemsNonprogramed Decisions for Unstructured Problems
Unstructured Problems
Problems that are new or unusual and for which
information is ambiguous or incomplete. Problems that will require custom-made solutions.
Whether to build a new manufacturing facility in China
Non-programmed Decisions Decision that are unique and nonrecurring.
Decision that generate unique responses.
2.4.2 Types of Problems & Decisions
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Programmed Vs. Non-programmed DecisionsProgrammed Vs. Non-programmed Decisions
2.4.3 Types of Problems & Decisions
Characteristics ProgrammedDecisions
Non-programmedDecisions
Type of Problem Structured Unstructured
Managerial Level Lower level Upper level
Frequency Repetitive New,unusual
Information Readily available Ambiguous or incomplete
Time Frame forSolution
Short Relatively long
Solution Relies on Procedures,rules, andpolicies
Judgment and creativity
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Types of Decisions & Manager FocusTypes of Decisions & Manager Focus
2.4.4
Few managerial decisions in thereal world are either fullyprogrammed or non-programmed
These are extremes and mostdecisions fall somewhere inbetween
Its best to think of decisions asmainly programmedormainlynon-programmed
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Types of Decisions & Level in OrganizationTypes of Decisions & Level in Organization
Programmed
Decisions
NonprogrammedDecisions Level in
Organization
Top
LowerWell-structured
Ill-structured
Type ofProblem
2.4.5
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Decision Making ConditionsDecision Making Conditions
Objective
Probabilities
Subjective
ProbabilitiesRisk
Certainty Uncertainty
Clear Intuition and judgment
2.5
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Decision Making Conditions - CertaintyDecision Making Conditions - Certainty
The condition under which individuals are:
1. fully informed about a problem,
2. alternative solutions are known, and
3. the results of each solution are known
Both the problem and alternative solutions
are totally known and well defined
Exception for most managers
2.5.1
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Decision Making Conditions - UncertaintyDecision Making Conditions - Uncertainty
Condition under which individualsdo not have the necessary
information to assign probabilitiesto the outcomes of alternativesolutions
May not even be able to define the
problem, much less identifyalternative solutions and possibleoutcomes
2.5.3
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OtherCrises
Economic Crises
RecessionsStock market crashes
Hostile takeovers
Physical Crises
Industrial accidentsSupply breakdowns
Product failures
Information Crises
Theft of proprietary informationTampering with company records
Cyberattacks
Natural Disasters
FiresFloods
Earthquakes
Examples of Possible Crises as
Sources of Uncertainty and High Risk
Examples of Possible Crises asSources of Uncertainty and High Risk
2.5.3
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Integrating Decision Making ConditionsIntegrating Decision Making Conditions
Unusual and
Ambiguous
Known and
Well Defined
Problem
Types
Untried and
Ambiguous
Innovative
DecisionsInnovative
Decisions
Adaptive
DecisionsAdaptive
Decisions
Routine
DecisionsRoutine
Decisions
Cond
itionsun
derw
hich
decis
ions
are
mad
eUncertaintyUncertainty
CertaintyCertainty
RiskRisk
Solution Types
(Alternative Solutions)
2.5.4
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Group Decision MakingGroup Decision Making
Potential Advantages1. Better-quality decisions
2. More information,
alternatives, creativity, andinnovation
3. Better understanding ofthe decision
4. Greater commitment to the
decision5. Improved morale and
motivation
6. Good training
Potential Disadvantages1. Wasted time and slower
2. Satisficing
3. Domination and goaldisplacement
4. Conformity and groupthink
2.6
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Group Decision Making TechniquesGroup Decision Making TechniquesBrainstormingBrainstorming
The process of suggesting many possiblealternatives without evaluation.
Used to generate ideas in a group decision making
2.7.1
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Group Decision Making TechniquesGroup Decision Making TechniquesBrainstorming Ground RulesBrainstorming Ground Rules
Relax, Have fun, Support
Select a moderator, no dominating& interrupting
Create solutions/ideas in silence
No boundaries, no limits on thenumber of ideas
Just Keywords Short session (Max 20 minutes)
No criticizing (during or after)
2.7.2
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Group Decision Making TechniquesGroup Decision Making TechniquesBrainstorming Ground RulesBrainstorming Ground Rules
Multiple rounds, if required
After session explain quickly Select promising solutions/ideas
Promising solutions/ideas aredeveloped in more detail listing pros
and cons Team select one solution/idea
2.7.2
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Group Decision Making TechniquesGroup Decision Making TechniquesBrainstorming Ground RulesBrainstorming Ground Rules
Pakistan textile industry isgoing through difficult period.Lets do some brainstormingto find out some ideas for itsrecovery!
Class ExerciseClass Exercise