Decision making process Flashcards
What is identifying the problem?
Step 1. Managers need to have managerial ability to find the real problem. The accurate definition of it affects all steps that follow.
What is identifying the decision criteria?
Step 2. Define the characteristics of a problem and what is important in order to resolve the problem
- Scale 1-10
- Choose the highest
- Compare the rest
- Discard everything -30%
Allocating weights to the criteria
Step 3. Use the same scale in all of the criteria. Grade criteria based on relevance. Between 5-7 criteria.
Developing the alternatives
Step 4. List viable options that could resolve the problem.
Analyzing the alternatives
Step 5. Decide the relative merits of each alternative and evaluate each one.
Selecting an alternative
Step 6. Choose the best alternative. In a tie:
- New alternative
- New criteria
- Re-allocate weights
- Re-grading
- Reformulate the problem
Implementing the alternative
Step 7. Putting the decision into action.
Evaluating decision effectiveness
Step 8. Evaluating the outcome of the decision to see if the problem was resolved.
Rational decision making
Type of decision that make logical and consistent choices to maximize value, within limitations.
Assumptions rational decisions
- The problem would be clear and unambiguos. (step 1)
- A single well defined goal (step 7)
- All alternatives and consequences are known (step 4,5)
- Preferences are clear (step 2)
- Preferences are constant and stable (step 2)
- No time or constraints exist (all steps)
- Final choice maximize pay off (step 7,8)
Bounded rationality
It is a decision that is rational but limited bounded by an individual´s ability to process information.
Escalation of commitment
It is an increased commitment to a previous decision despite evidence that it may have been wrong.
Intuitive decision making
It is making decisions on the basis of experience, feelings and accumulated judgment.
Elements intuitive decisions
- Experience based decisions
- Affect iniated decisions
- Cognitive based decisions
- Subconscious mental processing
- Values or ethics based decisions
Evidenced based management (EBMgt)
It is the systematic use of the best available evidence to improve the management practise.
Type of decisions
- Stuctured problems (really easy to determine) usually have programmed decisions (repetitive decision)
- Unstructured problems (uneasy and unclear to determine) usually have nonprogrammed decisions (unique and nonrecurring decisions)
Problem
It is an obstacle that makes it difficult to achieve a desided goal or purpose.
Satisfice
It is accept solutions that are good enough.
Rule
It is an explicit statement that tells managers what can or cannot be done. No flexible.
Policy
A guideline for making decisions. Can be flexible.
Procedure
A series of sequential steps used to respond to a well-structured problem.
Decision making matrix
- Analitical 2. Conceptual
- Directive 4. Behavioral
Decision making biases and errors
- Overconfidence
- Inmediate gratification
- Anchoring effect
- Selective perception
- Confirmation
- Framing
- Availability
- Representation
- Randomness
- Sunk cost error
- Self serving
- Hindsight
Decisions making conditions
- Certainty: A situation in wich a mamanger can make accurate decisions because all outcomes are known
- Risk: A situation in wich the decision maker is able to estimate the likelihood of certain outcomes
- Uncertainty: A situation in which a decision maker has little information about the problem and it is not able to estimate the outcome.
Decision making in Todays World
- Understand cultural differences
- Know when its time to call it quits
- Use an effective decison making process
- Build an organization that can spot the unexpected and quickly adapt to the changed environment.
Decision
A choice among two or more alternatives.
Heuristics
Rules of thumb that managers use to simplify decision making.
