Decision Making

Decision Making Defined

• Decision making is about identifying and choosing alternatives based on the values and preferences of the decision maker.
• Decision making is the process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them.

Business and Life Management Function

• Decision making is an important step in the “planning” function of business management.
• It is also a part of everyone’s daily living.

Decision Making Processes (Models)

Herbert A Simon Model

Major three phases:

1. Intelligence: Searching the environment for conditions calling for decisions.
2. Design: Inventing, developing and analyzing possible courses of action. Creating alternative solutions.
3. Choice: Selecting an alternative or course of action from e ones designed. Choice is made and implemented.

Extended Model

It goes beyond making the choice.

1. Recognition of problem or need for decision.
2. Analysis and statement of alternatives.
3. Choice among the alternatives.
4. Communication and implementation of decision.
5. Follow-up and feedback of results of decisions.

Principle of Limiting Factor

Limiting factors stand in the way of accomplishing a desired objective. If these factors are clearly recognized, managers will confine their search for alternatives to those, which will overcome the limiting factors.

For example, for turning around a manufacturing organization, the means could be to acquire some capital equipment. Then, limiting factor could be cash and credit. Consequently, the manager’s alternatives would be confined to those, which would overcome these limiting factors.

Knowledge of Outcomes

An outcome defines what will happen if a particular alternative or course of action is chosen. Knowledge of outcomes is important when there are multiple alternatives. In the analysis of decision making, three types of knowledge with respect to outcomes are usually distinguished:

1. Certainty: Complete and accurate knowledge of outcome of each alternative. There is only one outcome for each alternative.
2. Risk: Multiple possible outcomes of each alternative can be identified and a probability of occurrence can be attached to each.
3. Uncertainty: Multiple outcomes for each alternative can be identified but there is no knowledge of the probability to be attached to each.

Taking Decisions Under Certainty

• If the outcomes are known and the values of the outcomes are certain, the task of the decision maker is to compute the optimal alternative or outcome with some optimization criterion in mind.
• As an example: if the optimization criterion is least cost and you are considering two different brands of a product, which appear to be equal in value to you, one costing 20% less than the other, then, all other things being equal, you will choose the less expensive brand.
• However, decision making under certainty is rare because all other things are rarely equal.
• Linear programming is one of the techniques for finding an optimal solution under certainty. Linear programming problems normally need computations with the help of a computer.

Taking Decisions Under Risk

• The making of decisions under risk, when only the probabilities of various outcomes are known, is similar to certainty.
• Instead of optimizing the outcomes, the general rule is to optimize the expected outcome.
• As an example: if you are faced with a choice between two actions one offering a 1% probability of a gain of $10000 and the other a 50% probability of a gain of $400, you as a rational decision maker will choose the second alternative because it has the higher expected value of $200 as against $100 from the first alternative.

Taking Decisions Under Uncertainty

• Decisions under uncertainty (outcomes known but not the probabilities) must be handled differently because, without probabilities, the optimization criteria cannot be applied.
• Some estimated probabilities are assigned to the outcomes and the decision making is done as if it is decision making under risk.

Programmed and Non-programmed Decisions

• Programmed decisions are those decisions that can be pre-specified by a set of rules or decision procedures.
• Programmed decisions are reflected in rulebooks, decision tables and regulations.
• Programmed decisions imply decision making under certainty because all outcomes must be known.
• Non-programmed decisions have no pre-established decision rules or procedures.
• Non-programmed decisions may range from one-time decisions relating to a crisis to decisions relating to recurring problems where conditions change so much that decision rules cannot be formulated.
• Programmed decisions can be delegated to lower hierarchical levels in an organization or automated.
• Non-programmed decisions generally cannot be delegated to lower hierarchical levels or automated.

Satisficing: More Often Used Decision Making Strategy

• Decision making requires a rational selection of a course of action. However, complete rationality can seldom be achieved particularly in the area of managing. So, what a manager normally settles for is limited rationality. This was referred to by Herbert Simon as “satificing”, picking a course of action that is satisfactory or “good enough” under the circumstances as well as in the light of the size and nature of risks involved in uncertainty.
• Many people choose the first satisfactory alternative rather than the best alternative. If one is very hungry, one might choose to stop at the first decent looking restaurant rather than attempting to choose the best restaurant from among all (the optimizing strategy).
• The word satisficing was coined by combining satisfactory and sufficient. For many small decisions, such as where to park, what to drink, which pencil to use, what to wear and so on, the satisficing strategy is pretty decent.

Decision Making Procedure

1. Identify the decision to be made together with the goals it should achieve.
2. Get the facts.
3. Develop alternatives.
4. Rate each alternative.
5. Rate the risk of each alternative.
6. Make the decision.

Vital Aspects of Decision Making at Organizational Level

• Is the action really required for which you need to take decision?
• Therefore, is the decision really required to be made in the organization? Taking decision where decision is not needed is wasteful or non-value adding activity.
• Many people at many levels in the organization can take decision. The main consideration is who should that person and what should be the level? Top management need not burden itself with the entire decision making.
• Does the organization culture support the decision making at different levels and will the organization commit to the decision once made?
• Will the organization, then, also be fully committed to allocate the necessary resources required to implement the decision?
• If a decision is needed and organizational commitment is available, ask; what is real problem, the real issue? Sort out symptoms from the real causes related to an issue. Get down to the root causes and find out the main root causes, the ‘A’ class ones.
• Decisions impact results. So, ask a question: what are the expected outcomes of the decision? The answer indicates the specifications of the desired solutions. The solution can then be worked out within these guidelines; you now have a frame of reference.
• Develop many alternative solutions. Exhaust the entire range of possible alternative solutions including a contingency plan. More the merrier. Be open to the full range of solutions. Then, you can evaluate various alternative solutions and you are likely to hit the best one this way.
• There will always be more correct decisions to any problem and there will also be less correct decisions to the same problems. Utmost care is required while evaluating the alternatives so that you choose the more correct ones. Even less than perfect implementation of more correct decision will bring in far better results that the perfect implementation of not so correct or less correct or wrong decisions.
• Have you worked on getting support for your decision particularly from those who will be involved in its implementation and who are likely to be impacted by it? It you have not done it already, do get the “buy in” soon for your decisions and solutions to be successful in terms of bringing in the desired results.
• Do you have appropriately competent and skilled people around in the organization to implement the solutions the right way?
• As you start implementing your decision, alongside put in place the systems for seeking feedback, reviewing the effectiveness of implementation of solutions and incorporating the mid-course corrective actions.

One Most Important Tip for Decision Making

Do not start unless you have one more alternative to choose from.

For More Guidance, Assistance, Training and Consultation

Contact: prodcons@prodcons.com

Training in "Decision Making" is provided by Prodcons Group's Mr Shyam Bhatawdekar and/or Dr (Mrs) Kalpana Bhatawdekar, renowned management educationists, management consultants and trainers- par excellence, with distinction of having trained over 150,000 people from around 250 organizations.

Also refer: (Prodcons Group) http://prodcons-group.blogspot.com/, (Training Programs by Prodcons Group) http://training-development-function.blogspot.com/, (Productivity Consultants) http://productivity-consultants.blogspot.com/

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(Counseling at Workplace)http://counseling-skill.blogspot.com/
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(Self-confidence) http://self-confidence-improvement.blogspot.com/
(Six Sigma) http://six-sigma-system.blogspot.com/
(Six Thinking Hats) http://six-thinking-hats.blogspot.com/
(Soft Skills) http://soft-skills-competencies.blogspot.com/
(Spiritual Quotient/Intelligence) http://spiritual-quotient.blogspot.com/
(Strategic Management) http://strategic-managing.blogspot.com/
(Stress Management) http://management-of-stress.blogspot.com/
(Stress Management) http://managing-stress-strain.blogspot.com/
(Success) http://success-achievement.blogspot.com/
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(Supply and Demand) http://supply-demand-laws.blogspot.com/
(Talent Management) http://managing-talent.blogspot.com/
(Team Building) http://team-building-working.blogspot.com/
(Telephone Etiquette) http://telephone-etiquette.blogspot.com/
(Three Sixty Degrees Appraisal System) http://three-sixty-degrees-feedback.blogspot.com/
(Time Management) http://time-life-management.blogspot.com/
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(Total Quality Management- TQM) http://total-quality-concept.blogspot.com/
(Training and Development) http://training-function.blogspot.com/
(Trainers’ Qualities) http://trainers-qualities.blogspot.com/
(Transaction Analysis- TA) http://transaction-analysis.blogspot.com/
(TRIZ- Inventive Problem Solving) http://triz-problem-solving.blogspot.com/
(Value Engineering/Analysis) http://value-engineering-analysis.blogspot.com/
(Winners and Losers) http://winners-losers.blogspot.com/
(World Class Manufacturing) http://world-class-manufacturing.blogspot.com/
(Written Communication) http://written-communication.blogspot.com/
(Zero Based Budgeting) http://zero-based-budgeting.blogspot.com/

Counseling: General and Psychological
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(Children’s Behavior Problems) http://child-behavior-problems.blogspot.com/
(Cholesterol Control) http://controlling-cholesterol.blogspot.com/
(Counseling: Psychological) http://counselingfamily.blogspot.com/
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(Cross Cultural Etiquette) http://cross-cultural-etiquette.blogspot.com/
(Emotions) http://emotion-feeling.blogspot.com/
(Executive Etiquette and Manners) http://executive-manners.blogspot.com/
(Exercises) http://exercises-plan.blogspot.com/
(Family Counseling) http://family-harmony.blogspot.com/
(Health: Homeopathy) http://homeopathy-medicines.blogspot.com/
(LifeManagement: Competencies) http://knol.google.com/k/shyam-bhatawdekar/competency-matrix/6txz9nck6g3/4#
(Life Management: Effectiveness Management: HSoftware) http://knol.google.com/k/shyam-bhatawdekar/management-in-life-profession-family/6txz9nck6g3/3#
(Life management: I Am Liberated) http://knol.google.com/k/shyam-bhatawdekar/i-am-liberated/6txz9nck6g3/6#view
(Marriage Counseling) http://marriage-counsel.blogspot.com/
(Ownership on Job) http://job-ownership.blogspot.com/
(Parental Responsibilities) http://parental-responsibilities.blogspot.com/
(Personality) http://human-personality.blogspot.com/
(Qualities of Spouse) http://spouse-qualities.blogspot.com/
(Quit Smoking) http://quit-smoking-plan.blogspot.com/
(Self Development) http://managing-self.blogspot.com/
(Self-confidence) http://self-confidence-improvement.blogspot.com/
(Stress Management) http://managing-stress-strain.blogspot.com/
(Stress Management) http://management-of-stress.blogspot.com/
(Swine Flu and Its Prevention) http://swine-flu-precaution.blogspot.com/
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