decision making, fuiems, 29 december, 2009 1 - 1 decision-making process engineering economics...

Decision making, FUIEMS, 29 December, 2009 1 - 1

Decision-Making Process

Engineering Economics

Lecture # 15


Abdul Rahim p p p p p p p p p p p p p p

Absar Ul Haque Ahmar p p p p p p p p p p p p p

Adeel Faran Nazir p p p p p p p p p p p

Adil Sheharyar Khan Niazi p p p p p p p p p p

Alina Zulfiqar p p p p p p p p p p p p p

Amin Farooq p p p p p p p p p p p p p p

Anam Riaz p p p p p p p p p p p p

Hammad Sami p p p p p p p p p p p p p

Hamza Mustafa p p p p p p p p p p p

Junaid Akbar p p p p p p p p p p p p p p

Khawaja M Bilal Aziz p p p p p p p p p p p p

Komal Batool p p p p p p p p p p p p p p

Mamoona Zaib p p p p p p p p p p p p p p

Mohsin Nisar p p p p p p p p p p p p p

Mubasher Ali p p p p p p p p p p p p p p

Muhammad Irfan p p p p p p p p p p p p p

Muhammad Mateen Yaqoob p p p p p p p p p p p p p p

Muhammad Saad p p p p p p p p p p p p

Nabila Yousaf p p p p p p p p p p

Najdah Mehar p p p p p p p p p p p p p

Rashid Mahmood p p p p p p p p p p p p

Risham Shakil Raja p p p p p p p p p p p p p

Saad Asghar p p p p p p p p p p p p

Sakhawat Hussain p p p p p p p p p p p p p

Samir Shabir p p p p p p p p p p p

Sana Zamir p p p p p p p p p p p p p p

Suffayan Saleem p p p p p p p p p p

Syed Hassan Raza Gillani p p p p p p p p p p p p

Tahseen Javed p p p p p p p p p p p p

Tanveer Mobeen p p p p p p p p p p p p p

Ziafat Ali p p p p p p p p p p p p p

Arsalan Tarrar p p p p p p p p p p p

Hamza Qayyum p p p p p p p p p

Zeeshan Hashmi p p p p p p p

Rabia Ahmed p p p p p p p p p p p

Asim Arif p p p p p p p p p p

Ali Abbas p p p p p p p

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Decision makingDecision making

The process of choosing a course of action for dealingThe process of choosing a course of action for dealing

with a problem or opportunity.with a problem or opportunity.


How are decisions madeHow are decisions made

Steps in systematic decision makingSteps in systematic decision making

1.1. Recognize and define the problem or opportunityRecognize and define the problem or opportunity

2.2. Identify and analyze alternatives, and estimate their Identify and analyze alternatives, and estimate their

effects on the problem or opportunityeffects on the problem or opportunity

3.3. Choose a preferred course of actionChoose a preferred course of action

4.4. Implement the preferred course of actionImplement the preferred course of action

5.5. Evaluate the results and follow up as necessaryEvaluate the results and follow up as necessary


Profile of a Profile of a DecisionDecision

1.1. The Decision-Making ProcessThe Decision-Making Process

2.2. The Decision MakerThe Decision Maker

3.3. The DecisionThe Decision


Decision Making and Problem SolvingDecision Making and Problem Solving

Problem solving is concerned with overcoming Problem solving is concerned with overcoming obstacles in the path toward an objective.obstacles in the path toward an objective.

Problem solving may or may not require action.Problem solving may or may not require action.

A decision is an act requiring judgment that is A decision is an act requiring judgment that is translated into action.translated into action.

Decision making is much more comprehensive Decision making is much more comprehensive than problem solving.than problem solving.

The terms are interrelated, but not The terms are interrelated, but not interchangeable.interchangeable.


The Significance of Decision MakingThe Significance of Decision Making Decision making is the one true distinctive characteristic of Decision making is the one true distinctive characteristic of

managers.managers.

Decisions made by top managers commit the total Decisions made by top managers commit the total

organization toward particular courses of action.organization toward particular courses of action.

Decisions made by lower levels of management implement Decisions made by lower levels of management implement

the decisions of top managers the decisions of top managers

Decisions invariably involve change and the commitment Decisions invariably involve change and the commitment

of resources.of resources.


The Scope of Decision MakingThe Scope of Decision Making

1.1. Individual decision makingIndividual decision making

2.2. Group decision makingGroup decision making

3.3. Organizational decision makingOrganizational decision making

4.4. Meta organizational decision makingMeta organizational decision making


The Scope of Decision MakingThe Scope of Decision Making

Group

Organization

Metaorganization

Individual

DecisionalOutputs(Actions transactions,outcomes)

Decisional Inputs(Objectives,information,resources, energy)

PermeableBoundaries

External Environment


Typology of DecisionsTypology of DecisionsDecision-making Decision-making

strategiesstrategies

1. Computational

2. Judgmental

3. Compromise

4. Inspirational

Decision categories

1.1. Category ICategory I - routine, - routine, recurring, certainty with recurring, certainty with regard to the outcomeregard to the outcome

2.2. Category IICategory II - - nonroutine, nonroutine, nonrecurring, uncertainty nonrecurring, uncertainty with regard to the outcomewith regard to the outcome

Decision combinationsDecision combinations

Category I / Computational strategyCategory I / Computational strategy

Category IICategory II / Judgmental strategy/ Judgmental strategy


The Concept of Decision-Making StrategiesThe Concept of Decision-Making Strategies

KnowledgeRegarding

the Outcome Strong Preference Weak Preference

Preference for the Outcome

ComputationalDecision-Making

Strategy

CompromiseDecision-Making

Strategy

JudgmentalDecision-Making

Strategy

InspirationalDecision-Making

Strategy

Low Levelof Knowledge

High Levelof Knowledge


The Locus of ChoiceThe Locus of Choice

1.1. Top management makes Category II decisions.Top management makes Category II decisions.

2.2. Operating management makes Category I Operating management makes Category I

decisions. decisions.

3.3. Middle management supervises the making of Middle management supervises the making of

Category I decisions and supports the making of Category I decisions and supports the making of

Category II decisions.Category II decisions.


include:include:

1.1. Certain environments.Certain environments.

2.2. Risk environments.Risk environments.

3.3. Uncertain environments.Uncertain environments.

Decision environmentsDecision environments


Certain environmentsCertain environments

1.1. Exist when information is sufficient to predict the Exist when information is sufficient to predict the

results of each alternative in advance of results of each alternative in advance of

implementation.implementation.

2.2. Certainty is the ideal problem solving and Certainty is the ideal problem solving and

decision making environment.decision making environment.


Risk environmentsRisk environments

1.1. Exist when decision makers lack complete Exist when decision makers lack complete

certainty regarding the outcomes of various certainty regarding the outcomes of various

courses of action, but they can assign courses of action, but they can assign

probabilities of occurrence.probabilities of occurrence.

2.2. Probabilities can be assigned through statistical Probabilities can be assigned through statistical

procedures or personal intuition.procedures or personal intuition.


Uncertain environmentsUncertain environments

1.1. Exist when managers have so little information Exist when managers have so little information

that they cannot even assign probabilities to that they cannot even assign probabilities to

various alternatives and possible outcomes.various alternatives and possible outcomes.

2.2. Uncertainty forces decision makers to rely on Uncertainty forces decision makers to rely on

individual and group creativity to succeed in individual and group creativity to succeed in

problem solving.problem solving.


What are the usefulWhat are the usefuldecision making models?decision making models? Classical decision theoryClassical decision theory

Views the decision maker as acting in a world of complete Views the decision maker as acting in a world of complete

certainty.certainty.

Behavioral decision theoryBehavioral decision theory

Views the decision maker as acting only in terms of what Views the decision maker as acting only in terms of what

he/she perceives about a given situation.he/she perceives about a given situation.

Garbage Can ModelGarbage Can Model


Classical decision theoryClassical decision theory

The classical decision maker:The classical decision maker:

1.1. Faces a clearly defined problem.Faces a clearly defined problem.

2.2. Knows all possible action alternatives Knows all possible action alternatives

and their consequences.and their consequences.

3.3. Chooses the optimum alternative.Chooses the optimum alternative.


Behavioral decision theoryBehavioral decision theory

The behavioral decision maker:The behavioral decision maker:

1.1. Faces a problem that is not clearly defined.Faces a problem that is not clearly defined.

2.2. Has limited knowledge of possible action Has limited knowledge of possible action

alternatives and their consequences.alternatives and their consequences.

3.3. Chooses a satisfactory alternative.Chooses a satisfactory alternative.


The garbage can modelThe garbage can model

A model of decision making that views A model of decision making that views

problems, solutions, participants, and choice problems, solutions, participants, and choice

situations as mixed together in the “garbage situations as mixed together in the “garbage

can” of the organization.can” of the organization.

1.1. In stable settings, behavioral decision theory In stable settings, behavioral decision theory

may be more appropriate.may be more appropriate.

2.2. In dynamic settings, the garbage model may be In dynamic settings, the garbage model may be

more appropriate.more appropriate.


Decision making realitiesDecision making realities

1.1. Managers face complex choice processesManagers face complex choice processes

2.2. Decision making information may not be availableDecision making information may not be available

3.3. Limitations affect preferred solutionsLimitations affect preferred solutions

4.4. Most decision making goes beyond rational choiceMost decision making goes beyond rational choice

5.5. Decisions made under risk and uncertaintyDecisions made under risk and uncertainty

6.6. Decisions made to solve non-routine problemsDecisions made to solve non-routine problems

7.7. Decisions under time pressures Decisions under time pressures

8.8. Decisions should be ethicalDecisions should be ethical


Reasons for decision making failureReasons for decision making failure

1.1. Managers too often copy others’ choices and try to Managers too often copy others’ choices and try to

sell them to subordinates.sell them to subordinates.

2.2. Managers tend to emphasize problems and Managers tend to emphasize problems and

solutions rather than successful implementation.solutions rather than successful implementation.

3.3. Managers use participation too infrequently.Managers use participation too infrequently.


Ethical decision-making checklistEthical decision-making checklist

1.1. Is my action legal?Is my action legal?

2.2. Is it right?Is it right?

3.3. Is it beneficial?Is it beneficial?

4.4. How would I feel if my family found out about this?How would I feel if my family found out about this?

5.5. How would I feel if my decision is known?How would I feel if my decision is known?

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