Organizational Decision Making

Module 4

Sreenath B.Roll No.45

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.”

• Organizational decision-making occurs when problem solving includes seeking & selecting a solution to create value for stakeholders.

• Managers make programmed & non programmed decisions.

Organizational decision making: Types

• Programmed decisions are routine decisions, developed in advance through rules, standard operating procedures (SOPs), and norms. – Programmed decisions increase efficiency and

reduce costs.

• Non programmed decisions are new and unstructured decisions, without programmed rules to manage them. – Managers rely on intuition and judgment, and

solutions are found as problems occur. – It require more search activity.– It assist in adapting and managing a changing

environment.

Organizational decision making: MODELS

1. RATIONAL MODEL• Traditional models depict decision-making as

a rational process.• The rational model proposes that decision-

making is a three-staged process. 1. Identify the problem: Managers analyze the

environment and recognize opportunities & threats.

2. Generate alternatives: Managers analyze skills and resources to respond to opportunities and threats.

3. Select the best solution.

The Rational Model of Decision Making

Stage 1:

Identify & definethe problem

Stage 2:Generate alternative

solutions to the problem

Stage 3:Select solution

& implement it

Rational model

• Under ideal conditions, managers know a decision is right because no uncertainty exists.

• All alternatives and their effects are known, and the same objective criteria are used to evaluate each alternative.

• Managers have the ability to make the right decision to maximize stakeholder value.

• The rational model assumes this ideal state. • Yet, these conditions do not exist, so the

assumptions of the rational model seem unrealistic:

Assumptions of the Rational Model

• Information and uncertainty: – The model assumes that managers know all

alternative courses of action. – It is not feasible to know every alternative in an

uncertain environment, and the cost of collecting information would far outweigh the benefits.

• Managerial abilities: – The rational model assumes the ability to evaluate

all alternatives and select the best solution. – Managers cannot process all the information to

make perfect decisions and lack the time to follow the rational model.

– Many managers would be needed, and managers are costly.

Assumptions of the Rational Model

• Preferences and values: – The model assumes that managers agree about

preferences, values, and goals. – This assumption is false due to subunit

orientations. – A production manager is concerned about costs

whereas an engineering manager is concerned about design.

Carnegie Model: a model that addresses the realities of decision making:

Satisficing

Bounded rationality

Organizational coalitions

The Carnegie Model of Decision Making

Carnegie Model

• Satisficing: – Managers satisfice or determine the criteria to evaluate

solutions, limiting the range of alternatives. – Satisficing is less costly & less work than searching for

every alternative.

• Bounded rationality: – Managers are restricted by bounded rationality, a limited

ability to process information. – Managers improve decision-making by strengthening

analytical skills and using computers. However, they don’t know all possible alternatives.

Carnegie Model

• Organizational coalitions: – The organization is a coalition of different interests

with decisions made by compromise, bargaining, and negotiation. Selected solutions are approved by the dominant coalition, those with the power to implement the chosen alternative.

– Over time, interests change and the dominant coalition changes. Thus decision-making changes.

Differences:

Rational Model

• Information is available.• Decision making is

costless• Decision making is “value

free.”

• All possible alternatives are generated.

• Solution is chosen by unanimous agreement.

• Solution chosen is best for the organization.

Carnegie Model

• Limited information is available.

• Decision making is costly.• Decision making is affected by

the preferences and values of decision makers

• A limited range of alternatives is generated.

• Solutions are chosen by compromise, bargaining, and accommodation between organizational coalitions.

• Solution chosen is satisfactory for the organization.

The Unstructured Model of Decision Making

• It describes how decision making takes place in environments of high uncertainty.

• This model was developed by Henry Mintzberg.• Decisions are made in a series of little steps that

result in a major decision over time.• Consists of 3 stages similar to the but understands

that problems may require rethinking alternatives & going back to the drawing board.

1. Identification stage: Managers develop routines to recognize problems.

2. Development stage: Managers generate problem-solving alternatives.

3. Selection stage: Managers make decisions using judgment, intuition, and formal analysis.

Unstructured Model

• The unstructured model requires rethinking alternatives when facing obstacles and even starting from scratch.

• Decision-making evolves in an unpredictable manner.

• Managers use intuition that requires continuous adaptation to respond to changing situations.

• The unstructured model concentrates on making non programmed decisions.

The Garbage Can Model of Decision Making

• Views decision-making as a highly unstructured process.

• Instead of identifying a problem, the model proposes that decisions begin with the solution. When solutions emerge, problems arise.

• An organization that makes a high quality product may expand globally. The solution is the quality competence; the problem is transferring it globally.

• The organization seeks solutions to identify problems whereas coalitions promote their own alternatives.

• The organization faces anarchy as problems, answers, and coalitions blend in a “garbage can” and compete.

• The selection of an alternative depends on the dominant coalition.

• Chance and timing play a role in decision-making.

VARIOUS TECHNIQUES OF DECISION-MAKING

QUALITATIVE TECHNIQUE

»DELPHI TECHNIQUE»BRAINSTORMING TECHNIQUE»SWOT ANALYSIS»CONSENSUS DECISION-MAKING»NOMINAL GROUP TECHNIQUE

QUANTITATIVE TECHNIQUE

PROBABILITY

LINEAR PROGRAMMING

DELPHI TECHNIQUE

• This technique developed by OLAF HELMER and his colleagues at RAND Corporation, has a degree of scientific respectability and acceptance.

• A panel of expert on a particular problem area is selected, usually from both inside and outside the organization.

DELPHI TECHNIQUE

• The expert are asked to make (Secretly, so that they will not influenced by others) a forecast as to what they think will happen, and when, in various areas of new discoveries or development.

DELPHI TECHNIQUE

CONSENSUS

PROBLEM PRESENTED

QUESTIONNAIRE COMPLETED

RESULT COMPILED, DISTRIBUTED

SECOND & SUBSEQUENT QUESTIONNAIRE COMPLETED

BRAINSTORMING TECHNIQUE

• Alex F Osborn is called farther of Brainstorming.

• In the brainstorming session, a multiplication of ideas is sought.

• The purpose of this approach is to improve problem solving by finding new and unusual solution.

BRAINSTORMING TECHNIQUE

The rules of brainstorming are follows:

No ideas are ever criticized.The more radical (far-reaching); the

ideas are, the better.The quantity of idea production is

stressed.The improvement of ideas by others

is encouraged

SWOT ANALYSIS

• This is a technique which help decision making by analyzing organization’s internal strength and weaknesses and external opportunities and threats.

CONSENSUS DECISION MAKING• Consensus decision-making is a 

group decision making process that not only seeks the agreement of most participants, but also the resolution or mitigation of minority objections.

• Consensus is usually defined as meaning both general agreement, and the process of getting to such agreement. Consensus decision-making is thus concerned primarily with that process.

FLOWCHART OF BASIC CONSENSUS DECISION-MAKING PROCESS

By A3 26

Nominal group technique

• The nominal group technique is a decision making method for use among groups of many sizes, who want to make their decision quickly, as by a vote, but want everyone's opinions taken into account (as opposed to traditional voting, where only the largest group is considered)

• The method of tallying is the difference. First, every member of the group gives their view of the solution, with a short explanation.

• Then, duplicate solutions are eliminated from the list of all solutions, and the members proceed to rank the solutions, 1st, 2nd, 3rd, 4th, and so on.

Nominal group technique

• The numbers each solution receives are totaled, and the solution with the lowest (i.e. most favored) total ranking is selected as the final decision.

PROBABILITY• A probability is a numerical statement about the

likehood that an event will occur.

• The probability, P, of any event or state of occurring is greater than or equal to 0 and less than or equal to 1.

• The probability of 0 indicates that an event is never expected to occur.

• A probability of 1 means that an event is always expected to occur.

LINEAR PROGRAMMING• It was conceptually developed before World

War II by Soviet Mathematician A.N.Kolmogorov.

• A mathematical model for optimal solution of resource allocation problems.

• A branch of mathematics that uses linear inequalities to solve decision-making problems involving maximums and minimums.

LINEAR PROGRAMMING

Assumptions Of Linear Programming

Certainty Proportionality Divisibility Nonnegative Variable

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