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Lesson#16
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Phases of decision-making
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Phases of decision-making
There are five phases of the decision making process, the
details of these phases have already been
discussed in detail. These five phases will be elaborated in the
form of an example for better
understanding.
16.1 Phases of decision-making process are:
•
Intelligence
– searching for conditions in the
environment that call for decisions
•
Design
– inventing, developing, and analyzing
possible courses of action
•
Choice
– selecting a course of action from those
available
•
Implementation
– implementing the selected course of
action
•
Monitoring
– checking the consequences of the
decision made after implementation
Phases Example
Assume that a multinational company is considering opening a
branch in Pakistan. Identify typical activities
that would be performed in each phase (intelligence, design,
choice, and implementation) of the decision
to open or not to open a branch.
16.2 The Intelligence Phase
Scan the environment to identify problem situations or
opportunities. Conditions that call for decisions are
identified. Typical Activities include:
• Country Risk based on following
o
Country credit rating
o
Transparency
o
Corruption
• Facilities for one window operation (levels of bureaucracy)
o
SRO Culture
o
Govt. Policy
o
Law & Order
o
Exchange rates
For instance, international banks while entering into country
make assessment of exposure and thus limit
the maximum number of transactions the bank can undertake.
a) What are the possible advantages, disadvantages, and risks?
b) How much resources will be diverted from other activities?
c) When should we start? And so forth.
16.3 The Design Phase
Possible courses of actions are invented, developed, and
analyzed.
Typical Activities include:
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•
Select criteria for
assessing the alternatives (e.g., ROI, market share, etc.)
•
Create alternatives:
invest now, invest later, do not invest
•
Analyze levels and
timing of investment
•
Information flow for
decision making
•
Prepare a feasibility
study
•
How will the choice be
made, by whom, and when?
16.4 The Choice Phase
A course of action is selected out of the available alternatives
as devised in the
design phase. Typical Activities include:
•
Get information
•
Final evaluation
•
Sensitivity analysis
16.5 The Implementation Phase
Implement the selected course of action. Typical Activities
include:
•
Follow the
implementation plan
•
Deal with resistance to
change and necessary approvals and authorizations
•
Conduct training
•
Transfer resources
16.6 Rational Individual Models of Decision Making
Since individuals in total make up organization, hence it is
reasonable to build information systems which
facilitate the individual decision making. These are:
•
Rational Man
(Comprehensive Model)
•
Bounded rationality
•
Muddling (Successive
Comparison)
o
Psychological (Cognitive
Types)
The basic assumption of all these models is the human beings are
rational.
•
An individual has goals
and objectives.
o
Alternative course of
actions can be followed to achieve these goals.
o
Every alternative has a
utility and payoffs which helps him to rank the alternatives.
•
There is an impact or
consequence for every alternative being followed.
Rational Man Model
•
In a rigorous rational
model, it is presumed that the individual is rational enough to
accurately rank all the alternatives.
•
However, in the real
world of humans, specifying all of the alternatives and consequences
is impossible.
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•
Information systems
based on this model need to be based on availability of perfect and
complete information on all alternatives so as to ensure
certainty.
•
Real life situations
need to be given room for chances which this model does not provide
for.
Rational Man Model – Example
1. In a pharmaceutical drug company, the preparation and testing
of life saving drug is a critical phase, and
choice of a perfect alternative is inevitable. Hence the
information system devised to support it should
be such that it can record and monitor even the slightest
variations.
2. In an ammunitions factory, the testing and quality control of
various bullet, shells, missiles, bombs, etc is
a sensitive issue. Since chances of error are quite high, the
system from selecting and discarding should
be with high sensitivity level.
Bounded Rationality
Keeping in view the high level of perfection and completeness
required by the rigorous rational model,
certain adjustments were made in this model. The purpose was to
seek a sufficing instead of an
optimizing outcome. Bounded rationality focuses on the fact that
Individuals prefer to avoid new
uncertain alternatives and rely on tried and-true rules (SOP’s).
According to this model, individuals bound
the rational behavior of choosing the best alternative by
choosing a sufficing alternative. That is why it is
termed as bounded rationality. Information systems based on this
model are close to reality in terms of
considering alternatives which are most commonly available.
Quick decision making can be encouraged
through this model.
Bounded Rationality -- Example
Cost benefit analysis is a must in choosing an alternative in a
decision making model. Where an alternative
being given is difficult to implement in terms of costs
involved, the management might chose a less than
perfect alternative hence SUFFICING INSTEAD OF OPTIMISING.
“Muddling Through”
This model is closer to reality as compared to the above two
goals. This model has introduced the concept
of incremental decision making, which decisions are taken by
choosing policies most likely the previous
ones. For this purpose the information systems need to be
intelligent and include knowledge based
systems to help accumulate and use knowledge.
Psychological (Cognitive Types)
This refers to the underlying personality dispositions toward
the treatment of information, the selection of
alternatives and evaluation of consequences. • The model
proposes that human beings are value
maximizes and in that sense are rational. But humans differ in
how they maximize the value.
Psychological (Cognitive Types)
There are two types of cognitive type of decision making.
•
Systematic
– problem is approached in a structured
way in terms of some formal method.
•
Intuitive
– problem is approached with multiple
methods using trial and error to find a
solution.
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Of both the above methods, one should be selected based on the
problem at hand. Information systems
should follow a systematic and intuitive pattern based on the
problems or cases it is supposed to deal
with. MIS and DSS can be seen as having a systematic approach
towards problem solution. The concept
of heuristics, fuzzy logic, etc, is devised to follow the
intuitive patterns.
16.7 Organizational Models in Decision Making
Organizations are thought to have singular goals controlled by
senior level decision makers who are
completely informed. How organization makes decisions as a
whole, following are certain models.
•
Bureaucratic
•
Political
•
Garbage Can
Bureaucratic model
Whatever organizations decide is a result of Standard Operating
Procedures, evolved over time. In general
organizations do not chose or decide in a rational sense,
instead they chose a specific set of SOP’s. Radical
policy changing is discouraged at all costs.
Empire Building
Empire building is a business term that refers to a common
problem in larger organizations, in which
managers attempt to gather more administrative and financial
power. Power can only be shared in an
organization with key employees in terms of their
responsibilities & functions. Such employees are the key
players in the decision making process. Hence decisions taken in
an organization are a result of collective
efforts of the leaders involved. This model is also termed as
Political Model.
Garbage Can Model
This model states that organizations are not rational. Decisions
made are largely on accidental basis. Hence
wrong solutions may be applied to wrong problems in an
organization and critical mistakes may occur.
Information systems should be designed to support and assist in
relevant decision making, instead of
making unrelated and wrong decisions.
System Design & Decision Making
The purpose of elaborating the concept of decision making in the
context of IS was to make you realize the
importance of the fact that, Information system must support the
managers for timely and effective
decision making. While designing the information system, output,
in terms of suitable reports is essential to
analyze, highlight and bring to attention situations that may
require decision making. The top manager looks
for value addition to his/her knowledge of business operation. |
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