individual dm (chap-5)

8/13/2019 Individual Dm (Chap-5)

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INDIVIDUAL DECISION MAKING


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PROBLEM & OPPORTUNITY

Problem: Something that endangersthe organizationsabilityto reachits

objectives, and an opportunity as something that offers the chance to

exceed objectives

- David B Gleicher

Opportunities rather than problems are the key to organizational and

managerial success

Solving a problem merely restores normality, whereas the exploitation of

opportunities leads to progress

- Peter Drucker


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PROBLEM SOLVING AND DM

Decision-making deals with problems

Problem arises when an actual state of affairs differs from a desired state

of affairs. Examples of problem situations:

- A deviationfrom past experience

- A deviationfrom a set plan or standard

- Otherpeoplesproblems or decisions

- The performance of competitors.


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DESCRIPTIVE APPROACH

Refers to methodology of arriving at decisions regardlessof their

efficiency

Identifying individual, interpersonal, group and social factorsthat

affectthe decision

PRESCRIPTIVE/NORMATIVE APPROACH

Concerned with optimaldecision making

Provides a preferred course of action according to decision cri ter iathat may be objectively measured


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OPTIMAL SOLUTION

Alternative orapproach that best fits the situation, employs

resources in a most effectiveand efficientmanner, and yields

the highest possible return under thecircumstances. Anytinkeringwith an optimum decision makes it only worse. Very

few optimal solutions can be found by statistical analysis or

formulae, most require cut-and-try (experimental) approach

- BusinessDictionary.com (http://www.businessdictionaty.com)


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DECISION CLASSIFICATION

Based on complexity of si tuation, purpose to the organization and based

on hierarchical level


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CLASSIFICATION BASED ON PURPOSE TO

ORG

CORPORATE PLANNING DECISIONS

STRATEGIC PLANNING DECISIONS

TACTICAL PLANNING DECISIONS

ACTIVITY DECISIONS


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ISSUES IN DECISION MAKING

EXISTENCE OF A PROBLEM

EXISTENCE OF OPTIONS/ALTERNATIVES

ENVIRONMENT

RESOURCES

INFORMATION

DECISION MAKER

DECISION PROCESS

INEVITABILITY


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DECISIONS: HIERARCHY-BASED

UNPROGRAMMED

(CREATIVE)

MID

MAJOR EXTERNAL UNCERTAIN COMPLEX LONG TERM

IMPACT INFORMATION ENVIRONMENTNATURE

OF

PROBLEM

TIME DECISION

TYPE

MINOR INTERNAL CERTAIN SHORT

TERM

SIMPLE PROGRAMMED

(ANALYTICAL)

TOP

LOW


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DECISION MAKING MODELS

Econological or Economic Man Model

Bounded Rationality or Administrative Man Model

Implicit Favourite or Gamesman Model


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ECONOLOGICAL/ECONOMIC MAN

MODEL

Represents the earliest attempt to model decision process. Rests on twoassumptions:

- People are economically rational: will select the decision or course of actionthat has the greatestadvantage or payoff from among the many alternatives

- People attempt to maximize outcomes in an orderly manner

Steps in the decision process:- Discoverthe symptoms of the problem or difficulty

- Determinethe goal to be achieved or define the problem to be solved

-I dentif y all alternative courses of action

- Develop a criterionagainst which alternative solutions can be evaluated

-Consider consequences of each alternative as well as likelihood of

occurrence- Choose the best alternative by comparing the consequences of each

alternative with the decision criterion

- Act or implementthe decision


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BOUNDED RATIONALITY MODEL

Presented by Herbert Simon

- Decision making is characterized by: limited information processing, use of rules of

thumbor shortcuts and satisficing decisions

- Sequential attention to alternative solutions: instead of identifying all possible solu tions andselecting the best: various alternatives are identi f ied and.evaluated one at a time

- Use of heuristics:to reduce large problems to manageable proportions so that decisions can be

made rapidly: look for obvious solu tions or previous solu tions that worked in similarsituations

- A heuristic is a rule which guides the search for alternatives into areas that have a highprobability for yielding solutions.

- Satisficing: Whereas the econological model focuses on the decision maker as an optimizer, thismodel sees her or him as a satisficer

- Claimed that the bounded rationality model is descriptive: describes how decision makers

actually arrive at the identification of solutions to organizational problems.- Another aspect of bounded rationality is intuition: represents a quick apprehension of adecision situation based on past exper iences and the reinforcement associated with theseexperiences, which is devoid of conscious thought (Myers, 2002)


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PRINCIPLE OF SATISFICING

Involves choosing the first alternativethat satisfies minimal standards of

acceptability withoutexploring allpossibilities: the usualapproach taken

by decision makers

Most human decision making, whether individual or organizational, is

concerned with the discovery and selection of satisfactory alternatives;only in exceptionalcases is it concernedwith the discovery and selection

of optimal alternatives

- (Nielsen, 2011), Simon (1997)

Maximizerstry to make an optimal decision whereas satisficerssimply try

to find a solution that is good enough

- H erbert Simon


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BOUNDED RATIONALITY:DEFINITION

Concept that decision-makers (irrespective of their level of intelligence) have to work under

three unavoidable constraints:

(a) Onlylimited, often unreliable, information is available regarding possible alternatives

and their consequences

(b) Human mind has only l imi ted capacity to evaluate and process the information that is

available

(c) Only a limitedamount of timeis availableto make a decision. Therefore even individuals

whoin tend to make rational choices are bound to make satisfying (rather than maximizing

or optimizing) choices in complex situations. These (bounds) on rationality also make it

nearly impossible to draw up contracts that cover everycontingency, necessitating reliance

on rules of thumb

- Proposed by the US Nobel-laureate economist Herbert Simon (1916-2001) in his 1982

book ModelsOf Bounded Rational ity And Other Topics I n Economics.'.

ORG OBJECTIVES


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IMPERFECT INFORMATIONTIME & COST CONSTRAINTS

COGNITIVE

LIMITATIONS

RATIONAL

DECISION

MAKER

ORG OBJECTIVES

ORG OBJECTIVES

PERMEABLE

BOUNDARIES

TECHNICAL

KNOWLEDGEMANAGEMENT

INFORMATION

LEADERS

EXPERIENCE

SATISFICING

DECISION

COMPETITIVE /

CONFLICTING

INFORMATION

ENVIRONMENTAL

INFORMATION


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IMPLICIT FAVOURITE/GAMESMAN

MODEL

Developed by Soelberg (1967)

- implicit favourite identified very early in the choice process during generation of alternatives

- best alternative known as the conf irmation candidate quickly selected

- decision rules generated to demonstrate unequivocally that the implicit favorite issuperior tothe alternative confirmation candidate through perceptual distortion of information andweighing systems designed to highlight positive features of the implicit favourite

- decision rules designed to contain only those one or two dimensions in which the implicitfavorite shown to be superior

Steps in the process:

- set goal

- identify implicit favourite

- compare and rank implicitly rejected alternatives

- identify confirmation candidate- if decision does not justify implicit favorite repeat steps 4 and/or 5

- announce decision

- act


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DECISION MAKING

Decision making comprises three principal phases: findinginformation for making a decision; f inding possible courses

of action and choosing among courses of action

-Herbert A Simon


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DECISION MAKING PROCESS

SETTING

OBJECTIVES

EVALUATING

ALTERNATIVES

SELECTING

ALTERNATIVE

GATHERING

INFORMATION

GENERATING

ALTERNATIVES

SEARCH

ACTIVITY

S

DESIGN

ACTIVITY

D

CHOICE

ACTIVITY

C


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TYPES OF DECISIONS

HIGH

U

N

C

ER

T

A

I

N

IT

Y

LOW

1. Personal and Organizational Decisions

2. Basic and Routine Decisions

3. Programmed and Non-programmed Decisions

LOW COMPLEXITY HIGH

JUDGEMENTAL DECISIONS

JINVESTMENT, PERSONNEL

PROBLEMS

ADAPTIVE DECISIONS

AR & D, LONG TERM STRATEGIC

PLANNING

MECHANISTIC DECISIONS

M

DAILY ROUTINES SCHEDULED

ACTIVITIES

ANALYTICAL DECISIONS

A

COMPLEX PRODUCTION &

ENGINEERING PROBLEMS


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CERTAINTY, RISK, UNCERTAINTY,

AMBIGUITY

Certainty All information the decision maker needs is fully available

Risk decision has clear-cut goals good information is available future outcomes associated with each alternative are subject to chance

(probability)Uncertainty managers know which goals they wish to achieve information about alternatives and future events is incomplete managers may have to come up with creative approaches to alternatives

Ambiguity

by far the most difficult decision situation goals to be achieved or the problem to be solved is unclear alternatives are difficult to define information about outcomes is unavailable


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CONSTITUENTS OF AN EFFECTIVE

DECISION

QUALITY(COMPETENCE, ATTITUDES AND DECISION

PROCESS)

ACCEPTABILITY(SOCIAL AND CULTURAL FACTORS

MOTIVATION, COMN AND UNDERSTANDING)

PRACTICALITY(POTENTIAL TO PUT INTO OPERATION)

DECISION EFFECTIVENESS( (Q) x (A) x (P) )


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HUMAN FACTORS IN DECISION

MAKING

Self-concept Tolerance for ambiguity

Risk taking

Locus of control


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SELF CONCEPT

Determines the method of adjustment of life, maturedirection and intensity of human behaviour, identity,

security, stability and social status of the individual


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CHARACTERISTICS OF A PERSON WITH HIGH

SELF CONCEPT

Confident and outgoing personality

Creative

Readily accepts other people

Has high motive for achievement

Likes positive feedback

Has a balanced and positive orientation towards authority

Hearty and Cheerful


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CHARACTERISTICS OF A PERSON

WITH LOW SELF-CONCEPT

Contributes little in group discussions

Self-conscious: preoccupied with internal problems

More suggestive: a conformist

Insecure and unloved

Uncomfortable when appreciated

Socially withdrawn and self-centered

Chooses either too easy or too difficult tasks


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CHARACTERISTICS OF A PERSON WITH

HIGH TOLERANCE FOR AMBIGUITY

Likes to solve complex problems

Enjoys autonomous functioning

Believes in delegation

Displays empathy

Temperamentally balanced

Comfortable with change

Accepts adverse feedback


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CHARACTERISTICS OF A PERSON WITH

LOW TOLERANCE FOR AMBIGUITY

Active in discussions

Concentrates on petty issues

Fails to delegate

Irritable and meticulous when faced with difficulties

Makes either hasty decisions or unduly delays them

Cannot accept defeat gracefully


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CHARACTERISTICS OF HIGH RISK SITUATIONS

Inadequate relevant and validated data-base: only trendsdiscernable by indicators and logic

Large numbers of variables judgmentally quantifiable or

qualitatively definable

Cause-effect relationships not discernable

Complex interdependencies

Decision options qualitative and not quantitative


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CHARACTERISTICS OF LOW RISK

SITUATIONS

Adequate data-base: both qualitative and Quantitative: amenable to analysis

Cause-effective relationships clear: interdependencies and linkages can be

readily comprehended

Small numbers of variables: easily quantifiable, qualitatively definable

Decision options largely quantitative


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ATTITUDINAL INHIBITORS

Rigid value systems

Intolerance to complexity and ambiguity

Parochialism and prejudices

Avoidance orientation

Tenure phobia Fear of failure


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LOCUS OF CONTROLA locus of control orientation is a belief about whether the

outcomes of our actions are contingent on what we do (internal

control orientation) or on events outside our personal control

(external control orientation).

External LOC: Individual believes that his/her behaviour is

guided by fate, luck or other external circumstances

Internal LOC: Individual believes that his/her behaviour is

guided by his/her decisions and efforts

individual dm (chap-5)

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