Decision making process
Decision making can be hard. Almost any decision involves some conflicts or dissatisfaction. The difficult part is to pick one solution where the positive outcome can outweigh possible losses. Avoiding decisions often seems easier. Yet, making your own decisions and accepting the consequence is the only way to stay in control of your time, your success, and your life.
- Decision under Certainty - We say that the decision is taken under certainty if each action is known to lead invariably to a specific outcome (prospect, alternative, etc.). When the decision maker knows with reasonable certainty about what the available alternatives are, and what conditions are associated with each alternative; then a state of certainty is said to exist. For example, Air India needs to buy ten jumbo jets. The decision is from whom to buy. Air India has two choices: McDonnell Douglas, and Airbus. Each of these companies is known for their quality products. Air India can choose from any of these alternatives. Here, for making the choice, there is less ambiguity and there is a relatively lower chance of making a bad decision.
- Decision under Risk - We say that the decision is taken under risk if each action leads to one of a set of possible specific outcomes, each outcome occurring with a known probability. In some situations, a manager is able to estimate the level of probability at which certain variables could occur. The ability to estimate may be due to experience, incomplete but reliable information or, in some cases, an accurate report. When estimates are made, a degree of risk is involved. However, some amount of information about the situation is available. The situation requires estimating the probability that one or more known variables might influence the decision being made.
- Decision under Uncertainty - We say that the decision is taken under uncertainty if either action has as its consequence a set of possible specific outcomes, but the probabilities of these outcomes are completely unknown or are not even meaningful. A condition of uncertainty exists when a manager is faced with reaching a decision with no historical data concerning the variables and/or unknowns and their probability of occurrence. For instance, the decision to introduce Kellogg corn flakes in India was made under uncertainty.
- Modern Approach to Decision Making Under Uncertainty - Modern approach to decision making under uncertainty helps in improving the quality of decision making. For making such decisions, there are three approaches: risk analysis, decision trees and preference theory.
- Risk analysis: Risk analysis involves knowledge of the size and the nature of the risk involved, in choosing a particular course of action. Before the launch of its Versa model, Maruti, conducted risk analysis in the areas of capital investment, cost of production and pricing.
- Decision trees: A graphical representation of alternative courses of action with the possible outcomes comprises a decision tree. It depicts the various decision points, chances, events and probabilities involved in various decision- courses that might be undertaken.
- Preference or utility theory: This theory is based on the notion that individuals' attitudes towards risk will vary. Some individuals are willing to take risk (gamble), whereas others are not willing to take risk or take only low risk (risk averters). Managers play both these roles, when they are uncertain about the outcome.
Simon’s Model of Decision making
Herbert A. Simon developed a model of decision making. The model consisted of three steps, intelligence, design, and choice. In the intelligence phase, the problem is identified, and information is collected concerning the problem. This can be a long process, as the decision to be made comes from the information. The design phase develops several possible solutions for the problem. Finally, the choice phase chooses the solution.
- The Intelligence Phase - The intelligence phase consists of finding, identifying, and formulating the problem or situation that calls for a decision. This has been called deciding what to decide. The intelligence stage may involve, for example, comparing the current status of a project or process with its plan. The end result of the intelligence phase is a decision statement. The name of this phase, “intelligence,” can be confusing. Intelligence as we usually use the term informally, is talking about decision making, it is what we use after we know a decision must be made. Simon borrowed the term from its military meaning, which involves the gathering of information without necessarily knowing what it will lead to in terms of decisions to be made. In business decision making, we must often collect a great deal of information before we realize that a decision is called for.
- The Design Phase - The design phase is where we develop alternatives. This phase may involve a great deal of research into the available options. During the design phase we should also state our objectives for the decision we are to make.
- The Choice Phase - In the choice phase, we evaluate the alternatives that we developed in the design phase and choose one of them. The end product of this phase is a decision that we can carry out. Extensions to Simon's Model
- Implementation - The decision that is ultimately carried out.
- Review - In this phase, decision implemented is evaluated. Was the course of action taken a good choice?
How does Simon’s Model correspond to the Scientific Method and to the Systems Development Life Cycle (SDLC)?
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Simon’s
Model |
Scientific
Method |
SDLC |
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Intelligence |
Define problem |
System investigation |
|
Design |
Develop alternatives |
System analysis |
|
Choice |
Select solution / design solution |
System design |
|
Implementation |
Implement solution |
Implementation |
|
Review |
|
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