Decision Making

DEFINITION

Decision making is defined as selection of a course of action from among alternatives.

The Link Between Perceptions and Individual Decision Making

Perceptions of the

decision maker

Perceptions of the

decision maker

Outcomes

CHIEF CHARACTERISTIC OF DECISION MAKING

It implies choosing from among two or more alternative courses of action.

It is a continuous process. It involves all the organizational

activities. It is an intellectual process, involving

both reason and instinct. It aims at finding a solution for a given

problem.

Assumptions of the Rational Decision-Making Model

1. Problem clarity

2. Known options

3. Clear preferences

4. Constant preferences

5. No time or cost constraints

6. Maximum payoff

1. Problem clarity

2. Known options

3. Clear preferences

4. Constant preferences

5. No time or cost constraints

6. Maximum payoff

How Are Decision Actually Made In An Organization

1.Specific Objective

2.Problem Identification

Problem identification involves-

a. Diagnosis

b. Analysis

3. Search for Alternatives

4. Evaluation of Alternatives5. Choice of Alternative a. Experiences b. Experimentation c. Research and Analysis6. Action 7. Results The results must correspond with

objectives.

How Are Decisions Actually Made in Organizations

Making Choices

Making Choices

MINTZBERG’S PHASES OF DECISION MAKING

Decision making is a dynamic process

Phase-1

IDENTIFICATION

•Recognition

•Diagnosis

Phase-2

DEVELOPMENT

•Search

•Design

Phase-3

SELECTION

•Judgement

•Analysis

•Bargaining

Authorization

MODELS OF BEHAVIOURAL DECISION MAKING

Social Model

Economic Rationality

Simon’s Bounded Rationality Model

Judgmental Heuristics and Biases Model

ECONOMIC RATIONALITY MODEL

1. Decision maker perfectly and completely rational

Assumptions• Decision will be completely rational in means

-ends sense• Complete and Consistent system of

preferences allows a choice among alternatives

ECONOMIC RATIONALITY MODEL

• Complete awareness of all possible alternatives

• No limits to complexity of computations to determine best alternatives

• Probability calculations neither frightening nor mysterious

2. Decision maker always strives to maximize outcomes

3. Decisions directed to the point of maximum profit where Marginal Cost = Marginal Returns

SIMON’S BOUNDED RATIONALITY MODEL

• Objectives are dynamic• Information deficiencies• Time and Cost constraints• Not possible to Quantify Alternatives• Environmental Forces can’t be ignored

JUDGMENTAL HEURISTICS AND BIASES MODEL

1. Identifies Specific Systematic Biases that influence judgment

2. Judgmental Heuristics help by :-¨ Past experiences help to evaluate present¨ Substitute Rules of Thumb for complex

information collection and evaluation.¨ Save Mental activity and cognitive processing

3. Three Biases : The Availability Heuristic

¨ Tendency to assess probability by how readily they can remember

¨ Event that evokes emotions easily remembered and vice versa

The Representative Heuristic¨ Likelihood of an event occurring depending upon similarity

of occurrence of stereotypes The Anchoring and Adjustment Heuristic

¨ Judgement biased by an initial value or anchor (May be Historical precedent)

JUDGMENTAL HEURISTICS AND BIASES MODEL (Continued…)

THE SOCIAL MODEL1. Sigmund Freud : Behavior guided by

unconscious desires2. Social pressures and influences produce

irrational conformists.3. Straw and Ross : Phenomenon of

Escalation of Commitment¨ Psychological Determinants¨ Social Forces¨ Organizational Determinants

4. Human Complexity plays an important part in Management Decision Making

Common Errors in DM Indecisiveness Postponing the decision until the last

moment Failure to isolate the root cause of the

problem Failure to assess the reliability of

informational sources The method for analyzing the info. May

not be sound one.

POSITIVE ASPECTS OF DECISION MAKING

Pooling of knowledge and information. Satisfaction and Commitment. Personnel development More risk taking

NEGATIVE ASPECTS OF DECISION MAKING

Time consuming and costly Individual domination Problem of responsibility Group thinking

Organizational Constraints on Decision Makers

Performance Evaluation Evaluation criteria influence the choice of actions.

Reward Systems Decision makers make action choices that are

favored by the organization. Formal Regulations

Organizational rules and policies limit the alternative choices of decision makers.

Organizational Constraints on Decision Makers

System-imposed Time Constraints Organizations require decisions by specific

deadlines. Historical Precedents

Past decisions influence current decisions.

Group Decision Making

Three Assumptions – Gary John

Why groups can make higher quality decisions than individuals --

Groups are more vigilant than individuals.

Can generate more ideas and develop more alternatives solutions.

Can evaluate ideas better.

Other Advantages

People with more specializations and competencies.

Implementation of decision more effectively.

Increases the commitment of people.

Biases are eliminated. More democratic in nature.

Disadvantages of Group DM Time consuming Social pressures on group members. Pass the buck. Groupthink No clear responsibility/accountability Self-censorship Some times decisions get influenced by

members of strong personality.

Techniques of Group DM (Improving DM)

Brainstorming Delphi Technique Nominal Technique. Fish bowling Didactic Interaction