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DECISION MAKING - Coggle Diagram
DECISION MAKING
PROCESS OF DECISION MAKING
STEP 1: IDENTIFYING A PROBLEM
Characteristics of Problems
A problem becomes a problem when a manager becomes aware of it.
There is pressure to solve the problem.
The manager must have the authority, information, or resources needed to solve the problem.
STEP 2: IDENTIFYING DECISION CRITERIA
Factors to Resolve the Problem
Costs that will be incurred (investments required)
Risks likely to be encountered (chance of failure)
Outcomes that are desired (growth of the firm)
STEP 3: ALLOCATING WEIGHTS TO THE CRITERIA
Assigning a weight to each item places the items in the correct priority order of their importance in the decision-making process
STEP 4: DEVELOPING ALTERNATIVES
Identifying viable alternatives
Alternatives are listed (without evaluation) that can resolve the problem.
STEP 5: ANALYZING ALTERNATIVES
Appraising each alternative’s strengths and weaknesses
An alternative’s appraisal is based on its ability to resolve the issues related to the criteria and criteria weight
STEP 6: SELECTING AN ALTERNATIVE
The alternative with the highest total weight is chosen
STEP 7: IMPLEMENTING THE ALTERNATIVE
Conveying the decision to and gaining commitment from those who will carry out the alternative
STEP 8: EVALUATING DECISION EFFECTIVENESS
The soundness of the decision is judged by its outcomes
eg. How effectively was the problem resolved by outcomes resulting from the chosen alternatives?
DECISION MAKING TYPES AND CONDITIONS
NON-PROGRAMMED DECISIONS
unique and nonrecurring decisions that require a custom-made solution
PROGRAMMED DECISIONS
a repetitive decision that can be handled by a routine approach
Procedure - a series of interrelated steps that a manager can use to apply a policy in response to a structured problem
Rule - an explicit statement that limits what a manager or employee can or cannot do
Policy - a general guideline for making a decision about a structured problem
TYPES OF PROBLEMS
Structured Problems - straightforward, familiar, and easily defined problems
Unstructured Problems - problems that are new or unusual and for which information is ambiguous or incomplete
DECISION-MAKING CONDITIONS
Certainty
a situation in which a manager can make an accurate decision because the outcome of every alternative choice is known
Risk
a situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives
Uncertainty
Limited information forces managers to rely on intuition, hunches, and “gut feelings.”
Maximax: the optimistic manager’s choice to maximize the maximum payoff (return on investment/ final outcome).
Maximin: the pessimistic manager’s choice to maximize the minimum payoff.
Minimax: the manager’s choice to minimize maximum regret (cost).
GROUP DECISION MAKING
BENEFITS OF GROUP DECISION MAKING
Provides more information
Generates more alternatives
Increases acceptance of a solution
Increases legitimacy of the decision
DRAWBACKS
Time-consuming
Infrequent and often inefficient interaction
Minority domination
Groupthink
Ambiguous responsibility
EFFECTIVE GROUP DECISION MAKING
More accurate decisions
More heterogeneous representation
More time-consuming
More creative
More effective in accepting final solution
APPROACHES IN DECISION MAKING
RATIONAL DECISION-MAKING
describes choices that are logical and consistent while maximizing value
Bounded Rationality - decision making that’s rational, but limited (bounded) by an individual’s ability to process information
Satisfice - accepting solutions that are “good enough.”
INTUITIVE DECISION-MAKING
DECISIONS MAKING BASED ON
the basis of experience
feelings
accumulated judgment
ERRORS IN DECISION MAKING
DECISION-MAKING STYLES
Linear Thinking Style - a person’s tendency to use external data/facts; the habit of processing information through rational, logical thinking
Nonlinear Thinking Style - a person’s preference for internal sources of information; a method of processing this information with internal insights, feelings, and hunches
DECISION-MAKING BIASES AND ERRORS
Heuristic - using “rules of thumb” to simplify decision making (based on experience rather than practice)
Overconfidence Bias - holding unrealistically positive views of oneself and one’s performance
Immediate Gratification Bias - choosing alternatives that offer immediate rewards and avoid immediate costs
Confirmation Bias - seeking out information that reaffirms past choices while discounting (overlooking) contradictory information
Self-Serving Bias - taking quick credit for successes and blaming outside factors for failures :
EFFECTIVE DECISION MAKING
GUIDELINES
Guidelines for making effective decisions:
Understand cultural differences
Know when it’s time to call it settled
Use an effective decision making process
HABITS OF HIGHLY RELIABLE ORGANIZATIONS (HROs)
Are not tricked by their success
Defer to the experts on the front line
Let unexpected circumstances provide the solution
Embrace complexity
Anticipate, but also anticipate their limits
Decision - making a choice from two or more alternatives
Problem - an obstacle that makes it difficult to achieve a desired goal or purpose