6 steps decision making model

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Published on March 10, 2014

Author: rahulambadkar

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The Six-Step Rational Decision-Making Model 1. Define the problem. 2. Identify decision criteria 3. Weight the criteria 4. Generate alternatives 5. Rate each alternative on each criterion 6. Compute the optimal decision Part 1 - Introduction Identify decision criteria Once a decision maker has defined the problem, he or she needs to identify the decision criteria that will be important in solving the problem. In this step, the decision maker is determining what’s relevant in making the decision. This step brings the decision maker’s interests, values, and personal preferences into the process. Identifying criteria is important because what one person thinks is relevant, another may not. Also keep in mind that any factors not identified in this step are considered as irrelevant to the decision maker. Weight the criteria The decision-maker weights the previously identified criteria in order to give them correct priority in the decision. Generate alternatives The decision maker generates possible alternatives that could succeed in resolving the problem. No attempt is made in this step to appraise these alternatives, only to list them. Rate each alternative on each criterion The decision maker must critically analyze and evaluate each one. The strengths and weakness of each alternative become evident as they compared with the criteria and weights established in second and third steps.

Compute the optimal decision Evaluating each alternative against the weighted criteria and selecting the alternative with the highest total score. Assumptions of Model 1. Problem clarity. (The decision maker is assumed to have complete information regarding the decision situation.) 2. Known options (Identify all the relevant criteria and can list all the viable alternatives. The decision maker is aware of all the possible consequences of each alternative.) 3. Clear preference (The criteria and alternatives can be ranked and weight to reflect their importance) 4. Constant preferences (The specific decision criteria are constant and that weights assigned to them are stable over time) 5. No time or cost constraints 6. Maximum payoff Part 2 - Improving Creativity in Decision Making Creative Potential – Get out of the psychological ruts most us get into and learn how to think about a problem in divergent ways. Three-Component Model of Creativity  Expertise (The foundation of all creative work) knowledge of a subject were necessary conditions for us to be able to make creative contributions to the fields. The potential for creativity is enhanced when individuals have abilities, knowledge, proficiencies, and similar expertise in their fields of endeavor.  Creativity Skills (The ability to use analogies to see the familiar in a different light. Apply an idea from one context to another) Intelligence, independence, self-confidence, risk taking, and internal locus of control, tolerance for ambiguity and perseverance in the face of frustration.  Intrinsic task motivation (The desire to work on a task) interesting, involving, exciting, satisfying, or personally

challenging these factor would be affect the task motivation. This would turns creativity potential into actual creative ideas. Five organizational factors can impede staff creativity: 1. Expected Evaluation [Focusing on how staff’s work is going to be evaluated] 2. Surveillance [Being watched while staff are working] 3. External motivators [Emphasizing external, tangible rewards] 4. Competition [Facing win-lose situations with peers] 5. Constrained choice [Being given limits on how staff can do their work.] Part 3 - How Decisions Are Actually Made in Organization People are usually content to find an acceptable or reasonable solution to their problem rather than optimal one. Consequently, decision makers generally make limited use of their creativity. Choices tend to be confined to the neighborhood of the problem symptom and to the neighborhood of the current alternative. “Most significant decisions are made by judgment, rather than by a defined prescriptive model.” Bounded Rationality when a staff considered which college to attend, they will not look every viable alternative nor identify all the criteria that were important in decision. Instead of optimizing, staff probably “satisfied”. When faced with a complex problem, most people respond by reducing the problem to a level at which it can readily understand. The limited information-processing capability of human beings makes it impossible to assimilate and understand all the information necessary to optimize. So people satisfied; that is, they seek solutions that are satisfactory and sufficient. Because the capacity of the human mind for formulating and solving complex problems is far too small to meet the requirements for full rationality, individuals operate within the confines of bounded

rationality. They construct simplified models that extract the essential features from problems without capturing all of their complexity. Individuals can then behave rationally within the limits of the simple model. Once a problem is identified, the search for criteria and alternatives begins. But the list of criteria is likely to be far from exhaustive. The decision maker will identify a limited list made up of the more conspicuous choices. These are the choices that are easy to find and that tend to be highly visible. In most cases, they will represent familiar criteria and previously tried-and-true solutions. Once this limited set of alternatives is identified, the decision maker will begin reviewing them. But the review will not be comprehensive – not all of the alternatives will be carefully evaluated. Instead, the decision maker will begin with alternatives that differ only in a relatively small degree from the choice currently in effect. Following along familiar and will-worn paths, the decision maker proceeds to review alternatives only until he or she identifies an alternative that is “good enough” – one that meets an acceptable level of performance. The first alternative that meets the “good enough” criterion ends the search. So the final solution represents a satisfying choice rather than an optimal one. The order in which alternatives are considered is critical in determining which alternative is selected. Remember, in the fully rational optimizing model, all alternatives are eventually listed in a hierarchy of preferred order. Because all alternatives are considered, the initial order in which they are evaluated is irrelevant. Every potential solution gets a full and complete evaluation. But this isn’t the case with bounded rationality. If we assume that a problem has more than one potential solution, the satisfying choice will be the first acceptable one the decision maker encounters. Decision makers use simple and limited models, so they typically begin by

identifying alternatives that are obvious, ones with which they are familiar, and hose not too far from the status quo. Solutions that depart least from the status quo and meet the decision criteria are most likely to be selected. A unique and creative alternative may present an optimizing solution to the problem, but it’s unlikely to be chosen because an acceptable solution will be identified well before the decision maker is required to search very far beyond the status quo. Intuition ”Sometimes you’re just got to go with your gut feeling,” Intuitive decision making is an unconscious process created out of distilled experience. They based on the experience to recognize patterns and clusters of the problem to make a decision. Experience allows the expert to recognize a situation and draw on previously learned information associated with that situation to arrive quickly at a decision. The result is that the intuitive decision maker can decide rapidly with what appears to be very limited information. Identifying Problems Problems that are visible tend to have a higher probability of being selected than ones that are important. 1. Easily to catch a decision maker’s attention. 2. Decision maker want to appear competent and “on top of problems”. This desire motivates DM to focus on problems that are visible to others If a decision maker faces a conflict between selecting a problem that is important to the organization and one that is important to the decision maker, self-interest tends to win out. This tendency also is related to the issue of visibility. It’s usually in a decision maker’s best interest to attack high-profiles problems. It conveys to performance is later reviewed, the evaluator is more likely to give a high rating to someone who has been aggressively attacking visible problems than to someone whose actions have been less obvious. Developing Alternatives

since decision makers rarely seek an optimal solution, but rather a satisfying one, we should expect to find a minimal use of creativity in the search for alternatives. And that expectation is generally on target. Efforts will be made to try to keep the search process simple. It will tend to be confined to the neighborhood of the current alternative. More complex search behavior, which includes the development of creative alternatives, will be resorted to only when a simple search fails to uncover a satisfactory alternative. Decision maker avoid the difficult task of considering all the important factors, weighing their relative merits and drawbacks, and calculating the value for each alternative. Instead, they make successive limited (incremental) comparisons. This branch approach simplifies decision choices by comparing only alternatives that differ in relatively small degree from the choice currently in effect. This approach also makes it unnecessary for the decision maker to thoroughly examine an alternative and its consequences; one need investigate only hose aspects in which the proposed alternative and its consequences differ from the status quo. It acknowledges the non-comprehensive nature of choice; in other words, decision makers make successive comparisons because decisions are never made forever and written in stone, but rather they are made and remade endlessly in small comparisons between narrow choices. Making Choices In order to avoid information overload, decision makers rely on heuristics, or judgmental shortcuts, in decision making. 1. Availability Heuristic 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 occurred recently tend to

be most available in our memory. [When doing annual performance appraisals, tend to give more weight to recent behaviors of an employee than to those of 6 months ago] 2. Representative Heuristic decision makers tend to assess the likelihood of an occurrence by trying to match it with a pre-existing category. [Frequently predict the performance of a new product by relating it to a previous product’s success] 3. Escalation of Commitment tendency to escalate commitment when a decision stream represents a series of decisions. Escalation of commitment is an increased commitment to a previous decision in spite of negative information. They “throw good money after bad” to demonstrate that their initial decision wasn’t wrong and to avoid having to admit they made a mistake. People try to appear consistent in what they say and do. Increasing commitment to previous actions conveys consistency. [“I have a lot invested in the relationships.” “I have to go back and complete some deficiencies if I changed to work on a degree in other fields.”] Individual Difference 1. Decision-Making Styles The foundation of the model is the recognition that people differ along two dimensions. The first is their way of thinking (intuitive and creative). The other dimension addresses a person’s tolerance for ambiguity. Some people have a high need to structure information in ways that minimize ambiguity; Others are able to process many thoughts at the same time.

Tolerance for Ambiguity Analytical Conceptual Directive Behavioral Way of Thinking (Rational -> Intuitive) - People using the directive style have low tolerance for ambiguity and seek rationality. They are efficient and logical. But their concern for efficiency results in their making decisions with minimal information and assessing few alternatives. Directive types make decision fast, and they focus on the short run. - The analytical type has a much greater tolerance for ambiguity than do directive decision makers. They desire more information and consider more alternatives than do directives. Analytical managers would be best characterized as careful decision makers with the ability to adapt or cope with new situations. - Individual with a conceptual style tend to be very broad in their outlook and consider many alternatives. Their focus is long range, and they are very good at finding creative solutions to problems. - A behavioral style decision maker who work well with others. They’re concerned with the achievements of peers and subordinates. They’re receptive to suggestions from others and rely heavily on meetings for communicating. This type of manager tried to avoid conflict and seeks acceptance. Some managers rely almost exclusively on their dominant style; more flexible managers can make shifts depending on the situation.

Level of Moral Development Moral development is relevant in decision making because many decision have an ethical dimension. An understanding of this concept can help you see how different people impose different ethical standards on their decisions. Level Pre-conventional Conventional Principled Stage/ Description 1 2 3 4 Sticking to rules to avoid physical punishment Following rules only when it’s in your immediate interest Living up to what is expected by people close to you Maintaining conventional order by fulfilling obligations to which your have agreed Valuing rights of others; and upholding non-relative values and rights regardless of the majority’s opinion Following self-chosen ethical principle even if they violate the law 5 6

Part 4 – Organizational Constraints The organization itself constrains decision makers. They shape their decisions to reflect the organization’s performance evaluation and reward system and organizationally imposed time constraints. Previous organizational decisions also act as precedents to constrain current decisions. Performance Evaluation Decision maker are strongly influenced in their decision making by the criteria by which they are evaluated. [If a division manager believes that the manufacturing plants under his responsibility are operating best when he hears nothing negative, we shouldn’t be surprised to find that his plant managers spend a good part of their time ensuring that negative information doesn’t reach the division boss.] [If a college dean believes that an instructor should never fail more than 10 percent of her students – to fail more reflects on the instructor’s ability to teach – we should expect that new instructor, who want to receive favorable evaluations, will decide not to fail too many students.] Reward System What choices are preferable in terms of personal payoff? If the organization rewards risk aversion, managers are likely to make conservative decisions. [General Motors consistently gave out promotions and bonuses to manager who kept a low profile, avoided controversy, and were good team players. The result was that GM managers became very adept at dodging tough issues and passing controversial decisions on to committees] System-Imposed Time Constraints Organizations impose deadlines on decisions. A host of decisions have to be made quickly in order to stay ahead of the competition and keep customers be made quickly in orders to stay ahead of the competition and keep customers satisfied.

And almost all important decisions come with explicit deadlines. These conditions create time pressures on decision makers and often make it difficult, if not impossible, to gather all the information they might like before having to make a final choice. The rational model ignores the reality that, in organizations decision come with time constraints Historical Precedents Rational decision making takes an unrealistic and insulated perspective. It views decision as independent and discrete events. But that isn’t they way it I in the real world! Decisions aren’t made in a vacuum. They have a context. In fact, individual decisions are more accurately characterized as points in a stream of decisions. Decisions made in the past are ghost that continually haunt current choices. It’s common knowledge that the largest determining factor of the size of any given year’s budget is last year’s budget. Choices made today, therefore, are largely a result of choices made over the years. Cultural Differences The rational model does not acknowledge cultural differences. But, we need to recognize that the cultural background of the decision maker can have significant influence on his or her selection of problems, depth of analysis, the importance placed on logic and rationality, or whether organizational decisions should be made autocratically by an individual manger or collectively in groups. (Like Japan Manager is more group-oriented. Before making an important decision, they collect a large amount of information, which is then used in consensus-forming group decisions.) Some cultures emphasize solving problems; others focus on accepting situations as they are. Problem-solving decision maker believe that they can and should change situations to their benefit.

Part 5 – Ethics in Decision Making Utilitarian criterion Decisions are made solely on the basis of their outcomes or consequences. The goal of it is to provide the greatest good for the greatest number. This view tends to dominate business decision making. (Efficiency, productivity, and high profits) [ + A focus on utilitarianism promotes efficiency and productivity. - Ignoring he rights of some individuals particularly those with minority representation in the organization. ] Right criterion This call on individuals to make decisions consistent with fundamental liberties and privileges as set forth in documents such as the Bill of Right. An emphasis on rights in decision making means respecting and protecting the basic rights of individuals.(The right to privacy, to free speech, and to due process) [ + Protects individuals from injury and is consistent with freedom and privacy - Create an overly legalistic workplace that hinders productivity and efficiency. ] Justice criterion This requires individual to impose and enforce rules fairly and impartially so there is an equitable distribution of benefits and costs. [ + The interests of the underrepresented and less powerful - Encourage a sense of entitlement that reduces risk taking, innovation, and productivity.

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