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Thursday, April 27, 2017

MODELS OF DECISION MAKING

In previous article (Decision making process) you have learnt what the different phases of a decision making process are, what types of decisions you are likely to make in an organisation and under what states of nature these decisions are made. Now, we are going to examine three suggested models of the decision making process which will help you to understand how decisions are made and should be made. These three models are:
(1) The econologic model, or the economic man,
(2) The bounded rationality model or the administrative man; and
(3) The implicit favorite model or the game man.

You will notice that each model differs on the assumptions it makes about the person or persons making the decision.

1) Econologic Model or Economic Man Model
The econologic model represents the earliest attempt to model decision process. Briefly, this model rests on two assumptions: (1) It assumes people are economically rational; and (2) that people attempt to maximise outcomes in an orderly and sequential process. Economic rationality, a, basic concept in many models of decision making, exists when people attempt to maximise objectively measured advantage, such as money or units of goods produced. That is, it is assumed that people will select the decision or course of action that has the greatest advantage or payoff from among the many alternatives. It is also assumed that they go about this search in a planned, orderly, and logical fashion.


A basic econologic decision model is shown in Figure V. The figure suggests the following orderly steps in the decision process:
1 Discover the symptoms of the problem or difficulty ;
2 Determine the goal to be achieved or define the problem to be solved;
3 Develop a criterion against which alternative solutions can be evaluated;
4 Identify all alternative courses of action;
5 Consider the consequences of each alternatives as well as the likelihood of occurrence of each;
6 Choose the best alternative by, comparing the consequences of each alternative (step 5) with the decision criterion (step 3); and
7 Act or implement the decision(best alternative).

The economic man model represents a useful prescription of how decisions should be made, but it does not adequately portray how decisions are actually made. If you look closely in this prescriptive model you shall be able to recognise some of the assumptions it makes about the capabilities of human beings:
First, people have the capability to gather all necessary information for a decision, i.e., people can have complete information;
Second, people can mentally store this information in some stable form, i.e., they can accurately recall any information any time they like;
Third, people can manipulate all this information in a series of complex calculations design to provide expected values; and
Fourth, people can rank the consequences in a consistent fashion for the purposes of identifying the preferred alternative.

As you can possibly imagine, the human mind is simply incapable of executing such transactions at the level and magnitude required for complex decisions. To that extent, this model is unrealistic. However, due to the advent of sophisticated data storage, retrieval and processing machines, it is now possible to achieve economic rationality to some extent.

2) Bounded Rationality Model or Administrative Man Model
An alternative model, one not bound by the above assumptions, has been presented by Simon. This is the bounded rationality model, also known as the administrative man model.

As the name implies, this model does not assume individual rationality in the decision process. Instead, it assumes that people, while they may seek the best solution, usually settle for much less because the decisions they confront typically demand greater information processing capabilities than they possess. They seek a kind of bounded (for limited) rationality in decisions.

The concept of bounded rationality attempts to describe decision processes in terms of three mechanisms:
Sequential attention to alternative solutions: People examine possible solutions to a problem sequentially. Instead of identifying all possible solutions and selecting the best (as suggested in the econologic model), the various alternatives are identified and evaluated one at a time. If the first solution fails to work it is discarded and the next solution is considered. When an acceptable (that is, `Good enough and not necessarily the best) solution is found, the search is discontinued.

Use of heuristics: A heuristic is a rule which guides the search for alternatives into areas that have a high probability for yielding satisfactory solutions. For instance, some companies continually select Management graduates from certain institutions because in the past such graduates have performed well for the company. According to the bounded rationality model, decision makers use heuristics to reduce large problems to manageable proportions so that decisions can be made rapidly. They look for obvious solutions or previous solutions that worked in similar situations.

Satisfying: Whereas the econologic model focuses on the decision maker as an optimizer, this model sees him or her as a satisfier. An alternative is optimal if: (1) there exists a set of criteria that permits all alternatives to be compared; and (2) the alternative in question is preferred, by these criteria, to all other alternatives. An alternative is satisfactory if: (I) there exists a set of criteria that describes minimally satisfactory alternatives; and (2) the alternative in question meets or exceeds all these criteria.



Based on these three assumptions about decision makers, it is possible to outline the decision process as seen from the standpoint of the bounded rationality model. As shown Figure VI, the model consists of eight steps:
1 Set the goal to be pursued or define the problem to be solved.
2 Establish an appropriate level of aspiration or criterion level (that is, when do you know that a solution is sufficiently positive to be acceptable even if it is not perfect'?)
3 Employ heuristics to narrow problem space to a single promising alternative.
4 If no feasible alternative is identified (a) lower the aspiration level, and (b) begin the search for a new alternative solution (repeat steps 2 and 3).
5 After identifying a feasible alternative (a), evaluate it to determine its acceptability (b).
6 If the identified alternative is unacceptable, initiate search for a new alternative solution (repeat steps 3-5).
7 If the identified alternative is acceptable (a) implement the solution (b).
8 Following implementation, evaluate the ease with which goal was (or was not) attained (a), and raise or lower level of aspiration accordingly on future decisions of this type.

As can be seen, this decision process is quite different from the econologic model. In it we do not seek the best solution; instead, we look for a solution that is acceptable. The search behaviour is sequential in nature(evaluating one or two solutions at a time). Finally, in contrast to the prescriptive econologic model, it is claimed that the bounded rationality model is descriptive; that is it describes how decision makers actually arrive at the identification of solutions to organisational problems.

3) Implicit Favourite Model or Gamesman Model
This model deals primarily with non-programmed decisions. You will recall that non-programmed decisions are decisions that are novel or unstructured, like seeking one's first job. Programmed decisions, in contrast, are more routine or repetitious in nature, like the procedures for admitting students to a secondary school.

The implicit favourite model developed by Soelberg (1967) emerged when he observed the job choice process of graduating business students and noted that, in many cases, the students identified implicit favourites very early in the recruiting and choice process. However, they continued their search for additional alternatives and quickly selected the best alternative candidate, known as the confirmation candidate. Next, the students attempted to develop decision rules the demonstrated unequivocally that the implicit favourite was superior to the alternative confirmation candidate. This was done through perceptual distortion of information about the two alternatives and through weighing systems designed to highlight the positive features of the implicit favourite. Finally, after a decision rule was derived that clearly favoured the implicit favourite, the decision was announced. Ironically, Soelberg noted that the implicit favourite was typically superior to the confirmation candidate on only or two dimensions. Even so, the decision makers generally characterized their decision rules as being multi-dimensional in nature.


The process is shown in Figure VII. As noted, the entire process is designed to justify to the individual, through the guise of scientific rigour, a non-programmed decision that has already been made in intuitive fashion. By doing so, the individual becomes convinced that he or she is acting in a rational fashion and making a logical, reasoned decision on an important topic.

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DECISION MAKING PROCESS


Making decisions has been identified as one of the primary responsibilities of any manager. Decisions may involve allocating resources, appointing people, investing capital or introducing new products. If resources like men, money, machines, materials, time and space were abundant, clearly any planning would be unnecessary. But, typically, resources are scarce and so there is a need for planning. Decision making is at the core of all planned activities. We can ill afford to waste scarce resources by making too many wrong decisions or by remaining indecisive for too long a time.

THREE PHASES IN DECISION MAKING PROCESS
You can define decision making as the process of choosing between alternatives to achieve a goal. But if you closely look into this process of selecting among available alternatives, you will be able to identify three relatively distinct stages. Put into a time framework, you will find:
1. The past, in which problems developed, information accumulated, and the need for a decision was perceived;
2. The present, in which alternatives are found and the choice is made; and
3. The future, in which decisions will be carried out and evaluated.

Herbert Simon, the well-known Nobel laureate decision theorist, described the activities associated with three major stages in the following way:
1. Intelligence Activity: Borrowing from the military meaning of intelligence Simon describes this initial phase as an attempt to recognise and understand the nature of the problem, as well as search for the possible causes;
2. Design Activity: During the second phase, alternative courses of action are developed and analyzed in the light of known constraints; and
3. Choice Activity: The actual choice among available and assessed alternatives is made at this stage.
If you have followed the nature of activities of these three phases, you should be able to see why the quality of any decision is largely influenced by the thoroughness of the intelligence and design phases. Henry Mintzberg and some of his colleagues (1976) have traced the phases of some decisions actually taken in organisations. They have also come up with a three-phase model as shown in Figure I.

Figure I: Mintzberg's empirically based phases of decision making in organizations


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Thursday, February 23, 2017

MANAGEMENT OF ORGANISATION

Why is an organization created? What is its purpose? How best can it achieve that purpose? What methods and means will it employ to achieve the purpose? Various terms and concepts of mission, objectives, strategy, policy, programmes and procedures which will help you understand the management of organizations.

1.  MISSION
The mission is the very reason and justification for the existence of a firm. Mission is always defined in terms of the benefits the firm provides to its customers and not in terms of any physical dimensions of the firm or its products.

A firm exists and functions only in relation to the customer whose need(s) it satisfies.. If there were no customers there would be no firm. Thus the starting point for, defining the mission of any business is its customer. Since the customer exists outside the business, the mission must be defined from the outside. The firm must ask the questions "What is our business?" and "What should it be?" but seek the answer from the customer's viewpoint.

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