STRATEGY AND DECISION MAKINGEM-III

DECISION MAKING

Decision Making• The nature of management decisions• The decision-making process• Decision-making techniques

The nature of decision making• Decision making:

• Usually to solve problem• Scientific and Management decisions• Is it straight forward?

• May be for engineers and scientists

• But for management decisions, that involve people and affect many more people in a changing and uncertain environment, it is totally different(case studies)

Management decisions• Decision making steps are:

• Defining problem• Gathering problem related facts• Comparing these with right and wrong criteria based on knowledge and

experience• Taking the best course of action

Management decisions• Main characteristics of management decision making:

• Often ill-defined or unpredictable problem; human factor; unlike scientific laws

• Management problems have much wider scope and affect many people and functions, All of these with varying interests, objectives and requirements

• Information gathering for decision is often hazardous process; info

Is based on guesswork, rumor or hearsay; decision based on such information can be dangerous & not accurate.

• Several alternatives with different and unpredictable consequences that vary with time due to market or people, so choosing one become difficult

Management decisions• Main characteristics of management decision making:

(cont’d)• Rarely exists a “best solutions” in management problems;

compromises are to be made

• Once a decision is made it requires consensus and commitment from the affected people to implement.

• Continuous monitoring required in order to judge the validity of the decision made in a changing environment

• The process of management decision making cannot be learnt; it is mostly based on experience and judgment

Decision

critical?

Manager have

sufficient informatio

n?

Decision

routine?

Involve

others?

Delegate

Involve others

Make decisionFig. 6.2 Management decision flow diagram

Yes

Yes

Yes

Yes

No

No

No

No

Decision-making process• Any decision, good or bad, is better than no decision at all• Nothing can be worse than sitting indecisively on the fence.• Half a decision is much worse than no decision at all• A decision is worthless if it cannot be implemented, actions needed

to carry it out must be the part of the decision and not added later

• Differ decision?

Identify if a decision is needed

Define problem

Decide on method for arriving at decision

Define alternative solutions

Select best solution

Modify based on compromise factors

Build implementation factors into decision

Carry out decision

Monitor results

Time factors?

Routine or unique? Cause or symptom?

Own or team?

Facts or opinions? Short or exhaustive list

Quality solution exists?

Extent of compromise? Boundary conditions met?

Easy or difficult? Commitment needed

Impact on others?

Feed

back

Fig. 6.3 The decision-making process

Decision-making techniques• Decision techniques; trees and tables; e.g. table 6.2• Decision-making techniques usually adopt a two-stage process

1. Determining the method for arriving at a decision; such as whether to involve others or not

2. Arriving at a decision

• (Company decide condition under which customer grant Credit)

Options

Question 1 2 3 4 5 6 7 8

Done business before? Y N Y Y Y N N N

Turnover exceeds defined value?(L/S)

Y N Y N N Y Y N

Recommended by an existing client?

Y N N Y N N Y Y

Accept/reject? A R A A R R A R

Table 6.2 Decision matrix on the criteria for credit

The Vroom-Yetton model• It proposed a set of possible management decision-making styles; AI

very autocratic to GII democratic and a set of seven questions to decide the style to be used Table 6.3 Decision making style

Style Description

AI The manager makes the decision entirely on his/her own

AII The manager first collects information from others (possibly telling them why the information is needed) and then makes the decision on his/her own

CI The manager discusses the problem individually with others and gets their input before making decision on his/her own

CII The manager discusses the problem with a group of people (usually the most affected) and gets their collective input before making decision on his/her own

GII The manager discusses the problem with a group of people (usually the most affected) and lets the group make the decision. The manager does not try to influence the group to accept his/her solution

The Vroom-Yetton model

Question Description

1 Is one solution likely to be much better than any other; i.e. is there a quality solution?

2 Does the manager have enough information to make a quality decision?

3 Does the manager know which information is missing and where to find it?

4 Is commitment to the decision by others important for its implementation?

5 Will others accept the solution if they are not involved in decision-making process?

6 Do all the people share in the same goals?

7 Will there be a conflict between the affected people regarding alternative solutions?

Table 6.4 Questions involved in the Vroom-Yetton method

The Vroom-Yetton model• The questions are supposed to be asked for any situation

in which the manager needs to decide on whether to involve others

• A decision tree is followed based on the answers to questions, which leads to the correct style to be used

• If several examples are equally good then the choice is usually made on the basis of the least amount of effort (person-hours) involved

Case study:• Feeding the line

The Kepner-Tregoe method• It specifies a series of steps to analyze a problem:

1. Specify the problem in terms of what it is and what it is not

2. Identify the differences (distinctions) between what the problem is and what it is not

3. Look for the causes (solutions) that explain these differences (distinctions)

4. Test the cause (solution). Compare what actually happened with what would have happened if the proposed cause (solution) had been in action.

The case study• A hot stand