Is a situation in which a manager can make accurate decisions because the outcome of every alternative is known?

• Describe the Eight steps in Decision-making process
• Explain the four ways managers make decisions
• Classify decisions and decision-making conditions
• Describe decision-making styles and discuss how biases affect decision making.
• Identify effective decision-making techniques

• Describe the Eight steps in Decision-making process (The Decision-Making Process)

Managers at all levels and of each department make decisions, top level managers take decisions about the installation of manufacturing facility or what new business to move into.

Middle or lower level managers will take decisions about production or day to day tasks etc.

Decision making is a process not just choosing among alternatives.

• Identifying a problem

Identifying a problem is not that much easy.

There is a difference between the symptom of problem and the real problem.

If the managers solve the wrong problem that means he is like a manager who couldn’t even recognize the problem and do nothing.

The discrepancy between the desired outcomes and the existing ones is the real problem.

For example: buying new computers for sales staff as the older ones are outdated, slow, display problems etc.

• Identifying decision criteria

Defining the decision criteria is the next step to solve the problem

In the above-mentioned example display, processor, memory, or battery life etc. are the relevant criteria in manager’ decision.

• Allocating weights to the criteria

Once the criteria are determined, give them weightage as per priority. For example, if sound of laptop is not of much importance, weigh them accordingly.

• Developing alternatives

In this step managers explore and manage the list of possible options that could solve the problem.

In this step just list is maintained, and not analyzed.

For example: to solve the above-mentioned example, managers would consider different brands of laptops.

• Analyzing alternatives

As the alternatives have been identified, now managers need to evaluate each alternative by using criteria.

This data represents the assessment of each alternative using the decision criteria. As shown in the below figure.

Now multiply the assessed alternative with the assigned weight. And then in the end, to complete this analyzing step take the sum of weighted criteria. As shown in the below mentioned figure.

• Selecting an alternative:

Now choose the best option.

From the above-mentioned example, choose the brand with highest score. i.e. Dell

• Implementing the alternative:

Now it can be conveyed to people who are responsible to implement the decision about the chosen option.

It would be good, if they people take part in the evaluating process.

And to make it surer. Tell them to reassess the chosen option while implementing, whether the decision made is right or wrong, or its relevant with the environment.

• Evaluating decision effectiveness:

In the last step, managers should evaluate whether the problem is solved or not.

If not, why.?

What went wrong.?

Where manager made mistake.

Whether the problem was wrongly identified, or the evaluation process was not appropriate or wrong alternative was chosen etc.

The answer may take you to redo the previous step or to repeat the whole process again.

• Explain the four ways managers make decisions

 (Managers Making Decisions)

It is seen in routine life, that everyone makes decisions, whether he is in the organization or at home or with friends, while working or while eating et.

In organizations decision making is part of every management function. i.e. Planning, organizing, leading and controlling. So we call decision making as essence of management.

And so managers, who make decisions are called as decision makers.

Below are the perspectives given on how managers make decisions.

Making decisions: Rationality

Being rational decision maker, managers make decisions very logically and consistently to maximize value or profits.

but most of the times, managers are not rational while taking decisions.

Assumptions of Rationality:

• A rational decision maker is fully logical and objective.
• The problem faced would also be crystal clear.
• Managers would have specific and clear goals and know about all the possible alternatives and consequences.
• Managers work on and select such alternatives, which help them achieving their goals.
• Decisions are made in the best interest of organizations,
• And obviously, these assumptions are not very realistic.

Making decisions: Bounded Rationality

It means, managers make decisions rationally but are limited (bounded) by their ability to process information.

It is because managers can’t analyze information on all possible alternatives. So managers satisfice, rather than maximize.

Bounded rationality:

For example: a person is holding master degree in finance, and want to do job from starting $35,000, in near to home (30kms.). And he got job on $34,000 from around 50kms from home.

Now in this example, there was the possibility that he would have got the exact job he was looking for, but he didn’t try much. So he availed the best opportunity as per his knowledge or gathered information.

Then there comes another phenomenon i.e. Escalation of Commitment.

It means, managers make mistakes by not admitting that their initial decision was flawed. So they stick with this decision and move with it.

So rather than searching for other alternatives, they simply increase their commitment to the original solution.

Making Decisions: The role of Intuition

Intuitive decision making involves experience, feelings and accumulated judgments.

Researchers have found five different aspects of intuition, which is described in picture.

Making Decisions: The Role of Evidence-Based Management

It simply means making decisions on the basis of evidences.

Systematic use of best available evidence to improve management practice.

The four-essential element of EBMgt are:

• Decision maker’s expertise and judgment.
• External evidence that’s been evaluated by the decision maker.
• Opinion, preferences, and values of those who have a stake in the decision.
• And relevant organizational (internal) factors such as context, circumstances, and organizational members.

• Classify decisions and decision-making conditions

Types of Decisions:

Structured Problems and programmed decisions:

Some problems are straightforward, so the decision maker has its clear solution.

The problem is clear and information about is complete

Example: when a customer come back to store for product return.

It is structured problem.

To solve this problem, to provide customer claim of this product is almost routine of manager’s job. It is programmed decision.

Decision taking is so simple and already defined.

Managers rely on three types of programmed decisions; Procedure, Rule, Policy

Procedure:

It includes the sequential steps managers might take to solve or respond to a structured problem.

The only difficult thing is to identify the problem. Once it’s identified, solution is defined.

Example: to fulfil the stock demand of store or factory warehouse.

Rule:

                Rules are frequently used as they are easy to follow and ensure consistency.

Example: to control the absenteeism problem the rule is clear and easy to take i.e. to take disciplinary action.

Rule directly state “what should or should not manager do”

Policy:

It is the guideline for making a decision.

It is different than rule, as it provides parameters to decision maker to take action.

Example: customer always come first and should be satisfied., now how to satisfy is up to manager.

Unstructured Problems and Non-Programmed Decisions:

Managers often face unstructured problems, for-example in COVID-19 days.

The virus has caused unstructured problems to almost every business.

As the problem is unstructured so non-programmed decision is required.

Managers come with new ideas to confront the problem.

It is generally seen that lower level managers rely on programmed decisions. Because they often face similar problems. And their solutions are often programmed.

When lower level managers get promote to top level manager, then they face new problem or similar problems or mix of these.

Decision-Making Conditions:

Certainty:

In certain situations, managers know the outcome of every alternative so they can make accurate decisions

Risk:

Taking risky decision is common thing business.

They are not obvious about the exact and accurate outcomes but they predict and expect the positive and successful results

Under risky situations managers have historical data from past personal experiences or secondary information that lets them assign different probabilities to different alternatives.

Uncertainty:

Sometimes managers face a situation in which they are not sure about the results and can’t even make the guesses or right estimates about the results. This situation called as Uncertainty.

Managers select alternatives on the basis of limited amount of information available.

• An optimistic manager will follow Maximax choice (maximizing the maximum possible payoff).
• A pessimist will follow maximin choice (maximizing the minimum possible payoff).
• And a manager who want to minimize his maximum “regret” will follow the minimax approach.

                Example:

• Optimistic manager will choose S4, because it has maximum output possibility i.e. 28.
  • Pessimist manager will choose S3, because it will try to maximize the minimum output i.e. 15.
  • A manager with minimax approach to minimize his regret will subtract the largest and smaller numbers from each column and then after getting answers (S1=17, S2=15, S3=13, S4=7). He will select S4. i.e. 21-14= 7(the smallest number, that means minimum regret.)

• Describe decision-making styles and discuss how biases affect decision making.

• Linear-Nonlinear Thinking Style Profile:

Linear Thinking style:

In this people or managers use external data or information or facts and process them through rational, logical to guide decisions and actions to make decisions.

Nonlinear Thinking style:

In nonlinear thinking style people use feeling and intuitions as source of information and then processing this information with internal insights and feelings while making decisions.

• Decision-Making Biases and Errors:

Heuristics:

Managers often use rules of thumb while taking certain decisions which are also termed as Heuristics.

Managers use rules of thumb, but it is no surety that these rules are reliable.

Managers use it, because they help make some sense of complex uncertain and ambiguous information.

There are 12 common decision errors and biases that managers make.

• Overconfidence:

When decision makers overrate themselves, and think that they know everything much better than others, this is overconfidence bias.

• Immediate gratification:

For this type of managers instant gain from some project is so attractive, they don’t think about long-term effects.

• Anchoring effect:

When managers get stick with the initial information, and make decision to pursue some project, but later they realize that the information they relied on was not right.

• Selective perception:

When managers or decision maker selectively pay attention to some information or problem or alternatives. This is selective perception bias.

• Confirmation:

When decision makers favorably look for the information that support their past choices and ignore the information that contradicts their past choices, this is confirmation bias.

• Framing:

When decision makers highlight and pay attention to certain points and ignore or excluding other aspects of some situation, this is framing bias.

• Availability:

Availability bias is when decision maker tends to remembers the events that happened in the present or near future or vivid in the memory, this result in that they don’t even bother to remind the older events or find the facts.

• Representation:

It is when decision maker asses the likelihood of an event on how closely it resembles with other set of events. This is representation bias.

• Randomness:

When managers try to create meaning out of random events and find symmetry in situations where they don’t exist.

• Sunk costs:

When decision maker doesn’t get that their current choices can’t correct the past. They fixate on the cost occurred, time rather than on future consequences.

• Self-serving:

decision makers who take credit of success and blame failure on outside factors is self-serving bias.

• Hindsight:

in this decision makers have tendency to assume that they would have accurately predict the results of their choices once that result is actually known.

• Overview of Managerial Decision Making

• Identify effective decision-making techniques

Effective Decision Making in Today’s world

• Understand cultural differences:

Culture varies from region to region, on decision taken for region good but can be a bad option for another region.

So,

 to learn the culture of people involved is very important thing while making decisions.

• Know when it’s time to call it quits:

Managers should have enough guts to admit the wrong decisions taken.

Rather than sticking with the bad decisions, and earn more loss, its better to quit, and move on.

• Use an effective decision-making process:

As per experts, effective decision making have 6 characteristics.

• It focusses on what is important.
  • It is logical and consistent.
  • It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking.
  • It encourages to gather as much information and analyses as is required to solve a certain problem.
  • It encourages to gather just relevant information.
  • It is easy to use, flexible, straightforward and reliable.

• Build an organization that can stop the unexpected and quickly adapt to the changed environment:

Which are Highly Reliable Organizations (HROs)

Karl Weick shared five habits of HROs

• They are not tricked by their success. They don’t get mad with their success and remain in their senses, they sense every little change or anything that is unfit, so to alter the plan. Their navigation is so strong.
• They defer to the experts on the front line. They let their experts on the front line. For example, qualified and problem-solving customer services officers on the front.
• They let unexpected circumstance provide the solution.
• They embrace complexity, because such organization try to study and know the situation deeper.
• They anticipate, but also know their limits.