The Decision Making Process Harrison, Ch. 2 Fred Wenstøp

2 Functions of Decision Making 1.Setting managerial objectives 2.Searching for alternatives 3.Predicting probable outcomes 4.Evaluating the alternatives 5.Comparing the alternatives 6.The act of choice 7.Implementing the decision 8.Follow-up and control

Fred Wenstøp3 Structuring objectives with goal hierarchy  Means-objective (mål-middel) diagram  portray the causal relation between objectives and means We ask: How can the goal be achieved?  They are typically diagrams, not hierarchies Because of our tendency to focus on actions, we are prone to structure values in terms of means-objective diagrams  Goal-hierarchy  Instead we should explain what our values are Ask: Why is this important What are the important aspects of the objectives? This breaks our objectives down into more concrete sub-objectives –eventually producing a set of decision criteria

Fred Wenstøp4 Example: Means-objective diagram for traffic safety In principle, any box could be a top objective for a narrower decision context

Fred Wenstøp5 Example: Goal Hierarchy for traffic safety

Fred Wenstøp6 Decision frame  Decision context (problemstilling)  A certain situation that requires that something be done The set of decision alternatives  Objectives  The important values at stake in the current context  Decision frame  The context pluss the objectives Objectives Context ** ** ** * * * The frame: A kaleidoscope where you consider the alternatives in the light of the goals

Fred Wenstøp7 Strategic and context depended objectives Strategic Objectives Stategic Context ** ** ** * * * Spesific context * * * * * Context dependent objectives

Fred Wenstøp8 General properties for the set of objectives  essential reflect the important issues that make the decision context interesting and explains why it is hard to choose  complete all important aspects concerning the consequences must be incorporated  concise use as few goals as possible  non-overlapping do not double count possible consequences  decomposable it is possible to evaluate one goal attainment without knowing the others  controllable they include only aspects that can be influenced by the decision maker. Fair weather as a goal is not useful  measurable we can measure rather precisely to which degree the goals are attained  understandable it must be possible for the decision maker to judge upon the relative importance of the goals  operational it must be possible to predict with reasonable accuracy and costs what the consequences of alternative actions will be

Fred Wenstøp9 Managerial objectives (Harrison p. 44)  Relevance  Must fit with strategy  Practicality  Recognize obvious constraints  Challenge  Challenge for all managers  Measurability  Confuses scores and weights  Scheduling  Monitoring at interim points  Balance  Keep strength and weaknesses in balance  Flexibility  Do not lock development  Timeliness  The proper time for these objectives?  State of the art  Current technlogy?  Growth  Growth, not just survival  Cost effectiveness  Costs must be included  Accountability  Delegation of responsibility

Fred Wenstøp10 Models of choice making  Linear model  The performance of an alternative is evaluated as a weighted sum of scores  Conjunctive model  It is important to score reasonably well on all criteria (overall utility a product of individual utilities)  Disjunctive model  It is important to score well on some criteria (over all utility equals the maximum of the individual utilities)  Lexicographic