The Decision Making Process

Week 4

MGT 101 - Principles of Management and Business

Objectives

✤ To describe the decision making process

✤ To practice decision making

The Decision Making Process

✤ Definition:

✤A set of eight steps that begins with identifying a problem; it moves through selecting an alternative that can alleviate the problem and concludes with evaluating the decision’s effectiveness

✤ This process can be used to describe both individual and group decisions.

The Decision Making Process

Identificationof a

Problem

Identificationof Decision

Criteria

Allocationof Weightsto Criteria

Developmentof

Alternatives

Analysisof

Alternatives

Selectionof an

Alternative

Implementation

of theAlternative

Evaluationof

DecisionEffectiveness

Step 1: Identification of a Problem

✤ A Problem: a discrepancy between an existing and a desired state of affairs

✤ In real world, most problems are not clear.. Thus, problem identification is not simple

✤ Also, problem identification is subjective

✤ Furthermore, managers who mistakenly solve the wrong problem are not different from those who don’t solve it!

How Can Managers Identify Problems?

✤ They need to make comparisons between current state of affairs AND some standard

✤ The standard can be:

✤ past performance

✤ previously set goals

✤ the performance of some other unit within the organization or some other organization

Step 2: Identification of Decision Criteria

✤ Here, we select specific criteria that we will use in making the decision. The criteria include: price, weight, size, number of employees, hours needed ... etc.

✤ Decision Criteria (single is criterion): factors that are relevant in a decision

✤ Every decision making has a criteria whether explicitly stated or not

✤ If a factor is not included, it’s considered irrelevant

Step 3: Allocation of Weights to Criteria

✤ In this step, we give weights to the criteria identified in the previous step

✤ A simple approach: Give 10 to the highest important factor, and then assign weight the rest against that standard

✤ For example: if you give another criterion 5, the standard is twice as important

✤ Mainly, you use your personal preferences. In a more studied decisions, you will use data, statistics, studies, analysis, and research

Important Criteria and Weights in a Car-Buying Decision

CriterionCriterion WeightWeight

Price 10

Interior Comfort 8

Durability 5

Repair Record 5

Performance 3

Handling 1

Step 4: Development of Alternatives

✤ Here, we list all the alternatives that could succeed in solving the problem

✤ We only list them, without evaluating them

Step 5: Analysis of Alternatives

✤ Each alternative is evaluated by appraising it against the criteria

✤ The strengths and weaknesses of each alternative become both evident as we compare them to the criteria and weights established in step 2 and step 3

✤ The assessment is clearly a personal judgement

Assessment of Possible Car Alternatives

AlternativAlternativee

Initial Initial PricePrice

Interior Interior ComfortComfort

DurabilitDurabilityy

Repair Repair RecordRecord

PerformanPerformancece

HandlinHandlingg

TotaTotall

Mazda C230

5 6 9 10 7 7 44

Isuzu Ascender

7 6 8 6 5 6 38

BMW 335 9 7 6 4 4 7 37

Toyota Camry

6 5 10 10 6 6 43

VW Passat 8 6 6 5 7 8 40

What if?

✤ If one alternative scored 10 on every criterion, we wouldn’t need to consider the weights

✤ Similarly, if the weights were all equal, you could evaluate each alternative merely by summing up the appropriate lines

Evaluation of Car Alternatives:Assessment Criteria x Criteria Weight

AlternativAlternativee

Initial Initial PricePrice[10][10]

Interior Interior ComfortComfort

[8][8]DurabilityDurability

[5][5]

Repair Repair RecordRecord

[5][5]PerformancePerformance

[3][3]HandlingHandling

[1][1]

TotaTotall

Mazda C230

5 50 6 48 9 4510 50

7 21 7 7 221

Isuzu Ascender

7 70 6 48 8 40 6 30 5 15 6 6 209

BMW 335 9 90 7 56 6 30 4 20 4 12 7 7 215

Toyota Camry

6 60 5 40 10 5010 50

6 18 6 6 224

VW Passat 8 80 6 48 6 30 5 25 7 21 8 8 212

Step 6: Selection of an Alternative

✤ Here, we choose the best alternative among those assessed

✤ We merely choose the alternative that scored the highest score in step 5

✤ In our example: Toyota Camry

Step 7: Implementation of the Alternative

✤ Decision implementation: putting a decision into action

✤ This includes conveying the decision to those affected and getting their commitment to it

Step 8: Evaluation of Decision Effictiveness

✤ Managers appraise the result of the decision to see whether it has corrected the problem; did the alternative chosen in step 6 and implemented in step 7 accomplish the desired result?

Learning Outcomes

✤ Decision making is a process of eight steps

✤ Managers use criteria to make decisions, whether they mention them or not

✤ Managers should make alternatives and evaluate them based on the criteria

✤ Managers need to evaluate their decisions to make sure they are solving the right problem