EFFECTIVE BUSINESS DECISION MAKING CONCEPTS AND PROCESS
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The document provides information about the concept of business decision making. It begins with an acknowledgement of those who provided guidance for an assignment. It then discusses various aspects of decision making including defining the problem, setting objectives and criteria, generating alternatives, analyzing alternatives, selecting an alternative, implementing the decision, and evaluating the outcome. Different models and styles of decision making are described. The key steps in rational and bounded rational decision making models are outlined. Barriers to good decision making are also listed.
EFFECTIVE BUSINESS DECISION MAKING CONCEPTS AND PROCESS
- 1. ASSIGNMENT MC-203 MANAGERIAL ECONOMICS TOPIC :- CONCEPT OF BUSINESS DECISION NAME :- VISHAL VERMA(7071497236) SECTION :- B ROLL NO :- 2154 RESPECTED TEACHER’S NAME :- PROF. DR. SUNITA
- 2. ACKNOWLEDGEMENT In performing our assignment, we had to take the help of some respected persons, who deserve our greatest gratitude. We would like to show our gratitude to PROF. DR. SUNITA SRIVASTAVA for giving us a good guideline for assignment throughout numerous consultations. We would also like to expend our deepest gratitude to all those who have directly or indirectly guided us in accomplishing this assignment. In addition, a thank you to PROFESSOR PAWAN KUMAR GUPTA SIR AND MISS LAKSHMI MAM who, introduced us to the methodology of work and guidance. We also thank the ‘UNIVERSITY OF LUCKNOW’ for their help and support in the form of facilities provided to us. Many people, especially our classmates and team members itself, have made valuable comment suggestions on this proposal which gave us an inspairation to improve our assignment. We thank all the people for their help.
- 3. VINAY KUMAR M.COM(PURE) SEC- B ROLL NO - 2154
- 4. “No sensible decision can be made any longer without taking into account not only the world as it is, but the world as it will be. . .” -Isaac Asimov
- 5. What is Decision Making? Decision making is the cognitive process leading to the selection of a course of action among alternatives. Every decision making process produces a final choice . It can be an action or an opinion . It begins when we need to do something but we do not know what. Therefore, decision making is a reasoning process which can be rational or irrational, and can be based on explicit assumptions or tacit assumptions. Examples: Shopping, deciding what to eat, What to wear, when to sleep, etc..
- 6. Decision-making Process 1. Identifying a problem 2. Identifying decision criteria 3. Allocating weights to criteria 4. Developing alternatives 5. Analyzing alternatives 6. Selecting an alternative 7. Implementing the alternative 8. Evaluation (of decision effectiveness)
- 7. Problem Definition Problem is a discrepancy (difference) between an existing and a desired state. Example: “ The manager has resigned, and we need another manager” Here the phrase “manager has resigned” reflects the current state while “need another manager” represents a desired state . Identifying Decision Criteria The word criteria, is defined as “ a standard by which something can be judged ”. A decision criteria therefore, is the basis of a decision, which outlines the relevant and important factors for a decision. And implicitly, it also defines
- 8. Developing Alternatives Involves defining the possible alternatives (or choices) that would resolve the problem. In our case, the alternatives would be a list of candidates or job applicants. Analyzing Alternatives Alternatives are rated and analyzed on the basis of the criteria The rating can be based on a specified scale , say 1 – 5 etc. Rating may be subjective in nature and thus, may depend on the judgment of the individual(s)
- 9. Selecting an alternative Involves choosing the best alternative, based on the above rating and analysis Generally implies selecting the alternative with the highest score. Implementing the Alternative Putting the decision into action Involves clear communication of the decision to all concerned and obtaining their commitment
- 10. Evaluation Evaluation forms an integral part of any process Involves evaluation of the outcome based on the desired goal and criteria Involves assessing the effectiveness and efficiency of the outcome (or the entire process) In case of any undesired results, each step of the process is carefully reviewed to trace the root causes
- 11. 6 C's of Decision Making 1. Construct. 2. Compile. 3. Collect. 4. Compare. 5. Consider. 6. Commit.
- 12. Construct a clear picture of precisely what must be decided. Compile a list of requirements that must be met. Collect information on alternatives that meet the requirements. Compare alternatives that meet the requirements. Consider the “what might go wrong” factor with each alternative. Commit to a decision and follow through with it.
- 13. Problem Analysis vs Decision Making It is important to differentiate between problem analysis and decision making. The concepts are completely separate from one another. Problem analysis must be done first, then the information gathered in that process may be used towards decision making. Problem Analysis • Analyze performance, what should the results be against what they actually are • Problems are merely deviations from performance standards • Problem must be precisely identified and described
- 14. • Something can always be used to distinguish between what has and hasn't been effected by a cause • Causes to problems can be deducted from relevant changes found in analyzing the problem • Most likely cause to a problem is the one that exactly explains all the facts Decision Making • Objectives must first be established • Objectives must be classified and placed in order of importance • Alternative actions must be developed
- 15. • The alternative must be evaluated against all the objectives • The alternative that is able to achieve all the objectives is the tentative decision • The tentative decision is evaluated for more possible consequences • The decisive actions are taken, and additional actions are taken to prevent any adverse consequences from becoming problems and starting both systems (problem analysis and decision making) all over again • There are steps that are generally followed that result in a decision model that can be used to determine an optimal production plan
- 16. Decision-Making Stages There are four stages that should be involved in all group decision making. These stages, or sometimes called phases, are important for the decision-making process to begin 1. Orientation stage- This phase is where members meet for the first time and start to get to know each other. 2. Conflict stage- Once group members become familiar with each other, disputes, little fights and arguments occur. Group members eventually work it out. 3. Emergence stage- The group begins to clear up vague opinions by talking about them. 4. Reinforcement stage- Members finally make a decision, while justifying themselves that it was the right decision.
- 17. THE DECISION MAKING MODEL Classify and define problem or opportunity Set objectives and criteria Generate creative and innovative alternative Analyze alternatives and select the most feasible Plan and implement the decision Control the decision
- 18. Decision-making Models Model : “ A simplified representation or description of a system or complex entity ” Examples : 1. Rational Model (Classical Model) • The decision maker attempts to use optimizing— selecting the best possible alternative. 2. Bounded Rationality Model • The decision maker uses satisficing —selecting the first alternative that meets the minimal criteria for solving the problem.
- 19. Rational/Bounded Rational So Rational and Bounded Rational Models are cognitive models that describe how managers make rational decisions
- 20. 1. Define and diagnose the problem 2. Set goals 3. Search for alternative solutions External and internal Environ. forces 4. Compar e and evaluate solution 5. Choose among alternative solutions 7. Follow up and control 6. Implement the solution selected
- 21. Decision-Making Styles Reflexive Style Makes quick decisions without taking the time to get all the information that may be needed and without considering all the alternatives. Reflective Style Takes plenty of time to make decisions, gathering considerable information and analyzing several alternatives. Consistent Style Tends to make decisions without either rushing or wasting time.
- 22. Decision-Making Steps When in an organization and faced with a difficult decision, there are several steps one can take to ensure the best possible solutions will be decided. These steps are put into seven effective ways to go about this decision making process . The first step - Outline your goal and outcome. This will enable decision makers to see exactly what they are trying to accomplish and keep them on a specific path. The second step - Gather data. This will help decision makers have actual evidence to help them come up with a solution. The third step - Brainstorm to develop alternatives. Coming up with more than one solution enables you to see which one can actually work.
- 23. The fourth step - List pros and cons of each alternative. With the list of pros and cons, you can eliminate the solutions that have more cons than pros, making your decision easier. The fifth step - Make the decision. Once you analyze each solution, you should pick the one that has many pros (or the pros that are most significant), and is a solution that everyone can agree with. The sixth step - Immediately take action. Once the decision is picked, you should implement it right away. The seventh step - Learn from, and reflect on the decision making. This step allows you to see what you did right and wrong when coming up, and putting the decision to use.
- 24. PLAN, IMPLEMENT THE DECISION, AND CONTROL Plan Develop a plan of action and a schedule of implementation. Implement the Plan Communicate and delegate for direct action. Control Use checkpoints to determine whether the alternative is solving the problem. Avoid escalation of commitment to a bad alternative.
- 25. Barriers to Good Decision Making 1. Hasty - Making quick decisions without having much thought. 2. Narrow - Decision making is based on very limited information. 3. Scattered - Our thoughts in making decisions are disconnected or disorganized. 4. Fuzzy - Sometimes, the lack of clarity on important aspects of a decision causes us to overlook certain important considerations.