Decision Making: Decision Making Process, Stages in Decision Making, Individual and Organizational Decision Making, Decision Making Models, Information System support for Decision Making Phases

1. Management Information System
MBA/107
(Unit -III)
Decision Making:
Decision making process
Stages in Decision making
Individual and Organizational Decision making
Decision Making Models
Information System Support for Decision making phases

2. Management Information SystemManagement Information System
MBA/107MBA/107
Lecture – 1
Decision making process

3. What is Decision Making?What is Decision Making?

4. Decision making is the mental process of
selecting a course of action from a set of
alternatives.
Decision-making is the selection based on
some criteria from two or more possible
alternatives. “-—George R.Terry

5. Decision-making ProcessDecision-making Process
Decision-making is a cognitive process that
results in the selection of a course of action
among several alternative scenarios.
Decision-making is a daily activity for any
human being and also to business organizations.
Corporate decision-making is the most critical
process as Effective and successful decisions
result in profits, while unsuccessful cause losses.

6. In a decision-making process, we choose one
course of action from a few possible
alternatives.
In the process of decision-making, we may use
many tools, techniques, and perceptions.
We may also make our own private decisions
or may prefer a collective decision.
Decision-making is hard and many corporate
decisions involve some level of dissatisfaction
or conflict with another party.

7. Steps in Decision Making ProcessSteps in Decision Making Process
Step 1: Identification of the Purpose of the Decision
Step 2: Information Gathering
Step 3: Principles for Judging the Alternatives
Step 4: Brainstorm and Analyze the Choices
Step 5: Evaluation of Alternatives
Step 6: Select the Best Alternative
Step 7: Execute the decision:
Step 8: Evaluate the Results:

8. Step 1: Identification of the PurposeStep 1: Identification of the Purpose
of the Decisionof the Decision
Thorough analysis of the problem. Couple of
questions one should ask when it comes to
identifying the purpose of the decision.
What exactly is the problem?
Why the problem should be solved?
Who are the affected parties of the problem?
Does the problem have a deadline or a specific
time-line?

9. Step 2: Information GatheringStep 2: Information Gathering
A problem may be related to many stakeholders
and can have dozens of factors involved and
affected.
One must gather as much as information related
to the factors and stakeholders involved in the
problem. Information gathering tools should be
used.

10. Step 3: Principles for Judging the AlternativesStep 3: Principles for Judging the Alternatives
Baseline criteria for judging the alternatives
should be set up. Organizational goals as well as
the corporate culture should be taken into
consideration.
Ex: Profit is one of the main concerns in every
decision making process. Companies usually do
not make decisions that reduce profits, unless it
is an exceptional case.

11. Step 4: Brainstorm and Analyze the ChoicesStep 4: Brainstorm and Analyze the Choices
 Brainstorming to list down all the ideas is the best
option. Before the idea generation step, it is vital to
understand the causes of the problem and prioritization
of causes.
 Use of Cause-and-Effect diagrams and Pareto Chart
tool.
 Generate all possible solutions (alternatives) for the
problem in hand.

12. Step 5: Evaluation of AlternativesStep 5: Evaluation of Alternatives
Use judgment principles and decision-
making criteria to evaluate each alternative.
Experience and effectiveness of the
judgment principles come into play. You
need to compare each alternative for their
positives and negatives.

13. Step 6: Select the Best AlternativeStep 6: Select the Best Alternative
The selection of the best alternative is an
informed decision since you have already
followed a methodology to derive and
select the best alternative.

14. Step 7: Execute the decision:Step 7: Execute the decision:
Convert your decision into a plan or a
sequence of activities.
Execute your plan by yourself or with the
help of subordinates.

15. Step 8: Evaluate the Results:Step 8: Evaluate the Results:
Evaluate the outcome of your decision.
See whether there is anything you should
learn and then correct in future decision
making.
This is one of the best practices that will
improve your decision-making skills.

16. What is Decision making?
Discuss the steps in decision making.

17. ThanksThanks

18. Lecture - 2Lecture - 2
Individual and Organizational
Decision Making

19. Individual Decision MakingIndividual Decision Making
Individuals have a tendency to think and
question before performing.
Individual decision making has certain pros
and cons as mentioned below:

20. Pros of Individual Decision MakingPros of Individual Decision Making
An individual generally makes prompt decisions.
Individuals do not escape responsibilities. They
are accountable for their acts and performance.
Individual decision making saves time, money
and energy as individuals make prompt and
logical decisions generally.
Individual decisions are more focused and
rational.

21. Cons of Individual Decision MakingCons of Individual Decision Making
Individual has limited potential of collecting
more and full information while making
decisions.
An individual while making any decision uses
his own intuition and views.
An individual can’t discover a hidden talent and
core competency.
An individual may not take into consideration
every members interest.

22. Individual Decision MakingIndividual Decision Making
Rational approach –
Ideal method for how managers should
make decisions.
Bounded rationality perspective –
How decisions are made under severe time
and resource constraints

23. Steps in the Rational ApproachSteps in the Rational Approach

24. Bounded Rationality PerspectiveBounded Rationality Perspective
There is a limit to how rational managers
can be
- time and resource constraints
- Non-programmed decisions
Constraints and Tradeoffs
– Constraints impinge (force to..) the decision
maker
The Role of Intuition
– Experience and judgment rather than logic

25. Constraints and TradeoffsConstraints and Tradeoffs
During Non-programmed Decision MakingDuring Non-programmed Decision Making

26. Lecture - 3Lecture - 3
Organizational Decision Making

27. Organizational Decision Making:Organizational Decision Making:
 Organizational decision making:
The process of responding to a problem
by searching for and selecting a solution
or course of action that will create value
for organizational stakeholders
Types:
 Programmed Decision
 Non-Programmed Decision

28. Decision Making - TypesDecision Making - Types
Programmed Decision:
– Routine, virtually automatic decision making that
follows established rules or guidelines.
Non-Programmed Decision:
– Non-routine decision made in response to unusual or
novel opportunities and threats.
– The are no rules to follow since the decision is new.

29. Design EssentialsDesign Essentials
Most decisions are not made in a logical manner
Individuals make decisions, but organizational
decisions are not made by a single individual
Conflict exists when problems are not agreed on
The garbage can model has become a
description of decision-making
Organizations operate in high-velocity
environments
Allowing biases to cloud decision making can
have negative consequences

30. Different Approaches of –Different Approaches of –
Organizational Decision MakingOrganizational Decision Making

31. 1. Management Science Approach1. Management Science Approach
Similar to rational individual approach
– Structured
Based on technology

32. Management ScienceManagement Science
ApproachApproach
Use of statistics to identify relevant variables
Remove human element
Very successful for military problems
Good tool for decisions where variables can be
indentified and measured
A drawback of management science is that
quantitative data are not rich and lack tacit
knowledge

33. Models of Organizational Decision MakingModels of Organizational Decision Making
1.1. The rational model:The rational model:
 The rational model: decision making is a
straightforward, three-stage process
– Underlying assumptions
 Decision makers have all the information they need
 Decision makers can make the best decision
 Decision makers agree about what needs to be done

34. 2. Carnegie Model2. Carnegie Model
 Introduces a set of more realistic assumptions
about the decision-making process
– Satisficing: limited information searches to identify
problems and alternative solutions
– Bounded rationality: a limited capacity to process
information
– Organizational coalitions: solution chosen is a result
of compromise, bargaining, and accommodation
between coalitions

35. Differences Between theDifferences Between the
Rational and Carnegie ModelsRational and Carnegie Models
Rational model Carnegie model
Information is available Limited information is available
Decision making is costless Decision making is costly
Possible alternatives are generated Limited range of alternatives are
generated
Solution is chosen by unanimous
agreement
Solution is chosen by bargaining
and compromise
Soln chosen is best for the orgn Soln chosen is satisficing for the
orgn

36. Carnegie ModelCarnegie Model

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38. Lecture - 4Lecture - 4
Model in Organizational Decision Making
Cont..

39. 3. Incrementalist model:3. Incrementalist model:
Incrementalist model:
Managers select alternative courses of action that are
only slightly, or incrementally, different from those
used in the past
– Reduce the chances of making a mistake
– They correct or avoid mistakes through a succession of
incremental changes
– Tries to explain how organizations improve their
programmed decisions over time

40. 4. The unstructured model:4. The unstructured model:
Describes how decision making takes place in
environments of high uncertainty
Unstructured model recognizes uncertainty in
the environment
– Managers rethink their alternatives when they
hit a roadblock
– Tries to explain how organizations make non-
programmed decisions

41. 5. The garbage can model:5. The garbage can model:
 In this model a view of decision making takes the
unstructured process to the extreme
– Decision makers are as likely to start decision making from the
solution side.
– Create decision-making opportunities that they can solve with
ready-made solutions based on their competencies and skills
– Different champion form different alternatives
– Decision making becomes a “garbage can” in which problems,
solutions, and people all mix.
– Selection of an alternative depends on which person’s or
group’s definition of the current situation holds a way

42. Garbage Can ModelGarbage Can Model
Pattern or flow of multiple decisions
Think of the whole organization
Explain decision making in high uncertainty
- organized chaos:
– Problematic preferences
– Unclear, poorly understood technology
– Turnover
Streams of events instead of defined
problems and solutions

43. Consequences of the Garbage Can ModelConsequences of the Garbage Can Model
1. Solutions may be proposed even when
problems do not exist
2. Choices are made without solving
problems
3. Problems may persist without being
solved
4. A few problems are solved

45. 6. Contingency Decision-Making6. Contingency Decision-Making
Two dimensions
– Problem consensus
– Technical knowledge about solutions

46. Contingency Model of Decision Making:Contingency Model of Decision Making:

47. HERBERT SIMON MODELHERBERT SIMON MODEL
He describes the model in three phases :
I. Intelligence: Raw data collected, processed and
examined, Identifies a problem calling for a
decision.
II. Design: Inventing, developing and analyzing the
different decision alternatives and testing the
feasibility of implementation. Assess the value of
the decision outcome.
III. Choice: Select one alternative as a decision, based
on the selection criteria.

48. Herbert SimonHerbert Simon
Decision Making ModelDecision Making Model
Intelligence
Design
Choice

49. Intelligence phase:Intelligence phase:
MIS collects the data. The data is scanned,
examined, checked and edited.
Data is sorted and merged with other data and
computations are made, summarized and
presented.
The attention of the manager is drawn to all
problem situations by highlighting the
significant differences between the actual and
the expected, the budgeted or the targeted.

50. Design phase:Design phase:
In the design phase, the manager develops
a model of the problem situation on
which he can generate and test the
different decision alternatives.

51. Choice phase:Choice phase:
The manager evolves selection criteria
such as maximum profit, least cost,
minimum wastage, least time taken and
highest utility.
The criterion is applied to the various
decision alternatives and the one which
satisfies the most is selected.

52. Ex: A manager finds on collection and through
the analysis of the data that the manufacturing
plant is underutilized and the products which are
being sold are not contributing to the profits as
desired. The problem identified, therefore, is to
find a product mix for the plant, whereby the
plant is fully utilized within the raw material and
the market constraints, and the profit is
maximized.

53. Distortion of Organizational Decision MakingDistortion of Organizational Decision Making
by Cognitive Biasesby Cognitive Biases

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55. Lecture -5Lecture -5
MIS Role in Decision making

59. Unstructured decisions (usually related to
the long-term strategy of the organization);
Semi-structured decisions (some decision
procedures can be pre-specified but not
enough to lead to a definite recommended
decision);
Structured decisions (the procedure to
follow, when a decision is needed, can be
specified in advance).

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61. MIS Role in Decision makingMIS Role in Decision making
1. MIS is a system providing
management with accurate and timely
information to facilitate the decision
-making process and enable the
organizations planning, control, and
operational functions to be carried out
effectively.

62. 2. MIS increase competitiveness of the
firm by reducing cost and improving
processing speed.
3. The power of technology has
transformed the role of information in a
business firm. So, information is considered
as the lifeblood of an organization.

63. 4. MIS and its organizational subsystems
contribute to the decision making process in
many ways.
– Decisions regarding operational improvements
– Selecting new business opportunities for
maximizing the company's profit.

64. 5. MIS sets the stage for accomplishments in
the other area, which is DSS, the virtual
office and knowledge based systems.
6. The MIS keeps a continuous supply of
information flowing to the management.

65. MIS and decision makingMIS and decision making
processprocess
MIS
Processes
Information
Flow
User’s
Processes
DecisionData
Flow

66. Forms of MISForms of MIS
Management Support Systems (MSS)
Decision Support Systems (DSS)
Executive Support Systems (ESS)
Specialized Processing Systems (PS)

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68. Lecture - 6Lecture - 6
Methods for Decision Making
1. Pay off Matrix
2. Decision tree

69. 1. Payoff Matrix:1. Payoff Matrix:
A payoff matrix is defined as a visual
representation of all the possible outcomes that can
occur when two people or groups have to make a
strategic decision.
The decision is referred to as a strategic decision
because each decision maker has to take into
consideration how their choice will affect their
opponent's choice and how their opponent's choice
will affect their own choice.

70. The payoff matrix illustrates each possible
strategy that one side can choose, as well as
every combination of outcomes that are
possible based on each opponent's choice.
On the basis of Expected value the decision
is taken. (EV = Probability * Outcome)

71. Ex: Assume that a marketing manager of a computer manufacturer is to
choose from three alternatives -
1. Modify the existing PC to improve its design and processing power
2. Launch a new PC having latest technology
3. Do nothing i.e. leave the P.C. as it is
There are three states of nature that affects the pay-off from each of the
alternative strategies –
i. A competitor may launch a new PC with the latest technology
ii. Government may impose high excise duty on manufacturers of PC to
encourage the use of laptop
iii. Conditions will remain as they are.
The various pay-offs are as below-
Strategies State of Nature
Same Condition (0.40) New Competitor (0.40) Govt. Ban (0.20)
S1: (Modify) 7 5 -5
S2: (New Product) 10 3 -13
S3: (Do nothing) 5 1 -2

72. Case-1: As every thing is certain.
EV of S1 = 3.8
EV of S2 = 2.6
EV of S3 = 2.0
The strategy S1 will be selected i.e.
The decision to Modify the existing PC to
improve its design and processing power
should be taken by the company.

73. Case 2: The probabilities of happenings are not given i.e. the
state is uncertain (unstructured type decision)
Strategies State of Nature
Same Condition New Competitor Govt. Ban
S1: (Modify) 7 5 -5
S2: (New Product) 10 3 -13
S3: (Do nothing) 5 1 -2
Using Maximax criterion the strategy S2 will be selected
(Optimistic approach) as Maximax payoff is =10
Using Maximin criterion the strategy S3 will be selected
(Pessimistic approach) as Maxmin payoff = 5

74. 2. Decision Tree2. Decision Tree
What is Decision Tree?What is Decision Tree?
A decision tree is a graphical
representation of possible solutions to a
decision based on certain conditions.
It's called a decision tree because it starts
with a single box (or root), which then
branches off into a number of solutions, just
like a tree.

75. Making a decision tree requires a
systematic, documented thought process.
Decision trees help formalize the
brainstorming process to identify more
potential solutions.
On the basis of Expected value the decision
is taken. (EV = Probability * Outcome)
Symbols used in decision tree –
Decision Point
Chance Event
Elimination of Action

76. Ex: The company may have high or low
penetration and market share. The
probabilities and net gain are as shown in
table. Which Channel the company should
select?
Channels High Penetration Low Penetration
Direct Sales Probability 0.60 0.40
Net Gains Rs. 40 Lakhs Rs. 30 Lakhs
Selling Agent Probability 0.80 0.20
Net Gains Rs. 45 Lakhs Rs. 20 Lakhs

77. Gain 40 lakhs
EV = 24 lakhs
EV = 36 lakhs
EV = 12 lakhs
Gain 30 lakhs
Gain 45 lakhs
Gain 20 lakhs
EV = 04 lakhs
High Penetration
(0.60)
Low Penetration
High Penetration
Low Penetration
(0.40)
(0.80)
(0.20)
Direct Sales
Selling Agent
Total EV =
36 lakhs
Total EV =
40 lakhs

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