Decision-making

1. Decision-making October 1, 2007

2. Decision Making • Process of identifying problems and opportunities and resolving them. • Management decisions can be made by managers, teams, or individual employees, depending on: • The scope of the decision, and • The design and structure of the organization. • conditions of risk and uncertainty • lack of information and a limited amount of time available • Procrastinating and not making a decision sometimes has greater risk than making it.

3. Characteristics of Management Decision Making Programmed Decisions- established Routines and procedures Programmability Non-programmed Decisions- Unique situation with no previous routines Certainty-all information needed to make decision is available Uncertainty Uncertainty- incomplete information is available about a particular decision

4. Characteristics of Management Decision Making • Risk – occurs when the outcome of management decision is uncertain • Risk has positive and negative aspects • Decision environment for risk vary depending upon company culture and size • Conflict – occurs when there are opposing goals, scares resources, or differences in priorities • Crisis – a situation that involves small amounts of time to make a decision that can impact the survival of the organization

5. Characteristics of Management Decision Making • Decision Scope – the effect and time horizon of a decision • Strategic Decisions – long term perspective of 2-5 years . affect on the organization • Tactical Decisions – short term perspective of 1 year or less . focus on subunits • Operational Decisions – shortest time perspective, generally less than a year, often measured on a daily or weekly basis

6. Stages of Decision Making Identifying and diagnose the problem Generate alternative solutions Evaluate alternatives Selecting the best alternative Implementing the decision Evaluating the decision

7. Evaluating Alternatives • Decision criteria should be related to the performance goals of the organization and its subunits. • Decision criteria can include: • Costs • Profits • Timeliness • Whether the decision will work • Fairness

8. Evaluating Alternatives(cont) • A practical way to apply decision criteria is to consider: • Decisionquality –aspect of decision making based on such facts as costs, revenues, and product design specifications. • Decision acceptance –aspect of decision making based on people’s feelings.

9. Approaches to selecting the best alternative • Optimizing – selecting the best alternative from among multiple criteria. • Satisficing – selecting the first alternative solution that meets a minimum criterion. Ask of the alternative : • Feasible? • Satisfactory quality? • Satisfactory acceptance?

10. Successful implementation • Providing resources (staff, budgets, office space) that will be needed for the activities that are required for successful implementation. • Exercising leadership to persuade others to move the implementation forward. • Developing communication and information systems that enable management to know if the decision alternative is meeting its planned objectives. • Recognition and rewards for individuals and teams that are successful with implementation.

11. Rational Decision Making Process- Assumptions • The problem is clear and unambiguous. • There is a single, well-defined goal that all parties agree to. • Full information is available about criteria. • All the alternatives and their consequences are known. • The decision preferences are clear. • The decision preferences are constant and stable over time. • There are no time and cost constraints affecting the decision. • The decision solution will maximize the economic payoff