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Week 4 Problem Solving & Decision Making

The document outlines the concepts of creative problem solving and decision making, emphasizing the differences between problems, problem solving, and decision making. It details types of managerial decisions, conditions for decision making, and a systematic decision-making process consisting of seven stages. Additionally, it discusses group decision-making advantages and disadvantages, techniques for improving group decision making, and various quantitative tools for effective decision making.

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tinashed913
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5 views

Week 4 Problem Solving & Decision Making

The document outlines the concepts of creative problem solving and decision making, emphasizing the differences between problems, problem solving, and decision making. It details types of managerial decisions, conditions for decision making, and a systematic decision-making process consisting of seven stages. Additionally, it discusses group decision-making advantages and disadvantages, techniques for improving group decision making, and various quantitative tools for effective decision making.

Uploaded by

tinashed913
Copyright
© © All Rights Reserved
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Business Management 2

(B6-BM2-13)
CREATIVE PROBLEM SOLVING AND
DECISION MAKING
Objectives
• By the end of the session, students should be able
to:
• Differentiate between problems, problem solving
and decision making.
• Outline the different types of managerial decisions.
• Explain the major types of decision making
conditions.
• Explain the tools used in decision making.
What is decision making?
Definition
• Decision making is the process of identifying and
selecting a course of action to solve a specific problem
and capitalize on opportunities.
• A problem exists when there is a difference between
what has actually happened and what was expected
to happen.
• The problem solving process can be informal where
decisions are made on the basis of tradition, what is
normally done. If tradition is not used, the problem can
be referred to a higher level manager.
Types of managerial decision
making
• Managers in all organizations make
decisions which have different
outcomes. The type of decision to be
made will depend on the nature and
frequency of the problem.
• Decisions made by managers can
either be programmed or non-
programmed.
Types of managerial decision
making, cont’
a) Programmed decisions

• These are routine, repetitive decisions that are


made in accordance with some habit, rule or
procedure.
• With programmed decisions, managers rely on
rules, policies and procedures. Examples?
• To some extent programmed decisions limit
the flexibility of managers. (How so?)
Types of managerial decision
making, cont’
b) Non programmed decisions
• These are specific solutions created through
an unstructured process to deal with unique,
poorly defined and non-routine problems.
• All managers in the organization make non-
programmed decisions.
• These decisions often require creativity.
Example: Making a decision on what to do
with a failing product line.
Decision making conditions

• Decisions can be made under conditions of


certainty, risk and uncertainty.

a) Certainty
• The available options, benefits and costs
associated with each option are known. For
instance, a customer investing P12 000 with
Stanbic Bank Botswana at a fixed rate of 4%
for 30 days in a fixed deposit.
Decision making conditions,
cont’
• Under conditions of certainty, managers need to select
the best option which yields the greatest outcome.
(Consider other investments with known interest rates
and periods.)
b) Risk
• Under conditions of risk, the outcomes of each
alternative are unknown, however, probabilities can be
assigned to each outcome.
• For example consider Agrivet (a company that sells
animal feeds)which may try to determine the effect on
annual sales of molasses if the price of molasses were to
be increased by 5%. Managers may estimate that there
could be a 35% chance that sales will drop; and a 25 %
chance that sales will drop by 10 %; and a 40 % chance
that sales will stay the same.
Decision making conditions
cont’
Management needs to make a decision on whether the price
for molasses should be increased at the risk of losing sales.

c) Uncertainty
• Under conditions of uncertainty, managers make decisions
when they do not have information, and probabilities can
not be assigned to outcomes. Probabilities can not be
assigned since historical data does not exist.
• Sources of uncertainty could be related to economic crises,
for instance recession. Managers rely on ‘gut feelings’
when making decisions under conditions of uncertainty.
The decision making process
• The decision making process is systematic and
managers go through the following stages:
Stage 1: Identifying and diagnosing problems
• Identify three issues:
a) Define what the problem is, or more specifically,
a discrepancy between an existing and a desired
state of affairs
b) Distinguish the symptoms of a problem from the
real problem, for example: Is a decline in sales a
problem or symptom of a problem? Why?
The decision making process
cont’
c) Define the problem in terms of organizational
objectives that are being blocked.

Stage 2: Set goals and criteria


• With regard to programmed decisions, Stages 2
through 5 don’t have to be followed since criteria
for such decisions has already been made.(Refer
to rules, policies and procedures).
• Goals and criteria need to be set for non-
programmed decisions. The specified goals
represents the outcome through which
management directs decision making.
The decision making process
cont’
Stage 3: Developing Alternatives
• A manager should develop various ways to solve the
problem. The alternatives can be standard(options
used in the past) as well as innovative ones such as:
• Brainstorming: generating ideas without evaluating
them.
• Nominal group technique: Group members meet but
operate independently
• Delphi technique: Uses experts to make predictions
about future events.
The decision making process
cont’
Stage 4: Evaluate Alternatives
• Options should be evaluated in terms of their merits and
demerits, the costs as well as the benefits. Managers
should strike a balance on the probable consequences of
the decision.

Stage 5: Select the best course of action


• Determine which solution is the best in light of the
organizational objectives as well as resource availability.
The selection of the best option is dependent on the
manager’s past experiences and background.
The decision making process
cont’
Stage 6: Implement the chosen option
• This stage is crucial since it is concerned with
putting the decision into action.
Implementation includes communicating the
decision to those affected and getting their
commitment to it.
• Allocate the necessary resources and
delegate.
The decision making process
cont’
Stage 7: Monitoring and Evaluation
• This stage is important since it
appraises the result of the decision to
see whether the problem has been
resolved or not. (Suppose the problem
still persists, what do you do?)
Group Decision making
Advantages
• Use of different skills and expert knowledge to
solve the problem.
• Diverse and divergent views can be taken into
consideration.
• Alignment of values and beliefs through
deliberations.
• Commitment to decisions since the majority of the
members will have participated in the discussions.
Group Decision making
• Increase in motivation and morale of organisational
members due to participation.
• Participation in group problem solving and decision
making enhances the development of group process
skills.

Disadvantages
• Time consuming.
• Domination of one group over the others.
• May lead to ‘groupthink’.
Techniques for Improving
group decision making
1. Brainstorming
• This technique is used to generate as many
imaginative solutions to organizational problems
as possible without evaluating them.
• During brainstorming sessions, criticism is not
allowed, imaginative solutions are welcome, and
the quantity of ideas is critical.
• Positive comments are allowed during the
brainstorming sessions.
Nominal Group
Technique
• This is a structured group decision making technique
where members are physically present but work
independently.
• Initially members meet in groups of seven to ten and
members independently write their ideas and all the
ideas are clarified in a guided discussion.
• The group leader then gathers information from all the
participants.
• Ideas are clarified through discussions.
• Members then rank the ideas which will result in some
acceptable solution.
Delphi Technique
• Experts from different geographical locations have
to make decisions and they do not have to be
physically present.
• Initially a questionnaire is administered wherein
experts are asked to provide their solutions
anonymously which are then transcribed.
• The results are compiled and given to members.
• The members are asked again for their solutions and
the same process is followed until there is a general
consensus in the solutions provided to the problem.
Decision making tools
Quantitative tools for decision making
1) Linear programming: It is used for optimally
allocating scarce resources among competing
uses(minimise losses and maximise profit).

2) Queuing theory: This is a quantitative tool for


analysing the costs of waiting lines. The objective is
to achieve an optimal balance between the cost of
increasing service and the time it takes for individuals,
machines or materials must wait for service, for
example: commercial banks and airlines.
Decision making tools
3) Decision tree: This is a graphic illustration of the
various solutions available to solve a problem. It is
designed to estimate the outcome of a series of
decisions.

4) Break-even analysis: This technique involves


the calculation of the volume of sales that will result
in a profit. Managers should forecast the sales
volume and the cost of production. (Point where Total
Revenue (TR) =Total Costs (TC) is the BEP.
Decision Making tools
5) Capital budgeting: Technique used to
evaluate alternative investments. Investments
are analysed in financial terms. Various
methods can be used to evaluate investments,
for example, payback period and the net
present value(NPV).
Blackboard Questions
1) Describe the relationship between problems,
problem solving and decision making.
2) Discuss the different types of decisions made by
managers in an organization.
3) Under what conditions are decisions made in the
organization? Cite relevant examples to support
your argument.
4) Explain the decision making process.
5) Identify and explain the three main techniques used
in improving group decision making.
Thank you!

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