Decision Making Essay

Decision making can be define as the cognitive process â€Å" resulting in the selection of a belief or a course of a action among several alternative possibillities. Every Decision Making process produces a final choice [James Reason (1990)] that may or may not promp action. Effective Decision Making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker. Decision – making, is one of the central activities of management and is a huge part of any implemantation. For effective decision making, a person must be able to forecast the outcome of each option as well, and based on all these items, determine which option is the best for that particular situation.Human performance in decision making terms has been the subject of active reserach from several perspectives. Form a psychological perspective, it is necessary to examine individual decision in the context of a set of needs, preferences an individual has and values they seek. Form cognitive perspective, the decision making process must be regarded as a continous process integrated in the interaction with the environment. From a normative perspective, the analysis of individual decisions is concerned with logic of decision making and rationality and the invariant chioce it leads to.[Daniel Kahneman, Amos Tversky 2000] The ability to make wise, educated decisions is essential to living a succesful and fulfilled life. Individuals, groups or teams make decisions every day. Some decisions are very important and affect lot of people whereas other decisions are small and affect only one or two people. A decision-making process based on data leads to good decisions. A major concern in management has been to understand and improve decision making. [Isabel Briggs Myers|Myers, I.1962]. There have been two approaches to management decision making [Huber, 1980]. The first is concerned with development and application of normative decision rules based on formal logic d erived from economics or ststistics. The second involves descriptive accounts of how people actually go about making judgements, decisions and choices. [Isable B. Myers|Myers,I. (1962)].  Decision making can usually be improved by breaking a problem into parts, working on the parts separately, and then combining themm to make final decision. It has been shown in a variety of works that business decision making environment is a unity of decision makers experience, belief and perceptions on one side, and decision support tools and techniques – on the other side. In making important decisions, any info rmation sources that contain relevant important are going to be accessed and used. In this presentation we are going to show decision making process, models, and types. And explain how we can make strategic decisions in different situations. In fact in making decision in management has a significant role as Peter Drucker says 90 percent of activities in management is decision making, so we are going to discuss this important subject to show different aspect of it and find new ideas in this area research. 2.0 Decision Making Process and Steps; Decision making can be categorised as a process evaluating a problem to find solution. It is always best to strive for the best decisions? There may not be the Probably not shooting for perfect solutions cann freeze decision makers into inaction. They also might be fear of making wrong decision.When gathering data and information becomes more important than making decisions and taking action sometimes, it’s better to make decisions, risk mistakes and then learn from the mikstakes when you make them. After all, then saying isn’t â€Å"decision make perfect†, it’s â€Å"practice makes perfect†. [S. Herper (2000)] As said coca cola decision which has resluted to story suggests the extensive need for decision making in business. A management decision typically typically affects a great number of people-customer, stockholders, employers and the general public. Coca cola is accountable to more than 100000 shareholders and of extensive number of employee. Professional undertake to see the managers decision which reflected its positive returns in their revenue report.It has emphasise on the welfare of the employees and the economis health of the community in large and take into  consideration the effect to the country as whole. To strive and prosper, proffessional managers should be able to withstand the pressure and make sound decision. Companies do not want dynamics failures; they require individuals wha are properly equipped to make decisions. It doesn’t mean that the decision makers (managers) is 100 percent is accurate most of the time. They also tends to make wrong decisions most of the time at the expense of the shareholders.It does suggest that succesful managers have a higher batting average than les succesful managers. [R. Wayne Mondy (1993)] The process of decision making does not occur in tandem. The organization external environment influence the decision making process and the internal environment assist what and how the decision making should take place. For example the success of Pepsi-Cola in gaining market share while Coca Cola lost it and help to convince Goizueta that was needed. Whether a decision is programmed or none programmed and regardless of managers choice of the classical, administrative, or political model of decision making, a decision making process typically hasfive steps: 1) Idenitify the problem or opportunity 2) Develop alternative 3) Evaluate alternative 4) Choose and implement the best alternative 5) Evaluate the decision 2.1. Identify the problem or opportunity: according to Harold Leavitt, â€Å"a business leader must have thre major talents: problem solving and subsequent decision making, implementing and visionary and entreprenuel talents†. Some people view decisions making only as problem solving, however problems are best treated as opportunities. The first in the decision making process should be to look for alternatives before a decision is made. As known there is no one best decision method is exist. All problem should be treated as opportunities. Eventually, problems will make themselves  evident. All problem can be converted to opportunity. All existing problem can be corrected if managers face the problem as opportunity to progress. Managers confront a decision requirement in the form of either a problem or an opportunity. A problem occurs when organizational achievement notaccomplishment is less than establishment goals. An opportunity exists when m met as ecpectaion of an organization and exceed specified targets of an organizations. Identifying of a problem or opportunity is the first step in the decision sequence and requires survillance of the internal and external environment for issues that merit executive attention. [Richard L. Daft (2005)] Managers often search and evaluate the world around them to determine the progres of the organization .Some information comes from periodic financial reports, performance reports, and other sources that designed to discover problems before they become too serious. Managers also take advantage of informal sources. They talk to other managers, gather opinions on how things are going, and seek advice which problems should be talked. 2.2 Develop alternatives: A typical problem can be solved in various ways and method. Several alternatives is available before a decison is made. The choices that the decision maker has to decide are alternatives. A decision making process is utmost important and a feasible way to solve the a probleeThe only alternatives that really counts is the one judged best among those considered. At this point in the decision making process, however, it is important to consider all feasible ways by which the problem can be solved. Once the problem or opportunity has been recognised and analyzed, decision makers begin to consider m (opportunity). The next stage is to generate possible alternative solutions that will respond to the need of the situation and correct the underlying causes. One study found that limiting the search for alternatives is a primary csuse of decision failure in organizations. [Paul C. Nutt (1999)]. Decision alternatives can be though of as the tools for reducing the difference between the organizations current and  desired performance. Once a problem or opportunity has come to managers attention, the understanding of the situation should be refined. Diagnoses is the step in the decision making process in which managers analyzes underlying casual factors associated with the decision situation. Managers make a mistake here if they jump right into generating alternatives without first exploring the causes of the problem more deeply. [C. Kepner and B. Tregoe (1965)]. 2.3 Evaluate Alternatives: Almost all possible solutions there are advantages and disadvantages. But there maybe be only one solution for any existings problem (opportunity). It may also might not be the only best solutions for the problem (opportumity). Coca cola alienate to replace the old coke is part of an alternative decision. It is essential that managers realistically appraise arguments for or against a particular alternative. Sometimes an idea might sounds good initially, but taking time to weigh the pros and cons of alternatives usually pays off. There are number of ways evaluating alternatives. One way is to list yhe strength and weakness of the problem (opportunity). Total consideration should be given and to avoid on the strength and weakness and overall importance should be given to conclude the alternative. 2.4 Choose and implement the best alternative: an alternatives implentation is chosen once the decision of choice is established. The decision of choice is the selection of the most promising of several alternative course of action. In order to choose best alternative one has to achive the desired results using the resources.In order to make choices on managers personality factors and willlingness to accept risk and uncertainty. At this stage the use of managerial, administrative, and persuasive abilities to ensure that the chosen alternative is carried out. It also has a similirarity to the idea of strategic implementation. The ultimate success of the chosen alternative depends on the whether it can be translated into action. In the evaluation stage of the decision  process, decision makers gather information that tells them how well the decision was implemented and whether it was effective in achieving its goals. Feed back pertinent because decision making is a continous, never ending process. When an executive or board of directors votes yes or no then the decision making is not completed.The feed back provides decision makers with information that can assist to new decision cycle. What separate the succesful managers and less succesful ones is the ability to select the best course of action from several possible alternatives. The alternative offering the highest promise of attaining the objective, taking into consideration the ovearall situation, should be selected. It is an easy task but fear to make a wrong decision will make the managers to avoid making decision at all. In most organization the onus is on the managers to make decision as they are high salaried and they carry the task to make a sound decision. 2.5 Evaluate the decision: For completing a decision-making process one have to first expose to the realities of the business environment. An objective assessment required to turn the problem into opportunity and this implementation does not complete the decision making process. [R.Wayne et al (2005)] 3. Ethical Decision Making: Half of all decisions taken be managers not necessarily solev the problem after all. Most of the time they ignore ethical questions. High ethical and guideline standards needs to put into consideration before performing the management functions. When making unpopular decision such as layoffs, one has to be ethical by giving advance notice and assisting them to find a new job elsewhere or within the organization. Couple of test need to be taken to evaluate oneself, are we making the right decision or not. Firstly ask yourself, â€Å"Are there any legal restrictions or violations that will result from this action? If so, try other alternative course of action. Secondly â€Å"does it ciolate the company code of ehics?† If yes find a different path  to follow. Thirdly ask â€Å"does this mmet the guideline of my own ethical philosophy?† and if the answer is â€Å"yes†, then your decision must still pass two important test. [Gitman et al (2008) The feeling test: now you must ask, â€Å"How does it make me feel?† this will enable yourself to evaluate your comfort level in producing a particular decision. A sense of discomfort will seep in if you’ve make a wrong decision where one will loss of sleep or appetite and my go into depression. Front page of the newspaper test: the final test is the â€Å"front page of the newspaper† the question to be asked is how a critical and objective reporter would report your decision in a front page story. [Gitman et al (2008)] Decision relos: According to Mitzberg: the time managers spend obtaining and sharing information is not an end in itself. The time spent taking to and obtaining and sharing information with people inside and outside the company is useful to managers because it helps them make good decisions. According to Mitzberg, managers engange in four decisional sub roles: entreprenuer, disturbance handler, resource allocator and negotiator. [Chuck Milliams (2 005)] 4. Decision Making Models Decision making models: primary decisions making models: the rational model and the bounded rationality model. The rational (also called the classical model), the decisio maker attempts to use optimizing, selecting and best possible alternative. In bounded rationality model (also called the administrative that meet the minimal criteria. [Robert N. Lusssier (2006)]. Making better decisions: modern research shows that managers, who make the best decisions, don’t overanalyze by relying on rational decision making model, nor do they oversimplify by relying solely on their intuition. Instead, many managers utilize a concept refered to as â€Å"recognitional decision making†. Recognition decision making leads to quicker decisions than rational decision making because it integrates the use of memory in the context of a situation in order to develop an immediate feel for the current situation. [Chuck Williams (2005)] 4.1 Classical Model: the classical model of decision model of decision making is based on economic assumptions. This model has arisen within the management literature because managers are expected to make decsisions that are economically sensible and fit the organizations’ best economic interests. The four assumptions underlying this model are as follows: 1. The decision maker operates to accomplish goals that are known and sgreed on. Problems are precisely formulated and defined. 2. The decision maker strives for conditions of certainty, gathering complete information. All alternatives and the potential results of each are calculated. Assign 3. Criteris for evaluating alternatives are known. The decision maker selects the alternative that will maximize the economic return to the organization. 4. The decision maker is rational and uses logic to assign values, order preferences, evaluate alternatives, and make the decision that will maximize the attainment of organizational goals. The classical model of decision making is considered to be normative, which means it defines how a decision maker shouls make decisions. It does not describe how managers actually make decisions so much as it provides guidelines on how to reach an ideal outcome for the organization. 4.2 Rationality: It is frequently said that efective decision making must be rational. People acting and deciding rationality are attempting to reach some goals that can not be attain without action. They must have a clear understanding of alternatives coerces by which a goal can be reached under existing circumstances and limitations. They also must have information and the ability to analyze and evaluate in light of the goal sought. In many respects, the classical model represents an ideal model of decision making that is often un attainable by real people in real organizations. It is most valuable when applied to programmed decisions and to decisions characterized by certainty or risk, because relevant information is available and probabilities can be  calculated. [Richard L. Daft (2005)]. Programmed decisions are design based on the historical data to enable all levael of managers are able to make a decision base on the same situation problems all the time. As such it can be concluded as a set of policy serve as a guideline and also act as a SOP. A non programme are made to situations that are unique, are poorly defined and largely unstructured, and ahev impportant consequences for the organizations. The decision regarding a recall at Toyota is an example of a a non programmed decision. Another good example comes from the financial services industry. Decision to to acquire a company, build a new factory, develop a new product or service, enter a new geographical market, or relocate head quarters to another city are all non programmed decisions. 4.3 Bounded rationality: The administrative model is base on the work of Herbert A. Simon. Simon proposed two concepts that were instrumental in shaping the administrator model: bounded rationality and satisficing. There are limitations to the bounded rationality or boundaries. Organizations are incredibly complex and managers have the time and ability to process only a limitated amount of information with which to make decisions. Because managers do not have the time or cognitive ability to process complete information about complex decisions. Satisficing is a decision made at the first encounter of any situation. Minimal consideration given to consider any alternative. There is no time frame on how long this process will take place. It merely rely on assumptions. 1. Organization decision goals are often not clear, exist dispute and always have disagreement among the managers. 2. Rational method are not often popular amongst managers alike and only confirned to simplistic point of view and does not get the attention of of real organization events. 3. Managers searches for alternative sre kimited because of human, information, and resources constraints. 4. All the decision makers (managers), often prefer the satisficing rather than maximizing solution, partly because they have limited information and partly because they have only unclear for what  constitute a maximizing solution. 4.4 Administrative model: This model is description are charecterized by uncertainty and ambiguity. Most of the management decisions are normally programmeable to lend themselves to any degree of qualification. The decision maker (manager) are unable to decide and economical rational decision. None programmed decisions: are used for unstructured, novel, and ill-defined situations of a nonrecuring nature. Example is the developing of the four wheel drive passenger car by Audi. In fact strategic decision, in general, are none programmed decisions. Most decisions are neither completely programmed decisions. Most decisions are neither completely programmed nor programmed none programmed: they are a combination of both. [Heinz Weihrich et al (2005)]. The administration model of decision making is based on the work of Herbert Simon. Simon proposed two concepts that were instrumental in shaping the administrative model: bounded rationally and satisfying. According to the administrative model: Decision goals are often unclear and disputing in nature and lack of consensus among managers. Managers are often not able to see the problems (opportunity) that exists in the organization. Rational procedure are not often and when they are they are confined to a simplistic view of the problem that does not captiure the complexity of real organization view. 4.4.1. Intuition: another aspect of administrative decision making is intuition. Intuition represents a quick apprehension of a decision situation based on past experience but without conscious thought. [Weston. H, Agor (1986)]. Intuitive decision making is not arbitrary or irrational, because it is based on years of practice and hand-on experience that enable managers (decision makers) to quickly identify solutions without going through pain staking computations. 4.5 Political model: is the model of decision making is often used for making none programmed decisions when conditions are uncertain, information is limited and there is often disagreement among  managers about what goals to pursue or what course of sction to take. The political model closely resembles the real environment in which most managers and decision makers operate. Decisions are complex and invlolve many people, information is often ambigous, and disagreement and conflict over problems and solutions are normal. There are four basic assumptions of the political model. Organizations are made of groups with diverse interests, goals, and values. Information is ambigous and incomplete. Managers do not have the time, resources, or mental capacity to identify al dimension of the problem and process all relevant information. Managers engange in the push and pull of debate t decide goals and discuss alternatives. Decisions are the result of bargaining and discussion among coalitio n members. [Richard L. Daft (2005)] 4.6 The Kepner-Tregoe method: this model combines the oblective approach with some subjectivity. The subjectivity comes from determining â€Å"must† and â€Å"want† criteria and assigning weighted values to them. [Robert N. Lussier (2006)]. The Kepner-Tregoe method is a technique for comparing alternative using the criteria selected in steps 2 of the decision making model.[Robert N. Lussier (2006)]. 5. Individual Decision Making and Group Decision Making Problems in any organization occurs when they were conflict of agreement of certain issues, as such one must decide who should participate to find the solution. As refering to the current trend the management favors increased employe participation. Using to group to improve decision making: according to study reported in fortune magszine. 1 percent of U.S. companies use teams and group to solve specific problem. Individuals who are highly defensive in this manner show significantly greater left prefrontal cortex activiry as measured by EEG than do less defensive individuals. ]Blackhart, G. C., & j. P. (2995)] Group decision making is critically important to meet the current fast moving organozations trends. The informal or formal group exist to reach a consensus and to  discuss a particular problem by creating a short list of acceptable alternatives or deciding on criteria for accepting an alternative. They are known as a support system and supported by electronically to support this system. [Turban, et al (2008)]. Group method invlove in decision making: It always discussed that it only involve a single manager to make a certain organization decision. This individual is responsible for the outcome of decisions under their control. Effective decisions generally combine high quality with acceptance by those affected by the decision. Group bring different resources to the decision making task. [R. Wayne et al (1993)] 5.1 Potential advantages of group decision making: The group has an advantage to make a sound decision on complex issues in comparison the individuals in a organization. Special in case of significant none programmed decision and conditions of risk or uncertainty. – More information, alternatives, creativity and innovation: Generally a group of people contains more information than an individual. Than they can more creatine and innovative. They usually have options and alternative to apply before an effective decision is agreed upon. – Greater communication to the decision: The people engange in the decision making process have greater options in increased communication to implementing the decision. And improved participation in problem solving and decision making is rewarding and personally satisfying to the people and will improve morale and motivitation. – Training. Allowing participation in decision making trains people to work in groups by developing group process skills. 5.2 Potential disadvantages of group decision making: – Wasted time – Satisficing – Domination and goal displacement: A certain sub group may dominate the group decision. Disagreement occurs when there were no 100 percent agreement from overall decision making process rather than pursuing goal of finding the best solution. – Conformity  and group thinking: Inferior feeling and disagreement might crept in before a certain agreement takes precident and the end result will be a conflict. [Robert N. Lussier (2006)]. For creating, creative alternative solutions in groups decision making there are five popular techniques: Brainstorming Synectics Nominal grouping Consensus mapping Delphi technique Brainstoming is the process of suggesting many possible alternatives without alternatives. Synectics is the process of generating novel alternative through role playing and fantasizing. Nominal grouping is the proces of generating of generating and evaluating alternatives using a structured voting method. This proces usually invloves six steps: listing, recording, clarification, ranking, discussion and voting. Consensus mapping is the process of developing group agreement on a solution to a prblem. The Delphi technique involves using a series of confidential questionnaires to refine a solution. [Robert N. Lussier (2006)] 5.3 Personal decision making: Imagine you were a manager at, GM, a local movie theater or the public library. How would you go about making important decisions that might shape the future of your department or company? As we are aware that there is number of factors may effect how a managers make efevtive decisions. For example the decisions may be programmed or non programmed, situations are charactirized by various level of uncertainty, and managers may use the classical, administrative, or political model of decision making. [Richard L. Daft (2005)] 6.0 Innovative Group Decision Making: The critical skill the managers possess to make a high quality decisions is an essential as they have to make majority of decision on their own. Is it practical for the managers make this  decision?No. The rapid face of the business enviromnment calls for just the opposite i.e, for people throughout the organization to be invloved in decision making and have the information, skills, and freedom they need to respond immediately to prblems and questions. Managers bdo make some decisions as individuals, but decisions makers more often are part of a group. Indeed majoir decisions in the byusiness world rarely are made entorely by a single manager. 6.1 Brainstorming is a method a group of people and discuss spontaneously wide range of ideas and policies before decision making. The efective brainstorming are people can be bulid on one anothers idea: number of ideas will be fielded and they will come to an consensus after wide range of ideas is discussed. It also have some drawbacks as there maybe making decision to please the superior or to impress colleagues. Studies found that when four people are asked to â€Å"brainstorm† individually. They typically come up with twice as many ideas as a group of four brainstoming. 6.2 Rigorous debate an efective decision maker (manager) always encourage a rigorous debate of a certain issues. It also recognize that constructive conflict based on divergenr points of view bring a problem into focus, clarify people’s ideas, stimulate creative thinking. Chuck Knight, the former CEO of Emerson Electric, always sparked debate during strategic planning meetings. Knight believed rigorous debate gave people a clearer picture of the competitive landscape and forced managers to look at all sides of an issue, helping them reach better decisions. 6.3 Groupthink pressures for conformity exist in almost any group, and particularly when people in a group like one another they tend to avoid anything that might create disharmony. It has tendency to surpress contrary opinions. When the group thinking mode is activated, maintaining unity will be given priority ather than realistically challenging problems and alternatives. People censur their personal opinion and reluctant to criticize the opinion of others. 6.4 Bailout in the fast paced environment managers are risk takers and learniong from  mistakes. Theyy also not hesitant to pull the plug when something not working. According to researches managers and organizations often continue to invest time and money in a solution despite strong evidence that is not appropriate. This move is knwons as escalating commitment. Managers might take initiative m to simply block or distort negative information because they do not want to be responsible to make a wrong decision. Conclusion The decision making in organizations invloves number of thories and easy to understand. The economic academician has derived methods to assist the decision makers (managers) to derive a good decision in order to avoid making bad decisions. It is very difficult to make good decisions without valid relevant information. It involves choosing between a wider process in problem solving. It can be through either an intuitive or seasoned process, or a combination of the two. There are number of stages to any structured decision making. For important decisions it is woryth always keeping a record of the steps you followed to make the decision. That way, if you n are ever critisized for making a bad decision, you can justify your thoughts based on the information and process you used at the time. Furthermore by keeping a record and enganging with the decision making process, you will be strengthening your under standing of how it works. This can make future decisions more easier for managers. References. 1. James Reason (1990). Human Error.Ashgate. ISBN 1840141042. 2. 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