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Decision-Making: Definition: The Act of Choosing One Alternative From Among A Set of Alternatives

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Sayeed Hasan
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34 views

Decision-Making: Definition: The Act of Choosing One Alternative From Among A Set of Alternatives

Uploaded by

Sayeed Hasan
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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DECISION-MAKING

DEFINITION:
THE ACT OF CHOOSING ONE ALTERNATIVE FROM AMONG A SET OF ALTERNATIVES.

SAYEED HASAN
Lecturer, CIU Business School
TYPES OF DECISIONS
Depending on the nature of the problem, a manager can use one of two different
types of decisions:
Structured Problems and Programmed Decisions
Structured Problems: Straightforward, familiar, and easily defined problems.
Programmed Decision: A repetitive decision that can be handled by a routine
approach
Three types of programmed decisions are: procedure, rule, & policy.
• Policy: A guideline for making decisions.
• Procedure/ Standard Operating Procedures (SOP): A series of sequential
steps used to respond to a well-structured problem.
• Rule: An explicit statement that tells managers what can or cannot be done.
Unstructured Problems and Non-programmed Decisions
Unstructured problems: Problems that are new or unusual and for which
information is ambiguous or incomplete.
Non-programmed decisions: Unique and nonrecurring decisions that require a
custom-made solution.
DECISION-MAKING CONDITIONS
When making decisions, managers may face three different conditions:
certainty, risk, and uncertainty.
• Decision Making Under Certainty: A condition in which the decision
maker knows with reasonable certainty what the alternatives are and what
conditions are associated with each alternative.
• Decision Making Under Risk: A condition in which the availability of each
alternative and its potential payoffs and costs are all associated with
probability estimates.
• Decision Making Under Uncertainty: A condition in which the decision
maker does not know all the alternatives, the risks associated with each, or
the likely consequences of each alternative.
MAKING
Classical Decision Model: A prescriptive approach to decision making that tells
managers how they should make decisions; it assumes that managers are logical
and rational and that their decisions will be in the organization’s best interests.
The assumptions in classical decision model are:
1. Decision makers have complete information about the decision situation
and possible alternatives.
2. They can effectively eliminate uncertainty to achieve a decision condition of
certainty.
3. They evaluate all aspects of the decision situation logically and rationally.
RATIONAL
DECISION-
MAKING
PROCESS
1. Recognizing and Defining the Decision Situation:
• Recognizing that a decision is necessary (i.e. there must be some stimulus
or spark to initiate the process)
• The stimulus may occur without any prior warning.
• The stimulus for a decision may be either positive or negative.
• By careful analysis and thoughtful consideration of the situation, the
manager must develop a complete understanding of the problem, its
causes, and its relationship to other factors.

2. Identifying Alternatives:
• Developing both obvious/standard alternatives and creative/innovative
alternatives is generally useful.
• The more important the decision, the more attention is directed to
developing alternatives. (Selecting area for its new corporate headquarters
VS choosing a color for the company football team’s uniforms).
3. Evaluating Alternatives:
• A decision tree (shown below) can be used to judge different alternatives.
• Each alternative should be evaluated in terms of its feasibility,
satisfactoriness, and consequences.

Triple tests of
FEASIBILITY,
SATISFACTORINESS, &
AFFORDABLE
CONSEQUENCES
4. Selecting the Best Alternative:
• Two or more alternatives may still remain even after triple tests.
• Choosing the best of these remaining alternatives is the most important
point of decision making.
• One approach is to choose the alternative with the optimal combination of
feasibility, satisfactoriness, and affordable consequences.
• Managers can often develop subjective estimates and weights for
choosing an alternative where objective, mathematical analysis is not
available.

5. Implementing the Chosen Alternative:


• According to the decision situations, implementation could be easy or
difficult.
• Solid operational plans are useful in implementing alternatives.
• Managers should anticipate potential resistance at various stages of the
implementation process.
6. Following Up and Evaluating the Results:
• Managers should evaluate the effectiveness of their decision (i.e. whether
the chosen alternative has served its original purpose).

If an implemented alternative appears ineffective:


o another previously identified alternative (for instance: the original
second or third choice) could be adopted.
o Or, if it is recognized that the situation was not correctly defined at
initial stage, the process should be started all over again.

But, if it is recognized that the original alternative is in fact appropriate:


o Managers might realize that more time and effort should be invested;
o Or, the alternative should be implemented in a different way.
EVIDENCE-BASED MANAGEMENT (EBM)
Evidence-based management: a commitment to finding and using the best
theory and data available at the time to make decisions.

Five Principles of EBM:


• Face the hard facts and build a culture in which people are encouraged to
tell the truth, even if it’s unpleasant.
• Be committed to “fact-based” decision making—which means being
committed to getting the best evidence and using it to guide actions.
• Treat your organization as an unfinished prototype—encourage
experimentation and learning by doing.
• Look for the risks and drawbacks in what people recommend (even the
best medicine has side effects).
• Avoid basing decisions on untested but strongly held beliefs, what you
have done in the past, or uncritical “benchmarking” of what winners do.
BOUNDED RATIONALITY,
SATISFICE,
ESCALATION OF COMMITMENT
Bounded Rationality: Decision making that’s rational, but limited (bounded)
by an individual’s ability to process information.

Satisfice: The tendency to accept solutions that are “good enough”. In other
words, the tendency to search for alternatives only until one is found that
meets some minimum standard of sufficiency.

Escalation of Commitment: An increased commitment to a previous decision


despite evidence it may have been wrong.
In other words, Escalation of Commitment is seen when a decision maker
stays with a decision even when it appears to be wrong.
REFERENCES:
 Robbins, S. P. and Coulter, M. (2016) Management. 13 t h ed.
Harlow: Pearson Education Limited.
 Griffin, R. W. (2016) Fundamentals of Management. 8 t h ed.
Boston: Cengage Learning.

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