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Decision making basic concepts

Identifying and choosing alternatives based on
the values and preferences of the decision maker

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Decision making basic concepts

  1. 1. DECISION MAKING BASIC CONCEPTS Dr. Ahmed-Refat AG Refat SBCM-EPI 2015
  2. 2. Contents –Definition - Levels –Models - Styles –Problems types –Intuitive - Rationale –Uncertainty ,Risk, and Probability –Eight Steps Process – DM Environment –DM Factors Dr.Ahmed-Refat 20152
  3. 3. Decision-Making Identifying and choosing alternatives based on the values and preferences of the decision maker. 3 Dr.Ahmed-Refat 2015
  4. 4. Decision-Making •A cognitive process resulting in the selection of a course of action among several alternative possibilities. 4 Dr.Ahmed-Refat 2015
  5. 5. The objective of the decision-maker is to choose the best alternative. Making Justifiable, Defensible Decisions Dr.Ahmed-Refat 20155
  6. 6. Decision Levels 1. Strategic 2. Tactical 3. Operational Dr.Ahmed-Refat 20156
  7. 7. Decision Levels 1. Strategic decisions (the highest level) • Concerns general direction, long term goals, philosophies and values. • Least structured and most imaginative; • Most risky and of the most uncertain outcome, partly because they reach so far into the future and partly because they are of such importance. Dr.Ahmed-Refat 20157
  8. 8. Decision Levels • 2. Tactical D. • Tactical decisions support strategic decisions. • They tend to be medium range, medium significance, • with moderate consequences. Dr.Ahmed-Refat 20158
  9. 9. Decision Levels • 3. Operational. • Every day decisions, • used to support tactical decisions. • Structured. • Their impact is immediate, short term, and usually low cost. • The consequences of a bad operational decision will be minimal, although a series of bad or sloppy operational decisions can cause harm.. Dr.Ahmed-Refat 20159
  10. 10. All organizations are in a need for more effective decision making at all levels Dr.Ahmed-Refat 201510
  11. 11. Policy & Decision Making • Logically, policies shape the subsequent plans, programs and projects that put those policies into practice. Policies are at the top of the decision-making hierarchy. • Decision to formulate a policy • Decision to formulate rules • Decision to put a specific plan and procedures 11 Dr.Ahmed-Refat 2015
  12. 12. Policy & Decision Making Dr.Ahmed-Refat 2015
  13. 13. •Procedure •Rule •Policy Dr.Ahmed-Refat 201513
  14. 14. Procedures • A procedure is a series of interrelated sequential steps that a manager can use for responding to a structured problem. • The only real difficulty is in identifying the problem. Once the problem is clear, so is the procedure. • The decision-making process in this case is merely executing a simple series of sequential steps. Dr.Ahmed-Refat 2015
  15. 15. Rule • A rule is an explicit statement that tells a manager what he/she can or cannot do. • Managers frequently use rules when they confront a structured problem because they are simple to follow and ensure consistency. • For example, rules permit supervisors to make disciplinary decisions rapidly and with a relatively high degree of fairness Dr.Ahmed-Refat 2015
  16. 16. Policy • A policy provides guidelines to channel a manager’s thinking in a specific direction. • In contrast to a rule, a policy establishes parameters for the decision maker rather than specifically stating what should or should not be done. • Policies typically contain an ambiguous term that leaves interpretation up to the decision maker Dr.Ahmed-Refat 2015
  17. 17. Decision-Making Models Dr.Ahmed-Refat 2015
  18. 18. Decision-Making Models • Intuitive decision model • Predisposed decision model • The ‘garbage-can’ decision model • Rational Decision Model Dr.Ahmed-Refat 2015
  19. 19. 1.Intuitive decision making Subconscious process of making decisions on the basis of experience and accumulated judgment •does not rely on a systematic or thorough analysis of the problem •generally complements a rational analysis © Prentice Hall, 2002 Dr.Ahmed-Refat 2015
  20. 20. Decision-Making Models 1.Intuitive Decision Model • The managers who use this approach avoid statistical analysis and logical processes. • These managers rely on their feelings about a situation. Dr.Ahmed-Refat 2015
  21. 21. What Is Intuition? Decisions based on experience Decisions based on feelings and emotions Decisions based on ethical values or culture Decisions based on subconscious data Decisions based on skills, knowledge, or training Intuition Affect- initiated decisions Experienced- based decisions Values or ethics-based decisions Subconscious mental processing Cognitive- based decisions © Prentice Hall, 2002 Dr.Ahmed-Refat 2015
  22. 22. Decision-Making Models 2. Predisposed decision model • A manager who decides on a solution and then gathers material to support the decision. • Decision makers using this approach do not search out all possible alternatives. • Rather, they identify and evaluate alternatives only until an acceptable decision is found. Having found a satisfactory alternative, the decision maker stops searching for additional solution • ‘Rational up-to-a-point’ decision making • Dr.Ahmed-Refat 2015
  23. 23. 3.The garbage-can symbol describes the confused, complex and disordered way in which, at a particular moment in time, all decision makers are simultaneously involved in a range of activities and not just in a single decision-making process. • These concurrent activities are all thrown together in the minds of decision makers, like in the jumble of a garbage can. Dr.Ahmed-Refat 2015 Decision-Making Models
  24. 24. 3.The garbage-can symbol In such disordered situations particular ‘problems’ and ‘solutions’ often become attached to each other because of their spatial and/or temporal proximity to each other, not because of rational choice. Dr.Ahmed-Refat 2015 Decision-Making Models
  25. 25. Rational Decision Making Model 4.Rational decision…later.. making processes consist of a sequence of steps designed to rationally develop a desired solution from Identification to ImplementationDr.Ahmed-Refat 2015
  26. 26. Decision-Making Study of identifying and choosing alternatives based on the values and preferences of the decision maker. Dr.Ahmed-Refat 2015
  27. 27. INFORMATION CRITERIA ALTERNATIVES PREFERENCES KEY CONCEPTS Dr.Ahmed-Refat 2015
  28. 28. 1. Information •Decision-making requires the availability of better information and knowledge on the problem Dr.Ahmed-Refat 2015
  29. 29. 1.Information •Data •Information •Knowledge Dr.Ahmed-Refat 2015
  30. 30. 1.Information • Data is …..crude information • Data becomes information, when it becomes relevant to your decision problem. • Knowledge is what we know well. Dr.Ahmed-Refat 2015
  31. 31. 1.Information The significant instrumental knowledge is expressed together with some statistical degree of confidence. Dr.Ahmed-Refat 2015
  32. 32. Dr.Ahmed-Refat 2015
  33. 33. Four states of information possession Not HavingHaving + Information you know you don't have Information you know you have K+ Information you don't know you don't have Information you don't know you have K- Dr.Ahmed-Refat 201533
  34. 34. Processing the Knowledge The collected information is evaluated and integrated for its relevance, validity and interconnectedness. Dr.Ahmed-Refat 201534
  35. 35. •1- Information • While substantial information is desirable, the statement that "the more information, the better" is not true. • Too much information can actually reduce the quality of a decision Dr.Ahmed-Refat 2015
  36. 36. Processing the Knowledge Dr.Ahmed-Refat 201536
  37. 37. • Many situations require decisions to be made with incomplete and/or insufficient information. • Often management requires quick decision making, or judgments made under pressure. • It is in this context that a more intuitive approach often develops 37 Dr.Ahmed-Refat 2015 Information needed for Decision
  38. 38. 2. Alternatives. • Potential solution, option or choice. • decision analysis provides insight into how the defined alternatives differ from one another and then generates suggestions for new and improved alternatives Dr.Ahmed-Refat 2015
  39. 39. • 2. Alternatives. • A… are the possibilities one has to choose from. A….can be identified (that is, searched for and located) or even developed (created where they did not previously exist). Merely searching for preexisting alternatives will result in less effective decision making. Dr.Ahmed-Refat 2015
  40. 40. 3. Criteria. These are the characteristics or requirements that each alternative must possess to a greater or lesser extent. Dr.Ahmed-Refat 2015
  41. 41. 4- Preferences. These reflect the philosophy and moral hierarchy of the decision maker Dr.Ahmed-Refat 2015
  42. 42. Decision-Making Models 4. Rational Decision Making Model Dr.Ahmed-Refat 2015
  43. 43. Assumptions of Rationality – –decision maker would: –be objective and logical –carefully define a problem –have a clear and specific goal –select the alternative that maximizes the likelihood of achieving the goal managerial decision making seldom meets all these assumptions © Prentice Hall, 2002 6-43 Dr.Ahmed-Refat 2015
  44. 44. Rational Decision Making –Decisions are consistent, value- maximizing choices within specified constraints –Managers assumed to make rational decisions © Prentice Hall, 2002 Dr.Ahmed-Refat 2015
  45. 45. A comprehensive, 8-step process –Step 1 - Identifying a Problem –Step 2 - Identifying Decision Criteria –Step 3 - Allocating Weights to the Criteria –Step 4 - Developing Alternatives –Step 5 - Analyzing Alternatives –Step 6 - Selecting an Alternative –Step 7 - Implementing the Alternative –Step 8 - Evaluating Decision Effectiveness Decision Making Process © Prentice Hall, 2002 Dr.Ahmed-Refat 2015
  46. 46. –Step 1 - Identifying a Problem • problem - discrepancy between an existing and a desired state of affairs –must be such that it exerts pressure to act –manager is unlikely to characterize a situation as a problem unless s/he has resources necessary to act © Prentice Hall, 2002 Decision Making Process Dr.Ahmed-Refat 2015
  47. 47. • Step 2: Identify decision criteria— once the manager has identified a problem that needs attention, the decision criteria important to resolving the problem must be identified. That is, managers must determine what’s relevant in making a decision. © Prentice Hall, 2002 Decision Making Process Dr.Ahmed-Refat 2015
  48. 48. • Step 3: Allocating weights to the criteria— at this step, the decision maker must weigh the items in order to give them the correct priority in the decision. A simple approach is to give the most important criterion a weight of 10 and then assign weights to the rest against that standard. © Prentice Hall, 2002 Decision Making Process Dr.Ahmed-Refat 2015
  49. 49. • Step 4: Developing alternatives— the fourth step requires the decision maker to list the viable alternatives that could resolve the problem. No attempt is made in this step to evaluate the alternative, only to list them. Decision Making Process Dr.Ahmed-Refat 2015
  50. 50. • Step 5: Analyzing alternatives— once the alternatives have been identified, the decision maker must critically analyze each one. From this comparison, the strengths and weaknesses of each alternative become evident. © Prentice Hall, 2002 Decision Making Process Dr.Ahmed-Refat 2015
  51. 51. • Step 6: Selecting an alternative— the sixth step is the important act of choosing the best alternative from among those considered. All the pertinent criteria in the decision have now been determined and weighted, and the alternatives have been identified and analyzed. © Prentice Hall, 2002 Decision Making Process Dr.Ahmed-Refat 2015
  52. 52. • Step 7: Implementing the alternative— implementation involves conveying the decision to those affected by it and getting their commitment to it. If the people who must carry out a decision participate in the process, they’re more likely to enthusiastically support the outcome than if they are just told what to do. © Prentice Hall, 2002 Decision Making Process Dr.Ahmed-Refat 2015
  53. 53. • Step 8: Evaluating decision effectiveness— the last step in the decision-making process involves appraising the outcome of the decision to see if the problem has been resolved. Did the alternative chosen and implemented accomplish the desired result? If not, the manager may consider returning to a previous step or may even consider starting the whole decision process over. © Prentice Hall, 2002 Decision Making Process Dr.Ahmed-Refat 2015
  54. 54. Dr.Ahmed-Refat 2015 Rational Decision Making
  55. 55. Assumptions of Rationality – –decision maker would: –be objective and logical –carefully define a problem –have a clear and specific goal –select the alternative that maximizes the likelihood of achieving the goal •managerial decision making seldom meets all these assumptionsDr.Ahmed-Refat 2015
  56. 56. Assumptions Of Rationality Rational Decision Making Problem is clear and unambiguous Single, well- defined goal is to be achieved All alternatives and consequences are known Preferences are clear Preferences are constant and stable No time or cost constraints exist Final choice will maximize payoff © Prentice Hall, 2002 Dr.Ahmed-Refat 2015
  57. 57. Bounded Rationality and Satisficing • Certain aspects of the decision-making process are not realistic as managers make decisions. • Instead, managers tend to operate under assumptions of bounded rationality; that is, they behave rationally within the parameters of a simplified decision- making process that is limited by an individual’s ability to process information. © Prentice Hall, 2002 57 Dr.Ahmed-Refat 2015
  58. 58. Bounded rationality and satisficing • Managers satisfice, rather than maximize, because they can’t possibly analyze all the information on all of the alternatives. • That is, they accept solutions that are “good enough.” • They are being rational within the limits of their information-processing ability.© Prentice Hall, 2002 58 Dr.Ahmed-Refat 2015
  59. 59. Bounded rationality and satisficing • Bounded Rationality – behave rationally within the parameters of a simplified decision-making process that is limited by an individual’s ability to process information – Satisfice - accept solutions that are “good enough” – The term satisfice describes a course of action that satisfies the minimum requirements to meet a goal rather than trying to achieve the maximum (biggest) or optimal (best) outcome – Escalation of commitment - increased commitment to a previous decision despite evidence that it may have been wrong • refusal to admit that the initial decision may have been flawed © Prentice Hall, 2002 6-59 59 Dr.Ahmed-Refat 2015
  60. 60. Types of Problems and Decisions –Well-Structured Problems - straightforward, familiar, and easily defined –Programmed Decisions - used to address structured problems –minimize the need for managers to use discretion –facilitate organizational efficiency © Prentice Hall, 2002 6-60 60 Dr.Ahmed-Refat 2015
  61. 61. –Poorly-Structured Problems - new, unusual problems for which information is ambiguous or incomplete –Nonprogrammed Decisions - used to address poorly- structured problems • produce a custom-made response • more frequent among higher-level managers – few decisions in the real world are either fully programmed or nonprogrammed © Prentice Hall, 2002 Types of Problems and Decisions 61 Dr.Ahmed-Refat 2015
  62. 62. Types Of Problems, Types Of Decisions, And Level In The Organization Programmed Decisions Nonprogrammed Decisions Level in Organization Top LowerWell-structured Ill-structured Type of Problem © Prentice Hall, 2002 6-62 62 Dr.Ahmed-Refat 2015
  63. 63. Uncertainty , Probability & Risk Dr.Ahmed-Refat 2015 63 UNCERTAINTY , PROBABILITY & RISK
  64. 64. • Decision-Making Conditions –Certainty - outcome of every alternative is known • idealistic rather than realistic –Risk - able to estimate the probability of outcomes stemming from each alternative © Prentice Hall, 2002 6-64 Uncertainty , Probability & risk 64 Dr.Ahmed-Refat 2015
  65. 65. UNCERTAINTY VS VARIABILITY Uncertainty: A lack of knowledge about certain factors which can reduce the confidence in conclusions drawn from data; it is opposed to variability which is a result of true variation in characteristics of the environment. Dr.Ahmed-Refat 2015 65
  66. 66. ONE PROBLEM WITH DIFFERENT SOLUTIONS For any given problem, the degree of certainty varies among managers depending upon how much knowledge each one has about the same problem. This reflects the recommendation of a different solution by each person. Dr.Ahmed-Refat 2015 66
  67. 67. UNCERTAINTY , PROBABILITY & RISK  In very few decision making situations is perfect information - all the needed facts - available.  Most decisions are made in the face of uncertainty.  Probability enters into the process by playing the role of a substitute for certainty - a substitute for complete knowledge. Dr.Ahmed-Refat 2015 67
  68. 68. Probability levels vs Uncertainty state • Humans can understand, compare, and manipulate numbers. Therefore, in order to create a decision analysis model, it is necessary to create the model structure and assign probabilities and values to fill the model for computation. This includes the values for probabilities, the value functions for evaluating alternatives, and the risk preference. Dr.Ahmed-Refat 201568
  69. 69. The Dynamics of a System:  A system that does not change is a static (i.e., deterministic)  However, in probabilistic models, the decision- maker is concerned not only with the outcome value but also with the amount of risk each decision carries Dr.Ahmed-Refat 2015 69 UNCERTAINTY , PROBABILITY & RISK
  70. 70. UNCERTAINTY  Risk.. outcomes for a given event which can be assigned probabilities..……some historical data . UNCERTAINTY : the outcomes of given event which are too unsure to be assigned probabilities  Uncertainty exists when the decision maker has no historical data from which to develop a probability distribution and must make intelligent guesses in order to develop a subjective probability distribution Dr.Ahmed-Refat 2015 70
  71. 71. CONTINUUM OF PURE UNCERTAINTY AND CERTAINTY  This depends upon the degree of knowledge we have about the outcome of our actions Dr.Ahmed-Refat 2015 71
  72. 72. UNCERTAINTY & PROBABILITY Probability is an instrument used to measure the likelihood of occurrence for an event. By using probability to express uncertainty, the deterministic side has a probability of 1 (or zero), while the other end has a flat (all equally probable) probability. Dr.Ahmed-Refat 2015 72
  73. 73. Dr.Ahmed-Refat 2015 73
  74. 74. . USEFUL INFORMATION MOVES THE LOCATION OF A PROBLEM FROM THE PURE UNCERTAIN "POLE" TOWARDS THE DETERMINISTIC "POLE Dr.Ahmed-Refat 2015 74
  75. 75. DM UNDER UNCERTAINTY  Depending on the amount of knowledge we have, the three most widely used types of DM are: 1. Decision-making under pure uncertainty 2. Decision-making under risk 3. Decision-making by buying information (pushing the problem towards the deterministic "pole") Dr.Ahmed-Refat 2015 75
  76. 76. Decision-Making Styles Decision Making Styles © Prentice Hall, 2002 6-76 76 Dr.Ahmed-Refat 2015
  77. 77. Decision-Making Styles 1. Directive - fast, efficient, and logical 2. Analytic - careful and able to adapt or cope with new situations 3. Conceptual - able to find creative solutions 4. Behavioral - seek acceptance of decisions © Prentice Hall, 2002 6-77 Decision-Making Styles 77 Dr.Ahmed-Refat 2015
  78. 78. Decision-Making Styles • Directive style • Low tolerance for ambiguity • Rational in their way of thinking. • Efficient and logical. • Make fast decisions and focus on the short run. • Making decisions with minimal information and assessing few alternatives. Dr.Ahmed-Refat 201578
  79. 79. Decision-Making Styles • Analytic style • have much greater tolerance for ambiguity than do directive types. • They want more information before making a decision and • consider more alternatives than a directive decision maker does. • Analytic decision makers are characterized as careful decision makers with the ability to adapt or cope with unique situations. Dr.Ahmed-Refat 201579
  80. 80. Decision-Making Styles • Individuals with a conceptual style tend to be very broad in their outlook and • look at many alternatives. • They focus on the long run and • are very good at finding creative solutions to problems. Dr.Ahmed-Refat 201580
  81. 81. Decision-Making Styles • Decision makers with a behavioral style work well with others. • They are concerned about the achievements of those around them and are receptive to suggestions from others. • They often use meetings to communicate, although they try to avoid conflict. • Acceptance by others is important to this decision-making style. • Dr.Ahmed-Refat 201581
  82. 82. Decision-Making Styles Analytic Directive Behavioral Rational Intuitive Way of Thinking Conceptual High Low ToleranceforAmbiguity © Prentice Hall, 2002 6-82 82 Dr.Ahmed-Refat 2015
  83. 83. Overview Of Managerial Decision Making Decision-Making Process Types of Problems and Decisions • Well-structured - programmed • Poorly structured - nonprogrammed Decision-Making Conditions • Certainty • Risk • Uncertainty Decision Maker Style • Directive • Analytic • Conceptual • Behavioral Making Approach-Decision •Rationality •Bounded Rationality •Intuition Decision • Choose best alternative - maximizing - satisficing • Implementing • Evaluating © Prentice Hall, 2002 6-83 83 Dr.Ahmed-Refat 2015
  84. 84. The Decision Environment Every decision is made within a decision environment, which is defined as the collection of information, alternatives, values, and preferences available at the time of the decision. An ideal decision environment would include all possible information, all of it accurate, and every possible alternative. 84 Dr.Ahmed-Refat 2015
  85. 85. Decision-Making Factors Dr.Ahmed-Refat 201585
  86. 86. Multidimensional characteristics of Decision Making •? •? •? •? 86 Dr.Ahmed-Refat 2015
  87. 87. Decision-Making Factors a) Scientific factors b) Economic factors c) Laws and legal decisions d) Social factors e) Technological factors f) Political factors g) Public values Dr.Ahmed-Refat 201587
  88. 88. Decision-Making Factors a) Scientific factors provide the basis for the risk assessment, including information drawn from ………………, epidemiology, ecology, mathematics, etc. Dr.Ahmed-Refat 201588
  89. 89. Decision-Making Factors b) Economic factors inform the manager on the cost of risks and the benefits of reducing them Dr.Ahmed-Refat 201589
  90. 90. Decision-Making Factors c) Laws and legal decisions are factors that define the basis for the Agency’s risk assessments, management decisions Dr.Ahmed-Refat 201590
  91. 91. Decision-Making Factors d) Social factors, such as income level, ethnic background, community values, land use, zoning, availability of health care, life style, and psychological condition of the affected populations Dr.Ahmed-Refat 201591
  92. 92. Decision-Making Factors e) Technological factors include the feasibility, impacts, and range of options Dr.Ahmed-Refat 201592
  93. 93. Decision-Making Factors f) Political factors are based on the interactions among branches of the government, with other, state, and local government entities, and even with foreign governments Dr.Ahmed-Refat 201593
  94. 94. Decision-Making Factors g) Public values reflect the broad attitudes of society about the problem Dr.Ahmed-Refat 201594
  95. 95. Approaches to risk control 95 Dr.Ahmed-Refat 2015
  96. 96. ReferencesCited • http://www.who.int/heli • WHO (200) .Decision-Making in Environmental Health From evidence to action Edited by C. CorvalPn, D. Briggs, and G. Zielhuis Published y E & FN Spon London . • Robert Staib (2005 ). Environmental Management and Decision Making for Business . First published byPALGRAVE MACMILLAN • THE GLOBAL DEVELOPMENT RESEARCH CENTER GDRC .Environmental Decision-Making • http://www.gdrc.org/decision/edm-documents.html • http://www.open.edu/openlearn/nature- environment/introducing-environmental-decision- making/content-section-0 Dr.Ahmed-Refat 201496

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Identifying and choosing alternatives based on the values and preferences of the decision maker

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