Decision-Making in Modern Organizations

The word "decision" is derived from the Latin root "decido"; which means to cut off. The concept of decision, therefore, is settlement, a fixed intention bringing to a conclusive result, a judgment, and a resolution. Individuals throughout organizations use the information they gather to make a wide range of decisions. These decisions may affect the lives of others and change the course of an organization. A decision is the choice out of several options made by the decision maker to achieve some objective in a given situation.

Decision Making Concepts

Much of managerial work is decision making. Managers often have to consider large amounts of data, synthesis from them only relevant information and make decisions that will best benefit the organization. Hence, information should be conceived and able to prove their value as information system should support and assist effective decision-making. Because of the importance of high-quality decision making, firms are investing heavily in decision making and intelligence systems, which consist of technologies and applications designed to help users make better decisions. When we think of intelligence as applied to humans, we typically think of peoples ability to combine learned knowledge with new information and change their behavior in such a way that they succeed at their task or adapt to a new situation. The decision-making process is a complex process in the higher hierarchy of management. The complexity is the result of many factors, such as the

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interrelationship among the experts or decision makers, a job responsibility, a question of feasibility, the codes of morals and ethics, and a probable impact on business. The personal values of the decision maker play a major role in decisionmaking. A decision otherwise being very sound on the business principle and economic rationality may be rejected on the basis of the personal values, which are defeated if such a decision is implemented. The culture, the discipline and the individual's commitment to goals will decide the process and success of the decision. Whatever may be the situation, if one analyses the factors underlying the decision-making process, it would be observed that there are common characteristics in each of them. There is a definite method of arriving at a decision; And it can be put in the form of decision process model. The decision-making process requires creativity, imagination and a deep understanding of human behavior. The process covers a number of tangible and intangible factors affecting the decision-making process. It also requires a foresight to predict the post decision implications and a willingness to face those implications. All decisions solve a "problem" but over a period of time they give rise to a number of other problems.

Types of Decisions
Structured decisions follow a set of rules. This means that: decisions can be

taken objectively there is a clearly defined method of solving the problem generally, there is a right answer. There are a number of operational

research techniques to help reach structured decisions. These include linear programming and network analysis. Unstructured decisions are normally subjective and do not follow any

definite set of rules. (Efforts are made to turn unstructured decisions into structured ones by setting hard-and-fast criteria.). Semi-structured decisions lie between structured and unstructured

decisions. Some parts of the decision making process are programmable (structured), others not.

Figure 25: Information Requirements of Decision-Making inside organization

There are different types of decision-making at different levels; senior executives face many unstructured decision situations, such as establishing the firm's five or ten-year goals. Middle management faces more structured decision scenarios but their decisions may include unstructured components.

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Operational management and rank-and-file employees tend to make more structured decisions.

Table 7: Examples of Decisions Commonly Made Within Organizations

Other types of decisions are:Analytical decisions: An analytical decision is one that is based on an

analysis of information that has been systematically acquired and evaluated. Much of the information will be quantitative.

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Heuristic decisions:

These solutions will usually depend on trial and

error. Common sense, past experience and general guidelines may be used to help, but the decision maker is not applying any techniques that will guarantee the correct answer first time.

Generally, not all decisions have major consequences or even require a lot of thought. For example, before you come to class, you make simple and habitual decisions such as what to wear, what to eat, and which route to take as you go to and from home and school. You probably do not spend much time on these mundane decisions. These types of straightforward decisions are termed

programmed decisions

, or decisions that occur frequently enough

that we develop an automated response to them. The automated response we use to make these decisions is called the decision rule. For example, many restaurants face customer complaints as a routine part of doing business. Because complaints are a recurring problem, responding to them may become a programmed decision. The restaurant might enact a policy stating that every time they receive a valid customer complaint, the customer should receive a free dessert, which represents a decision rule. On the other hand, unique and important decisions require conscious thinking, information gathering, and careful consideration of alternatives. These are called

non-programmed decisions

. For example, in 2007

McDonalds Corporation became aware of the need to respond to growing customer concerns regarding the unhealthy aspects (high in fat and calories) of the food they sell. This is a non-programmed decision, because for several decades, customers of fast-food restaurants were more concerned with the

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taste and price of the food, rather than its healthiness. In response to this problem, McDonalds decided to offer healthier alternatives such as the choice to substitute French fries in Happy Meals with apple slices and later they banned the use of trans fat at their restaurants.

Decision makers have to choose among the policies that contain various mixes of conflicting goals. This is especially evident in the strategic level. As a result, decision-making systems are useful to assist this situation. The decision making process can be broken down into five stages, namely: 1. Trigger: (find what to fix): Find or recognize a problem, need, or opportunity (also called the diagnostic phase of decision making). This phase involves detecting and interpreting signs that indicate a situation which needs your attention. These signs come in many forms: consistent customer requests for new-product features, the threat of new competition, declining sales, rising costs, an offer from a company to handle your distribution needs, and so on. 2. Information gathering: information. 3. Design: (find fixes): Consider possible ways of solving the problem, filling the need, or taking advantage of the opportunity. In this phase, you develop all the possible solutions you can. 4. Choice: (pick a fix): Examine and weigh the merits of each solution, estimate the consequences of each, and choose the best one (which may be to do nothing at all). The best solution may depend on such factors as cost, ease of implementation, staffing requirements, and timing. This is the Identifies preliminary information needs; obtain

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prescriptive phase of decision makingits the stage at which a course of action is prescribed. 5. Evaluation: (apply the fix): Carry out the chosen solution, monitor the results, and make adjustments as necessary. Simply implementing a solution is seldom enough. Your chosen solution will always need finetuning, especially for complex problems or changing environments.

This five-phase process is not necessarily linear: Youll often find it useful or necessary to cycle back to an earlier phase. When choosing an alternative in the choice phase, for example, you might become aware of another possible solution. Then you would go back to the design phase, include the newly found solution, return to the choice phase, and compare the new solution to the others you generated.

Figure 26: Decision making process phases

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Making Rational Decision-making

The rational decision-making model describes a series of steps that decision makers should consider if their goal is to maximize the quality of their outcomes. In other words, if you want to make sure that you make the best choice, going through the formal steps of the rational decision-making model may make sense. Lets imagine that your old car ha s broken down, and you have enough money saved for a substantial down payment on a new car. It will be the first major purchase of your life, and you want to make the right choice.

The first

step , therefore, has already been completedwe know that you want to buy a
new car. Next, in

step 2 , youll need to decide which factors are important to

you. How many passengers do you want to accommodate? How important is fuel economy to you? Is safety a major concern? You only have a certain amount of money saved, and you dont want to take on too much debt, so price range is an important factor as well. If you know you want to have room for at least five adults, get at least 20 miles per gallon, drive a car with a strong safety rating, not spend more than $20,000 on the purchase, and like how it looks, you have identified the decision criteria. All the potential options for purchasing your car will be evaluated against these criteria. Before we can move too much further, you need to decide how important each factor is to your decision in

step 3 . If each is equally important, then there is no need to

weigh them, but if you know that price and mpg are key factors, you might weigh them heavily and keep the other criteria with medium importance.

Step 4 requires you to generate all alternatives about your options. Then, in step 5 , you need to use this information to evaluate each alternative against
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the criteria you have established. You choose the best alternative ( then you would go out and buy your new car

step 6 ), and

(step 7) .

Of course, the outcome of this decision will influence the next decision made. That is where

step 8 comes in. For example, if you purchase a car and

have nothing but problems with it, you will be less likely to consider the same make and model when purchasing a car the next time.

Figure 27: Steps in the Rational Decision-Making Model

While decision makers can get off track during any of these steps, research shows that searching for alternatives in the fourth step can be the most challenging and often leads to failure. According to "Simon Herbert" we can differentiates among the types of rationality. A decision, in a given situation is: Objectively rational if it maximizes the value of the objective. Subjectively rational if it maximizes the attainment of value within limitation of the knowledge and awareness of the subject.
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Consciously rational to the extent the process of the decision-making is deliberate and a conscious one. Organizationally rational to the degree of the orientation towards the organization. Personally rational to the extent it achieves an individual's personal goals.

The Problems in Making Rational Decisions

(a) Ascertaining the problem: The most common source of mistakes in the

management decisions is the emphasis on finding the right answers rather than the right questions. The main task is to define the right problem in clear terms. For example, the management may define the problem as the "Sales are declining". Actually, the decline of sales is symptomatic; The real problem may be somewhere else. The problem may be the poor quality of the product and you may be thinking of improving the quality of advertising.

(b) Insufficient knowledge:

For perfect rationality, total information leading

to complete knowledge is necessary. An important function of a manager is to determine whether the dividing line is reached between insufficient knowledge and the enough information to make a decision.

(c) Not enough time to be rational:

The decision maker is under pressure to

make decisions. If time is limited, he may make hasty decisions which may not satisfy the test of rationality of the decision.

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(d) The environment may not cooperate:

Sometimes, the timing of the

decision is such that one is forced to make a decision but the environment is not conducive for it. The decision may fail the test of rationality as the environmental factors considered in the decision-making turn out to be untrue. For example, in a product pricing, the factor of oil and petroleum product price is considered as stable. But the post decision environment proves the consideration to be wrong.

(e) Other limitations:

Other limitations are the need for a compromise among

the different positions, misjudging the motives and values of people, poor communications, misappraisal of uncertainties and risks, and inability to handle the available knowledge and human behavior. rationality? It is ensured, if the process of decision-making systematically, whereby all the aspects of the decision-making above are taken care of. process of decision-making Herbert Simon said that a decision maker disregarding the decision or the type of decision How do we then ensure is carried out discussed follows the

and the motive behind the decision. This process is followed consciously or without knowing it. We can put this process in the Decision-Making Model.

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Decision Support Systems (DSS)

Introduction to DSS
DSS is an interactive, flexible computer based information system. It uses rules and models for processing data, to support various managerial levels, ranging from top executives to mangers, in their decision-making. A DSS is usually built to support the solution of certain problem and does not replace the decision maker. As such, it is called a DSS application. It is user friendly with strong graphical capabilities.

Components of Decision Support System

The components of a DSS include a database of data used for query and analysis, software with models, data mining and other analytical tools and a user interface. The DSS database is a collection of current or historical data from a number of applications or groups. It can be small database or a massive data warehouse from a large company, which is continuously being updated. The DSS software system includes software tools for data analysis. They contain various OLAP tools ( online analytical processing enables users to ),

interactively analyze multidimensional data from multiple perspectives data mining tools or a collection of mathematical and analytical models. A model can be a physical model, a mathematical model or a verbal model. Most commonly used are the statistical functions such as means, medians, deviations and scatter plots. Optimization models such as linear programming are used to determine optimal resource allocation.

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Figure: 28 Component of a Decision Support System

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Types of Decision Support Systems

There are several ways to classify DSS applications. Not every DSS fits neatly into one category, but a mix of two or more architecture in one. Communication-driven DSS supports more than one person working on a shared task; examples include integrated tools like Microsoft's NetMeeting or Groove. Data-driven DSS or data-oriented DSS emphasizes access to and manipulation of a time series of internal organization data and, sometimes, external data. Document-driven DSS manages, retrieves, and manipulates unstructured information in a variety of electronic formats. Knowledge-driven DSS provides specialized problem-solving expertise stored as facts, rules, procedures, or in similar structures. Model-driven DSS emphasizes access to and manipulation of a statistical, optimization, or simulation model. Model-driven DSS use data and parameters provided by users to assist decision makers in analyzing a situation; they are not necessarily data-intensive.

Benefits of DSS
1. Improves personal efficiency. 2. Expedites problem solving (speed up the progress of problems solving in an organization). 3. Facilitates interpersonal communication. 4. Promotes learning or training. 5. Increases organizational control.

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6. Creates a competitive advantage over competition. 7. Helps automate the managerial processes.

Model of DSS
The model of a DSS may be represented as a block diagram as indicated below:

Figure: 29 Proposed model for decision support system

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