Decision Making Approaches and Models

Decision Making Approaches

• Rationality involves making choices that are logical, consistent, and maximize value.
  • Assumes decision makers are objective, problems are clear, and all possible alternatives and consequences are known.
• Bounded Rationality recognizes that decision making is rational, but limited by an individual's ability to process information.
  • Decision makers "satisfice" (accept good enough solutions).
• Intuition relies on experience, feelings, and accumulated judgment.
• Evidence-Based Management (EBMgt) uses the best available evidence to improve management practices.

Decision-Making Process Model

• Decision Making involves choosing from alternatives.
• Step 1: Identify a Problem: Recognize the discrepancy between the current state and the desired state.
  • Example: Sales reps need new laptops because their old ones are outdated.
• Step 2: Identify Decision Criteria: Determine relevant factors for solving the problem.
  • Example: Memory, display quality, battery life, warranty, carrying weight.
• Step 3: Allocate Weights to the Criteria: Prioritize criteria based on their importance.
  • Example: Weight memory and battery life higher for sales reps.
• Step 4: Develop Alternatives: List viable options that could solve the problem.
  • Example: Identify 8 different laptop models.
• Step 5: Analyze Alternatives: Evaluate each alternative's strengths and weaknesses based on criteria and weights.
• Step 6: Select an Alternative: Choose the alternative with the highest total weight.
• Step 7: Implement the Alternative: Put the chosen alternative into action and gain commitment from those involved.
• Step 8: Evaluate Decision Effectiveness: Judge the outcome based on how effectively the problem was resolved.

Biases Affecting Decision Making

• Intuition can be helpful, but can also lead to decisions based on emotions and biases.
  • Confirmation Bias: Seeking information that confirms preconceived beliefs.
  • Availability Heuristic: Overestimating the likelihood of events easily recalled or emotionally vivid.
  • Anchoring: Being overly influenced by the first piece of information.

Decision Making Approaches

• Rationality - a logical and consistent decision-making process that maximizes value.
  • Assumes decision makers are fully objective and logical.
  • Problem is clear and unambiguous.
  • Decision maker has a clear goal and knows all alternatives and consequences.
• Rational Decision-Making Process Model - a step-by-step approach to making decisions
  • Step 1: Identify a Problem - the discrepancy between a desired and existing state.
  • Step 2: Identify Decision Criteria - factors relevant to resolving the problem.
  • Step 3: Allocate Weights to the Criteria - prioritize criteria based on importance.
  • Step 4: Develop Alternatives - list possible solutions to the problem.
  • Step 5: Analyze Alternatives - evaluate the strengths and weaknesses of each alternative.
  • Step 6: Select an Alternative - choose the alternative with the highest total weighted value.
  • Step 7: Implement the Alternative - put the chosen solution into action.
  • Step 8: Evaluate Decision Effectiveness - judge the outcome and effectiveness of the chosen alternative.
• Bounded Rationality - a limited form of rationality that accounts for an individual's processing limitations.
  • Satisfice - accepting a solution that meets a minimum acceptable standard, even if it isn't the absolute best.
• Intuition - making decisions based on experience, feelings, and accumulated judgment
• Evidence-Based Management - using the best available evidence to improve management practices.

Types of Problems and Decisions

• Structured Problems - problems with clear and well-defined goals and solutions.
• Programmed Decisions - routine, repetitive decisions that can be handled by established procedures.
• Unstructured Problems - problems with ambiguous goals and solutions.
• Non-Programmed Decisions - unique and non-recurring problems that require a custom solution.

Biases in Decision Making

• Overconfidence Bias - overestimating one's own abilities and knowledge.
• Anchoring Bias - being overly influenced by the first piece of information received.
• Confirmation Bias - seeking out information that confirms existing beliefs and ignoring contradictory information.
• Availability Bias - overestimating the likelihood of events that are easily recalled.
• Escalation of Commitment - continuing to invest resources in a failing course of action.
• Hindsight Bias - believing that an event was more predictable after it has happened.
• Framing Bias - being influenced by the way a problem is presented.
• Randomness Error - attributing meaning to random events.
• Sunk Cost Error - continuing to invest resources in a project because of past investments.

Improving Decision Making

• Critical Thinking - analyzing information and ideas objectively.
• Creativity - coming up with new and innovative solutions.
• Decision Support Systems - computer-based systems that help decision makers analyze data and make better decisions.
• Group Decision Making - involving multiple people in the decision-making process.
• Collaboration Tools - technology that facilitates communication and shared decision-making.

Explore various decision-making approaches including rationality, bounded rationality, intuition, and evidence-based management. Understand the decision-making process model and its steps to identify problems and criteria effectively. This quiz will test your knowledge on these critical concepts in management.