Decision Making: Levels and Methods

Decision Making: Levels and MethodsPresented by Nitin VargheseOutline Introduction to Decision Making Types of Decisions Decision Making Process Constraints in Decision Making Methods of Decision Making

2Introduction to Decision MakingDecision-making can be regarded as the cognitive process resulting in the selection of a belief or a course of action among several alternative possibilities.

Decision-making is one of the central activities of management and is a huge part of any process of implementation.

3Introduction to Decision MakingDecision making can be defined concisely as: Decision making is the process of making a choice between a number of options and committing to a future course of actions.4

Introduction to Decision MakingProcessDecision making is a process with several stages. These combine to produce effective outcomes. More complex or important decisions are best made after a series of steps are taken. 5

Introduction to Decision MakingChoicesDecision making relies on numerous inputs and a range of factors.Inputs include the experience, knowledge, common sense and judgment of the decision maker of an organization, and possibly that of others involved in the decision. Choices are typically made within constraints, that provide the boundaries within which decisions have to be made.

6Introduction to Decision MakingActionsDecision, are pointless without action. Decision making is about the future, about looking forward. Actions have consequences, both intended and unintended. The consequences can be detrimental or favourable to the objectives.A plan to eliminate or limit the adverse effects, and capitalize on favourable consequences must be thought of.

7Its therefore crucial to consider both the positive and negative effects which might result from the decisions made. Types of DecisionsDecision-making takes place at all levels of a business or organization.

The Board of Directors/Director may make the grand strategic decisions, managers may make the more tactical decisions, but ordinary employees are increasingly expected to make decisions about the conduct of their own tasks, responses to customers and improvements to business practice. 8This needs careful recruitment and selection, good training, and enlightened management.Types of DecisionsStrategic Decisions:These affect the long-term direction of the business, the major long-term decisions that point the direction for the company. Senior staff on the entrepreneurship level, such as the executives or VPs, makes these decisions as they carry risk for the business as a whole.Examples: Which products are developed, which new markets or countries to expand to, review and deciding salaries and benefits paid to the staff.

9Types of DecisionsTactical Decisions. These are medium-term decisions about how to implement strategy eg what kind of marketing to have, or how many extra staff to recruit. Regular and short-term decisions normally made by middle management.Examples: Decisions about pricing strategy or recruitment.

1011

Types of DecisionsOperational Decisions. These are short-term decisions (also called administrative decisions) about how to implement the tactics eg which firm to use to make deliveries. These are made by junior managers, which dictate the everyday actions and operations of the employees. Usually, these decisions affect the immediate time-span.Examples: How long workers break for, which snacks to buy, or dealing with customer complaints and suggestions.

12Decision Making Process Outline your goal and outcome. Gather data. Develop alternatives (i.e., brainstorming) List pros and cons of each alternative. Make the decision. Immediately take action to implement it. Learn from and reflect on the decision.

13Decision Making ProcessThe 6 C's of Decision making

Construct: A clear picture of what exactly must be decidedCompile: A list of requirements that must be met.Collect: Information on alternatives that meet reqiurements

14Decision Making ProcessCompare: Alternatives that meet your requirements.Consider: What the weaknesses and threats associated with each alternativeCommit: To a decision/alternative and follow through with it.

15Constraints of Decision MakingInternal Constraints

These are constraints that come from within the business itself.

- Availability of finance. Certain decisions will be rejected because they cost too much

16Constraints of Decision Making- Existing Business Policy. It is not always practical to re-write business policy to accommodate one decision

- Peoples abilities and feelings. A decision cannot be taken if it assumes higher skills than employees actually have, or if the decision is so unpopular no-one will work properly on it.

17Constraints of Decision MakingExternal Constraints: These come from the business environment outside the business.- Competitors behaviour, and their likely response to decisions your business makes

- Lack of technology

- Economic climate

18Decision Making MethodsCost Benefit AnalysisCost-benefit analysis (CBA) is a worldwide used technique in decision making. CBA evaluates the costs and benefits of the alternatives on monetary basis. Recently, attempts have been made to incorporate the environmental impacts within CBA to improve the quality of environmental decision making19Decision Making Methods2.Elementary methods These elementary approaches are simple and no computational support is needed to perform the analysis These methods are best suited for problems with a single decision maker, few alternatives and criteria that is rarely characteristic in environmental decision making20Decision Making Methods2.1 Pros and cons analysis: Pros and cons analysis is a qualitative comparison method in which good things (pros) and bad things (cons) are identified about each alternative. Lists of the pros and cons are compared one to another for each alternative. The alternative with the strongest pros and weakest cons is preferred.21Decision Making Methods2.2 Maximin and maximax methods: The maximin method is based upon a strategy that tries to avoid the worst possible performance, maximizing the minimal performing criterion. The alternative for which the score of its weakest criterion is the highest is preferred. The maximin method can be used only when all criteria are comparable so that they can be measured on a common scale, which is a limitation.22Decision Making Methods2.3 Conjunctive and disjunctive methods These methods require satisfactory rather than best performance in each criterion. The conjunctive method requires that an alternative must meet a minimal performance threshold for all criteria. The disjunctive method requires that the alternative should exceed the given threshold for at least one criterion. Any alternative that does not meet the conjunctive or disjunctive rules is deleted from the further consideration. 23Decision Making Methods2.4 Lexicographic method In the lexicographic method criteria are ranked in the order of their importance. The alternative with the best performance score on the most important criterion is chosen. If there are ties with respect to this criterion, the performance of the tied alternatives on the next most important criterion will be compared, and so on, till a unique alternative is found24Decision Making MethodsOther major methods:-Multi-attribute Utility Theory (MAUT) methods-The ELECTRE methods The PROMETHEE methods Group decision making Sensitivity analysis

25Source- http://academic.evergreen.edu/projects/bdei/documents/decisionmakingmethods.pdf