Notes #4 - Managerial Decision Making

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2.2 Decision Making Process ã ã ã The intelligence phase – Finding / Identifying / Formulating problems The design phase – Develop alternative decisions The choice phase – Chose the best decision from the pool Q4 (A) – 2006 2.3 Types of Decisions ã Based on convenience – Structured ã Well defined decision making procedure where every decision is broken down in distinct stages of evaluation, alternative search, elimination and acceptance criteria. – Semi Structured ã It is a mixed kind of sit
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  Decision Making Process ã  The intelligence phase  – Finding / Identifying / Formulating problems ã  The design phase  – Develop alternative decisions ã  The choice phase  – Chose the best decision from the pool  Types of Decisions ã Based on convenience  – Structured ã Well defined decision making procedure where every decisionis broken down in distinct stages of evaluation, alternativesearch, elimination and acceptance criteria.  – Semi Structured ã It is a mixed kind of situation where very limited amount of structuring is maintained at some areas of operation butotherwise no segmenting and structuring is done.  – Unstructured ã All three phases of decision making are unstructured andclustered. Any one of the functions (Input, Output or InternalProcess) is not readily available because the decision must bevery rare or new so that it was not extensively studied toincorporate procedures to deal with it within the system ã Based on criticality  – Strategic ã Affect the entire organization or a major part of it. These arequite long-term decisions and generally made at upper levelof management  –  Tactical ã  This is also called management control decisions and affectsonly a part of the organization. This is taken by middle levelmanagement with the objective to meet the strategic plan.  – Operational ã Affect only one or two functional areas at a time. These arevery short term and made at lower management levels. ã Based on availability  – Certainty / Uncertainty / Risk ã Based on programmability  – Programmed ã All resources for decision making are already available andthe system can respond on the go.  – Non Programmed ã All resources are not available for instant decision making.   2.22.3Q1 (A) –2009 Q4 (A) –  Decision Making Models ã Rational Decision Making Mode o Consists of a structured four-step sequence  identifying the problem  generating alternative solutions  selecting a solution  implementing and evaluating the solution ã Political Decision Making Model o Assumes that people bring preconceived notions and biases into thedecision-making situation o Self-interest may block people from making the most rational choice o Sometimes it is difficult to determine if a decision maker isoperating rationally or politically ã Normative Model of Decision Making – Simon’s Model o Based on premise that decision making is not rational o Decision making is characterized by  limited information processing  use of judgmental heuristics  sacrificing Problem Solving Techniques ã Problem solving is a mental process and is part of thelarger problem process that includes problem finding and problemshaping. Considered the most complex of all intellectual functions,problem solving has been defined as higher order cognitive process thatrequires the modulation and control of more routine or fundamental skills. ã Problem solving occurs when an organism or an artificialintelligence system needs to move from a given state to a desired goalstate. More Problem-solving techniques   Q1 (B) –2009Q3 (B) –Q4 (B) –Q8 (B) –   Abstraction : solving the problem in a model of the system before applyingit to the real system.  Analogy : using a solution that solved an analogous problem.  Brainstorming : (especially among groups of people) suggesting a largenumber of solutions or ideas and combining and developing them until anoptimum is found.  Divide and conquer : breaking down a large, complex problem intosmaller, solvable problems.  Hypothesis testing : assuming a possible explanation to the problem andtrying to prove (or, in some contexts, disprove) the assumption.  Lateral thinking : approaching solutions indirectly and creatively.  Means-ends analysis : choosing an action at each step to move closer tothe goal.  Method of focal objects : synthesizing seemingly non-matchingcharacteristics of different objects into something new.  Morphological analysis : assessing the output and interactions of anentire system.  Reduction : transforming the problem into another problem for whichsolutions exist.  Research : employing existing ideas or adapting existing solutions to similarproblems.  Root cause analysis : eliminating the cause of the problem.  Trial-and-error : testing possible solutions until the right one is found. How Decisions are being supported ã Man-Machine System DSS is man-machine system for decision makingpurposes. Man part is more open and probabilistic while the machine partis more closed and deterministic. E.g. DSS for deciding PRICE andADVERTISING levels ã Closed-loop system with feedback external to system DSS uses feedbackto adjust output. Feedback is not internal like an elevator. The userprovides judgmental inputs to DSS. ã DSS components: Database, model base, knowledge base, interfaceswhich interact with each other and the user. ã (Judgmental) Heuristics  ã Availability Heuristic: A decision maker’s tendency to basedecisions on information that is readily available in memory. ã Representativeness Heuristic: The tendency to assess thelikelihood of an event occurring based on one’s impressions aboutsimilar occurrences. Decision Styles Tuckman’s Five-Stage Theory of group development
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