Decision Making

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This PPT gives an overview of planning and decision making. To maximise the benefit, please use this PPT along with a
ny good text book on management

and
use the Net extensively
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The process of determining the organizations goals and objectives and selecting a course of action to accomplish them within the environment inside and outside the organization So it is deciding in advance :
What to do, When to do it, How to do it, Who is to do what
A plan is a predetermined course of action to achieve stated goals Plans are based on forecasts and assumptions of the future Plans need to be flexible so that they can adapt to inevitable changes in the environment
The simpler the plan, better it is!

Need Assessment
Establish Objectives
Develop Premises
Generate Alternatives
Implementation & Control
Formulate Derivative Plans
Select Alternative
Identify a latent or felt organizational need The organizational need could be a result of an opportunity or a problem While making the need assessment, ensure:
CREDIBILITY: They are demonstrably objective and science/knowledge-based,
SALIENCY: Relevant to decision-making needs and stakeholders interests,
LEGITIMATCY: Conducted within a framework that complies with recognized rules, standards, practices, and common interests; acting within appropriate entities.
Now that we are clear of the organizational need in the form of an opportunity or a problem,
What do we hope to achieve?
Planning premises are the assumptions about the
Environment
in which the plans will be made & implemented
There will exist multiple methods to achieving an objective
Enlist all Possible Alternatives
Brainstorming
Nominal group technique
Delphi technique
The first filter for narrowing down on the list of alternatives is to look for congruence with organizational mission and strategy Conduct feasibility analysis The shortlisted alternatives will then be evaluated for pros and cons The alternatives selected then will be subjected to cost benefit analysis
Projections will be developed for possible consequences

The optimum alternative will be selected for implementation
Derivative plans are secondary plans detailing the finer aspects of implementation at departmental and unit levels It is critical that derivative plans indicate timelines and schedules clearly Care needs to be taken that the derivative plans for various departments are oriented in one desired direction
A plan is only as good as its implementation! Secure cooperation and participation by clarifying the purpose of the plan and role of departments and individuals in the bigger picture
Create an enabling environment for the successful implementation of the plan

Simultaneous monitoring and control is necessary to stay on track!
Top Down Bottom Up
Composite
Team Approach
The top management assesses the need, establishes the objective, formulates the plan and then communicates the plan down the hierarchy Commonly seen in highly centralised organisations
Typical of micro, small and medium enterprises

Typical of large family owned businesses too Success of plans depends heavily on the experience, style and capabilities of the top management
The planning process is decentralised and lower level managers formulate the department or unit level plans which are then collated by the top management This is a participatory form of planning
The success of plans now depends on the capabilities and competence of lower level managers Quite typical of large sales organizations
A more balanced method The top management defines the objectives and premises and communicates it down the hierarchy The middle and lower level managers the formulate their plans and communicate them to the top management Such plans once approved (with modifications if needed) by the top management have been seen to generate maximum ownership and effort by the lower level managers and executives
A team of managers is constituted based on their experience and competence The team is then tasked to formulate the plan for objectives as communicated to them by the top management The team of managers the formulates the plan based and communicates it to the top management who evaluates it and approves it
The approved plan is the communicated down the hierarchy to the lower level managers for implementation
Plans can be classified on the basis of their
nature, intended use, time horizon, scope etc..
Formal plans are written down documents defining specific goals and action plans to achieve those goals
Informal plans are often ad hoc unwritten plans which are general in nature and lack continuity
Single use plans are one-time plans specifically designed to meet the needs of a unique situation
Standing plans are ongoing plans that provide guidance for activities performed repeatedly in an organization
A vision statement is essentially an aspirational statement that describes an ideal image an organization would like be identified with in the future.
A value statement describes the principles, notions and beliefs that an organization holds supreme and are used to guide individual and collective decisions and actions
The mission statement of an organization communicates the role it intends to play in the socio economic ecosystem and the value it intends to deliver Mission is the purpose, the fundamental reason for existence of an organization Objectives set down quantifiable aims with clear timelines for the organization to achieve
Objectives & Goals indicate the desired future state or target a management program intends to achieve
Policies: A statement that guides decision making in recurring events. Procedures: A chronological sequence of action steps needed to be taken.
Programs: An aggregate of related action plans designed to accomplish a task or an objective.

Schedules: A time table of work clarifying the chronological order of tasks and time the tasks need to be executed.
Rules describe in detail the manner in which a task is to be carried out Rules leave no scope for individual discretion or judgment Guidelines are broad guides for decision making Guidelines are not rigid and leave considerable scope for individual discretion and judgment
Strategy is the direction and scope of an organisation over the long term, which achieves advantage in a changing environment through its configuration of resources and competences with the aim of fulfilling stakeholder expectation
Tactics are actionable steps, decisions and maneuvers made to successfully execute strategy
The internal environment of an organization

The manpower, capital, structure, mission, policies etc
The external environment

Political environment Economic environment Social environment Technological environment Natural environment Legal environment
Decision is a choice from available alternatives
It is a Process, not an event
It is the core of planning (choosing from alternatives)
Decision Making Approach

Rational Bounded Rationality Intuitive
Decision Makers Style

Directive Analytical Conceptual Behavioural
Decision Making Process
Decision Making Conditions

Certainty Risk Uncertainty
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Type of Decision
Programmed Non-Programmed
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Programmed
Non-Programmed
In structured and routine

problems Relies on established criteria Decision making by precedent
In unstructured, novel, ill

defined non recurring situations Relies on subjective judgments Involves greater risk
Ill-Structured
Top
Type of Problem
Programmed Decisions
Non programmed Decisions
Level in Organization
Well-Structured
Lower
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Certainty: Only one state of nature can exist Risk: Several known states of nature may exist and each has a known probability of occurring Uncertainty: What state of nature can occur is unknown and consequently probabilities cannot be assigned
Uncertainty
Risk
Certainty
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Rationality
Bounded rationality and satisficing
Intuitive decision making
Single, well-defined goal is to be achieved Problem is clear and unambiguous
All alternatives and consequences are known
Preferences are clear
Rational Decision Making
Final choice will maximize payoff
Preferences are constant and stable
No time or cost constraints exist
Conditions for rational decision making are rarely met! In the absence of ideal decision making conditions, the best possible decision will have to do So, rational action limited due to lack of information, time, or ability to analyze alternatives in light of a goal sought; unclear goals; or a lack of ability to take a risk The absence of ideal rational decision making conditions is called bounded rationality!
Tendency of managers to make decisions while facing a situation of bounded rationality, which is almost always The course of action good enough is chosen
The making of a good enough decision considering the existence of bounded rationality is called satisficing!
The decision making depends on the psychology of the manager which can range from Intuitive to rational The critical factor is tolerance for ambiguity which differs from a need for consistency and order to the ability to process many thoughts simultaneously
Directive: Fast, efficient, and logical

Analytical: Careful and able to adapt or cope with new situations Conceptual: Able to find creative solutions Behavioural: Seeks acceptance of decisions
Individualism versus collectivism Power distance
Tolerance of uncertainty and risk

Perceptions of acceptability and/or desirability of outcomes
Identify Problem
Establish Decision Making Criteria
Allocation of Weights to Criteria
Generate Alternatives
Implementation & Control
Select Alternatives
Evaluate Alternative
Problems are clear
Objectives are clear

People agree on criteria and weights
All alternatives are known

All consequences can be anticipated Decision makers are rational
Candidate Rahul
Criteria Rating Motivation 8 Interpersonal 6 Sales Knowledge Product Knowledge 6
X Weight = Score x .30 = 2.40 x .25 = 1.50 7 x .25 =1.75 x .20 = 1.20 Total Score = 6.85
X Weight = Score x .30 = 2.70 x .25 = 2.00 6 x .25 =1.50 x .20 = 1.00 Total Score = 7.20
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Candidate Ashish
Criteria Rating Motivation 9 Interpersonal 8 Sales Knowledge Product Knowledge 5
Possible solutions examined one at a time

If alternative is unworkable it is discarded When acceptable (not necessarily best) solution is found, it is likely to be accepted Thus search and analysis effort is likely to stop at first acceptable solution
Explicit criteria and weights not used to evaluate alternatives Decision makers use heuristics
A rule that guides the search for alternatives into areas that have a high probability for yielding success
Google Heuristics!!
Satisficing
Selection of a minimally acceptable solution Rather than being an optimizer, this model sees him or her as being a satisficer
Implicit favorite is identified early in decision process Perceptual distortion of information occurs
Decision rules are adopted that favor the implicit favorite Positive features of the implicit favorite highlighted over the alternative
By experience
Experimentation
Systematic analysis of relevant data
Provide a numerical basis for decision making reduces decisions to looking at a monetary value placed on different choices Qualitative factors look to take account of these other issues that may influence the outcome of a decision Can be wide ranging and especially need to consider the impact on human resources and their response to decisions
Quantitative
Qualitative
Investment appraisal
Break even analysis NPV / IRR / EVA
CSR
SWOT HRM
Cost benefit analysis

Forecasting Market research Critical path analysis Decision trees
PESTEL analysis
Alignment with mission Effect on image Effect on brand Long term implications
A decision support tool that uses a tree-like graph or model of decisions and their possible consequences, including chance event outcomes, resource costs, and utility Drawn from left to right, decision trees have three types of nodes:
Decision Nodes (represented by squares) Chance Nodes (represented by circles) End Nodes (represented by triangles)
Determining the effect of decreasing one or more key factors and simultaneously increasing one or more other key factors in a decision A systemic approach to balancing the trade-offs between time, cost and performance How much must I give up to get a little more of what I want most? What is Pareto Optimality?
Decision Maker Characteristics Knowledge Ability Motivation
?
Decision Environment Characteristics Irreversibility Significance Accountability Time and monetary constraints
Problem Characteristics Unfamiliarity Ambiguity Complexity Instability
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But in most business organizations, decisions are made by GROUPS, not individuals!
Groups can accumulate more knowledge. Groups have a broader perspective and consider more alternatives. Individuals who participate in group decisions are more satisfied with the decision and are more likely to support it. Group decision processes serve an important communication function, as well as a useful political function.
Groups often work more slowly than individuals. Group decisions involve considerable compromise that may lead to less than optimal decisions. Groups are often dominated by one individual or a small clique, thereby negating many of the virtues of group processes. Over-reliance on group decision making can inhibit managements ability to act quickly and decisively when necessary.
When groups are...

Highly cohesive
That results in...

Decisions of poor quality Poor group performance Wasted resources Lost opportunities
Insulated from outside input

Dominated by leader
...They often experience...

Illusion of invulnerability Illusion of morality Illusion of unanimity
Leading to decisions characterized by...

Limited search for information Limited analysis of alternatives Rejection of expert opinions Few, if any, contingency plans
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Self-censorship
Peer pressure for conformity Stereotyping of opponents Rationalization
The modern business environment is highly competitive and speed is the key!
1.
Real-time information: Fast decision makers must have access to and be able to process real-time information. Multiple simultaneous alternatives: Fast decision makers examine several possible alternative courses of action simultaneously, not sequentially.
2.
3.
Two-tiered advice process: A two-tiered advisory system, whereby all team members are allowed input but greater weight is given to the more experienced coworkers.
Consensus with qualification: Fast decision makers attempt to gain widespread consensus on the decision as it is being made, not after. Decision integration: Fast decision makers integrate tactical planning and issues of implementation within the decision process itself.
4.
5.
Training for decision making
Advanced levels of data mining

Use of artificial intelligence in DSS
Heuristics
Fuzzy logic Statistical and econometric modelingThe list goes on!!
Google these terms!!
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Decision Making

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ashishpillai@gmail.

ny good text book on management

use the Net extensively

The simpler the plan, better it is!

Implementation & Control

Formulate Derivative Plans

What do we hope to achieve?

Planning premises are the assumptions about the

There will exist multiple methods to achieving an objective

Enlist all Possible Alternatives

Nominal group technique

Projections will be developed for possible consequences

Create an enabling environment for the successful implementation of the plan

Top Down Bottom Up

Typical of micro, small and medium enterprises

Plans can be classified on the basis of their

nature, intended use, time horizon, scope etc..

Programs: An aggregate of related action plans designed to accomplish a task or an objective.

The internal environment of an organization

The external environment

Decision is a choice from available alternatives

It is a Process, not an event

It is the core of planning (choosing from alternatives)

Decision Making Approach

Decision Makers Style

Decision Making Process

Decision Making Conditions

In structured and routine

In unstructured, novel, ill

Non programmed Decisions

Bounded rationality and satisficing

Intuitive decision making

Single, well-defined goal is to be achieved Problem is clear and unambiguous

All alternatives and consequences are known

Preferences are clear

Rational Decision Making

Final choice will maximize payoff

Preferences are constant and stable

No time or cost constraints exist

Directive: Fast, efficient, and logical

Individualism versus collectivism Power distance

Tolerance of uncertainty and risk

Establish Decision Making Criteria

Allocation of Weights to Criteria

Implementation & Control

Problems are clear

Objectives are clear

All alternatives are known

Criteria Rating Motivation 8 Interpersonal 6 Sales Knowledge Product Knowledge 6

Criteria Rating Motivation 9 Interpersonal 8 Sales Knowledge Product Knowledge 5

Possible solutions examined one at a time

Systematic analysis of relevant data

Cost benefit analysis

Decision Maker Characteristics Knowledge Ability Motivation

Problem Characteristics Unfamiliarity Ambiguity Complexity Instability

When groups are...

That results in...

Insulated from outside input

...They often experience...

Leading to decisions characterized by...

Training for decision making

Advanced levels of data mining

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