Identify and Define the ProblemIdentifying, defining, and understanding a problem is essential to analyzing and choosing between alternatives. Show
Learning Objectives Express the importance of properly framing and defining the problem prior to pursuing a decision Key TakeawaysKey Points
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Decision making is a central responsibility of managers and leaders. It requires defining the issue or the problem and identifying the factors related to it. Doing so helps create a clear understanding of what needs to be decided and can influence the choice between alternatives. Developing a Group to Define the ProblemIt is a good idea to be able to approach decision definition from different perspectives. Doing so can capture dimensions of the issue that might otherwise have been overlooked. Involving two or more people can bring different information, knowledge, and experience to a decision. This can be accomplished through forming a group to consider and define the problem or issue, and then to frame the decision based on their collective ideas. Having a shared definition and understanding of a decision helps the decision-making process by creating focus for discussions and making them more efficient. Gathering Data to Define the Decision Most decisions require a good understanding of the current state in order to understand all implications of the potential choices. For this reason it can be valuable to consider the views of all parties that will be affected by the decision. These may include customers, employees, or suppliers. Data should be gathered
on how the current problem is affecting people now. Some examples of important data to gather include efficiency levels, satisfaction levels, and output metrics. Interviews, focus groups, or other qualitative methods of data collection can be used to identify existing conditions that may be connected to the decision in question. As much information as possible should be gathered to build confidence that a decision has been accurately and appropriately formulated before additional analysis and
assessment of alternatives begin. Generate AlternativesIdentifying a range of potential choices is essential to any decision-making process. Learning Objectives Discuss methods for identifying alternatives and why doing so is an important part of decision making. Key TakeawaysKey Points
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Once a decision has been defined, the next step is to identify the alternatives for decision makers to select from. It is rare for there to be only one alternative; in fact, a goal should be to identify as many different alternatives as possible without making too narrow a distinction between them. The decision maker can then narrow the list based on analysis, resource limitations, or time constraints. Often, doing nothing is an alternative worthy of consideration. Brainstorming
Brainstorming is a good technique for identifying alternatives. Making lists of possible combinations of actions can generate ideas that can be shaped into alternatives. Often this is best done with a small group of people with different perspectives, knowledge, and experience. A formal approach to capturing the results of brainstorming can help make sure options are not overlooked. Decision Trees A decision
tree is a decision support tool that uses a structured graphical depiction of alternatives. This method creates a visual depiction of choices so decision makers can have a clearer understanding of them. Decision trees help divide larger decisions into smaller ones and are useful for uncovering all available options. Applied decision tree: Decision trees can improve investment decisions by optimizing them for maximum payoff. Decision trees have three types of nodes at each part of the diagram:
When generating alternatives, decision makers use
information gathered by defining the problem. The list of alternatives can then only be as good, complete, and accurate as the quality of that data. Overlooking factors or dimensions of an issue or problem can mean missing viable alternatives. The alternatives identified become the basis for subsequent analysis and ultimately the decision itself. Evaluate AlternativesIn order to eliminate bias in a decision, one can use tools such as influence diagrams and decision trees to evaluate alternatives. Learning Objectives Model potential decision alternatives through utilizing pro/con analysis, influence diagrams, decision trees and Bayesian networks Key TakeawaysKey Points
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When a decision maker has successfully and accurately defined the problem and generated alternatives, he or she can then conduct
analysis useful to evaluating and assessing each. This typically involves analysis of quantitative data such as costs or revenues. Qualitative data is also used to be sure that considerations such as consistency with strategy, effects on relationships, or ethical implications are taken into account. Influence diagram example: This is a simple example of an influence diagram used to evaluate the alternatives of a decision. There are a few approaches that can be used to help structure the analysis and assessment of potential decision alternatives. These range from simple tools such as lists of pros and cons to more complex models such as decision trees and influence diagrams, which can capture more variables and include more data. Determine a CourseA good decision maker will always try to eliminate personal biases and understand his personal risk tolerance when determining a course. Learning Objectives Evaluate the importance of bias and prospect theory in effectively ensuring decision makers arrive at the ideal option Key TakeawaysKey Points
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Once decision alternatives have been identified and analyzed, the decision maker is ready to make a choice. To do so it is important to have a set of criteria against which to evaluate and even rank the alternatives. Selection criteria might include total cost, time to implement, risk, and the
organization 's ability to successfully implement the decision. Categorizing criteria in terms of importance helps to differentiate between options that might have similar disadvantages but different advantages, or vice versa. For example, consider two alternatives that are equally risky, but one will cost more and the other will take longer to implement. In this case, the decision would depend on whether cost or time is more important. On occasion, decision makers may believe they do not have
sufficient information about a particular alternative, so additional analysis may be needed. Bias and Prospect TheoryOne of the best-known theories about bias in decision making is Kahneman and Tversky's prospect theory. Prospect theory is based on the notion that people think about decisions in terms of potential gains and losses and tend to be more averse to losses than they are favorable to gains. This means that decision makers may overstate the downside of an alternative, since they have a greater fear of negative consequences. As a result, people are biased toward less risky decisions, even when the benefits of a different alternative would outweigh the risks of the chosen one. Prospect theory also suggests that people consider how others would benefit or be hurt by the outcome of their decision. This contradicts traditional economic theory, which states that individuals make decisions based only on their own well-being. Prospect theory and risk aversion: This graph represents Kahneman and Tversky's theory. The distance between the x-axis and the curve is smaller in the positive direction (i.e., for positive outcomes, or gains) than it is in the negative direction (i.e., for negative outcomes, or losses). This means that people's positive value of gains is less than people's negative value of losses. In other words, people are more sensitive to possible risk than to possible gain. Implement the CourseImplementing a decision requires the decision maker to make and execute a plan of action. Learning Objectives Describe the three central steps to effectively implementing a decision upon the selection of a particular perspective or course Key TakeawaysKey Points
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After all of the alternatives have been analyzed and one has been selected, it is time to implement the decision. Three essential actions to implementing a decision are: developing a plan, communicating with stakeholders, and executing the plan (which includes assessing outcomes and making adjustments as needed). Developing a PlanA decision is reached with a certain objective in mind. Once it is made, managers identify the steps needed to reach that objective. These can include listing necessary actions and activities, considering required financial and other resources, and making a schedule for completing the work. The more thought that goes into developing a plan, the less likely it is that important factors will be overlooked. Communicating with StakeholdersAn implementation plan requires the involvement of different people, and the consequences of decisions affect various stakeholders. For these reasons it is important to have a plan for communicating important information related to the decision and its implementation. This usually involves talking with employees, but may also mean letting customers or suppliers know about the decision and any effects it may have on them. Executing the Plan Accomplishing the decision's objective requires completing the steps
outlined in the implementation plan. Once this work is underway, managers assess progress and may identify areas for improvement. Circumstances can change or new issues might arise that had not been thought of during the planning process. These may require additions to, or other changes in, the plan. Because most decisions are made under conditions of uncertainty, as time passes what was once unknown can become known. Where estimates were incorrect or the unexpected happens, adjustments need to
be made to the implementation plans. If the new facts are significant enough, it can even require reconsideration of the decision. Evaluate the ResultsDecision makers must evaluate the results of a decision to improve the processes and outcomes of future decisions. Learning Objectives Recognize the appraisal stage and the development of future insights as the final stage in the decision-making process Key TakeawaysKey Points
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After a decision has been made and implemented it is important to assess both the outcome of the decision and the process by which the decision was reached. Doing so confirms whether the decision actually led to the desired outcomes and also provides important information that can benefit future decision making. Learning from experience is important to continuous improvement and effectiveness. Evaluating Outcomes The objective of evaluating outcomes is for the decision maker to develop insight into the decision. Many of the lessons developed in this stage come out of examining the implications of the decision. Insight can be obtained by referencing key business metrics such as increased revenue,
lowered costs, larger market share, or greater consumer awareness. One can also consider whether a decision had the desired effect. For example, a decision to hold additional training seminars may have been intended to make it more convenient for people to learn a new technology. However, if overall attendance did not increase, then the decision may not have addressed the underlying cause of why people did not go to training events. Once the outcome of a decision is known, the results may imply
a need to revise the decision and try again. Appraising the Decision Process It can also be valuable for decision makers to step back and examine the process by which a decision was made. Often they can learn lessons that will benefit future decisions. If the decision was made by a group, having a conversation with all participants is often worthwhile. Whether enough information was gathered and whether its quality was high enough are two questions that should be considered. How
the decision maker dealt with uncertainty or bias can be examined in the face of the results that have transpired. If estimates were off, or it becomes clear that emotions played too large a role in making a choice, it is important to learn from those mistakes so they won't happen again. Finally, it is important to question whether all the relevant parties contributed information and knowledge needed for the decision, and whether everyone who should have been involved was given the chance to
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What is the process of developing a set of possible alternative solutions and choosing one alternative from among that set?Decision making, an integral part of a manager's work, is the process of developing a set of possible alternative solutions to a problem and choosing one alternative from among the set.
What is the process used to evaluate the products processes or management practices of another organization?Benchmarking is defined as the process of measuring products, services, and processes against those of organizations known to be leaders in one or more aspects of their operations.
What is the management tool used to describe what an organization seeks to achieve and how it will achieve it?Management by objectives (MBO) is a process in which a manager and an employee agree on specific performance goals and then develop a plan to reach them. It is designed to align objectives throughout an organization and boost employee participation and commitment.
What is the process of coordinating people and other resources to achieve the goals of an organization?Coordinating people and human resources to accomplish organizational goals is the process of leadership.
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