DECISION MAKING

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Introduction

Universally defined as choosing between alternatives. The processes of decision are largely techniques for narrowing choice Chester Barnard.

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Phases

Intelligence activity searching for conditions Design activity Inventing, developing and analyzing possible courses of action Choice activity selecting a particular course of action

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Phases by Mintzberg

Identification Phase

Recognition Diagnosis

Development Phase

Search

Design

Selection Phase
Judgment Analysis

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Bargaining

Behavioral Decision Making

Decision Rationality
Means

to an end

Barriers 1. 2. . 1. 2.
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Means ends chain Concept is obsolete Types of Rationality Objective decision that maximizes given values in a given situation. Subjective decision that maximizes attainment relative to knowledge of given subject

Contin
3. Conscious - decision in which adjustment of means to end is conscious process. 4.Deliberately - degree to which adjustment of means to ends has been deliberately sought by the individual or organization. 5.Organisational - aimed at the organisations goal. 6.Personally - aimed at individual rational goals.

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Economic Rationality Model

Decision maker is perfectly and completely rational in every way. Assumptions

Decision

will be completely rational in the means -ends sense and consistent system of preferences awareness calculation are simple

Complete Complete No

limit to complexity of computation

Probability
Marginal 3/5/12

cost is equal to marginal

Model Rational Techniques

ABC (Activity Based Costing)

Determines It

cost according to what is paid for different tasks employees perform provides decision making much more accurate break down of cost data

EVA (Economic Value Added)

True

cost of all capital is determined. E.g. True cost of equity capital is opportunity cost this expenditure on R&D and employee training is treated as capital investment and is added to cost of capital.

Under
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Contin

MVA (Market Value Added)

Firm

having strong EVA will have strong MVA in long run and opposite in short run that stock market places on prospective streams of future EVAs

Value

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Decision Making Style

Charismatic Enthusiastic, captivating, talkative, dominant Thinkers Intelligent, logical, academic Skeptic Demanding, disruptive, agreeable, rebellious Follower Responsible, cautious, brand driven, bargain, conscious Controller Logical, unemotional, sensible, accurate, analytical, detail orriented

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Decision Making Styles Matrix

Value Orientation Task and technical People and social concerns concerns Analytical Conceptual Directive Behavioral

Toleran ce For Ambigu ity

High Low

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Conti..
1.

Directive

Efficient, logical, pragmatic, systematic Focus on facts and get things done quickly Action oriented and have short run focus Exercise power and display autocratic leadership

2.

Analytical

Tend to overanalyze things Take long to take decisions Respond well to new or uncertain situations

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Conti..
3. Conceptual
Broad

perspective

Consider Discuss Rely

many options and future responsibilities things with many people on intuition

Willing Foster
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to take risks and good at discovering creative solutions an idealistic and indecisive approach

Conti
4. Behavioral

Work well with others Prefer situations in which opinions are exchanged Receptive to situations, supportive and warm Avoid conflict and keep everyone happy Do not like taking tough decisions

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Simons Bounded Rationality Model

Management decision making behavior

1. 2.

Managers attempt to satisfice or look for satisfactory or good enough alternative. They recognize that the world they perceive is a drastically simplified model of the real world. They satisfice rather than maximize without first determining all possible behavior alternatives As they treat the world simple, they are able to decisions with relatively simple rules of thumb or tricks of the trade or from force of

3.

4.
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Conti

Like economic rationality model, Simons model is also rational and maximizing, but it is bounded. Difference is one of degree as under some conditions, satisficing approaches maximizing, whereas in other conditions, satisficing and maximizing are very far apart. In purely competitive environment decision maker must make maximizing decisions due to profit maximizing.

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Conti

In an oligopolistic market (e.g. automobile, steel industry), satisficing is different from maximizing as firms can survive on the basis of adequate profit or share of the market. Social barriers that prevent maximization
Resistance Desire

to change

for status of image politics

Concern
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Organizational

Judgmental Heuristic and Biases Model

Given by Bazerman, this model describes how judgment can be biased. Decision makers rely on heuristics (simplified strategies or rules of thumb) Judgmental heuristics reduce the information demands on the decision maker but under certain conditions can lead to errors and systematically biased outcomes.

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Types of heuristics
1.

Availability Heuristics

Refers to decision makers tendencies to assess the frequency, probability or likelihood of an event occurring by how readily they can remember it. Valuable to decision makers because events that happen most frequently or are most vivid tend to lead to accurate judgment. Error or bias results when recall is influenced by factors unrelated to the frequency of an events occurrence.

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Conti
2.

Representativeness Heuristic

Uses decision rules of thumb based on the likelihood of an events occurrence as judged by the similarity of that occurrence to stereotypes of similar occurrences. Decision makers expect a few examples of a random event to behave in the same way as large numbers of the event.

3.

Anchoring and Adjustment Heuristic

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Decision maker makes a judgment by starting from an initial value or anchor and then adjusts to make the final decision.

Participative Decision Making

Participation involves individuals or groups in the process Can be formal or informal and it entails intellectual, emotional as well as physical involvement Degree of participation :
No Participation Full Participation

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Conti

Application of Participation Techniques

Informally Formally

on an individual or a team basis

on a program basis

Group Participation
Consultative Democratic

techniques

techniques

Informal participation positive effect on employee productivity and satisfaction

Representative participation positive 3/5/12 impact on satisfaction but not on

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