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LECTURE 4 Decision Making

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9 views

LECTURE 4 Decision Making

Uploaded by

Ariful Haidar Munna
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd
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Decision making

Learning Outcomes
• Why study decision making?
• Tasks in making decisions
• Programmed and non-programmed decisions
• Decision-making conditions
• Four decision-making models
• Biases in making decisions
• Vroom & Yetton decision styles
Themes in decision making
Pressure for change

Source: Hannagan (2008)


Types of Decisions
Future
Direction
Management
Time Level
Available
Top (Senior)
Considerable
Decision Type
Strategic
Non Programmed Lower
Little (Operational,
Time Horizon Admin)
Long Term Administrative Consequences
Major
Operational
Programmed
Short Term Minor

Current
issues
Source: Hannagan (2008)
Types of Decisions
• Programmed - Repetitive (Simon, 1960)
– Familiar, structured problems and information known
– Resolve by procedures, rules, policies and quantitative
analysis
• Non-programmed - Customised
– Unfamiliar, unique problem, information unclear and
open to interpretation
– Resolution depends on judgment, intuition,
negotiation, creativity – for example, Tesco Durham
development
Decision-making conditions
• Certainty
– All information available (interest rates example)
• Risk
– Enough information to estimate (loans example)
• Uncertainty
– Goals clear, but lack info. to decide action
(e.g. competitors’ reactions)
• Ambiguity
– Goals AND how to reach them unclear (e.g. broad strategic
issues where people disagree over mission)
Degree of risk
and decision-making type

Certain Risk Uncertain

Source: Boddy (2008) Adapted from Daft (2000)


Decision-making conditions

Source: Huczynski and Buchanan (2007)


Types of Decision-making models
Rational
• The ‘classical’ and systematic approach geared towards
the maximisation of efficiency.
• Views the manager as acting with complete information.

Define objectives

Identify alternatives

Calculate consequences

Decide

Evaluate
Types of Decision-making models

Administrative

• Developed by Simon (1960) – is a rational model


• Incorporates more realistic assumptions – uncertainty and
ambiguity in environment (Cyert and March, 1992)
• Assumes not all information is available
• Identified problems are un-structured and NOT measurable
• Decisions under this model tend to be NON-programmed –
intuitive, experience based, judgment based
• Two [2] key elements
Bounded Rationality & Satisficing
Bounded Rationality
Humans decision making ability based on limited capacity to
absorb and analyse information

Hence boundary beyond which unable to process information


effectively (Simon, 1982)

Diversity of environments and rapidity of their impact on


managerial change make above point acute

Limitation on how rational managers can be

Satisficing
Making decisions that are ‘good enough’. Retains some
rationality. Not optimal but acceptable. Pragmatic nature. Parties
have satisfactory outcome. BUT…Satisfactory for WHO?
Types of Decision-making models
- Differing people with varying
interests, values, beliefs and goals
Political & behave in ways to help maximise
influence through power and
authority
− Enhance one person or group at expense of another
− Conflict common as coalitions made and enact behaviour to
achieve their own (or sub groups) goals
− Information can be incomplete and ambiguous
− Diversity of interests parties make information complex
difficult to ‘read’
− Rational approach very difficult due to complexity/range of
information
− ‘Satisficing’ is a common outcome as managers seek closure on
issues
Types of Decision-making models
Garbage ∙ Linked with
Can
situations where cause
and effect is ambiguous and those
involved don’t know what their preferred
outcome is
• Other models clearly set out process through
which managers arrive at decision
• Often information that helps frame a process is
missing or partial.
• Luck, chance, or accident are important elements
in understanding this approach
Based on March’s (1988) 4 key streams that come
together to inform decisions in a highly ambiguous
environment

 Choice opportunities (the garbage can) – pre-set times


when decisions have to be made i.e. promotion
 Participants (garbage variety) – people who have the
influence to present opportunities i.e. marketing
manager with challenge to ops staff to adapt existing
product
 Problems (garbage variety) – problems that concern
people i.e. service delivery expectation
 Solutions (garbage variety)– problems that require
solutions i.e. new ideas
Decision making: basic problems

Competence Information Legitimacy

Complexity Values

• Decisions depend on judgements – judgements about the


nature of the dilemma, the probabilities of events, and the
desirability of consequences.

• Therefore decision making is inherently subjective.


Sources of Biases
• Prior hypothesis
– Select information which supports previous beliefs
• Representativeness
– Generalise from small sample
• Optimism
– Systematically understate costs, overstate benefits
• Illusion of control
– Overestimate chances of favourable outcome
• Escalating commitment
– Put in more resources despite evidence of failure
• Emotional attachment
– To people or things - Also anger/fear
Dependent or independent
(Possible relationships between decisions)

Source: Boddy (2008)


Dilemma’s in decision making
• Assume process is Iterative (routine)
• in reality the situation is not - ceases to be iterative, i.e.
may miss a step
• Recognising problem
• Subjective i.e. perception - not all may see a problem
• Setting and weighting criteria
• Subjective, and in itself a set of decisions
• Developing alternatives
• Costly – how many to develop? (Mintzberg, 1976)
Decision making styles:
Participation in decision making
• Vroom and Yetton (1973) developed a contingency
model of decision making – i.e. the extent to which
it is wise to involve subordinates in decision depends
on the circumstances
• Following ‘Decision Tree’ model outlines the eight
situational factors
Vroom and Yetton’s decision tree

Figure 7.8 Vroom and Yetton’s decision tree


Source: Reprinted from Vroom and Yetton (1973), p. 188
The Vroom–Yetton decision-making model

Source: Huczynski and Buchanan (2007)


Example of
Decision-making models
Ishikawa diagram: Effect, causes and sub-causes
Ishikawa diagram: The five Ms
Statistical sampling distribution: Bell Curve of sample results
Summary
• Decision Making forms an important part of any manager’s workload, no matter at
what level of management the individual operates and what the type or business
of the organisation.

• The business environment in which such management decision making takes place
is becoming increasingly complex, making the task of decision making that much
more difficult. Strategic and financial consequences of inappropriate decisions for
an organisation are becoming greater.

• The types of decisions faced will naturally vary considerably from one organisation
to another and from one manager to another. While decision-making approaches
must be tailored to fit the particular circumstances, many decision situations have
common aspects.

• There is no universal remedy that can be offered to a decision maker as a foolproof


and guaranteed method for decision making.

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