Problem Solving and

Decision Making Tools

Are these interdependent ?
 Learning Objectives

LO-1: Understand decision making and its ubiquitous presence in managerial

functions.
LO-2: Internalize the categorization of decisions besides the process and
element of creativity in decision making.
LO-3: Distinguish the models enumerating the decision making behaviour
and the conditions under which decisions are made.
LO-4: Appreciate the difficulties faced in decision making.

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 Meaning of a Decision

 A decision is a choice between two or more alternatives.

 This implies three things:
i. Managers have a purpose in mind when they make a decision.
ii. Managers have alternatives available when they are making a
decision.
iii. When managers make decisions they are choosing—they are
deciding what to do on the basis of some conscious and
deliberate logic or judgement.

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 Types of Decisions

 Programmed and Non-Programmed Decisions:

 In the case of programmed decisions, each manager is guided by

the same set of rules and policies. The decisions already exist for
a repetitive problem.

 In case of non-programmed decisions for a non-repetitive

problem, each manager may bring his own personal beliefs,
attitudes and value judgements to bear on the decision process.
These decisions involve the wise use of managerial discretion.

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 Types of Decisions

 Major and Minor Decisions

 Degree of Futurity of Decision
 Impact of the Decision on Other Functional Areas
 Qualitative Factors that Enter the Decision
 Recurrence of Decisions
 Routine and Strategic Decisions: Routine/tactical decisions have as a
primary purpose of achieving as high a degree of efficiency as possible in
the company’s ongoing activities. These decisions require little deliberation
and money and are taken by managers at lower levels, while strategic
decisions impact the direction and state of enterprise. They require lengthy
deliberation and large funds and are taken higher levels managers.
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 Types of Decisions

 Sequential and Bear-by-the-Tail decisions

In a sequential decision, the manager makes a decision one part at a
time; when the results of the first part are known, he can use them in
deciding the second part and so on. In bear- by –the- tail decisions, once
started the manager cannot stop or retrace or defer his/her steps.
Instead, he/she has to move ahead.
 Individual and group decisions
Individual decisions are taken where the problem is of a routine nature,
where the analysis of variable is simple and where definite procedures
to deal with the problem already exist. First important and strategic
decisions which may result into some change in the organisation are
generally taken by a group. 6
 Types of Decisions
 Individual and Group decisions

Increased acceptance by those

affected
Easier coordination
Easier communication
More information processed
Take longer
Can be indecisive
Can compromise
Can be dominated
May have a prior commitment

continued….
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 Types of Decisions
 Individual and Group Decisions: Two approaches to group decision-
making have recently been proposed as alternatives to the
conventional interacting or discussion group:
i. Nominal Group Technique
ii. Delphi Technique
 Simple and Complex Decisions
 Mechanistic or routine decisions
 Judgemental decisions
 Analytical decisions
 Adaptive decisions

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 Types of Decisions

 Heuristics and Intuitive decisions

 Heuristics are rules of thumb which organisations evolve
from their experience for use in recurring decision
situations.
 In intuitive decisions, also known as “seat of the pants”
decisions, the decision-maker relies on his intuition or
hunch.

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 Steps in Rational Decision Making

Recognize Developing Measuring

Deciding Diagnosing and Implement Follow-up
the Alternative
Priorities the Problem
Solutions
comparing the Decision of Action
Problem consequences

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 Recognizing the Problem

A problem is an undesirable state of things . Yet surely it is an

opportunity as well.
First of all, it is necessary to search the environment for the existence
of a problem.
 When there is a deviation from past experience
 When there is a deviation from the plan
 When other people bring problems to the manager
 When competitors outperform the manager’s organization

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 Deciding Priorities among Problems

 A manager should not allow himself to be bogged down by all sorts

of problems. He should set a sequence for them on the basis of
strategic considerations.
 On examination he will find that some of his problems are such
which can be solved best not by him but by his subordinates
because they are closest to them.
 At Toyota, a Pareto analysis is done to prioritise a number of
different problems. The Pareto diagram uses bar graphs to sort
problems according to severity, frequency, nature or source and
displays them in order of size to show which problems are the most
important.

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 Diagnosing the Problem

 In order to distinguish between symptoms and sources/roots of

trouble, every problem should be correctly diagnosed.
 Leaping immediately to action may result in “extinction by instinct”.
 “Five Whys” approach forces a manager to ask “Why” ideally five
times. It can be used in simple situations
 Over diagnosis results in “paralysis by analysis”, i.e., the manager
never reaches the action stage.

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 Developing Alternative Solutions or Courses of
Action

 After having diagnosed the problem, the next step is to develop

alternative solutions. Generally, for every problem there are
alternative solutions.
 While developing various alternatives, a manager should always
keep in mind their feasibility.
 The manager should have clear recognition of all those limiting
factors which can make the accomplishment of an alternative
difficult or impossible.

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 Creativity and Innovation

 Two simple ways of developing alternatives are to review the past

experience of a similar situation and to scrutinise the practice of
other companies.
 Sometimes these ways may not yield the right types of
alternatives.
 In such situations, the manager has to depend upon his own ability
to develop new and useful ideas.

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 Measuring and Comparing the Consequences of
Alternative Solutions
 Once appropriate alternative solutions have been developed, the
next step in decision-making is to measure and compare their
consequences.
 This involves a comparison of the quality and acceptability of
various solutions.
 The quality of a solution must be determined after taking into
account its tangible and intangible consequences.
 Tangible consequences are those which can be quantitatively
measured or mathematically demonstrated.
 Intangible consequences are those which cannot be quantitatively
measured or mathematically demonstrated.
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Continued….
 Measuring and Comparing the Consequences of
Alternative Solutions
 Acceptability of a solution is important. Difficulties arise when a solution,
though good in quality is poor in acceptability or vice versa.
 A manager should consider the quality and acceptability of a solution, not
from the viewpoint of his own department but that of all departments.
 Sometimes, enough information is not available about the quality or
acceptability of a solution, it is then advisable to do ‘pilot-testing’.
 An alternative may have several possible outcomes, depending upon the
occurrence of external conditions or ‘states of nature’ over which the
decision-maker has little or no control.
 His evaluation of alternatives must include consideration of such
conditions, and an assessment of the probabilities that they will occur.

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 Converting the Decision into Effective Action

 A decision is not complete until someone has been assigned

responsibility to carry it out.
 The communication of decision should be carried out to the
employees in clear and unambiguous terms.

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 Follow-up of Action

 The action should be continuously followed up, to ensure whether

the decision is achieving its desired purpose and whether the
forecasts and assumptions upon which the decision was based are
still valid.
 Changing conditions necessitate new decisions and the process
begins again.

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 Rationality in Decision-Making
(Models of Decision-Making Behavior)

The Continuum of Decision-Making

Behavior

Administrative
Economic Man
Man Model/
Model/ Social Man Model
Bounded
Econologic Model
Rationality Model

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Herbert Alexander Simon & Decision Making
 1 ) Intelligence activity
 2) Design activity
 3) Choice activity
 4) Evaluation
Bounded Rationality: In real life situations, it is just not possible to maximize while
making decisions due to constraints imposed on manager. While making decisions, he
cannot act in a perfectly rational way as he does not has enough resources (time,
money ,efforts, information processing skills) to search all possible alternatives to his
problem. Hence, he leaves his search for options the moment he gets a SATISFICING
(Satisfaction +Sufficing) solution instead of the best solution. The rationality of man in
real life, thus, is within bounds/constraints when he is making decisions .
 Environment of Decision-Making
 Certainty: By conditions of certainty, we mean that the decision-
maker can specify the consequences of a particular decision, or
act.
 Risk: In decision-making under risk, the consequences of a
particular decision cannot be specified with certainty but can be
specified with known probability values.
 Decision Tree: The approach involves linking a number of event
“branches”, which when fully arrayed, resemble a tree.
 Uncertainty: Uncertainty exists when the decision-maker does
not know the probabilities associated with the possible
outcomes, though he has been able to identify the possible
outcomes and their related pay offs.
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A 5-Step Problem-Solving Strategy

 Specify the problem – a first step to solving a problem is to identify it

as specifically as possible. It involves evaluating the present state
and determining how it differs from the goal state.
 Analyze the problem – analyzing the problem involves learning as
much as you can about it. It may be necessary to look beyond the
obvious, surface situation, to stretch your imagination and reach for
more creative options.
 seek other perspectives
 be flexible in your analysis
 consider various strands of impact
 brainstorm about all possibilities and implications
 research problems for which you lack complete information. Get help.
 Formulate possible solutions – identify a wide range of possible solutions.
 try to think of all possible solutions
 be creative
 consider similar problems and how you have solved them
 Evaluate possible solutions – weigh the advantages and disadvantages of each
solution. Think through each solution and consider how, when, and where you could
accomplish each. Consider both immediate and long-term results. Mapping your
solutions can be helpful at this stage.
 Choose a solution – consider 3 factors:
 compatibility with your priorities
 amount of risk
 practicality
 Common Difficulties in Decision-Making

 Non-actionable Information
 Un-supporting Environment
 Non-Acceptance by Subordinates
 Ineffective Communication
 Incorrect Timing

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