Decision Making

Types of decisionSteps in rational decision

makingPlanning

Definition and characteristics

2

Decision Making

Defination: Decision Making is the process of

choosing the best alternative for reaching objectives

Managers make decisions affecting the organization daily and communicate those decisions to other organizational members

3

Effective decision making

A major activity of management is the making of decisions.

Decisions need to be timely. There are times when a decision has to be made. Even if it turns out not to be the best decision it can be better than not making a decision at all.

Decisions often have to be made when there is insufficient information. Decisions involve taking risks. Effective decision making involves gathering what information is known, identifying the options, assessing the risks and making the best decisionwith the information available in a timely manner.

When do decisions need to be made

• Determining the project strategy/approach

• Resolving project issues

• Developing estimates

• Making purchases

• Interviewing and selecting project team members

• Selecting external suppliers

• Handling disagreements and conflict resolution

• Scheduling work and allocating resources to tasks

• Managing meetings

Situations include:

5

Types of decision

Planned and unplanned Temporary and permanent

6

The decision making process

1. Gather the facts

2. Identify a number of alternatives

3. Assess the alternatives

4. Decide

Four simple steps:

Where quick decisions need to be made, these steps can be done mentally “on the fly” or by one person. When time allows and the decision is important, more people can be involved and a more thorough decision making process used.

Rational Decision Making 8-step Process

1. Identification of problem 2. Identification of Decision Criteria 3. Allocation of weights to criteria 4. Development of alternatives 5. Analysis of alternatives 6. Decide on an alternative 7. Implementation of decision 8. Evaluation of decision

The Decision-Making ProcessProblem

Identification

“My salespeople

need new computers”

Identification of Decision Criteria

PriceWeightWarrantyScreen typeReliabilityScreen size

Allocation ofWeights to

Criteria

Reliability 10Screen size 8Warranty 5Weight 5Price 4Screen type 3

Development of Alternatives

AcerCompaqGatewayHPMicromediaNECSonyToshiba

Implementationof an Alternative

GatewayEvaluationof Decision

Effectiveness

Analysis ofAlternatives

R S W W P SAcer 4 3 4 3 2 6Compaq 3 4 5 2 6 7Gateway 9 6 7 7 8 2HP 3 5 6 7 6 5Micromedia 2 2 3 4 5 4NEC 3 4 5 6 7 2Sony 7 5 6 4 2 8Toshiba 3 4 5 6 7 3

Selection of anAlternative

Acer 125Compaq 142Gateway 246HP 174Micromedia 103NEC 151Sony 192Toshiba 154

Decisions in the Management Functions

About Rational Decision Making

Is it always possible to make rational decisions?

RationalDecisionMaking

Problem isclear and

unambiguous

Single, well-defined goal

is to be achievedAll alternatives

and consequences

are known

Preferencesare clear

Preferencesare constantand stable

No time or costconstraints exist

Final choicewill maximize

payoff

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”

Intuitive decision making

Based on “gut feeling” subconscious process of making

decisions on the basis of experience, values, and emotions

does not rely on a systematic or thorough analysis of the problem

generally complements a rational analysis

Types of Problems & 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

Types of Problems and Decisions

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

Procedure, Rule, & Policy

Types of Problems & Level In the Organization

ProgrammedDecisions

NonprogrammedDecisions Level in

Organization

Top

LowerWell-structured

Ill-structured

Type ofProblem

Things to consider . . .

Certainty – how certain is a particular outcome?

Risk – how much risk can you take? expected value - the conditional return

from each possible outcome Uncertainty – Limited information

prevents estimation of outcome probabilities for alternatives.

What to do?maximax choice – optimistic

maximizing the maximum possible payofftaking the best of all possible cases

maximin choice – pessimisticmaximizing the minimum possible payofftaking the best of the worst cases

minimax - minimize the maximum “regret” (difference between what you get and the best case)

Decision-Making Styles

Dimensions of Decision-Making Styles Value orientations

Task and technical concerns People and social concerns

Tolerance for ambiguity Low tolerance: require consistency and

order High tolerance: multiple thoughts

simultaneously

Decision-Making Styles

Directive• Prefer simple, clear solutions• Make decisions rapidly• Do not consider many alternatives• Rely on existing rules

Conceptual• Socially oriented• Humanistic and artistic approach• Solve problems creatively• Enjoy new ideas

Behavioral• Concern for their organization• Interest in helping others• Open to suggestions• Rely on meetings

• Prefer complex problems• Carefully analyze alternatives• Enjoy solving problems• Willing to use innovative methods

Analytical

Decision Making Styles

Analytical Conceptual

Directive Behavioral

Tasks and TechnicalConcerns

People and SocialConcerns

Value Orientation

Low

High

Tole

ran

ce f

or

Am

big

uit

y

22

Gather the facts

• Write down a statement of what needs to be decided.

• Is the decision statement clear and precise? If not refine the statement.

• Is the need for the decision a result of an underlying problem, which also needs to be addressed?

• Are there assumptions underlying the decision that need to be clarified and possibly challenged?

• Is the decision part of a bigger decision that needs to be made, or can this decision be decomposed into smaller decisions?

Guidelines

23

Identify alternatives

• Identify as many alternatives as possible.• Use brainstorming if appropriate.• Do not filter out alternative options at this stage

- assume they can all be made to work.• When you have generated lots of ideas, consider each one to

see if it is a viable alternative.• Shortlist the viable alternatives.

Guidelines

24

Decision making behaviourPeople tend to adopt a particular decision making approach as a result of factors such as:

• their own personality • their current mood• the organisational culture• the personality of the person/people they are dealing

with• the nature of the relationship they have with the

people they are dealing with• time pressure and perceived level of stress

Being aware of these influences can result in better decision making, by adopting the best decision making approach for each situation.

Common Errors in Decision Making

Over-confidence

Hindsight Self-serving Sunk costs Randomness Representatio

n Availability

Framing Confirmation Selective

perception Anchoring Immediate

gratification

Helpful hints Do:

Clearly identify the decision to be made

Involve people qualified to help in the decision making

Identify the context of the decision (the bigger picture)

Identify all alternatives Assess each alternative Assess the risks Consider your “gut feel” Make the decision

and stick to it

Don’t:

– Make assumptions

– Procrastinate

– Jump to conclusions

– Make uninformed decisions

– Favour one decision prior to gathering the facts and evaluating the alternatives

– Allow only technical people to make the decisions

– Attempt to make a decision in isolation of the context

– Let emotion override objectivity

27

Identify alternatives

• Identify as many alternatives as possible.• Use brainstorming if appropriate.• Do not filter out alternative options at this stage

- assume they can all be made to work.• When you have generated lots of ideas, consider each one to

see if it is a viable alternative.• Shortlist the viable alternatives.

Guidelines

Advantages and Disadvantages of Group-Aided Decision Making

1. Greater pool of knowledge 1. Social pressure

2. Different perspectives 2. Minority domination3. Greater comprehension 3. Logrolling4. Increased acceptance 4. Goal displacement5. Training ground 5. “Groupthink”

Advantages Disadvantages

Decision-MakingProcess

Types of Problems and Decisions• Well-structured

- programmed• Poorly structured

- nonprogrammed

Decision-Making Conditions• Certainty

• Risk• Uncertainty

Decision Maker Style• Directive• Analytic

• Conceptual• Behavioral

Decision-Making Approach• Rationality

• Bounded Rationality• Intuition

Decision• Choose best alternative - maximizing - satisficing• Implementing• Evaluating

Decision making behaviourPeople tend to adopt a particular decision making approach as a result of factors such as:

• their own personality • their current mood• the organisational culture• the personality of the person/people they are dealing

with• the nature of the relationship they have with the

people they are dealing with• time pressure and perceived level of stress

Being aware of these influences can result in better decision making, by adopting the best decision making approach for each situation.

31

Decision making approachesApproaches* to decision making situations:

*Adapted from D Billows, Project Manager’s KnowledgeBase, 2nd edition, 2004, The Hampton Group.

• Withdrawing: holding off making the decision.

• Smoothing: focusing on areas of agreement and ignoring areas of difference.

• Compromising: trying to come up with a decision that provides some degree of satisfaction for all parties.

• Confronting/problem solving: working through the issues.

• Forcing: executing a particular decision knowing agreement has not been reached.

32

Decision making approaches

Withdrawing:

• Withdraw to gather more information and perspective

• Only a stop gap measure

• Useful in “cooling down” an overheated situation

• Taking time out (“sleep on it”) before final decision

Smoothing:

• Relationship focused rather than solution focused

• Avoids dealing with the issues

• Can be useful in reducing the emotional tension where the decision is of low importance.

• Does not provide a long-term solution

Skilled project managers and business analysts select the best approach appropriate to the situation.

33

Decision making approaches

Confronting/problem solving:

• Direct approach

• Identifies alternatives and works through the issues

• Time-consuming

• Most likely method to develop the best solution

Forcing:

• Used when an urgent decision is required or as a last resort

• Necessary for situations when decision making is blocked

• May result in reluctance in execution of decision if not handled well.

Compromising:

• Bargaining to get an acceptable agreement

• Falls short of the best decision

• Can be useful in resolving negotiation deadlocks

34

• END