2 Management decision making “Managerial decision making is synonymous with the whole process of management” (Simon 1977)Three phases of decision making:IntelligenceDesignChoice
3 Simon’s Three Phases INTELLIGENCE PHASE: Problem identification and ownershipProblem definitionData collection/ searchDESIGN PHASE:Formulation of a means to analyse the optionsIdentification of criteria and constraints for the choiceEvaluation of the alternativesCHOICE:Selection of the best or appropriate optionPlan for implementation
4 Computerised Support INTELLIGENCE PHASE: data search and collection Reporting systemsDemand and exception reportsMonitoring/ tracking facilitiesDESIGN PHASE: method formulationModelling software (mathematical, statistical)e.g. linear programming packages (optimisation problems)project management; forecasting packages (“what if”; “goal seeking” analysis)CHOICE PHASE: selection of appropriate optionunderstanding the solution offeredselecting the appropriate course of action
5 Decision Support Framework (Gorry and Scott Morton 1971) Matrix combines Simon’s decision making steps and Anthony’s taxonomy of levels of information requirementsSTRUCTURED DECISIONS- more likely to be operational‘programmed’, repetitive, routine, clearly defined problem, standard solution(s) applyUNSTRUCTURED- more likely to be strategic‘unprogrammed’ ad hoc, one-off, ‘fuzzy’, not clearly defined, no objective right solution, intuition requiredSEMI-STRUCTURED- tactical/ middle managers?in between the two extremes, most business problems are not purely structured or unstructured
6 Later additions to the framework NOVELTY DIMENSION:-first time decisions vs familiar decisionsSPECIFICITY DIMENSION:-specific, targeted decisions vs general, wide reaching decisionsOUTCOME STATE:-Certainty vs Uncertainty (how much ‘risk’)
7 Characteristics of rational decision making: Clear, Unambiguous objective e.g minimise the costObjective can be quantifiedOutcomes and alternatives are knownAlternatives expressed in terms of objectivesAlternatives rankedBest is chosen i.e the cheapest option
8 Human Decision MakingUsually there are Multiple objectives, priorities.Also:Objective versus Subjective rationality?Selective perceptionmemory biasStereotyping-understanding how representative is your own experienceSeeing ‘correlations’ where limited observationsInterpretation of probability and riskSelf-fulfilling prophesiesPressure for consistencyAccepting the ‘Problem statement’ as givenHindsight affectSimon’s concept of ‘Bounded Rationality’, ‘Satisficing’
9 Decision styles: Autocratic vs Democratic Heuristic vs Analytic Heuristic: action oriented, trial and error, intuitive, spontaneous, waits for feedbackAnalytic: theory oriented, planned systematic approach, uses formal analysis to test the outcomesWhat affects our personal style?The way we think, perceiveOur valuesThe types of information we preferHow reliable is our own ‘personal style’?