Decision Making

Types of decision Steps in rational decision making Planning Definition and characteristics

Decision Making
Defination: Decision Making is the process of choosing the best alternative for reaching objectives Managers make decisions affecting the organization daily and communicate those decisions to other organizational members

!ffective decision making

" major activity of management is the making of decisions# Decisions need to be timely# There are times $hen a decision has to be made# !ven if it turns out not to be the best decision it can be better than not making a decision at all# Decisions often have to be made $hen there is insufficient information# Decisions involve taking risks# !ffective decision making involves gathering $hat information is kno$n% identifying the options% assessing the risks and making the best decision $ith the information available in a timely manner#

&hen do decisions need to be made

Situations include:

Determining the project strategy'approach (esolving project issues Developing estimates Making purchases )ntervie$ing and selecting project team members Selecting e*ternal suppliers +andling disagreements and conflict resolution Scheduling $ork and allocating resources to tasks Managing meetings

Types of decision

Planned and unplanned Temporary and permanent

The decision making process

1our simple steps: .# 2# # 0# /ather the facts )dentify a number of alternatives "ssess the alternatives Decide

&here 2uick decisions need to be made% these steps can be done mentally 3on the fly4 or by one person# &hen time allo$s and the decision is important% more people can be involved and a more thorough decision making process used#

(ational Decision Making 56step Process

.# )dentification of problem 2# )dentification of Decision 7riteria # "llocation of $eights to criteria 0# Development of alternatives ,# "nalysis of alternatives -# Decide on an alternative 8# )mplementation of decision 5# !valuation of decision

The Decision6Making Process

Problem Identification
My salespeople need new computers

Identification of Decision Criteria

Price Weight Warranty Screen type Reliability Screen si e

!llocation of Weights to Criteria

Reliability "# Screen si e $ Warranty % Weight % Price & Screen type '

De(elopment of !lternati(es
!cer Compa) *ateway +P Micromedia ,-C Sony .oshiba

!nalysis of !lternati(es
RSWWPS !cer & ' & ' / 0 Compa) ' & % / 0 1 *ateway 2 0 1 1 $ / +P ' % 0 1 0 % Micromedia / / ' & % & ,-C ' & % 0 1 / Sony 1 % 0 & / $ .oshiba ' &% 0 1 '

Selection of an !lternati(e
!cer "/% Compa) "&/ *ateway /&0 +P "1& Micromedia "#' ,-C "%" Sony "2/ .oshiba "%&

Implementation of an !lternati(e

*ateway

-(aluation of Decision -ffecti(eness

Decisions in the Management 1unctions

"bout (ational Decision Making

)s it al$ays possible to make rational decisions:

.;

All alternatives and consequences are known Preferences are clear

Single, welldefined goal is to be achieved Problem is clear and unambiguous

Rational Decision Making

!inal choice will ma imi"e #a$off

Preferences are constant and stable

No time or cost constraints e ist

<ounded (ationality
behave rationally $ithin the parameters of a simplified decision6making process that is limited by an individual=s ability to process information

satisfice 6 accept solutions that are 3good enough4

Intuitive decision making

<ased on 3gut feeling4

subconscious process of making decisions on the basis of e*perience% values% and emotions
does not rely on a systematic or thorough analysis of the problem generally complements a rational analysis

Types of Problems > Decisions

Well-Structured Problems 6 straightfor$ard% familiar% and easily defined Programmed Decisions 6 used to address structured problems

minimize the need for managers to use discretion facilitate organizational efficiency

Types of Problems and Decisions

Poorly-Structured Problems 6 ne$% unusual problems for $hich information is ambiguous or incomplete Nonprogrammed Decisions 6 used to address poorly6 structured problems
produce a custom6made response more fre2uent among higher6level managers

Procedure% (ule% > Policy

Types of Problems > ?evel )n the @rganization

)ll6structured Top

Type of Problem

,onprogrammed Decisions

?evel in @rganization

Programmed Decisions
&ell6structured ?o$er

Things to consider # # #

Certainty A ho$ certain is a particular outcome: Risk A ho$ much risk can you take:
expected value 6 the conditional return from each possible outcome

ncertainty A ?imited information prevents estimation of outcome probabilities for alternatives#

&hat to do:
maximax choice A optimistic ma*imizing the ma*imum possible payoff taking the best of all possible cases maximin choice A pessimistic ma*imizing the minimum possible payoff taking the best of the $orst cases minimax 6 minimize the ma*imum 3regret4 Bdifference bet$een $hat you get and the best caseC

Decision6Making Styles

Dimensions of Decision6Making Styles

Dalue orientations
Task and technical concerns People and social concerns

Tolerance for ambiguity

?o$ tolerance: re2uire consistency and order +igh tolerance: multiple thoughts simultaneously

Decision6Making Styles
Directive
Prefer sim#le, clear solutions Make decisions ra#idl$ Do not consider man$ alternatives Rel$ on e isting rules

Analytic alcomplex Prefer

problems Carefully analyze alternatives Enjoy solving problems Willing to use innovative methods

%once#tual
Sociall$ oriented &umanistic and artistic a##roach Solve #roblems creativel$ 'n(o$ new ideas

)ehavioral
%oncern for their organi"ation *nterest in hel#ing others +#en to suggestions Rel$ on meetings

Decision Making Styles

#olerance for $mbiguity

+igh "nalytical 7onceptual

Directive ?o$ Tasks and Technical 7oncerns

<ehavioral People and Social 7oncerns

!alue "rientation

/ather the facts

/uidelines

&rite do$n a statement of $hat needs to be decided# )s the decision statement clear and precise: )f not refine the statement# )s the need for the decision a result of an underlying problem% $hich also needs to be addressed: "re there assumptions underlying the decision that need to be clarified and possibly challenged: )s the decision part of a bigger decision that needs to be made% or can this decision be decomposed into smaller decisions:

)dentify alternatives
/uidelines )dentify as many alternatives as possible# Ese brainstorming if appropriate# Do not filter out alternative options at this stage 6 assume they can all be made to $ork# &hen you have generated lots of ideas% consider each one to see if it is a viable alternative# Shortlist the viable alternatives#

Decision making behaviour

People tend to adopt a particular decision making approach as a result of factors such as:

their o$n personality their current mood the organisational culture the personality of the person'people they are dealing $ith the nature of the relationship they have $ith the people they are dealing $ith time pressure and perceived level of stress

<eing a$are of these influences can result in better decision making% by adopting the best decision making approach for each situation#

7ommon !rrors in Decision Making

@ver6confidence +indsight Self6serving Sunk costs (andomness (epresentation "vailability

1raming 7onfirmation Selective perception "nchoring )mmediate gratification

 Don=t:

+elpful hints

Do:

Make assumptions Procrastinate Fump to conclusions Make uninformed decisions 1avour one decision prior to gathering the facts and evaluating the alternatives "llo$ only technical people to make the decisions "ttempt to make a decision in isolation of the conte*t ?et emotion override objectivity

7learly identify the decision to be made )nvolve people 2ualified to help in the decision making )dentify the conte*t of the decision Bthe bigger pictureC )dentify all alternatives "ssess each alternative "ssess the risks 7onsider your 3gut feel4 Make the decision and stick to it

)dentify alternatives
/uidelines )dentify as many alternatives as possible# Ese brainstorming if appropriate# Do not filter out alternative options at this stage 6 assume they can all be made to $ork# &hen you have generated lots of ideas% consider each one to see if it is a viable alternative# Shortlist the viable alternatives#

"dvantages and Disadvantages of /roup6"ided Decision Making

Advantages %isadvantages

1. reater pool of !no"ledge 1. #ocial pressure $. %ifferent perspectives $. &inority domination '. reater comprehension '. (ogrolling ). *ncreased acceptance ). oal displacement +. ,raining ground +. - roupthin!.

%ecision/&a!ing Approach 0ationality 2ounded 0ationality *ntuition ,ypes of Problems and %ecisions Well/structured / programmed Poorly structured / nonprogrammed

Decision-Making Process

%ecision/&a!ing Conditions Certainty 0is! 1ncertainty

%ecision Choose best alternative / maximizing / satisficing *mplementing Evaluating

%ecision &a!er #tyle %irective Analytic Conceptual 2ehavioral

Decision making behaviour

People tend to adopt a particular decision making approach as a result of factors such as:

their o$n personality their current mood the organisational culture the personality of the person'people they are dealing $ith the nature of the relationship they have $ith the people they are dealing $ith time pressure and perceived level of stress

<eing a$are of these influences can result in better decision making% by adopting the best decision making approach for each situation#

Decision making approaches

"pproachesG to decision making situations:

&ithdra$ing: holding off making the decision# Smoothing: focusing on areas of agreement and ignoring areas of difference# 7ompromising: trying to come up $ith a decision that provides some degree of satisfaction for all parties# 7onfronting'problem solving: $orking through the issues# 1orcing: e*ecuting a particular decision kno$ing agreement has not been reached#

G"dapted from D <illo$s% Project Manager=s Hno$ledge<ase% 2nd edition% 2;;0% The +ampton /roup#

Decision making approaches

Skilled project managers and business analysts select the best approach appropriate to the situation# &ithdra$ing:
&ithdra$ to gather more information and perspective @nly a stop gap measure Eseful in 3cooling do$n4 an overheated situation Taking time out B3sleep on it4C before final decision

Smoothing:
(elationship focused rather than solution focused "voids dealing $ith the issues 7an be useful in reducing the emotional tension $here the decision is of lo$ importance# Does not provide a long6term solution

Decision making approaches

7ompromising:
<argaining to get an acceptable agreement 1alls short of the best decision 7an be useful in resolving negotiation deadlocks

7onfronting'problem solving:
Direct approach )dentifies alternatives and $orks through the issues Time6consuming Most likely method to develop the best solution

1orcing:
Esed $hen an urgent decision is re2uired or as a last resort Iecessary for situations $hen decision making is blocked May result in reluctance in e*ecution of decision if not handled $ell#

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