A

SEMINAR REPORT

ON

Steps in Decision Making Model

Submitted By
Kadewale Abhijeet Singh- 20
(Second Year MBA)

SCHOOL OF COMMERCE AND MANAGEMENT

SCIENCE
SWAMI RAMANANDA TEERTHA MARATHAWADA UNIVERSITY,
NANDED.
 CERTIFICA
TE report entitled
This is certify that the Seminar

Steps in Decision Making Model

Submitted By:-
Kadewale Abhijeet Singh- 20

In partial fulfillment of MBA for academic year

2012-2013 is completed satisfactory.

Submitted To :
Prof.N.C.Dhande
(School of commerce and management science)

ACKNOWLEDGEMENT
It gives us great pleasure on bringing out the Seminar on entitled
 Steps in Decision Making Model

I greatly accept this opportunity to convey my heartiest thanks and

Express my deep sense of gratitude to my guide Prof.Dr.N.C.Dhande for
her valuable guidance, kind co-operation, meticulous cares with which
she examine the write of through the duration of work. I wish to express
my sincere thanks to my Head of Department Prof. DR. D.M.Khandare
and the entire Commerce department for the kind co-operation extended
to us for preparing this projects.
Last but not least I would like to thanks all my friends whose help and
criticism made me able to present a better report.

Kadewale Abhijeet Singh

Roll-20

The Six-Step Rational Decision-Making Model

1. Define the problem.

2. Identify decision criteria

3. Weight the criteria

4. Generate alternatives

5. Rate each alternative on each criterion

6. Compute the optimal decision

Part 1 - Introduction

Identify decision criteria

Once a decision maker has defined the problem, he or she needs to identify the

decision criteria that will be important in solving the problem. In this step, the

decision maker is determining whats relevant in making the decision.

This step brings the decision makers interests, values, and personal preferences into

the process.

Identifying criteria is important because what one person thinks is relevant, another

may not.

Also keep in mind that any factors not identified in this step are considered as

irrelevant to the decision maker.

Weight the criteria

The decision-maker weights the previously identified criteria in order to give them

correct priority in the decision.

Generate alternatives

The decision maker generates possible alternatives that could succeed in resolving the

problem. No attempt is made in this step to appraise these alternatives, only to list

them.

Rate each alternative on each criterion

The decision maker must critically analyze and evaluate each one. The strengths and

weakness of each alternative become evident as they compared with the criteria and

weights established in second and third steps.

Compute the optimal decision

Evaluating each alternative against the weighted criteria and selecting the alternative

with the highest total score.

Assumptions of Model
1. Problem clarity. (The decision maker is assumed to have complete information

regarding the decision situation.)

2. Known options (Identify all the relevant criteria and can list all the viable

alternatives. The decision maker is aware of all the possible consequences of

each alternative.)

3. Clear preference (The criteria and alternatives can be ranked and weight to

reflect their importance)

4. Constant preferences (The specific decision criteria are constant and that weights

assigned to them are stable over time)

5. No time or cost constraints

6. Maximum payoff
Part 2 - Improving Creativity in Decision Making

Creative Potential Get out of the psychological ruts most us get into and learn how

to think about a problem in divergent ways.

Three-Component Model of Creativity

Expertise (The foundation of all creative work)

knowledge of a subject were necessary conditions for us to be able to make

creative contributions to the fields. The potential for creativity is enhanced

when individuals have abilities, knowledge, proficiencies, and similar

expertise in their fields of endeavor.

Creativity Skills (The ability to use analogies to see the familiar in a

different light. Apply an idea from one context to another)

Intelligence, independence, self-confidence, risk taking, and internal locus of

control, tolerance for ambiguity and perseverance in the face of frustration.

Intrinsic task motivation (The desire to work on a task)

interesting, involving, exciting, satisfying, or personally challenging these

factor would be affect the task motivation. This would turns creativity

potential into actual creative ideas.

Five organizational factors can impede staff creativity:

1. Expected Evaluation [Focusing on how staffs work is going to be

evaluated]

2. Surveillance [Being watched while staff are working]

3. External motivators [Emphasizing external, tangible rewards]

4. Competition [Facing win-lose situations with peers]

 5. Constrained choice [Being given limits on how staff can do their work.]

Part 3 - How Decisions Are Actually Made in Organization

People are usually content to find an acceptable or reasonable solution to their

problem rather than optimal one. Consequently, decision makers generally make

limited use of their creativity. Choices tend to be confined to the neighborhood of the

problem symptom and to the neighborhood of the current alternative.

Most significant decisions are made by judgment, rather than by a defined

prescriptive model.

Bounded Rationality

when a staff considered which college to attend, they will not look every viable

alternative nor identify all the criteria that were important in decision.

Instead of optimizing, staff probably satisfied.

When faced with a complex problem, most people respond by reducing the problem

to a level at which it can readily understand. The limited information-processing

capability of human beings makes it impossible to assimilate and understand all the

information necessary to optimize. So people satisfied; that is, they seek solutions that

are satisfactory and sufficient.

Because the capacity of the human mind for formulating and solving complex

problems is far too small to meet the requirements for full rationality, individuals

operate within the confines of bounded rationality. They construct simplified models

that extract the essential features from problems without capturing all of their

complexity. Individuals can then behave rationally within the limits of the simple
model.

Once a problem is identified, the search for criteria and alternatives begins. But the

list of criteria is likely to be far from exhaustive. The decision maker will identify a

limited list made up of the more conspicuous choices.

These are the choices that are easy to find and that tend to be highly visible. In most

cases, they will represent familiar criteria and previously tried-and-true solutions.

Once this limited set of alternatives is identified, the decision maker will begin

reviewing them. But the review will not be comprehensive not all of the alternatives

will be carefully evaluated. Instead, the decision maker will begin with alternatives

that differ only in a relatively small degree from the choice currently in effect.

Following along familiar and will-worn paths, the decision maker proceeds to review

alternatives only until he or she identifies an alternative that is good enough one

that meets an acceptable level of performance.

The first alternative that meets the good enough criterion ends the search. So the

final solution represents a satisfying choice rather than an optimal one.

The order in which alternatives are considered is critical in determining which

alternative is selected. Remember, in the fully rational optimizing model, all

alternatives are eventually listed in a hierarchy of preferred order. Because all

alternatives are considered, the initial order in which they are evaluated is irrelevant.

Every potential solution gets a full and complete evaluation. But this isnt the case

with bounded rationality. If we assume that a problem has more than one potential
solution, the satisfying choice will be the first acceptable one the decision maker

encounters. Decision makers use simple and limited models, so they typically begin

by identifying alternatives that are obvious, ones with which they are familiar, and

hose not too far from the status quo.

Solutions that depart least from the status quo and meet the decision criteria are most

likely to be selected. A unique and creative alternative may present an optimizing

solution to the problem, but its unlikely to be chosen because an acceptable solution

will be identified well before the decision maker is required to search very far beyond

the status quo.

Intuition

Sometimes youre just got to go with your gut feeling,

Intuitive decision making is an unconscious process created out of distilled

experience. They based on the experience to recognize patterns and clusters of the

problem to make a decision. Experience allows the expert to recognize a situation and

draw on previously learned information associated with that situation to arrive quickly

at a decision. The result is that the intuitive decision maker can decide rapidly with

what appears to be very limited information.

Identifying Problems

Problems that are visible tend to have a higher probability of being selected than ones

that are important.

1. Easily to catch a decision makers attention.

2. Decision maker want to appear competent and on top of problems. This desire
 motivates DM to focus on problems that are visible to others

If a decision maker faces a conflict between selecting a problem that is important to

the organization and one that is important to the decision maker, self-interest tends to

win out. This tendency also is related to the issue of visibility. Its usually in a

decision makers best interest to attack high-profiles problems. It conveys to

performance is later reviewed, the evaluator is more likely to give a high rating to

someone who has been aggressively attacking visible problems than to someone

whose actions have been less obvious.

Developing Alternatives

since decision makers rarely seek an optimal solution, but rather a satisfying one, we

should expect to find a minimal use of creativity in the search for alternatives. And

that expectation is generally on target.

Efforts will be made to try to keep the search process simple. It will tend to be

confined to the neighborhood of the current alternative. More complex search

behavior, which includes the development of creative alternatives, will be resorted to

only when a simple search fails to uncover a satisfactory alternative.

Decision maker avoid the difficult task of considering all the important factors,

weighing their relative merits and drawbacks, and calculating the value for each

alternative.

Instead, they make successive limited (incremental) comparisons. This branch

approach simplifies decision choices by comparing only alternatives that differ in

relatively small degree from the choice currently in effect. This approach also makes

it unnecessary for the decision maker to thoroughly examine an alternative and its

consequences; one need investigate only hose aspects in which the proposed

alternative and its consequences differ from the status quo.

It acknowledges the non-comprehensive nature of choice; in other words, decision

makers make successive comparisons because decisions are never made forever and

written in stone, but rather they are made and remade endlessly in small comparisons

between narrow choices.

Making Choices

In order to avoid information overload, decision makers rely on heuristics, or

judgmental shortcuts, in decision making.

1. Availability Heuristic

The tendency for people to base their judgments on information that is readily

available to them. Events that evoke emotions, that are particularly vivid, or that

have occurred recently tend to be most available in our memory.

[When doing annual performance appraisals, tend to give more weight to recent

behaviors of an employee than to those of 6 months ago]

2. Representative Heuristic

decision makers tend to assess the likelihood of an occurrence by trying to match

it with a pre-existing category.

[Frequently predict the performance of a new product by relating it to a previous

products success]

3. Escalation of Commitment
 tendency to escalate commitment when a decision stream represents a series of

decisions. Escalation of commitment is an increased commitment to a previous

decision in spite of negative information.

They throw good money after bad to demonstrate that their initial decision

wasnt wrong and to avoid having to admit they made a mistake. People try to

appear consistent in what they say and do. Increasing commitment to previous

actions conveys consistency.

[I have a lot invested in the relationships.

I have to go back and complete some deficiencies if I changed to work on a

degree in other fields.]

Individual Difference

1. Decision-Making Styles

The foundation of the model is the recognition that people differ along two

dimensions. The first is their way of thinking (intuitive and creative). The other

dimension addresses a persons tolerance for ambiguity. Some people have a high

need to structure information in ways that minimize ambiguity; Others are able to

process many thoughts at the same time.

Tolerance for Ambiguity

Analytical Conceptual

Directive Behavioral

Way of Thinking (Rational -> Intuitive)

- People using the directive style have low tolerance for ambiguity and seek
 rationality. They are efficient and logical. But their concern for efficiency

results in their making decisions with minimal information and assessing few

alternatives. Directive types make decision fast, and they focus on the short

run.

- The analytical type has a much greater tolerance for ambiguity than do

directive decision makers. They desire more information and consider more

alternatives than do directives. Analytical managers would be best

characterized as careful decision makers with the ability to adapt or cope

with new situations.

- Individual with a conceptual style tend to be very broad in their outlook and

consider many alternatives. Their focus is long range, and they are very good

at finding creative solutions to problems.

- A behavioral style decision maker who work well with others. Theyre

concerned with the achievements of peers and subordinates. Theyre

receptive to suggestions from others and rely heavily on meetings for

communicating. This type of manager tried to avoid conflict and seeks

acceptance.

Some managers rely almost exclusively on their dominant style; more flexible

managers can make shifts depending on the situation.

Level of Moral Development

Moral development is relevant in decision making because many decision have an

ethical dimension. An understanding of this concept can help you see how different

people impose different ethical standards on their decisions.

Level Stage/ Description

Pre-conventional 1 Sticking to rules to avoid physical punishment
2 Following rules only when its in your immediate interest
Conventional 3 Living up to what is expected by people close to you
4 Maintaining conventional order by fulfilling obligations to which your

have agreed
Principled 5 Valuing rights of others; and upholding non-relative values and rights

regardless of the majoritys opinion

6 Following self-chosen ethical principle even if they violate the law
Part 4 Organizational Constraints

The organization itself constrains decision makers. They shape their decisions to

reflect the organizations performance evaluation and reward system and

organizationally imposed time constraints. Previous organizational decisions also act

as precedents to constrain current decisions.

Performance Evaluation

Decision maker are strongly influenced in their decision making by the criteria by

which they are evaluated.

[If a division manager believes that the manufacturing plants under his responsibility

are operating best when he hears nothing negative, we shouldnt be surprised to find

that his plant managers spend a good part of their time ensuring that negative

information doesnt reach the division boss.]

[If a college dean believes that an instructor should never fail more than 10 percent of

her students to fail more reflects on the instructors ability to teach we should

expect that new instructor, who want to receive favorable evaluations, will decide not

to fail too many students.]

Reward System

What choices are preferable in terms of personal payoff?

If the organization rewards risk aversion, managers are likely to make conservative

decisions.

[General Motors consistently gave out promotions and bonuses to manager who kept

a low profile, avoided controversy, and were good team players. The result was that
GM managers became very adept at dodging tough issues and passing controversial

decisions on to committees]

System-Imposed Time Constraints

Organizations impose deadlines on decisions.

A host of decisions have to be made quickly in order to stay ahead of the competition

and keep customers be made quickly in orders to stay ahead of the competition and

keep customers satisfied.

And almost all important decisions come with explicit deadlines. These conditions

create time pressures on decision makers and often make it difficult, if not impossible,

to gather all the information they might like before having to make a final choice. The

rational model ignores the reality that, in organizations decision come with time

constraints

Historical Precedents

Rational decision making takes an unrealistic and insulated perspective. It views

decision as independent and discrete events. But that isnt they way it I in the real

world! Decisions arent made in a vacuum. They have a context. In fact, individual

decisions are more accurately characterized as points in a stream of decisions.

Decisions made in the past are ghost that continually haunt current choices.

Its common knowledge that the largest determining factor of the size of any given

years budget is last years budget.

Choices made today, therefore, are largely a result of choices made over the years.
Cultural Differences

The rational model does not acknowledge cultural differences. But, we need to

recognize that the cultural background of the decision maker can have significant

influence on his or her selection of problems, depth of analysis, the importance placed

on logic and rationality, or whether organizational decisions should be made

autocratically by an individual manger or collectively in groups. (Like Japan Manager

is more group-oriented. Before making an important decision, they collect a large

amount of information, which is then used in consensus-forming group decisions.)

Some cultures emphasize solving problems; others focus on accepting situations as

they are. Problem-solving decision maker believe that they can and should change

situations to their benefit.

Part 5 Ethics in Decision Making

Utilitarian criterion

Decisions are made solely on the basis of their outcomes or consequences.

The goal of it is to provide the greatest good for the greatest number. This view tends

to dominate business decision making. (Efficiency, productivity, and high profits)

Right criterion

This call on individuals to make decisions consistent with fundamental liberties and

privileges as set forth in documents such as the Bill of Right.

An emphasis on rights in decision making means respecting and protecting the basic

rights of individuals.(The right to privacy, to free speech, and to due process)

Justice criterion

This requires individual to impose and enforce rules fairly and impartially so there is

an equitable distribution of benefits and costs.