Business Decision Making Concepts

Data vs. Information

• Data is raw, unanalyzed facts.
• Information is processed and analyzed data.

Attributes of Useful Information

• Quality: Accuracy and reliability are crucial.
• Timeliness: Often needs real-time availability.
• Completeness: Provides all necessary information for decisions.
• Relevance: Useful and applicable to specific needs.

Incomplete Information

• Managers face incomplete information due to:
  • Risk: Knowing possible outcomes and their probabilities.
  • Uncertainty: Inability to determine probabilities of outcomes.
  • Ambiguity: Multiple, conflicting interpretations of information.
  • Time constraints and information costs: Limited time and resources to explore all options.

Decision Making

• Decision-making involves steps:
  • Identifying the problem.
  • Defining decision criteria.
  • Assigning weights to criteria (if necessary).
  • Developing alternatives.
  • Analyzing alternatives using criteria.
  • Selecting an alternative.
  • Implementing the decision.
  • Evaluating decision effectiveness.
• Types of Decisions:
  • Structured problems: Straightforward, familiar, and well-defined. Imply programmed decisions.
  • Unstructured problems: New or unusual, needing nonprogrammed decisions.
• Programmed decisions: Repeated, using guidelines and pre-defined procedures.
  • Procedure: Sequential steps for structured problems.
  • Rule: Explicit statement for allowed actions.
  • Policy: Guidelines for decision making.
• Nonprogrammed decisions: Unique and non-recurring, custom-made solutions.

Conditions Affecting Decision Failure

• Certainty: Full information availability.
• Risk: Clear goals, estimable probabilities of success/failure.
• Uncertainty: Known goals, incomplete information about alternatives.
• Ambiguity: Unclear goals, difficult-to-define alternatives, and unavailable information.

Decision-Making Biases and Errors

• Overconfidence bias: Overestimating knowledge or ability.
• Immediate gratification bias: Prioritizing immediate rewards.
• Anchoring effect: Overreliance on initial information.
• Confirmation bias: Seeking information confirming existing beliefs.
• Hindsight bias: False belief of accurately predicting outcomes.
• Sunk costs error: Focusing on past expenditures, not future results.
• Self-serving bias: Taking credit for successes, blaming failures on others.

Decision-Making Approaches

• Rational decision-making: Logical and consistent choices to maximize value.
  • Assumptions of rationality: Complete objectivity, clear problem definition, clear goals, knowledge of all alternatives and consequences.
• Bounded rationality: Rational but limited by information processing capabilities.
  • Focuses on satisficing (acceptable solution) rather than maximizing (optimal solution).
• Intuitive decision-making: Decisions based on experience and feelings. Emphasizes experience and judgment.

Innovative Decision-Making Techniques

• Brainstorming: Generating many ideas through a group.
• Evidence-based decision-making: Using best available evidence for intelligent decisions.
• Rigorous debate: Encouraging constructive disagreement to enhance decision quality.
• Avoid groupthink: Preventing suppression of dissenting opinions.

Information Systems and Management

• Information technology (IT): Methods for acquiring, organizing, manipulating, and transmitting information.
• Impact of IT on business:
  • Portable offices, better service coordination, leaner organizations, increased collaboration. Global exchange, improved management processes, flexible customization, new business opportunities.
• Information system: Uses IT to process and transmit information for decisions.
• Customer Relationship Management (CRM) systems: Manage customer interactions and compiles customer data.
• Enterprise Resource Planning (ERP) systems: Integrate organizational processes for increased productivity.