Decision - Making Process and Its Implementation

1. Decision-MakingProcessandItsImplementation

2. Decision Making. Decisions are processes by which a manager seeks to achieve some desired state. They are means rather than ends. Making a decision involves making a choice between the alternatives. Decisions could be a) engineering or scientific or b) management Decision making is the sequential process of thought and deliberation that results in a decision. The process of decision making is same in both the types of decisions and involves a) defining the problem b) gathering facts related to the problem c) comparing these with right or wrong criteria based on knowledge and experience and then taking the best course of action Management decision making a more of an art than a science.

3. Management decisions are tough because management problems are wider in scope and they are related to human behavior which is most unpredictable. Management decisions could be either a) programmed or b) Non programmed. While Programmed decisions are repetitive and routine in nature and provide solutions to structured problems the Non programmed decisions are of non routine or unique in nature and attempt to provide solutions to complex and unstructured problems Top Broad, unstructured, infrequent, uncertainty Middle Both structured and unstructured Lower Frequent, structured, repetitive, routine, certainty Management Level Programmed decisions Un Programmed decisions

4. A Categorization of Decision Characteristics Category I DecisionsCategory II Decisions Classifications Programmable; routine; Nonprogrammable; unique; generic; computational; judgmental; creative; negotiated; compromise adaptive; innovative; inspirational Structure Procedural; predictable; Novel, unstructured, certainty regarding consequential, elusive, and cause/effect relationships; complex; uncertain cause/ recurring; within existing effect relationships; non- technologies; well-defined recurring; information information channels; channels undefined, incom- definite decision criteria; plete information; decision outcome preferences may criteria may be unknown; be certain or uncertain outcome preferences may be certain or uncertain Strategy Reliance upon rules and Reliance on judgment, principles; habitual intuition, and creativity; reactions; prefabricated individual processing; response; uniform heuristic problem-solving processing; computational techniques; rules of thumb; techniques; accepted general problem-solving methods for handling processes

5. The origin of decision theory is derived from economics by using the utility function of payoffs. It suggests that decisions be made by computing the utility and probability, the ranges of options, and also lays down strategies for good decisions:

6. The Decision Process

7. The decision process Identify & define The problem Gather Information Develop alternatives Evaluate alternatives Revise Certainty Risk Uncertainty Select alternatives Implement decision Evaluate & control

8. The Decision Making Process Map • The following map briefly describes each phase of the decision making process and the difficulties that decision makers have in that phase. • Decision makers, who are used to depending on their past experiences, must make decisions and take actions in the rapidly changing world we face today.

9. The Decision Making Process Map

10. The Decision Making Process Map • In this turbulent environment, the ability to successfully view the current situation through the traditional "good judgment" viewpoint is weakened through increasing external noise (a multitude of information sources on multiple topics) and changing paradigms of how we think about social, cultural, organizational and economic issues, creating internal noise within our prevailing mental models.

11. The Decision Making Process Map • These noises skew our perception of what is really happening in the world. • In addition to facing this constant flux, leaders are being asked to choose the path to the future as well as to explain exactly how they plan to get there. • Before putting a stake in the sand, leaders begin by developing and testing hypothesesabout possible scenarios, and then eliminate numerous courses of action until a small set of viable choices remain.

12. The Decision Making Process Map • Once the decision to act is made, the communication of the new initiatives begins. • The results of these initiatives usually produce some expected behavior, but almost always, much to our surprise, our actions produce unexpected behavior as well, that once again changes our situation. And so it goes…

13. The Evaluation of Alternatives The evaluation of alternatives is based on alternative outcome relationship. The three possible conditions are 1. Certainty 2. Risk and 3. Uncertainty • Certainty : The decision maker has a complete knowledge of the outcome of each alternative. • Risk : The decision maker has some probabilistic estimate of the outcome of each decision. Condition of risk occurs when the decision maker has enough information to allow the use of probability in evaluating the alternatives. Probability of occurrence of an is event is the expectancy of event happening.

14. Decisions with risk Probability can be assigned based on • Logic or deduction: This is Objective probability. This reflects the historical evidence. Ex. Getting head/tail for a tossed coin. Or getting a number on rolling dice etc. • Past experience is with empirical evidence. • Subjective estimate due to intelligence or intuition. When the decision maker has access to probability information, the criterion for decision making is to maximize s the expected value of the decision.

15. Decisions under uncertainty 3. Uncertainty : The decision maker (dm) has absolutely no knowledge of the probability of outcome of each alternative. When no information exists the personality characteristics of the decision maker become more important for determining which decision is made. The following five characteristics describe what most of the dm’s do. • Optimistic Decisions • Pessimistic Decisions • Realistic decisions. • Regret minimizing Decisions. • Insufficient Reasoner

16. Criteria of Decision making • Optimistic DecisionsThe DM think optimistically about the event that influence decisions. They choose the alternative that maximizes the outcome • Pessimistic Decisions They believe that worst possible outcome will occur no matter what they do. They estimate the worst outcomes associated with each alternative and select the best of these worst outcomes. • Realistic Decisions. They take the middle path neither optimistic nor pessimistic. • Regret minimizing Decisions. They want to minimize the dissonance they experience after the fact. • Insufficient Reason Decisions. These are also called eqi-probable decision maker. They assume that all the possible outcomes have equal chance of occurring.

17. Factors influencing decision making Individual differences influence the decision making process. The four individual differences which have a significant impact of the decision making process are • Values: Values are the guidelines that a person uses when confronted with a situation in which a choice has to be made. Values are acquired early in life and are a basic part of individual’s thought. Value judgment is involved at every stage in the process of decision making. They are reflected in the decision maker’s behavior before making the decision, in making the decision and in putting the decision into effect. • Personality : Decision makers are influenced by many psychological forces both conscious and subconscious. These are strongly reflected in decision making under uncertainty. Personality traits of the decision maker combine with situational and interact ional variables influence the decision making process..

18. Propensity for risk : (Risk taking capacity ) This is a specific aspect of personality which strongly influences the process of making decision. • Potential for dissonance : Traditionally researchers have focused much of their attention on the forces and influences on the decision maker before a decision is made. Utility of the alternatives is the criterion for decision making. Value of the decision is dependent on the utility. Recently Behavioral scientists have focused their attention on post decision anxiety or cognitive dissonance experienced by the decision maker. Such anxiety is related to lack of consistency or harmony among individual’s various cognitions (attitudes, beliefs and so on) Individuals are likely to use one or more of the following to reduce their dissonance a. Seek information that supports their decision. b. selectively perceive information that supports the decision c. adopt a less favorable view of the foregone alternatives. d. Exaggerate the importance of positive aspects of the decision

19. The Scope of Decision Making Metaorganization Decisional Inputs (Objectives, information, resources, energy) Organization Interactional Levels Group Individual Decisional Outputs (Actions transactions, outcomes) Permeable Boundaries External Environment

20. Individual Models of Decision-Making Cognitive style • Underlying personality dispositions toward the treatment of information, selection of alternatives, and evaluation of consequences. Systematic decision makers • cognitive style that describes people who approach a problem bystructuring it in terms of some formal method. Intuitive decision makers • Cognitive style that describes people who approach a problem with multiple methods in an unstructured manner, using trail and error to find a solution. Organizational models of decision making • Models of decision making that take into account the structural and political characteristics of an organization.

21. Organizational Models of Decision-Making Bureaucratic models of decision making • Models of decision making where decisions are shaped by the organization’s standard operating procedures(SOPs). Political models of decision making • Models of decision making where decisions result from competition and bargaining among the organization’s interest groups and key leaders. “Garbage can” model • Model of decision making that states that organizations are not rational and that decisions are solutions that become attached to problems for accidental reasons.

22. Stepsfordecisionimplementation • A decision making process can be definedas consisting of a set of four major steps: theproblem definition; the identification of solutions;the selection of the best option; and the decisionimplementation plan. • People participating in the first three phases of adecision making process will probably be the same(except perhaps for a few advisors or observerswho may participate just in one of the phases). • Onthe other hand, people working in the post-decisionphase are implementers, most probably differentfrom the decision makers participating inthepreviousphases.

23. Stepsfordecisionimplementation • Documentdecisionmakingsteps • Allocateresources • Determinetasksandactivities • Develop a timeline • Assignresponsibilitytospecificindividuals • Considerlikelyobstaclesandalternatecourses of action. • For Svenson, the follow-up of the decisionimplementation is fundamental to the evaluationof the quality of past decisions and asbackground knowledge for present and futuredecisions.

25. Evaluation of Strategic Decision Success 1. Compatibility with 1. Conflict of interest. operating constraints. 2. Timeliness. 2. Risk-reward factor. 3. Optimum amount of 3. Understanding the information. decision. 4. Influence of the decision maker. Strategic Decision Success Strategic Decision Quality Strategic Decision Implementation = f + f

26. Follow-Up and Control Follow-up and control is essential to ensure that an implemented decision meets its objective. Performance is measured by observing the implemented decision in relation to its standard derived from the objective.

27. DecisionMaking in ForeignPolicy • Margaret Hermann, Charles Hermann, and Joe Hagan have incorporatedvarious models of foreign policy decisionmaking into a contingency modeland called it the “decision-units” framework. The main purpose of a contingency model is to formulate middle-range theories that suggest under whatconditions certain types of foreign policy behaviors take place. The decision-units framework builds upon a growing body of research on foreignpolicy decisionmaking, focusing on bureaucratic politics, group dynamics,governmental politics, leadership styles, coalition politics, and the strategies with domestic opposition.

28. Decision Making in Foreign Policy • This framework suggests that previousdecisionmaking approaches—such as bureaucratic politics, groupthink—have wanted to declare a “winner” at the expense of seeing all as complementary. It also suggests that the literature has been very US-centric,making it almost impossible to generalize findings across nations. • Thus,the main aim of the decision-units framework has been to incorporate thesepreviously existing decisionmaking approaches in a more comprehensiveand contingent manner, to build middle-range theories that are applicablein non-US settings as well, and finally, to further open up the ‘black box’of the foreign policy decisionmaking process.

29. Decision Making in Foreign Policy • One of the key components of the decision-units framework is that,“there is within anygovernment an individual or a set of individuals withthe ability to commit the resources of the society and, when faced with aproblem, the authority to make a decision that cannot be readily reversed.”This set of decisionmakers is called the authoritative decision unit. Thereare three types of authoritative decision units:

30. Decision Making in Foreign Policy • 1. predominant leader, • 2. single group, and • 3. coalition of multiple autonomous actors. • The framework suggests that each decision unit “sets into motion alternative decision processes,”16 resulting in different process outcomes. Apredominant leader is the decision unit seen when a single individual hasthe power to make a decision alone.

31. Decision Making in Foreign Policy • A single group is the case when anumber of individuals collectively choose an action consulting with eachother. • A coalition of autonomous actors is the relevant decision unitdescription when separate individuals, representatives of organizations,groups and so on come together to decide upon an action. • In this last case,no single component within this group of actors has sufficient power tomake a binding decision on its own, yet each has the resources and capability to block the decision or withdraw the resources needed for the implementation of the decision if not satisfied.

32. DecisionMaking in ForeignPolicy • This figure summarizes the three stages of foreign policymaking according to the decision-units framework. It also illustrates the place of the decision units within the foreign policy decisionmaking process.

33. Decision Making in Foreign Policy Predominant Leader Foreign Policy Problem Foreign Policy Action Process Outcomes Single Group Occasion for Decision Emergence of Authoritative Decision-Unit Coalition INPUTS DECISION UNITS DYNAMICS OUTPUTS

34. Decision Making in Foreign Policy • The first stageoccurs whenever a foreign policy problem emerges. The “inputs” (occasionfor decisions18 and the emergence of the authoritative decision unit) lead theway to the “decisionmaking dynamics” that are determined by which unitis authoritative and which key contingencies are at play. These dynamicsresult in the “outputs” that are the outcomes of the decisionmakingprocesses and the foreign policy action.

35. Literature • Borges, M.R.S., Pino, J.A., Valle, C., “On theImplementationand Follow-up of Decisions”, in In Proc.of the DSIAge -International Conference on Decision Making and Decision Support in the Internet Age, Cork, Ireland, July 2002, p. 366-375. • Harrison, E.F., TheManagerialDecision- MakingProcess, FifthEdition, HoughtonMifflinCompany, 1999. • White, D.J., DecisionTheory, AldinePub.Co., 2006.