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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