Figure 1.1 The Scope of Decision Making

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An Overview of Decision Making
Topic 1
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Four Force Model

• (Rowe and Boulgarides)
• Role of the manager in decision-making process is
  crucial, since the manager is the decision-maker.
• 4 driving forces on managers ( i.e. managers have
  to respond to 4 driving forces)
• Environment competition, government, public,
  etc.
• Organizational interactions, personality,
  commitment, etc.
• Task demands functions, responsibilities ( e.g.
  decision makers)
• Personal needs individuals needs of decision
  makers

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The Wharton School
Hoch and Kunreuther
A Complex Web of Decisions
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• As a manager, every day you face a
  myriad of decisions from the time you wake up in
  the morning until the time you go to sleep at
  night. Some of these decisions are fairly
  mundane, but others have a significant impact on
  the future of your life, your organization, and
  your career. Making the right choices is
  crucial. While the impact of anyones decisions
  is far-reaching, managers decisions have
  particular significance because they affect all
  the people who report to them and the businesses
  they manage. For this reason, making better
  decisions is a key concern of managers and their
  organizations.

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• Most of us do not make great decisions,
  and few of us are aware of this fact. We think
  we are making excellent decisions, and as long as
  the results are good, we dont look too closely
  at our decision process. For long periods, we
  may be fortunate that the world is forgiving and
  some poorly made decisions lead to positive
  outcomes. We congratulate ourselves for walking
  along the cliffs edge and not falling, but do
  not fully appreciate how close we may have come
  to disaster. It is usually only when we have a
  spectacular failure that we sit back and look at
  our decision processes. We then ask the
  questions we should be asking every day What are
  my goals and objectives? What are my
  assumptions? What are the potential pitfalls?
  How could I make better decisions? It is usually
  only when we look at our failures that we
  actually improve our decision making.

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• Why do decisions that on the surface seem the
  same, work in one organization but fail miserably
  in another?
• How can managers be more effective in the way
  they make decisions?
• Decision makers need to understand how to use
  decision-aiding methodology.
• The effectiveness of a decision must be viewed in
  its totality from the initial idea, the
  assumptions made, the methods used for analysis,
  the basis for choice, the gaining of acceptance
  of the solution, and the implementation and
  evaluation of results.
• Decision makers do not all act in the same manner
  with respect to their level of interaction, use
  of information, and maintaining control.

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• Many managers use intuition in their decisions.
  This often is useful however, decision support
  tools and quantitative approaches can also be
  helpful in finding solutions to problems.
• To be effective, the decision maker must deal
  with both the behavioral and the technical
  aspects of a problem.
• It is the decision maker, in the final analysis,
  who determines the organizations ability to
  perform smoothly by knowing how to make effective
  decisions and how to motivate members of the
  organization to ensure implementation of the
  decisions.
• Most decisions are arrived at after going through
  a number of stages, called the decision process.

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• Decision-Making is synonymous with managing and
  leading
• Decision-Making differentiates the effective
  manager from the non-effective one

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• Managers are paid to make decisions, and if
  Formal Organizations are to fulfill their
  missions, decisions must be made on a timely and
  cost-effective basis

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Bennis

• Our perceptions of organizational
  decision-makingtend to emphasize the product of
  decision-making never (or rarely) the process.
  Those elements of chance, ignorance, stupidity,
  recklessness, and amiable confusion are simply
  not reckoned with. They are selectively
  tableaux, the little dramas, that result in a
  policy statement or a bit of strategy. It sees
  only the move or hears only the statement, and it
  not unreasonably assumes that such an action is
  the result of a dispassionate , almost mechanical
  process in which problems are perceived,
  alternative solutions weighed, and rational
  decisions made.

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Profile of a Decision

• (3 Key Components in Decision Making)
• The Decision-Making Process
• The Decision Maker
• The Decision

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Decision-Making

• Herbert Simon
• Decision-making can be defined as a process that
  is synonymous with the whole process of
  management.
• In his view, decision making involves (1)
  finding occasions for making a decision, (2)
  finding possible courses of action, and (3)
  choosing among courses of action.

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Summary Definition

• Decision making is the process by which managers
  respond to opportunities and threats by analyzing
  options and making determinations about specific
  organizational goals and courses of action.

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The Significance of Decision Making

• Decision making is the most significant activity
  engaged in by managers in all types of
  organizations and at any level at the heart of
  what managers do.
• Decision making is the one truly distinctive
  characteristic of managers.
• Decisions made by top managers commit the total
  organization toward particular courses of action.

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Decision Theory

• Decision theory as an academic discipline is
  relatively young. It is only since World War II
  that operations research, statistical analysis,
  and computer programming have given the process
  of choice a scientific aura, and only within the
  last twenty-five or thirty years have the
  behavioral sciences sociology, psychology, and
  social psychology begun to contribute to the
  body of knowledge making up decision theory.

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Decision Theory (contd)

• The literature in the field of decision theory is
  skewed heavily toward the quantitative aspects of
  decision making.
• Decision theory is generally regarded as a
  quantitative discipline.

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Behavioral Decision Theory

• The Behavioral Decision Theory looks at how
  decision-makers actually behave.

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A Typology of Decisions

• Thompsons 4 Decision-Making Strategies yield 2
  basic decision categories
• Decision categories

• l Category I - routine, recurring,
• certainty with regard to the outcome
• l Category II - nonroutine,
• nonrecurring, uncertainty with regard to the
  outcome

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Table 1.1 A Categorization of Decision
Characteristics
Category I Decisions Category II
Decisions Classifications Programmable
routine Nonprogrammable unique generic
computational judgmental creative negotiated
compromise adaptive innovative
inspirational Structure Procedural
predictable Novel, unstructured, certainty
regarding consequential, elusive,
and cause/effect relationships complex
uncertain cause/ recurring within existing
effect relationships non- technologies
well-defined recurring information information
channels channels undefined, incom- definite
decision criteria plete information
decision outcome preferences may criteria may
be unknown be certain or uncertain outcome
preferences may be certain or
uncertain Strategy Reliance upon rules and
Reliance on judgment, principles habitual
intuition, and creativity reactions
prefabricated individual processing response
uniform heuristic problem-solving processing
computational techniques rules of
thumb techniques accepted general
problem-solving methods for handling processes
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The Locus of Choice

• Top management makes Category II decisions.
  (individually or in groups)
• Operating management makes Category I decisions.
  (In some cases, even non-managers)
• Middle management supervises the making of
  Category I decisions and supports the making of
  Category II decisions.

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Category I / Category II

• Managers should not treat category I decisions
  as though they were category II decisions. To do
  so is to waste valuable time and energy on
  routine and recurring decisions that can be
  handled with considerable certainty. Similarly,
  managers should not neglect the complexity and
  significance of category II decisions by treating
  them as though they were category I decisions.

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Category II Summary Comment

• Managerial decision making normally results in
  (a) a change in organizational form or process,
  or (b) a commitment of fiscal, physical, or human
  resources.

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Art or Science

• Is Decision-Making an art or a science?

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Art or Science

• It is an art with some scientific overtones.