Decisions New

8/8/2019 Decisions New

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Decision MakingReport

Nabiha Zareen Usama 10674

Anum Iqbal 9443

Khubaib Hanif Chaudhry 10675

Submitted to: Dr Khalida Tanveer


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EXECUTIVE SUMMARY

Decision making is the study of identifying and choosingalternatives based on the values and preferences of the decisionmaker or in other words you can say Decision making is theprocess of sufficiently reducing uncertainty and doubt aboutalternatives to allow a reasonable choice to be made from amongthem. There are three types of decision making, rational decisionmaking, bounded rationality and intuitive decision making. Thereare generally 7 steps of decision making process which is

mentioned and explained in the report. There are components of decision making which are context, objectives, options andcriteria.Succesful decisions are based on reliable information andverifiable data plus adequate time should be spent on researchand implications. Decision-making requires time. The time andeffort spent should be in proportion to the importance of thedecision. Decisions based on gut-feeling are difficult to defend andfrequently encounter unexpected obstacles when implemented.There are common errors and biases in decision making processwhich is mentioned in the report.Futher there are ethics is decisionmaking, the three ethical decision criteria comprised of utilitarianism, justice and whistle blowers. Our survey wasconducted on sixteen questionnaires. We targeted banks and veryfew multinationals. All the results are based on thesequestionnaires. The results of the survey proved to be anextremely useful source of empirical validation, thereby providing adeep insight in formulating a final conclusion.


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TABLE OF CONTENTS

TOPIC PAGE NO

WH AT IS DECISION MAKING? 4 STEPS IN DECEISION MAKING PROCESS 4 TYPES OF DECISION MAKING 6 COMPONENTS OF DECISION MAKING 7 COMMON BIASES AND ERRORS IN 8

DECISION-MAKING PROCESS TH REE ET H ICAL DECISION CRITERIA 10 RESULTS 12 CONCLUSION 29 BIBLIOGRAP H Y


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WH AT IS DECISION MAKING?DECISIONS: C hoices made from among two or more alternatives.

Organizations have to follow a proper decision making process in order to makerational decision.

Decision making can be regarded as the mental processes (cognitive process)resulting in the selection of a course of action among several alternatives. Everydecision making process produces a final choice.

Rational decision making processes consist of a sequence of steps designed torationally develop a desired solution.

Typically these steps involve:


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Identifying a problem or opportunity The first step is to recognize a problem or to see opportunities that may beworthwhile. A rational decision making model is best employed where relativelycomplex decisions have to be made. The first decision making lesson should be

to ask yourself if you really have a problem to solve or a decision to make. Gathering information

What is relevant and what is not relevant to the decision? What do you need toknow before you can make a decision, or that will help you make the right one?

Analyzing the situation What alternative courses of action may be available to you? What differentinterpretations of the data may be possible?

Developing options Generate several possible options. Be creative and positive.

Evaluating alternatives What criteria should you use to evaluate? Evaluate for feasibility, acceptabilityand desirability. Which alternative will best achieve your objectives?

Selecting a preferred alternative Explore the provisional preferred alternative for future possible adverseconsequences. What problems might it create? What are the risks of making thisdecision?

Acting on the decision

Put a plan in place to implement the decision. Have you allocated resources toimplement? Is the decision accepted and supported by colleagues? Are theycommitted to making the decision work?.


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TYPES OF DECISION MAKING:1 ) Rational decision making2) Bounded Rationality.

3) Intuitive Decision making

Rational decision making A rational decision making is a sequencedapproach to approach to decision making. Using such an approach can help toensure discipline and consistency is built into your decision making process.

As the word rational suggests, this approach brings logic and order to decisionmaking. Our rational decision making model consists of a series of steps,beginning with problem/opportunity identification, and ending with actions to betaken on decisions made. A rational decision making model can help us to makebetter decisions - and thus help us to be better managers.

Bounded Rationality is the notion that in decision making, rationality of individuals is limited by the information they have, the cognitive limitations of their minds, and the finite amount of time they have to make decisions. Itcomplements rationality as optimization , which views decision making as a fullyrational process of finding an optimal choice given the information available.

Another way to look at bounded rationality is that, because decision-makers lack

the ability and resources to arrive at the optimal solution, they instead apply their rationality only after having greatly simplified the choices available. Thus thedecision-maker is a satisficer, one seeking a satisfactory solution rather than theoptimal one.

Intuitive decision making : Intuition is receiving input and ideas withoutknowing exactly how and where you got them from. You simply know it is notfrom yourself. Like creativity, intuitive inspiration often happens when someonevirtually fuses in an activity, when one is highly focused on the respectiveactivity in a state of joy and fulfillment. Intuition can be trained and in its highestlevel leads into a conscious contact with non-incarnated beings, a processusually called channeling. Intuitive decision making is far more than usingcommon sense because it involves additional sensors to perceive and get awareof the information from outside. Sometimes it is referred to as gut feeling, sixthsense, inner sense, instinct, inner voice, spiritual guide, etc.


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COMPONENTS OF DECISION MAKING

The most important aspect of structured decision-making is to recognize andanalyze the basic components of decisions.

1 . Context - The context describes the situation surrounding the decision.For example, the deadline and who needs to be involved to ensure asuccessful result.

2. Objectives - A clear understanding of desired outcomes guides decision-making and makes it easier, logical, and less stressful. (People oftenavoid making decisions because of a lack of clear objectives.)

3. Options - Significant effort must be spent uncovering all available options,studying how each may be implemented and what results they willproduce. Too often, people limit themselves to a few obvious choices, anddo not explore unusual (breakthrough) ideas.

4. Criteria - The criteria used to select the best possible options aredetermined by the context and objectives. Hard criteria are conditionswhich must be satisfied in order to have a useful decision, such as budgetor time constraints. Soft criteria are conditions which require subjectiveassessment, and therefore can be more difficult to apply. Examples arelevel of organizational disruption and employee satisfaction.

Successful decisions are based on reliable information and verifiable data. Adequate time should be spent to thoroughly research the options and their implications. Decisions based on gut-feeling are difficult to defend and frequentlyencounter unexpected obstacles when implemented.

Decision-making requires time. The time and effort spent should be in proportionto the importance of the decision.


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COMMON BIASES AND ERRORS INDECISION-MAKING PROCESSIn addition to engaging in bounded rationality, an accumulating body of researchtells us that decision makers allow systematic biases and errors to creep intotheir judgments. These come out of attempts to shortcut the decision process. Tominimize effort and avoid difficult trade-offs, people tend to rely too heavily onexperience, impulses, gut feelings. In many instances, these shortcuts arehelpful. However, they can lead to severe distortions from rationality. Thefollowing highlights the most common distortions.

Overconfidence Bias : Its been said that a no problem in judgment and decisionmaking is more prevalent and more potentially catastrophic than overconfidence?

When we are given factual questions and asked to judge the probability that our answers are correct, we tend to be far too optimistic. For instance, studies havefound that, when people say they are 65 to 70% confident that they are right,they were actually correct only about 50% of the time. And when they say theyre1 00% sure, they tended to be 70 to 85% correct.

From an organizational standpoint, one of the more interesting findings related to

overconfidence is that those individuals whose intellectual and interpersonalabilities are weakest are most likely to overestimate their performance and ability.So as mangers and employees become more knowledgeable about an issue, theless likely they are to display overconfidence. Overconfidence is most likely tosurface when organizational members are considering issues or problems thatare outside their area of expertise.

Anchoring Bias : The anchoring bias is a tendency to fixate on initialinformation as a starting point. Once set, we then fail to adequately adjust for subsequent information. The anchoring bias occurs because our mind appears togive a disproportionate amount of emphasis to the first information it receives. Soinitial impressions, ideas, process, and estimates carry undue weight relative toinformation received later.

Anchors are widely used by professional people such as advertising writers,managers, politicians, real estate agents, and lawyers where persuasion skillsare important For instance, in a mock jury trial, one set of jurors was asked bythe plaintiffs attorney to make an award in the range of Rs. 5 million to Rs. 25million. Another set of jurors was asked for an award in the range of Rs. 25


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million to 75 million. C onsistent with the anchoring bias, the median awards wereRs. 5 million versus Rs. 25 million in the two conditions.

C onsider the role of anchoring in negotiations and interviews. Any time anegotiation takes place, so does anchoring. As soon as someone states a

number, your ability to objectively ignore that number has been compromised.For instance, when a prospective employer asks how much you were making inyour prior job, your answer typically anchors the employers offer. Most of usunderstand this and upwardly adjust our previous salary in the hope that it willencourage our employer to offer us more. Anchoring can distort employmentinterviews. The initial information you might get interviewing a job candidate islikely to anchor your assessment of the applicant and unduly influence how youinterpret information that you obtain later.

Confirmation Bias : The rational decision-making process assumes that weobjectively gather information. But we dont. We selectively gather information.The information bias represents a specific case of selective perception. We seekout information that reaffirms our past choices, and we discount information thatcontradicts past judgments. We also tend to accept information at face value thatconfirms our preconceived views, while being critical and skeptical of informationthat challenges these views.

The information we gather is typically biased toward supporting views we alreadyhold. This confirmation bias influences where we go to collect evidence becausewe tend to seek out places that are more likely to tell us what we want to hear. It

also leads us to give too much weight to supporting information and too little tocontradictory information.

Availability Bias : Many more people suffer from fear of flying than fear of driving in a car. The reason is that many people think flying is more dangerous. If flying on a commercial airline was as dangerous as driving, the equivalent of two747s filled to capacity would have to crash every week, killing all aboard, tomatch the risk of being killed in a car accident. But the media give a lot moreattention to air accidents, so we tend to overstate the risk of flying and understatethe risk of driving.

This illustrates an example of the availability bias, which is the tendency for people to base their judgments on information that is readily available to them.Events that evoke emotions, that are particularly vivid, or that have occurredmore recently tend to be more available in our memory. As a result, we tend tobe prone to overestimating unlikely events like an airplane crash. The availabilitybias can also explain why managers, when doing annual performanceappraisals, tend to give more weight to recent behaviors of an employee thanthose behaviors of six or nine months ago.


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Escalation of Commitment Error : Another distortion that creeps intodecisions in practice is a tendency to escalate commitment when a decisionstream represents a series of decisions. Escalation of commitment refers tostaying with a decision even when there is clear evidence that its wrong. Anexample of this is of my friend, who has been dating a woman for about four

years. He admitted that things were not going too well in their relationship; heinformed me that he was going to marry the woman. A bit surprised by hisdecision, I asked him why. He responded: I have a lot invested in therelationship.

It has been well documented that individuals escalate commitment to a failingcourse of action when they view themselves as a responsible for the failure. Thatis they throw good money after bad to demonstrate that their initial decision wasnot wrong and to avoid having to admit they made a mistake. Escalation of commitment is also congruent with evidence that people try to appear consistentin what they say and do. Increasing commitment to previous actions conveys

consistency.

Escalation of commitment has obvious implications for managerial decisions.Many an organization has suffered large losses because a manager wasdetermined to prove his or her original decision was right by continuing to commitresources to what was a lost cause from the beginning. In addition, consistencyis a characteristic often associated with effective leaders. So managers, in aneffort to appear effective, may be motivated to be consistent when switching toanother course of action. In reality, effective managers are those who are able todifferentiate between situations in which persistence will pay off and situations inwhich it will not.

TH REE ET H ICAL DECISION CRITERIA An individual can use three different criteria in making ethical choices. The first isthe utilitarian criterion, in which decisions are made solely on the basis of their outcomes or consequences. The goal of utilitarianism is to provide the greatestgood for the greatest number. The view tends to dominate business decisionmaking. It is consistent with goals like efficiency, productivity, and high profits. Bymaximizing profits, for instance, a business executive can argue he is securingthe greatest good for the greatest numbers as he hands out dismissal notices to1 5 % of his employees.

Another ethical criterion is to focus on rights. This calls on individuals to makedecisions consistent with fundamental liberties and privileges as set forth indocuments such as the Bill of Rights. An emphasis on rights in decision makingmeans respecting and protecting the basic rights of individuals, such as the rightto privacy, to free speech, and to due process.


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A third criterion is to focus on justice. This requires individuals to impose andenforce rules fairly and impartially so that there is an equitable distribution of benefits and costs. Union members typically favor this view. It justifies payingpeople the same wage for a given job, regardless of performance differences,and using seniority as the primary determination in making layoff decisions.

Each of these criteria has advantages and liabilities. A focus on utilitarianismpromotes efficiency and productivity, but it can result in ignoring the rights of some individuals, particularly those with minority representation in theorganization. The use of rights as a criterion protects individuals from injury andis consistent with freedom and privacy, but it can create an overly legalistic workenvironment that hinders productivity and efficiency. A focus on justice protectsthe interests of the underrepresented and less powerful, but it can encourage asense of entitlement that reduces risk taking, innovation, and productivity.

Decisions makers, particularly in for-profit organizations, tend to feel safe and

comfortable when they use utilitarianism. A lot of questionable actions can be justified when framed as being in the best interests of the organization andstockholders. But many critics of business decision makers argue that thisperspective needs to change. Increased concern in society in society aboutindividual rights and social justice suggests the need for managers to developethical standards based on non utilitarian criteria. This presents a solid challengeto todays managers because making decisions using criteria such as individualrights and social justice involves far more ambiguities than using utilitariancriteria such as effects on efficiency and profits.


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RESULTS

The results of the survey proved to be an extremely useful source of empiricalvalidation, thereby providing a deep insight in formulating a final conclusion. Thefindings of the questionnaire were as follows:

On the issue of feeling uneasy at the workplace when faced with a criticalsituation, there was a 50 percent split with one halfs response being affirmativewhile the rest replying as no. Likewise when asked about the frequency of facinga critical situation, an overwhelming majority of 63 percent replied once a monthwhereas the figure for either week or daily was recorded at 19 percent each. In

addition to this more than two-thirds i.e. 68 percent respondents attributeduneasiness at workplace to risk pressure whereas the remaining 32 percentviewed uncertainty to be the prime factor. When asked if anyone consideredapplying his/her own initiative at the workplace as always helpful, more than half i.e. 56 percent replied as yes while the remaining 44 percent response was notalways. Identifying what aspects of work trigger the use of intuition, one half responded in favor of challenging work, 44 percent opted for work not properlydefined while the remaining 6 percent considered routine work as the mainmotive behind intuition. When inquired about the preferred style of work whileapplying your own intuition, as much as half of the respondents responded infavor of working with team, hence emphasizing the role of team work.Determining the primary users of intuition, 43 percent answered in favor of people with intense mood, 38 percent with people having positive hope and only19 percent of those who work under pressure. Despite experiencing positiveviews regarding intuition, a staggering 82 percent respondents replied as beingmore inclined towards opting for experience rather than intuition even after asuccessful attempt at the same. With respect to the background factors that areresponsible for building intuition 56 percent of the respondents considered bothfamily and culture to be the most prevalent ones. In addition to this one-half of

the respondents considered past activities, events and incidents to be the bestdefinition for experience while only 38 percent regarded them as valuablelessons learned. Likewise 50 percent of the respondents thought that challengingsituations necessitated the need of applying experiencing. In addition to the 56percent believed that when applying a job the emphasis on experience translatedin to better decision making, know-how of working environment as well aspossibility of fewer mistakes. 70 percent of the respondents were unsure as to


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whether the results of using your initiatives are more severe or that of usingexperience. Likewise 56 percent of those interviewed believed that use of experience helps an individual to play safe, whereas 32 percent felt that it helpsavoid the problem at hand. It was also observed that 75 percent of thoseinterviewed would rely on experience rather than intuition when faced with acritical situation at work.


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GRAPHS

Q1) Have you ever felt uneasy at your workplace when

faced with a critical situation?

a) Yesb) Noc) Never

50%50%

0%

Yes

No

Never


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Q2) How often are you faced with a critical situation?

a) E very dayb)

E very week

c) E very month

19%

19%

62%

Every Day

Every week

Every month


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Q3) What factors have resulted in your uneasiness atworkplace?

a) Riske pressure

b) Uncertainty

68%

32%

Risk pressure

Uncertainity


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Q4) Do you think applying your own initiative is alwayshelpful at workplace?

a) Yes

b) Noc) Not always

56%

0%

44%

Yes

No

Not always


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Q5) What aspects of work trigger the use of intuition?

a) Challenging workb)

Routine work

c) Work not properly defined

50%

6%

44%

Challenging work

Routune work

Work properly not defined


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Q6) Which style of work is preferred in applying yourown intuition?

a) Working individually

b) Working with teamc) Working as cross functional teams

12%

50%

38%

Working induvidually

Working with team

Working as cross functional teams


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Q7) What types of people opt for intuition?

a) People having intense moodb)

People having positive hope

c) People working under pressure

43%

38%

19%

P eople having intense mood

P eople having positive hope

P eople working under pressure


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Q8) Incase of successful attempt in using intuition,

a) Will you apply it again in a different situationb)

Rely on experience in a different situation

c) Seek for guidance in a different situation

18%

82%

0%

Will you aplly it again in adifferent situatiom

Rely on experience in a differentsituation

seek for guidance in a differentsituation


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Q9) Which of the following background factors builds thefoundations of using intuition?

a) F amily

b) Culturec) Both

19%

25%56%

Family

Culture

Both


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Q10) What do you think best defines experience?

a) Past activities, events ,incidentsb)

Valuable lessons learned

c) Decisions based on intuition

50%

38%

12%

P ast activities,events,incidents

Valuable lessons learned

Decisions based on intuition


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Q11) Which of the following situations emphasize onusing experience?

a) New situation

b) Difficult situationc) Challenging situation

18%

32%

50% New situation

Difficult situation

Challenging situation


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Q12) When applying for a job in an organization, whymanagement places so much emphasis on experience?

a) Better decision making

b) A know how of working environmentc) Possibly of low mistakesd) All of the above

25%

6%

13%

56%

Better decision making

A know how of makingenvironment

P ossibly of low markets

All of the above


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Q13) Is it possible that the results of using experiencerather than your own initiatives are more severe?

a) Yes

b) Noc) Maybe

12%

18%

70%

Yes

No

Maybe


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Q14) Do you think use of experience help an individualto .

a) Reduce task

b) Play safec) Avoid the problem at hand

12%

56%

32%

Reduce task

P lay safe

Avoid the problem at hand


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Q15) What do you do when faced with a critical situationat workplace?

a) Applying your own initiative(intuition)

b) Rely on experience

25%

75%

Apply your own intuition

Rely on experience


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CONCLUSION

The report focuses on the importance of decision making. Decision making is anintegral part of any organization it forms the base of firms. The organizations startup its operations through setting goals and objectives and strive hard throughoutthe period to attain those goals. Successful firms need to establish proper strategic plans and at times need to take proper decisions in order to achieve thegoals set. Decision making constitutes the over all functioning of theorganization, right decisions may only lead to success. All the good to greatcompanied have focused immensely on decision making policies, C ompanieshave altered decision making techniques for the betterment of the companiesoperations. This report is emphasizing on the process of decision making which

managers would usually follow in order to make rational decisions. Moreover asurvey which has been conducted for this report outlines the importance of decision making for managers in banking industry. The questionnaire provides aninsight to the elements of decision making .it explains us how managers seekdifferent types decision in varying situations. The decision making process is of great importance for these banking industry managers since they have to makecrucial decisions all the time due to vulnerability and competitiveness of theindustry. Therefore identifying and choosing the right alternatives for theproblems can help make effective decisions..The process of decision is just notlimited to organizations and businesses its importance lies in


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BIBLIOGRAP H Y

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