Kay 235: Introduction to Management Lecture 6 Subject: Decision-Making Reading: Starling, Chapter 6

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Decision-making Selecting one course of action from various alternatives Can’t be divorced from the planning processes Better Data Better Decision-Making Batter Planning

Steps of Decision-Making Four steps in decision-making Identify the problem or opportunity Gather facts Make the decision Implement and evaluate the decision

Problem Type: Pressing or Dispensable? When does the problem require a decision? Must the problem be decided upon immediately? Can the decision be deferred until: New information Unexpected developments Better ideas to occur? Is the problem pressing or dispensable? Global Warming? Dealing with terrorism?

Problem Type: Generic or Unique? Is it a generic problem? Very few problems or events are isolated Generic problems occur over and over

Problem Type: Generic or Unique? Is it a unique (sui generis) problem? Latin word for “of its own kind” A problem that constitutes a class alone Examples Giving handguns to pilots against terrorists Building an international space station

Problem Type: Symptom or Root Cause? Symptoms or root causes? Symptom Is the problem part of a pattern of problems stemming from one underlying cause? Tendency to view symptoms as problems Examples School violence? Increase in crime?

Characteristics of an Effective Manager Effective managers Make few decisions Like a good doctor, deals with the root causes, not the symptoms What is the problem that causes these symptoms? Solve pressing problems first Use similar solutions for similar (generic) problems No quick fixes, no cosmetic solutions

Framing a Decision: Upper Limit Establishing an upper limit The ever present limitations that determine how far the administrator can go Limits of permissibility Is it legal? Will others accept it? Limits of available resources (time, money, information) Past mistakes and accomplishments

Framing a Decision: Lower Limit Establishing a lower limit What, at least, must occur for the problem to be solved? Example: Germany in WW1 could win the war if two conditions are met at minimum Put up weak resistance against Russia Concentrate forces to win war with France

Framing a Decision: Limiting (Strategic) Factor Limiting/ Strategic factor Quite similar idea to the lower limit The factor, whose control, in the right form, at the right place and time, will establish a new system of conditions which meets the purpose. Lack of potash in a grain field Nuclear power in WW2

Permissibility Resources Time Commitments Information Strategic Factor 1 Strategic Factor 2 Strategic Factor 3 Zone of feasible, potentially successful solutions These factors drastically reduce the number of possible solutions that a manager has to consider. Source: Starling, 2002: 235.

Gathering Facts: Consulting Effective Planning and decision-making requires a multiplicity of inputs Consulting people Expert advice Advisory groups Consult those who will be most effected by the decisions Stakeholders Proactively seek citizens’ comments

Analytical Techniques for Decision-making Cost-benefit analysis (one objective) Multiobjective models Decision analysis Systems analysis Operations research Nominal group technique

Cost-Benefit Analysis (CBA) Comparing costs and benefits Real (direct, indirect, tangible, and intangible); Pecuniary (monetary) Decision rules NB=B-C Example Building a new opera house in Ankara

Cost-Benefit Analysis-2 Opportunity Cost What could have been produced if resources had been used in the best alternative way? Distributional impacts of public programs How will the costs and benefits of a public program be distributed among the citizenry?

Multi-objective Models Multiple objectives (criteria) Choosing a shopping mall site Criteria Local transportation Land-use planning Neighborhood impact Community economy Tax base A weighting scheme => a weighted score What about moral goals that can not be quantified?

Decision Analysis Payoff Matrices Expected Value Use of decision tree to factor in probability Example: Should the US drop the atom bomb to Japan or not in WW2? Would they Japanese surrender?

Decision Tree: Wall & Slide Source: Starling, 2002: 248.

Systems Analysis Interdependency of things Four basic steps in systems analysis Problem formulation Modeling Analysis and optimization Implementation Example What about we put 100,000 more police to the streets?

Modeling of the Criminal Justice System

Operations Research Operations research Using mathematics for solving problems (optimization) in WW2 What is the optimal formation of bomber planes as a function of a target shape? When to fuse a bomb dropped from an aircraft onto a submarine? What is the optimal location of radar stations? Sensitivity Analysis Making very small changes in the model so as to see the impact on the whole model

Group Decision-Making: When? Prerequisites Do the group members have the required knowledge and skills? Are the members overloaded? Group decision-making can be preferred when the problem Is uncertain, complex and conflict-laden Requires cooperation of persons or organizations Has significant, but not immediate deadlines Requires widespread acceptance and commitment in implementation

Group Decision-Making: Pros Strengths and weaknesses of groups as decision-makers Strengths: + Broader perspective for defining the problem + Diversity of experience and thinking styles + Offer more knowledge and information than individuals can +Easier to implement because people participated

Group Decision-Making: Cons Weaknesses - Time consuming and expensive - Should not be used for routine decisions - May lead to compromise solutions that satisfy no one - There is no clear focus for responsibility if things go wrong

Nominal Group Technique In the nominal group technique Goal: ensure every group member has equal input in the process No evaluative discussions when the ideas are presented Secret voting for preferred solutions Raking of alternatives in terms of priority

Roles and Issues in Groups Devil’s advocate Someone is assigned the role of challenging the assumptions and assertions made by the group Brainstorming Generation of solutions by prohibiting criticism The wilder or more radical the idea, the better Groupthink The pressure to conform to the group norms and decisions, rather than to state one`s honest opinion.

Limitations to analytical approach Source: biases in human decision-making Simon & Lindblom Bounded rationality Too much information, limited mental capacity Satisficing Not the best solution, but good enough solutions Some pitfalls Personal biases enter when structuring the problem Letting the method supplant the problem