Decision Making

Types of decision
Steps in rational decision
making
Planning
Definition and characteristics
Decision Making
 Defination:
Decision Making is the process of
choosing the best alternative for
reaching objectives
Managers make decisions affecting the
organization daily and communicate
those decisions to other organizational
members
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Effective decision making

A major activity of management is the making of decisions.

Decisions need to be timely. There are times when a decision has to be
made. Even if it turns out not to be the best decision it can be better than
not making a decision at all.
Decisions often have to be made when there is insufficient information.
Decisions involve taking risks. Effective decision making involves
gathering what information is known, identifying the options, assessing
the risks and making the best decision
with the information available in a timely manner.

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When do decisions need to be made
Situations include:

• Determining the project strategy/approach

• Resolving project issues
• Developing estimates
• Making purchases
• Interviewing and selecting project team members
• Selecting external suppliers
• Handling disagreements and conflict resolution
• Scheduling work and allocating resources to tasks
• Managing meetings
 Types of decision
 Planned and unplanned
 Temporary and permanent

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The decision making process
Four simple steps:

1. Gather the facts

2. Identify a number of alternatives
3. Assess the alternatives
4. Decide

Where quick decisions need to be made, these steps can

be done mentally “on the fly” or by one person. When
time allows and the decision is important, more people
can be involved and a more thorough decision making
process used.

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Rational Decision Making
8-step Process
 1. Identification of problem
 2. Identification of Decision Criteria
 3. Allocation of weights to criteria
 4. Development of alternatives
 5. Analysis of alternatives
 6. Decide on an alternative
 7. Implementation of decision
 8. Evaluation of decision
 The Decision-Making Process
Allocation of
Problem Identification of Weights to Development of
Identification Decision Criteria Criteria Alternatives

“My salespeople Price Reliability 10 Acer

Weight Screen size 8 Compaq
need new computers”
Warranty Warranty 5 Gateway
Screen type Weight 5 HP
Reliability Price 4 Micromedia
Screen size Screen type 3 NEC
Sony
Toshiba

Analysis of Selection of an Implementation

Alternatives Alternative of an Alternative

RSWWPS
Acer 4 3 4 3 2 6 Acer 125 Evaluation
Compaq 3 4 5 2 6 7 Compaq 142 Gateway
of Decision
Gateway 9 6 7 7 8 2 Gateway 246
Effectiveness
HP 3 5 6 7 6 5 HP 174
Micromedia 2 2 3 4 5 4 Micromedia 103
NEC 3 45 6 7 2 NEC 151
Sony 7 56 4 2 8 Sony 192
Toshiba 3 45 6 7 3 Toshiba 154
Decisions in the Management Functions
About Rational Decision
Making
 Is it always possible to
make rational
decisions?
 Single, well-
defined goal
is to be achieved
All alternatives Problem is
and clear and
consequences unambiguous
are known
Rational
Decision Final choice
Preferences Making will maximize
are clear
payoff

Preferences
No time or cost
are constant
constraints exist
and stable
 Bounded
Rationality
behave rationally within the
parameters of a simplified
decision-making process that is
limited by an individual’s ability to
process information
 satisfice - accept solutions that are
“good enough”
Intuitive decision
making
 Based on “gut feeling”
 subconscious process of making
decisions on the basis of
experience, values, and
emotions

does not rely on a systematic or
thorough analysis of the problem

generally complements a rational
analysis
 Types of Problems &
Decisions

 Well-Structured Problems -
straightforward, familiar, and easily defined

 Programmed Decisions - used to address

structured problems
 minimize the need for managers to use discretion
 facilitate organizational efficiency
Types of Problems and
Decisions

 Poorly-Structured Problems - new,

unusual problems for which information
is ambiguous or incomplete
 Nonprogrammed Decisions - used to
address poorly- structured problems

produce a custom-made response

more frequent among higher-level managers
 Procedure, Rule, & Policy
 Types of Problems & Level In
the Organization
Ill-structured Top

Nonprogrammed
Type of Decisions Level in
Problem Organization

Programmed
Decisions

Well-structured Lower
Things to consider . . .

 Certainty – how certain is a

particular outcome?
 Risk – how much risk can you take?

expected value - the conditional return
from each possible outcome
 Uncertainty – Limited information
prevents estimation of outcome
probabilities for alternatives.
 What to do?
maximax choice – optimistic
maximizing the maximum possible
payoff
taking the best of all possible cases
maximin choice – pessimistic
maximizing the minimum possible
payoff
taking the best of the worst cases
minimax - minimize the maximum
Decision-Making Styles
 Dimensions of Decision-Making
Styles
 Value orientations

Task and technical concerns

People and social concerns
 Tolerance for ambiguity

Low tolerance: require consistency and
order

High tolerance: multiple thoughts
 Decision-Making Styles

Analytica
Directive • l complex Behavioral
• Prefer Conceptual
Prefer simple, • Concern for their
problems • Socially oriented
clear solutions • Carefully analyze organization
• Make decisions • Humanistic and
alternatives • Interest in helping
rapidly artistic approach
• Enjoy solving • Solve problems others
• Do not consider • Open to
problems creatively
many alternatives • Willing to use suggestions
• Rely on existing • Enjoy new ideas
innovative • Rely on meetings
rules
methods
Decision Making Styles
Tolerance for Ambiguity
High
Analytical Conceptual

Directive Behavioral
Low
Tasks and Technical People and Social
Concerns Concerns
Value Orientation
Gather the facts
Guidelines

• Write down a statement of what needs to be decided.

• Is the decision statement clear and precise? If not refine
the statement.
• Is the need for the decision a result of an underlying
problem, which also needs to be addressed?
• Are there assumptions underlying the decision that need
to be clarified and possibly challenged?
• Is the decision part of a bigger decision that needs to be
made, or can this decision be decomposed into smaller
decisions?

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Identify alternatives
Guidelines

• Identify as many alternatives as possible.

• Use brainstorming if appropriate.
• Do not filter out alternative options at this stage
- assume they can all be made to work.
• When you have generated lots of ideas, consider each one to
see if it is a viable alternative.
• Shortlist the viable alternatives.

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Decision making behaviour
People tend to adopt a particular decision making approach as a result
of factors such as:

• their own personality

• their current mood
• the organisational culture
• the personality of the person/people they are dealing
with
• the nature of the relationship they have with the
people they are dealing with
• time pressure and perceived level of stress

Being aware of these influences can result in better decision

making, by adopting the best decision making approach for
each situation.
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Common Errors in Decision Making

 Over-  Framing
confidence  Confirmation
 Hindsight  Selective
 Self-serving perception
 Sunk costs  Anchoring
 Randomness  Immediate
 Representatio gratification
n
 Availability

Helpful hints
Don’t:  Do:
– Make assumptions  Clearly identify the decision
– Procrastinate to be made
– Jump to conclusions  Involve people qualified to
help in the decision making
– Make uninformed decisions
 Identify the context of the
– Favour one decision prior to
decision (the bigger picture)
gathering the facts and
evaluating the alternatives
 Identify all alternatives
– Allow only technical people to  Assess each alternative
make the decisions  Assess the risks
– Attempt to make a decision in  Consider your “gut feel”
isolation of the context  Make the decision
– Let emotion override and stick to it
objectivity
Identify alternatives
Guidelines

• Identify as many alternatives as possible.

• Use brainstorming if appropriate.
• Do not filter out alternative options at this stage
- assume they can all be made to work.
• When you have generated lots of ideas, consider each one to
see if it is a viable alternative.
• Shortlist the viable alternatives.

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Advantages and Disadvantages of
Group-Aided Decision Making

Advantages
Disadvantages
1. Greater pool of knowledge 1. Social
pressure
2. Different perspectives 2. Minority domination
3. Greater comprehension 3. Logrolling
4. Increased acceptance 4. Goal displacement
5. Training ground 5. “Groupthink”
 Decision-Making Approach
• Rationality
• Bounded Rationality
• Intuition

Types of Problems and Decisions

• Well-structured
Decision
- programmed • Choose best
• Poorly structured
Decision-Making alternative
- nonprogrammed
Process - maximizing
- satisficing
• Implementing
Decision-Making Conditions • Evaluating
• Certainty
• Risk Decision Maker Style
• Directive
• Uncertainty
• Analytic
• Conceptual
• Behavioral
 Decision making behaviour
People tend to adopt a particular decision making approach as a result
of factors such as:

• their own personality

• their current mood
• the organisational culture
• the personality of the person/people they are dealing
with
• the nature of the relationship they have with the
people they are dealing with
• time pressure and perceived level of stress

Being aware of these influences can result in better decision

making, by adopting the best decision making approach for
each situation.
 Decision making approaches
Approaches* to decision making situations:

• Withdrawing: holding off making the decision.

• Smoothing: focusing on areas of agreement and
ignoring areas of difference.
• Compromising: trying to come up with a decision that
provides some degree of satisfaction for all parties.
• Confronting/problem solving: working through the
issues.
• Forcing: executing a particular decision knowing
agreement has not been reached.

*Adapted from D Billows, Project Manager’s KnowledgeBase,

2nd edition, 2004, The Hampton Group. 31
 Decision making approaches
Skilled project managers and business analysts
select the best approach appropriate to the situation.

Withdrawing:
• Withdraw to gather more information and perspective
• Only a stop gap measure
• Useful in “cooling down” an overheated situation
• Taking time out (“sleep on it”) before final decision

Smoothing:
• Relationship focused rather than solution focused
• Avoids dealing with the issues
• Can be useful in reducing the emotional tension where the
decision is of low importance.
• Does not provide a long-term solution

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 Decision making approaches
Compromising:
• Bargaining to get an acceptable agreement
• Falls short of the best decision
• Can be useful in resolving negotiation deadlocks

Confronting/problem solving:
• Direct approach
• Identifies alternatives and works through the issues
• Time-consuming
• Most likely method to develop the best solution

Forcing:
• Used when an urgent decision is required or as a last resort
• Necessary for situations when decision making is blocked
• May result in reluctance in execution of decision if not
handled well.
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• END

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