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 Introduction to Decision Making

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PostSubject: Introduction to Decision Making   Thu Mar 18, 2010 5:36 am

Introduction to Decision Making

Robert Harris

________________________________________
We all make decisions of varying importance every day, so the idea that decision making can be a rather sophisticated art may at first seem strange. However, studies have shown that most people are much poorer at decision making than they think. An understanding of what decision making involves, together with a few effective techniques, will help produce better decisions.

What is Decision Making?

Some Definitions

A good place to start is with some standard definitions of decision making.

1. Decision making is the study of identifying and choosing alternatives based on the values and preferences of the decision maker.

Making a decision implies that there are alternative choices to be considered, and in such a case we want not only to identify as many of these alternatives as possible but to choose the one that (1) has the highest probability of success or effectiveness and (2) best fits with our goals, desires, lifestyle, values, and so on.

2. Decision making is the process of sufficiently reducing uncertainty and doubt about alternatives to allow a reasonable choice to be made from among them. This definition stresses the information-gathering function of decision making. It should be noted here that uncertainty is reduced rather than eliminated. Very few decisions are made with absolute certainty because complete knowledge about all the alternatives is seldom possible. Thus, every decision involves a certain amount of risk. If there is no uncertainty, you do not have a decision; you have an algorithm--a set of steps or a recipe that is followed to bring about a fixed result.

Kinds of Decisions

There are several basic kinds of decisions.

1. Decisions whether. This is the yes/no, either/or decision that must be made before we proceed with the selection of an alternative. Should I buy a new TV? Should I travel this summer? Decisions whether are made by weighing reasons pro and con. The PMI technique discussed in the next chapter is ideal for this kind of decision.

It is important to be aware of having made a decision whether, since too often we assume that decision making begins with the identification of alternatives, assuming that the decision to choose one has already been made.

2. Decisions which. These decisions involve a choice of one or more alternatives from among a set of possibilities, the choice being based on how well each alternative measures up to a set of predefined criteria.

3. Contingent decisions. These are decisions that have been made but put on hold until some condition is met.
For example, I have decided to buy that car if I can get it for the right price; I have decided to write that article if I can work the necessary time for it into my schedule. OR even, We'll take the route through the valley if we can control the ridge and if we detect no enemy activity to the north.

Most people carry around a set of already made, contingent decisions, just waiting for the right conditions or opportunity to arise. Time, energy, price, availability, opportunity, encouragement--all these factors can figure into the necessary conditions that need to be met before we can act on our decision. Some contingent decisions are unstated or even exist below the awareness of the decision maker. These are the type that occur when we seize opportunity. We don't walk around thinking, "If I see a new laser printer for $38, I'll buy it," but if we happen upon a deal like that and we have been contemplating getting a new printer, the decision is made quickly. Decisions made in sports and warfare are like this. The best contingent and opportunistic decisions are made by the prepared mind--one that has thought about criteria and alternatives in the past.

Decision Making is a Recursive Process

A critical factor that decision theorists sometimes neglect to emphasize is that in spite of the way the process is presented on paper, decision making is a nonlinear, recursive process. That is, most decisions are made by moving back and forth between the choice of criteria (the characteristics we want our choice to meet) and the identification of alternatives (the possibilities we can choose from among). The alternatives available influence the criteria we apply to them, and similarly the criteria we establish influence the alternatives we will consider. Let's look at an example to clarify this.

Suppose someone wants to decide, Should I get married? Notice that this is a decision whether. A linear approach to decision making would be to decide this question by weighing the reasons pro and con (what are the benefits and drawbacks of getting married) and then to move to the next part of the process, the identification of criteria (supportive, easy going, competent, affectionate, etc.). Next, we would identify alternatives likely to have these criteria (Kathy, Jennifer, Michelle, Julie, etc.). Finally we would evaluate each alternative according to the criteria and choose the one that best meets the criteria. We would thus have a scheme like this:

decision whether ... select criteria ... identify alternatives ... match criteria to alternatives ... make choice
However, the fact is that our decision whether to get married may really be a contingent decision. "I'll get married if I can find the right person." It will thus be influenced by the identification of alternatives, which we usually think of as a later step in the process. Similarly, suppose we have arrived at the "identify alternatives" stage of the process when we discover that Jennifer (one of the girls identified as an alternative) has a wonderful personality characteristic that we had not even thought of before, but that we now really want to have in a wife. We immediately add that characteristic to our criteria. Thus, the decision making process continues to move back and forth, around and around as it progresses in what will eventually be a linear direction but which in its actual workings is highly recursive.

Key point, then, is that the characteristics of the alternatives we discover will often revise the criteria we have previously identified.


The Components of Decision Making

The Decision Environment

Every decision is made within a decision environment, which is defined as the collection of information, alternatives, values, and preferences available at the time of the decision. An ideal decision environment would include all possible information, all of it accurate, and every possible alternative. However, both information and alternatives are constrained because the time and effort to gain information or identify alternatives are limited. The time constraint simply means that a decision must be made by a certain time.

The effort constraint reflects the limits of manpower, money, and priorities. (You wouldn't want to spend three hours and half a tank of gas trying to find the very best parking place at the mall.) Since decisions must be made within this constrained environment, we can say that the major challenge of decision making is uncertainty, and a major goal of decision analysis is to reduce uncertainty. We can almost never have all information needed to make a decision with certainty, so most decisions involve an undeniable amount of risk.

The fact that decisions must be made within a limiting decision environment suggests two things. First, it explains why hindsight is so much more accurate and better at making decisions that foresight. As time passes, the decision environment continues to grow and expand. New information and new alternatives appear--even after the decision must be made. Armed with new information after the fact, the hindsighters can many times look back and make a much better decision than the original maker, because the decision environment has continued to expand.

The second thing suggested by the decision-within-an-environment idea follows from the above point. Since the decision environment continues to expand as time passes, it is often advisable to put off making a decision until close to the deadline. Information and alternatives continue to grow as time passes, so to have access to the most information and to the best alternatives, do not make the decision too soon. Now, since we are dealing with real life, it is obvious that some alternatives might no longer be available if too much time passes; that is a tension we have to work with, a tension that helps to shape the cutoff date for the decision.

Delaying a decision as long as reasonably possible, then, provides three benefits:

1. The decision environment will be larger, providing more information. There is also time for more thoughtful and extended analysis.

2. New alternatives might be recognized or created. Version 2.0 might be released.

3. The decision maker's preferences might change. With further thought, wisdom, and maturity, you may decide not to buy car X and instead to buy car Y.

And delaying a decision involves several risks:

1. As the decision environment continues to grow, the decision maker might become overwhelmed with too much information and either make a poorer decision or else face decision paralysis.

2. Some alternatives might become unavailable because of events occurring during the delay. In a few cases, where the decision was between two alternatives (attack the pass or circle around behind the large rock), both alternatives might become unavailable, leaving the decision maker with nothing. And we have all had the experience of seeing some amazing bargain only to hesitate and find that when we go back to buy the item, it is sold out.

3. In a competitive environment, a faster rival might make the decision and gain advantage. Another manufacturer might bring a similar product to market before you (because that company didn't delay the decision) or the opposing army might have seized the pass while the other army was "letting the decision environment grow."

The Effects of Quantity on Decision Making

Many decision makers have a tendency to seek more information than required to make a good decision. When too much information is sought and obtained, one or more of several problems can arise. (1) A delay in the decision occurs because of the time required to obtain and process the extra information. This delay could impair the effectiveness of the decision or solution. (2) Information overload will occur. In this state, so much information is available that decision-making ability actually declines because the information in its entirety can no longer be managed or assessed appropriately. A major problem caused by information overload is forgetfulness. When too much information is taken into memory, especially in a short period of time, some of the information (often that received early on) will be pushed out.

The example is sometimes given of the man who spent the day at an information-heavy seminar. At the end of the day, he was not only unable to remember the first half of the seminar but he had also forgotten where he parked his car that morning.

(3) Selective use of the information will occur. That is, the decision maker will choose from among all the information available only those facts which support a preconceived solution or position. (4) Mental fatigue occurs, which results in slower work or poor quality work. (5) Decision fatigue occurs where the decision maker tires of making decisions. Often the result is fast, careless decisions or even decision paralysis--no decisions are made at all.

The quantity of information that can be processed by the human mind is limited. Unless information is consciously selected, processing will be biased toward the first part of the information received. After that, the mind tires and begins to ignore subsequent information or forget earlier information. (Have you ever gone shopping for something where you looked at many alternatives--cars, knives, phones, TVs--only to decide that you liked the first one best?)

Decision Streams

A common misconception about decision making is that decisions are made in isolation from each other: you gather information, explore alternatives, and make a choice, without regard to anything that has gone before. The fact is, decisions are made in a context of other decisions. The typical metaphor used to explain this is that of a stream. There is a stream of decisions surrounding a given decision, many decisions made earlier have led up to this decision and made it both possible and limited. Many other decisions will follow from it.

Another way to describe this situation is to say that most decisions involve a choice from a group of preselected alternatives, made available to us from the universe of alternatives by the previous decisions we have made. Previous decisions have "activated" or "made operable" certain alternatives and "deactivated" or "made inoperable" others.

For example, when you decide to go to the park, your decision has been enabled by many previous decisions. You had to decide to live near the park; you had to decide to buy a car or learn about bus routes, and so on. And your previous decisions have constrained your subsequent ones: you can't decide to go to a park this afternoon if it is three states away. By deciding to live where you do, you have both enabled and disabled a whole series of other decisions.

As another example, when you enter a store to buy a DVD player or TV, you are faced with the preselected alternatives stocked by the store. There may be 200 models available in the universe of models, but you will be choosing from, say, only a dozen. In this case, your decision has been constrained by the decisions made by others about which models to carry.

We might say, then, that every decision (1) follows from previous decisions, (2) enables many future decisions, and (3) prevents other future decisions. People who have trouble making decisions are sometimes trapped by the constraining nature of decision making. Every decision you make precludes other decisions, and therefore might be said to cause a loss of freedom. If you decide to marry Terry, you no longer can decide to marry Shawn. However, just as making a decision causes a loss of freedom, it also creates new freedom, new choices and new possibilities. So making a decision is liberating as well as constraining. And a decision left unmade will often result in a decision by default or a decision being made for you.

It is important to realize that every decision you make affects the decision stream and the collections of alternatives available to you both immediately and in the future. In other words, decisions have far reaching consequences.

Concepts and Definitions

1. Information. This is knowledge about the decision, the effects of its alternatives, the probability of each alternative, and so forth. A major point to make here is that while substantial information is desirable, the statement that "the more information, the better" is not true. Too much information can actually reduce the quality of a decision. See the discussion on The Effects of Quantity on Decision Making above.

2. Alternatives. These are the possibilities one has to choose from. Alternatives can be identified (that is, searched for and located) or even developed (created where they did not previously exist). Merely searching for preexisting alternatives will result in less effective decision making.

3. Criteria. These are the characteristics or requirements that each alternative must possess to a greater or lesser extent. Usually the alternatives are rated on how well they possess each criterion. For example, alternative Toyota ranks an 8 on the criterion of economy, while alternative Buick ranks a 6 on the same criterion.

4. Goals. What is it you want to accomplish? Strangely enough, many decision makers collect a bunch of alternatives (say cars to buy or people to marry) and then ask, "Which should I choose?" without thinking first of what their goals are, what overall objective they want to achieve. Next time you find yourself asking, "What should I do? What should I choose?" ask yourself first, "What are my goals?"

A component of goal identification should be included in every instance of decision analysis.

5. Value. Value refers to how desirable a particular outcome is, the value of the alternative, whether in dollars, satisfaction, or other benefit.

6. Preferences. These reflect the philosophy and moral hierarchy of the decision maker. We could say that they are the decision maker's "values," but that might be confusing with the other use of the word, above. If we could use that word here, we would say that personal values dictate preferences. Some people prefer excitement to calmness, certainty to risk, efficiency to esthetics, quality to quantity, and so on. Thus, when one person chooses to ride the wildest roller coaster in the park and another chooses a mild ride, both may be making good decisions, if based on their individual preferences.
7. Decision Quality. This is a rating of whether a decision is good or bad. A good decision is a logical one based on the available information and reflecting the preferences of the decision maker.

The important concept to grasp here is that the quality of a decision is not related to its outcome: a good decision can have either a good or a bad outcome. Similarly, a bad decision (one not based on adequate information or not reflecting the decision maker's preferences) can still have a good outcome.

For example, if you do extensive analysis and carefully decide on a certain investment based on what you know about its risks and your preferences, then your decision is a good one, even though you may lose money on the investment. Similarly, if you throw a dart at a listing of stocks and buy the one the dart hits, your decision is a bad one, even though the stock may go up in value.

Good decisions that result in bad outcomes should thus not be cause for guilt or recrimination. If you decide to take the scenic route based on what you know of the road (reasonably safe, not heavily traveled) and your preferences (minimal risk, prefer scenery over early arrival), then your decision is a good one, even though you might happen to get in an accident, or have a flat tire in the middle of nowhere. It is not justified to say, "Well, this was a bad decision."

In judging the quality of a decision, in addition to the concerns of logic, use of information and alternatives, three other considerations come into play:

A. The decision must meet the stated objectives most thoroughly and completely. How well does the alternative chosen meet the goals identified?

B. The decision must meet the stated objectives most efficiently, with concern over cost, energy, side effects. Are there negative consequences to the alternative that make that choice less desirable? We sometimes overlook this consideration in our search for thrills.

C. The decision must take into account valuable byproducts or indirect advantages. A new employee candidate may also have extra abilities not directly related to the job but valuable to the company nonetheless. These should be taken into account.

8. Acceptance. Those who must implement the decision or who will be affected by it must accept it both intellectually and emotionally.

Acceptance is a critical factor because it occasionally conflicts with one of the quality criteria. In such cases, the best thing to do may be to choose a lesser quality solution that has greater acceptance.

For example, when cake mixes first were put on the market, manufacturers put everything into the mix--the highest quality and most efficient solution. Only water had to be added. However, the mixes didn't sell well--they weren't accepted. After investigation, the makers discovered that women didn't like the mixes because using the mixes made them feel guilty: they weren't good wives because they were taking a shortcut to making a cake.

The solution was to take the egg and sometimes the milk out of the mix so that the women would have something to do to "make" the cake other than just adding water. Now they had to add egg and perhaps milk, making them feel more useful. The need to feel useful and a contributor is one of the most basic of human needs. Thus, while the new solution was less efficient in theoretical terms, it was much more acceptable. Cake mixes with the new formula became quite popular.

Thus, the inferior method may produce greater results if the inferior one has greater support. One of the most important considerations in decision making, then, is the people factor. Always consider a decision in light of the people implementation.

A decision that may be technologically brilliant but that is sociologically stupid will not work. Only decisions that are implemented, and implemented with thoroughness (and preferably enthusiasm) will work the way they are intended to.

Approaches to Decision Making

There are two major approaches to decision making in an organization, the authoritarian method in which an executive figure makes a decision for the group and the group method in which the group decides what to do.
1. Authoritarian. The manager makes the decision based on the knowledge he can gather. He then must explain the decision to the group and gain their acceptance of it. In some studies, the time breakdown for a typical operating decision is something like this:
make decision, 5 min.; explain decision, 30 min.; gain acceptance, 30 min.

2. Group. The group shares ideas and analyses, and agrees upon a decision to implement. Studies show that the group often has values, feelings, and reactions quite different from those the manager supposes they have. No one knows the group and its tastes and preferences as well as the group itself. And, interestingly, the time breakdown is something like this:

group makes decision, 30 min.; explain decision, 0 min.; gain acceptance, 0 min.
Clearly, just from an efficiency standpoint, group decision making is better. More than this, it has been shown many times that people prefer to implement the ideas they themselves think of. They will work harder and more energetically to implement their own idea than they would to implement an idea imposed on them by others. We all have a love for our own ideas and solutions, and we will always work harder on a solution supported by our own vision and our own ego than we will on a solution we have little creative involvement with.

There are two types of group decision making sessions. First is free discussion in which the problem is simply put on the table for the group to talk about. For example, Joe has been offered a job change from shift supervisor to maintenance foreman. Should he take the job?

The other kind of group decision making is developmental discussion or structured discussion. Here the problem is broken down into steps, smaller parts with specific goals. For example, instead of asking generally whether Joe should take the job, the group works on sub questions: What are Joe's skills? What skills does the new job require? How does Joe rate on each of the skills required? Notice that these questions seek specific information rather than more general impressionistic opinions.

Developmental discussion (1) insures systematic coverage of a topic and (2) insures that all members of the group are talking about the same aspect of the problem at the same time.
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