Decision Making The process of identifying and selecting

Decision Making

• “The process of identifying and selecting a course of action to solve a specific problem”

Time and Human Relationship in Decision making • Past experience

Problem and opportunity finding: customer complaint

Definition Problem “Situation that occurs when an actual state of affairs differs from a desired state of affairs” “Problem as something’s that endangers (to expose to harm or danger) the organization ability to reach its objectives and an opportunity as something's that offers the chance to exceed objectives”

Problem finding process • A deviation from past experience • A deviation from a set plan • Other people often bring problems to the manager • The performance of competitors

Opportunity Finding • Situation that occurs when circumstances offer an organization the chance to exceed stated goals and objectives

Nature of Managerial Decision • Programmed Decision • Non Programmed Decision Solution to routine problems determined by rule, procedure or habit Specific solutions created through an unstructured processes to deal with non routine problems

• Because all decisions involve future events, managers must also learn to analyze the Ø Certainty Ø Risk Ø Uncertainty

Certainty, Risk and uncertainty • Certainty: Decision making condition in which managers have accurate, measurable, reliable information about the outcome of various alternatives under consideration

Contd… Risk: Decision making condition in which managers know the probability a given alternative will lead to a desired goal or outcome Probability: A statistically measure of the chance a certain event or outcome will occur

Contd… • Uncertainty Decision making condition in which managers face unpredictable external conditions or lack the information needed to establishes the probability of certain events

The Rationale Model of Decision Making • Investigate the situation • Develop Alternatives • Evaluate alternatives and select the best one available • Implement and Monitor

Investigate the situation • Define problem (confusion in problem definition) • Diagnose causes (manager can ask number of questions) • Identify decision objectives (what would constitute an effective solution)

Develop Alternatives • Seek creative alternatives • Very difficult when time constrain • Brainstorming : decision making and problem solving technique in which individuals or group members try to improve creativity by spontaneously proposing alternatives without concern for reality or tradition.

Evaluate alternatives and select the best one available • Evaluate alternatives • Select best alternative v. Is this alternative feasible? v. Is the alternative a satisfactory solution? v. What are the possible consequences for the rest of the organization?

Implement and Monitor • Plan implementation • Monitor implementation necessary adjustments and make

The Rational Model in Perspective • Bounded Rationality The concept that managers make the most logical decisions they can within the constraints of limited information and ability Ø Satisfying Decision making technique in which managers accept the first satisfactory decision they uncover

HEURISTIC • Method of decision making that proceeds along empirical lines, using rules of thumb, to find solutions or answers • Availability (frequently occurring events, readily available in memory) i. e. insurance company • Representative's i. e. product manager may predict the performance of a new product by relating it to other products.

Games theory • The study of people making interdependent choices i. e. competitive pricing (it is based on the assumption that every player in the game is perfectly rational and seeks to win the game. ) • Minimizing the maximum loss (minimax) and maximizing the minimum gain (maximin) are the two concept used in game theory.

Decision making techniques • • Marginal Analysis Financial Analysis Break-even Analysis Ration Analysis Operation Research Techniques Linear Programming Simulation Queuing Method

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