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Chapters 8 and 9 . Fundamentals of Decision Making & Planning and Decision Aids. OVERVIEW CHAPTER 8 . What is Decision Making Conditions that affect decision making The Differences between decision types Understanding how goals relate to decision making

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chapters 8 and 9
Chapters 8 and 9

Fundamentals of Decision Making


Planning and Decision Aids

overview chapter 8
  • What is Decision Making
  • Conditions that affect decision making
  • The Differences between decision types
  • Understanding how goals relate to decision making
  • Understanding the three models of decision making
what is decision making
What is Decision Making
  • The process of defining problems, gathering information, making sense of that information, generating alternatives, and choosing a course of action.
conditions under which decisions are made
Conditions Under Which Decisions Are Made
  • Certainty vs. Uncertainty
  • Risk
  • Objective Probability vs. Subjective Probability
certainty vs uncertainty

The condition under which individuals are fully informed about a problem, alternative solutions are obvious, and the possible results of each solution are clear.


The condition under which an individual does not have the necessary information to assign probabilities to the outcome of alternative solutions.

Certainty vs. Uncertainty
  • The condition under which individuals can define a problem, specify the probability of certain events, identify alternative solutions, and state the probability of each solution leading to the desired results
  • Generally a risk falls somewhere between the extremes of certainty and uncertainty.
objective vs subjective probability
Objective Probability

Determines the likelihood that a specific outcome will occur based on hard facts and numbers.

Example: examining past records

Subjective Probability

Determines the likelihood that a specific outcome will occur, based on personal judgments and beliefs

This varies between individuals based on expertise, intuition, etc.

Objective vs Subjective Probability
types of decisions to be made
Types of Decisions to be Made
  • Routine Decisions: choices made in response to relatively well-defined and common problems and alternative solutions.
  • Adaptive Decisions: choices made in response to a combination of moderately unusual and only partially known problems and alternative solutions
  • Continuous improvement: streams of adaptive decisions made over time in an organization that result in a large number of small, incremental improvements year after year.
  • Innovative decisions: choices based on the discovery, identification, and diagnosis of unusual and ambiguous problems and the development of unique or creative alternative solutions.
goals affect decision making
Goals affect decision making
  • Goals are results to be attained
  • Therefore, giving direction to decisions and actions.
  • When a goal is changed or modified, the individual is engaging in the decision making process.
general and operational goals
General and Operational Goals
  • General Goals: provide broad direction for decision making in qualitative terms.
  • Operational goals state what is to be achieved in quantitative terms, for whom, and within what time period.
how do stakeholders affect goal setting
How do Stakeholders Affect Goal Setting?
  • Shape demands, contraints, and choices of alternatives that managers and employees face when setting goals.
decision making models
Decision-Making Models
  • Rational
  • Bounded Rational
  • Political
rational model
Rational Model
  • A series of steps that individuals or teams should follow to increase the likelihood that their decisions will be logical and well founded
    • Permits maximum achievement of goals w/in limitations of the situation
    • Routine decisions or situations involving conditions of low risk
rational decision making model as a seven step process
Rational Decision Making Model As A Seven Step Process
  • Define & diagnose the problem
  • Set goals
  • Search for Alternative Solutions
  • Compare & Evaluate Alternative Solutions
  • Choose among alternative solutions
  • Implement the solution selected
  • Follow up and control
bounded rationality model
Bounded Rationality Model

An individual’s tendency…

  • To select less than the best goal or alternative solution
  • To engage in a limited search for alternative solutions
  • To have inadequate information & control over external and internal environmental forces influencing the outcomes of decisions
information processing biases
Information Processing Biases
  • Availability Bias
  • Selective Perception Bias
  • Concrete Information Bias
  • Law of Small Numbers Bias
  • Gambler’s Fallacy Bias
political model
Political Model
  • A description of the decision-making process in terms of the particular interests and goals of powerful external and internal stakeholders
    • Power – the ability to influence or control
    • Scapegoating – Casting blame for problems on innocent
    • Co-optation – means of averting threats
chapter 9 outline
  • Forecasting
  • 3 Forecasting Aids: Scenario, Delphi, and Simulation
  • Brainstorming
  • Cause and Effect Relationships
  • TQM topics
  • Pert Network
  • Is the projecting, predicting, or estimating future events or conditions in an organization’s environment.
  • Forecasting deals with conditions or external events beyond the organization’s control that are important to its survival.
  • EXAMPLES ????
four forcasting pitfalls

1) Listening to the media.

2) Assuming things are going to return to the way they used to be.

3) Hearsay

4) Tunnel Vision

first forecasting aid scenario
First forecasting aid: SCENARIO
  • Written description of a possible future.
  • 3 scenarios are usually given for companies and they are for the best case, worst case, and most likely to occur.
  • Scenarios provide possibilities of what could happen and the business can plan strategies.
  • They give companies a broad vision of possible events.
  • Companies can identify patterns, interrelationships, and generalizations that help plan for the future.
second forecasting aid delphi technique
Second forecasting aid: DELPHI TECHNIQUE
  • Based on a consensus of a group of experts.
  • This technique relies on opinions, so it is not foolproof, but it is usually more accurate than an opinion from one expert.
3 basic steps of the delphi technique

STEP 1: Questionnaire is sent to a group of experts.

STEP 2: Summary of the first round is prepared.

STEP 3: Summary of the second round is prepared.

third forecasting aid simulation
Third forecasting aid: SIMULATION
  • A representation of a real system.
  • Effects of environmental changes and internal management decisions can be forecasted by simulation.
  • The simulation goal is to test reality without actually experiencing it.
  • Downfalls: impossible to apply all aspects and it is expensive.
virtual reality
  • Simulation by computer systems.
  • The user can “enter”, move around, and interact with objects.
  • Flight Simulators
  • Flow of ideas without restrictions or judgments.
4 basic rules of brainstorming
  • Criticism is ruled out.
  • Freewheeling is welcomed.
  • Quantity is wanted.
  • Combination and improvement are sought.
cause and effect
Cause and Effect
  • A then B, therefore A causes B
  • But what about C, D, E, F??
  • Cause and effect Diagram- helps back track a problem to its roots
  • Also known as fishbone diagrams
general framework of cause and effect fishbone diagram


General Framework of Cause and Effect (Fishbone) Diagram




(or ProblemStatement)



Adapted from Figure 9.1

cause and effect diagram
Cause and Effect Diagram
  • The cause and effect diagram helps team members display, categorize, and evaluate all the possible causes of an effect, which is generally expressed as a problem.
cause and effect steps
Cause and effect steps
  • Step 1: the team needs to agree on the effect, which should be stated in terms of the problem
  • Step 2: the team identifies all the general factors of categories that contribute to the problem, which will help the team organize the specific causes
  • Step 3: the team may also use brainstorming or other techniques to generate all the possible causes that contribute to the problem (or effect) in that category
  • Step 4: Involves reaching agreement on the top 3-5 root causes in each major category
tqm topics
TQM Topics
  • Benchmarking- comparing self to the best in terms of:

*process, strategies, products, and



  • Define domain
  • Determine what is best
  • Collect information to create performance gap
the benchmarking process
The Benchmarking Process
  • 1. Define the issue
  • 2. Identify the best performers
  • 3. Collect and analyze data to identify gaps
  • 4. Set improvement goals
  • 5. Develop and implement plans
  • 6. Evaluate results
  • 7. Repeat evaluation
deming cycle
Deming Cycle
  • Developed by W. Edwards Demming
  • Also called the PDCA cycle:

Planning: goals, what to change, how to know

Doing: Pilot-testing

Check: look at results

Act: implement and perform

* Continuously repeated for improvement

pareto principle
Pareto Principle
  • States that a small number of causes (usually 20%) accounts for most of the impacts of the problems (80%) aka the 80-20 rule
  • Pareto analysis separates the vital few from the trivial many, thus improving the analysts chances of getting the greatest results for the least amount of time and effort
pareto diagram data categorized by shift


Pareto Diagram: Data Categorized by Shift


Source: Adapted from E. S. Fine. Pareto diagrams get to the root of process problems. Quality, October 1996, available at (January 16, 1998).











Mon Tue Mon Wed Thu Wed Tue Fri Thu Fri

1 2 2 1 1 2 1 1 2 2


Adapted from Figure 9.6

pareto diagram
Pareto Diagram
  • A chart used to determine the relative priorities of issues, defects, or problems. They are arranged in descending order of magnitude of importance, indicating which problems to address first
  • Can also be used to compare before and after results of projects by comparing diagrams

Program Evaluation and Review Technique

- Method of sequencing activities and estimating cost and time for project completion

First use: 1958 – Polaris missile


commonly used for
Commonly used for:
  • One-of-a-kind projects – Disney World
  • Projects involving new production processes – robotic automobile plant
  • Projects with multiple/interlocking building processes – apartment complexes
pert network
PERT Network
  • Diagram showing the sequence and relationships of activities and events to finish a project
  • Critical Path – the path which takes the longest time to complete
a basic pert network


A Basic PERT Network

Activity B

Activity E

Event 3

(8 weeks)

(6 weeks)

Activity C

Event 1

Event 4

(15 weeks)

Activity A

Activity D

Event 2

(8 weeks)

(12 weeks)

Adapted from Figure 9.8

resources time and money
Resources, Time, and Money
  • Resource availability influences time and cost for completion
  • Cost estimates must be provided
  • Time estimates must be provided

* “most likely time”

* “optimistic time”

* “pessimistic time”

* “expected time”

  • Used as a control mechanism that allows project managers to monitor differences in actual and projected estimates, resulting in more efficient completion.
the end