1. Decision making, FUIEMS, 29 December, 2009 1 - 1 Decision-Making Process Engineering Economics Lecture # 15

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3. Decision making, FUIEMS, 29 December, 2009 1 - 3 Decision making The process of choosing a course of action for dealing with a problem or opportunity.

4. Decision making, FUIEMS, 29 December, 2009 1 - 4 How are decisions made Steps in systematic decision making 1. Recognize and define the problem or opportunity 2. Identify and analyze alternatives, and estimate their effects on the problem or opportunity 3. Choose a preferred course of action 4. Implement the preferred course of action 5. Evaluate the results and follow up as necessary

5. Decision making, FUIEMS, 29 December, 2009 1 - 5

6. Decision making, FUIEMS, 29 December, 2009 1 - 6

7. Decision making, FUIEMS, 29 December, 2009 1 - 7 Profile of a Decision 1. The Decision-Making Process 2. The Decision Maker 3. The Decision

8. Decision making, FUIEMS, 29 December, 2009 1 - 8 Decision Making and Problem Solving Decision Making and Problem Solving  Problem solving is concerned with overcoming obstacles in the path toward an objective.  Problem solving may or may not require action.  A decision is an act requiring judgment that is translated into action.  Decision making is much more comprehensive than problem solving.  The terms are interrelated, but not interchangeable.

9. Decision making, FUIEMS, 29 December, 2009 1 - 9 The Significance of Decision Making  Decision making is the one true distinctive characteristic of managers.  Decisions made by top managers commit the total organization toward particular courses of action.  Decisions made by lower levels of management implement the decisions of top managers  Decisions invariably involve change and the commitment of resources.

10. Decision making, FUIEMS, 29 December, 2009 1 - 10 The Scope of Decision Making 1. Individual decision making 2. Group decision making 3. Organizational decision making 4. Meta organizational decision making

11. Decision making, FUIEMS, 29 December, 2009 1 - 11 The Scope of Decision Making Group Organization Metaorganization Individual Decisional Outputs (Actions transactions, outcomes) Decisional Inputs (Objectives, information, resources, energy) Permeable Boundaries External Environment

12. Decision making, FUIEMS, 29 December, 2009 1 - 12 Typology of Decisions Decision-making strategies 1. Computational 2. Judgmental 3. Compromise 4. Inspirational Decision categories 1. Category I - routine, recurring, certainty with regard to the outcome 2. Category II - nonroutine, nonrecurring, uncertainty with regard to the outcome Decision combinations Category I / Computational strategy Category II / Judgmental strategy

13. Decision making, FUIEMS, 29 December, 2009 1 - 13 The Concept of Decision-Making Strategies Knowledge Regarding the Outcome Strong Preference Weak Preference Preference for the Outcome Computational Decision-Making Strategy Compromise Decision-Making Strategy Judgmental Decision-Making Strategy Inspirational Decision-Making Strategy Low Level of Knowledge High Level of Knowledge

14. Decision making, FUIEMS, 29 December, 2009 1 - 14 The Locus of Choice 1. Top management makes Category II decisions. 2. Operating management makes Category I decisions. 3. Middle management supervises the making of Category I decisions and supports the making of Category II decisions.

15. Decision making, FUIEMS, 29 December, 2009 1 - 15  include: 1.Certain environments. 2.Risk environments. 3.Uncertain environments. Decision environments

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17. Decision making, FUIEMS, 29 December, 2009 1 - 17 Certain environments 1. Exist when information is sufficient to predict the results of each alternative in advance of implementation. 2. Certainty is the ideal problem solving and decision making environment.

18. Decision making, FUIEMS, 29 December, 2009 1 - 18 Risk environments 1. Exist when decision makers lack complete certainty regarding the outcomes of various courses of action, but they can assign probabilities of occurrence. 2. Probabilities can be assigned through statistical procedures or personal intuition.

19. Decision making, FUIEMS, 29 December, 2009 1 - 19 Uncertain environments 1. Exist when managers have so little information that they cannot even assign probabilities to various alternatives and possible outcomes. 2. Uncertainty forces decision makers to rely on individual and group creativity to succeed in problem solving.

20. Decision making, FUIEMS, 29 December, 2009 1 - 20 What are the useful decision making models?  Classical decision theory Views the decision maker as acting in a world of complete certainty.  Behavioral decision theory Views the decision maker as acting only in terms of what he/she perceives about a given situation.  Garbage Can Model

21. Decision making, FUIEMS, 29 December, 2009 1 - 21 Classical decision theory The classical decision maker: 1. Faces a clearly defined problem. 2. Knows all possible action alternatives and their consequences. 3. Chooses the optimum alternative.

22. Decision making, FUIEMS, 29 December, 2009 1 - 22 Behavioral decision theory The behavioral decision maker: 1. Faces a problem that is not clearly defined. 2. Has limited knowledge of possible action alternatives and their consequences. 3. Chooses a satisfactory alternative.

23. Decision making, FUIEMS, 29 December, 2009 1 - 23 The garbage can model A model of decision making that views problems, solutions, participants, and choice situations as mixed together in the “garbage can” of the organization. 1. In stable settings, behavioral decision theory may be more appropriate. 2. In dynamic settings, the garbage model may be more appropriate.

24. Decision making, FUIEMS, 29 December, 2009 1 - 24 Decision making realities 1. Managers face complex choice processes 2. Decision making information may not be available 3. Limitations affect preferred solutions 4. Most decision making goes beyond rational choice 5. Decisions made under risk and uncertainty 6. Decisions made to solve non-routine problems 7. Decisions under time pressures 8. Decisions should be ethical

25. Decision making, FUIEMS, 29 December, 2009 1 - 25 Reasons for decision making failure 1. Managers too often copy others’ choices and try to sell them to subordinates. 2. Managers tend to emphasize problems and solutions rather than successful implementation. 3. Managers use participation too infrequently.

26. Decision making, FUIEMS, 29 December, 2009 1 - 26 Ethical decision-making checklist 1. Is my action legal? 2. Is it right? 3. Is it beneficial? 4. How would I feel if my family found out about this? 5. How would I feel if my decision is known?