The document discusses decision theory and decision making. It defines decision making as identifying and evaluating choices to select the best alternative. It describes different types of decisions, conditions for decision making, processes, tools like decision trees, and styles. It also discusses group decision making, techniques to improve it like brainstorming, and theories like classical and behavioral decision theory.
1. Decision Theory
Presented by:
Bina Gupta
Presented to:
Shiva Shrestha
1 BIM Department,HSM 11/10/2014
2. Contents
Definition
Types of decisions
Decision making conditions
Decision Making Process
Decision Tree
Decision Styles
Decision Theories
Group Decision Making
Improving Decision Making
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3. Decision Making
Decision making is a process of identifying and
evaluating choices.
Decision making is the process of choosing the
best alternative from the number of available
alternative.
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4. Decision Making
Decision making is very important in human life:
In personal life,
Which profession to choose
What to have for dinner
Whether to do home work or watch movie
Whom to marry.
In Business environment,
How much to charge for a product.
Where and how much to invest .
Which candidate to hire for a job.
Which advertising media to adopt
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5. Types of Decision Making
Types by frequency
Programmed decisions
decision making that relate to the day to day
running of an organization
predetermined rules and procedures
structured type and recurs with some frequency
Decision making is done by low level management
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6. Types of Decision Making
Non-programmed decisions
decisions making with unusual and exceptional
problems.
Poorly structured
Decision making is done by top level management
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7. Types of Decision Making
Types by nature
Operating decisions
Similar to programmed decision
Day to day decision
Aim at maximizing the efficiency and probability of
the organization’s current operations.
Decision making is done by low level management
team
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8. Types of Decision Making
Strategic decisions
Focuses on the issues external to the organization.
Concerned with goals and objectives of the
organization, selection of product- market mix etc.
Decision making is done by top level management
Administrative decisions
Link between operational and strategic decision
deal with the issues such as rules, procedures,
reward system etc.
Decision making is done by middle level
management
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9. Decision Making
Conditions/Environment
Conditions of certainty
Problems and alternatives are well known
Outcomes are predetermined
Conditions of uncertainty
Problems are known but alternatives are unknown
Not enough knowledge about solutions
Conditions of risk
Risk is involved in each actions of decision making
Outcomes are associated with risk
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11. Decision tree
A decision tree is a graphic representation of the
strategy-outcome combinations available to the
decision maker.
A decision tree consists of nodes, branches,
probability estimates, and payoffs.
There are two types of nodes: decision nodes
and chance nodes.
A decision node is usually represented by a
square and indicates places where a decision-maker
must make a decision.
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12. Decision tree
The chance node is represented by a circle and
indicates a point, at which the decision-maker will
discover the response to his decision, i.e.
different possible outcomes occurred from a
chosen course of action.
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14. Decision Styles
There are four decision making styles:
Directive
Analytical
Conceptual
Behavioral
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15. Decision Styles
Directive:
The group leader solves the problem, using the
information he possesses.
He/she does not consult with anyone else nor seek
information in any form.
This style assumes that the leader has sufficient
information to examine all the relevant options and
make an effective decision, but that is rarely the
case.
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16. Decision Styles
Analytical:
When the leader does not possess sufficient
information to make an effective decision, they will
need to obtain information or skill from others.
They may not tell them what the problem is;
normally, they simply asks for information.
The leader then evaluates the information and
makes the decision.
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17. Decision Styles
Conceptual:
The leader explains the situation to the group or
individuals whom he provides with relevant
information, and together they generate and
evaluate many possible solutions.
This style tends to be have a long-term perspective
and, as a result, will be more creative and
expansive in their approach entailing a higher level
of risk for the long-term benefit of the organization.
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18. Decision Styles
Behavioral:
The leader explains the situation to the group or
individuals and provides the relevant information.
Together they attempt to reconcile differences
and negotiate a solution that is acceptable to all
parties.
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19. Decision Theories
Classical Decision theory:
Classical view assumes that decision making is
based on rational process and always follows the
sequence of steps for decision making.
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20. Decision Theories
Behavioral Theory of Decision Making:
Developed By Herbert Simon
Based on administrative model i.e. how decisions
are made
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21. Decision Theories
The two main component of this theory are:
i. Bounded Rationality:
Decision maker is limited in their Rationality
because of different factors such as:
Attitude
Ability
Education
Benefits
Skills
Habits
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22. Decision Theories
ii. Satisfying:
Decision Maker tries to satisfy organization
objectives with his best efforts
Satisfactory solution is obtained
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23. Group Decision Making
Process of choosing best alternative from the
available alternatives
Alternative is chosen through group discussion
Each member actively involved in decision
making
Better and effective decision can be made
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25. Group Decision Making
Advantages
Synergy:
Ideas obtained from many minds
Sharing of information
Qualitative decision
Overcome difficult problems
Build leadership skill
Disadvantages:
Time consuming
Misunderstanding because of poor communications
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26. Improving the Decision Making
Some of the techniques employed to make the
group decision making process more effective
and decision making more efficient are:
Brainstorming
Nominal Group Technique (NGT)
Delphi Technique
Electronic Meeting
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27. Improving the Decision Making
Brainstorming:
Ideas are generated for specific problem through
group creativity
Group of people consist from five to ten
It emphasizes on the generation of large number of
ideas
This technique is used in advertising and some
other fields
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28. Improving the Decision Making
Nominal Group Technique (NGT):
The nominal group technique restricts discussion or
interpersonal communications during the decision
making process
The group meets face-to-face
Each member presents one idea to the group
Discussion and ranking is done
High ranked idea is used for decision making
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29. Improving the Decision Making
Delphi Techniques:
A Delphi technique is the modification of NGT
Each individual member independently writes down
comments, suggestions and solution
All the comments are sent to a central location,
where they are compiled
Finally decisions are made in written form through
consensus
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30. Improving the Decision Making
Electronic Meeting
Electronic Meeting is one of the techniques that
combine the NGT with sophisticated computer
technology.
Each member communicate by writing comments
by using computer terminals
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