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Lesson#29
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DECISION MAKING
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DECISION MAKING
Decision Making and Decision Making Process:
A decision is a choice made from two or more alternatives. The
decision-making process is
recognizing and defining the nature of a decision situation, identifying
alternatives, choosing the “best”
alternative, and putting it into practice. An effective decision is one that
optimizes some set of factors
such as profits, sales, employee welfare, and market share. Managers make
decisions about both
problems and opportunities.
Problem Solving Vs Decision Making
o Problem solving: finding the root
cause of a deviation (cause analysis)
o Decision making: choosing from
alternative courses of action (choice analysis)
Problem solving --------------- Decision making
Categories of Decisions
• Technical
• Emotional
• Communication
• Budget
• Ethical
• Personnel
• Career
o Making decisions on the basis
of gut feeling doesn’t necessarily happen independently of rational
analysis; the two complement each other.
o Although intuitive decision making
will not replace the rational decision-making process, it does
play an important role in managerial decision making
Decision-Making Conditions
o Decision Making Under
Certainty
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o A condition in which the
decision maker knows with reasonable certainty what the
alternatives are and what conditions are associated with each alternative. A
situation in
which a manager can make accurate decisions because all outcomes are known. Few
managerial decisions are made under the condition of certainty.
o Decision Making Under Risk
o A condition in which the
availability of each alternative and its potential payoffs and costs
are all associated with risks.
o Decision Making Under Uncertainty
o A condition in which the decision
maker does not know all the alternatives, the risks
associated with each, or the consequences of each alternative. Uncertainty is a
situation in
which the decision maker is not certain and cannot even make reasonable
probability
estimates concerning outcomes of alternatives.
_ The choice of alternative is
influenced by the limited amount of information
available to the decision maker.
_ It’s also influenced by the
psychological orientation of the decision maker
The Decision-Making Process:
Step 1: Identifying a problem. A problem is a discrepancy
between an existing and a desired state of
affairs. In order to identify a problem, you as a manager/leader should
recognize and understand the
three characteristics of problems:
o You must be aware of the problem. Be
sure to identify the actual problem rather than a symptom of
the problem.
o You must be under pressure to act. A
true problem puts pressure on the manager to take action; a
problem without pressure to act is a problem that can be postponed.
o You must have the authority or
resources to act. When managers recognize a problem and are under
pressure to take action but do not have necessary resources, they usually feel
that unrealistic
demands are being put upon them.
Step 2: Identifying decision criteria. Decision criteria
are criteria that define what is relevant in a
decision.
Step 3: Allocating weights to the criteria. The criteria
identified in Step 2 of the decision-making
process do not have equal importance, so the decision maker must assign a weight
to each of the items
in order to give each item accurate priority in the decision.
Step 4: Developing alternatives. The decision maker must now
identify viable alternatives that
could resolve the problem.
Step 5: Analyzing alternatives. Each of the alternatives must now
be critically analyzed by evaluating
it against the criteria established in Steps 2 and 3.
Step 6: Selecting an alternative. This step to select the best
alternative from among those identified
and assessed is critical. If criteria weights have been used, the decision maker
simply selects the
alternative that received the highest score in Step 5.
Step 7: Implementing the alternative. The selected alternative
must be implemented by effectively
communicating the decision to the individuals who will be affected by it and
winning their commitment
to the decision.
Step 8: Evaluating Results. This last step in the decision-making
process assesses the result of the
decision to determine whether or not the problem has been resolved.
Evaluating Alternatives in the Decision-Making Process
Quantitative and Qualitative Factors in Decision Making:
Quantitative Factors
o Investment appraisal
o Break-even analysis
o Market research
o Sales forecasting
o Critical path analysis
o Decision trees
Qualitative Factors
o Stakeholder analysis
o HRM
o SWOT
The Classical Model of Decision Making: Classical model is based on
economic conditions and
considered to be normative. It relates to accomplishment of goals that are known
and agreed upon. The
classical model Strives for certainty by gathering complete information. This is
also use as criteria for
evaluating alternatives that are known.
Decision Making Behavior:
Behavior always varies person to person. People tend to adopt a particular
decision making approach as
a result of factors such as;
o Their own personality
o Their current mood
o The organisational culture
o The personality of the person/people
they are dealing with
o The nature of the relationship they
have with the people they are dealing with
o 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.
Decision Making Approaches:
o Withdrawing: holding off
making the decision.
o Smoothing: focusing on areas
of agreement and ignoring areas of difference.
o Compromising: trying to come
up with a decision that provides some degree of satisfaction for
all parties.
o Confronting/problem solving:
working through the issues.
o Forcing: executing a
particular decision knowing agreement has not been reached.
What Kinds Of Decisions Do People Make In The Workplace?
o Handling complex problems
individually
o Handling complex problems as a team
o Focusing effort
o Judging people
How to Make Better Decisions:
1. Increase Your Knowledge
o Ask questions.
o Get experience.
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o Use consultants.
o Do your research.
o Force yourself to recognize the facts
when you see them (maintain your objectivity).
2. Use Your Intuition
o A cognitive process whereby a
person instinctively makes a decision based on his or her
accumulated knowledge and experience.
3. Weigh the Pros and Cons
o Quantify realities by sizing up
your options, and taking into consideration the relative
importance of each of your objectives.
4. Don’t Overstress the Finality of Your Decision
o Remember that few decisions are
forever.
5. Make Sure the Timing Is Right
o Decisions always depend on the
time.
Helpful Hints:
Don’t Do
o Make assumptions
o Delay
o Jump to conclusions
o Make uninformed decisions
o Favour one decision prior to
gathering
the facts and evaluating the alternatives
o Allow only technical people to make
the decisions
o Attempt to make a decision in
isolation
of the context
o Let emotion override objectivity
o Clearly identify the decision to be
made
o Involve people qualified to help in
the
decision making
o Identify the context of the decision
(the
bigger picture)
o Identify all alternatives
o Assess each alternative
o Assess the risks
o Consider your “gut feel”
o Make the decision and stick to it
Roadblocks to Good Decision Making
o Human Cognition
o Our mental ability to comprehend
and understand something
o Human Perception
o Difficulty isolating problems
o Tend to think of only narrow range of
possible solution
o Human Bias
o Tendency to shape responses based
on stereotypes, memory, and current position
Decision-Making and Technology: In today’s completive world Information
technology can also help
and support the decision-making. Different decision making tools are available
for manager and leaders
to use in practical life. |
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