Decision
A choice made from available alternatives
Decision Making
The process of identifying problems and opportunities, developing
alternative solutions, choosing an alternative, & implementing it
Problem:
the difference between the current & desired performance
situation
Opportunity:
a chance, occasion, event or breakthrough that requires a decision
to be made
FACTORS:
Time
Resources:
Finances
Labor
Materials
competition
Programmed decision: HEURISTICS
Decisions that involve problems or situations that have
occurred often enough that both the circumstances and
solutions are predictable, made in response to recurring
organizational problems
Routinized decisions
Non-programmed decisions
Decisions made in response to problems and opportunities that
have unique circumstances, unpredictable results, and
important consequences for the company
Bounded Rationality
Decisions limited by information gathered & time
Seven Step Decision Making Process
Define the Problem or Opportunity
Symptom
Signals that something is wrong & draws the manager’s attention
to finding the cause – that is the problem
Identifying Limiting Factors
Those constraints that rule out certain alternative solutions;
one common limitation is time
Developing Potential alternatives
Alternatives
Potential solutions to the problem
Analyzing the Alternatives
Does the alternative fit within the limiting factors?
What are the consequences of using this alternative?
Selecting the Best Alternative
Implementing the Decision
Establishing a Control & Evaluation System
Decisions:
imperfect resources bastardizes good
decision making
Optimum
Best choice; excellent information; time to
consider all options
Satisfycing
A good choice given limited information &
limited time
Garbage can model
Poor choice; little or no information or poor
quality information; immediate decision
required
INFLUENCE OF MANAGERIAL STYLE ON
DECISION MAKING
Personal decision-making approaches
Managers may have bias in their approach to decision
making, of one of the following 3 models:
Rational / Logical
Step-by-step approach
Focuses on logic
Minimizes intuitive judgments
Relies on facts, decision trees, research
Intuitive
‘gut’ decision
Should be based on expertise in the field
May be ok for short-term decision
Predisposed
Manager makes decision then gathers information to support
decision
May ignore critical information
Self-serving bias
Manager has ulterior motive
Escalation of commitment
Continue to pursue decision outcome
even when it may be a poor decision
Manager does not want to admit their
decision is wrong
Intuition
Expert opinion
Gut feel
Group Decision Making
Brainstorming
6-10 persons
Free from outside distractions
Allowed a certain time period (10-15
minutes) to throw out any & all ideas
No one is allowed to discredit any idea
Break
Discussion of pro’s & con’s of each idea
Prioritization of ideas
Nominal Group Technique
Define problem/issue
Development of ideas
Round-robin presentation
Clarification of ideas
Initial voting
Secret ballot
Evaluation of revised list
Final voting
Delphi Technique
Group decision making conducted by a
group leader through the use of written
questionnaires
Provides structure
Lead to consensus
Emphasizes equal participation
No interaction
Review of other experts answers
Repeat 2nd questionnaire
Virtual meetings
Online
Risk
All decisions are pure risk
Uncertainty
Unknown outcome
Avoidance
No decision or action taken
PRO’S & CON’S OF GROUP DECISION
MAKING
Pro’s
Broader perspective
Differences valuable for different perspectives:
Age; culture; religion; gender; ethnicity
Con’s
Time consuming
Possibility of a compromise rather than optimal outcome
Groupthink:
Group members becoming so committed to the
group that they become reluctant to disagree
Difficulty in performing certain tasks
Difficulty in taking initiative
No one person is responsible for decision
Quantitative Decision-Making
Techniques
Decision Trees
Graphical representation of the actions a manager
can take & how these actions relate to other events
Payback Analysis
Ranks alternatives according to how long each takes to pay back its
initial cost+
Break-even analysis
Organizational Systems
Policies, procedures, programs, rules for
decisions
“red tape” may delay decisions
External Environment considerations:
Customers, competitors, government
agencies, society influence decisions
Point which revenue = costs
Fixed costs: remain constant
Variable costs: change with output
Break-even
v enue
Re
i a bl e costs
Va r
Fixed costs
Current ratio
Ability to pay short –term debt
Current total assets/current liabilities
Acid test
Current liquid assets / current liabilities
Liquidity
Assets which are available to turn into immediate
cash
Cash; stocks; accounts receivable; precious metals
Return on Investment (ROI)
$ over & above initial investment
Usually expressed in %
Inventory turnover
# times inventory sold in a given period of time