MBA management

Decision Making Models and Techniques Topics:

How to make good decisions


If you want to lead effectively, you need to make good decisions. If you can learn to do this in a timely and well- considered way, then you can lead your term to spectacular and well deserved success. However, if you dither or make poor decisions, your team risks failure and your time as a leader will probably be brutally short.

The techniques in this section help you to make the best decisions possible with the information you have available. They help you map out the likely consequences of decisions, work out the importance of individual factors, and choose the best courses of action.

The section starts with some simple techniques that help you to make decisions where many factors are claiming your attention. It then moves on the explain more powerful techniques, such as use of decision trees, 6 thinking hats and cost/ benefit analysis, which are routinely used in commercial decision making.

Decision making


The techniques in the section help you to make the best decisions possible with the available information. With these tools you will be able to map out the likely consequences of decisions, work out the importance of individual factors, and choose the best course of action to take.

• Selecting the most important change to make
• Evaluating the relative importance of different options
• Selecting between good options
• Choosing between options by projecting likely outcomes
• Weighing the pros and cons of decision
• Analyzing the pressures for and against change
• Looking at a decision from all points of view
• Seeing whether a change is worth making

Decision tree analysis. Choosing between options by projecting likely outcomes.

Decision trees are useful tools for helping you to choose between several courses of action.

They provide a highly effective structure within which you can explore options, and investigate the possible outcomes of choosing those options. They also help you to form a balanced picture of the risk and rewards associated with each possible course of action.

This makes them particularly useful for choosing between different strategic, project or investment opportunities, particularly when your resources are limited.

How to use the tool.

You start a decision tree with a decision that you need to make. Draw a small square to represent this on the left hand side of a large piece of paper, half way down the page.

From this box draw out lines towards the right for each possible solution, and write a short description of the solution along the line. Keep the lines apart as far as possible so that you can expand your thoughts.

At the end of each line, consider the result. If the result taking that decision is uncertain draw a small circle. If the results in another decision that you need to make, draw another square. Square represent decisions and circle represent uncertain outcomes. Write the decision or factor above the square or circle. If you have completed the solution at the end of the line, just leave it blank.

Starting from the new decision squares on your diagram, draw out lines representing the options that you could select. From the circles draw lines representing possible outcomes. Again make a brief note on the line saying what it means. Keep on doing this until you have drawn out as many of the possible outcomes and decision as you can see leading on from the original decisions.

Theories and models of organizational decision making studies

• Mintzberg’s managerial roles
• Rational decision making model
• Scientific management
• Garbage can model

Decision making models


All people need to make decisions from time to time. Given limited time in formulating policies and addressing public problems, public administrators must enjoy a certain degree of discretion in planning, revising and implementing public policies. In other words, they must engage in decision-making (Gianakis, 2004). Over the years, many scholars tried to devise decision-making models to account for the policy making process.

Rationality


For a very long time since the discipline of public administration has developed, scholars assume that people make decisions rationally. By rationality, Herbert Simon (1976) means" a style of behaviour that is appropiate to the achievement of given goals, within the limits imposed by given conditions and constraints" (P.405). However, rationality is still a vague concept. Max Weber refers to rationality as the pursuit of efficiency of achieving a prescribed goal or aim. This rationality is later termed formal rationality (Gerth and Mills, 1946). Years later, Simon adds two more definitions to rationality. The first one is substantive rationality which refers to the achievement of rational goals and values. The second one is procedural rationality which depends on the procedure to achieve certain goals (Simon, 1982). In the following analysis, rationality reers to all three definitions, although they may sometimes conflict each other.

Facts


According to Gartner (2001), facts are the information and knowledge that the public administrator posses in formulating policies. Facts are important in deciding the appropriate means to take to achieve higher ends. They may not be readily known by administrators but need to be acquired through extensive research and analysis.

Values


Values are internal perception on the desirability and priority of one’s actions and choices ( van wart 2004). Besides setting goals for their plans, decision makers make priorities, interpret facts and act upon objective situation according to their values. Besides balancing conflicting values within an individual, government has to weight and balance values embodied in different departments ( van wart 1996, 1998).

Means


Means are the instruments to satisfy a higher end (Simon, 1997). In a means- end hierarchy, the concept of means and ends is relative. An action can be a mean relative to the higher levels in the hierarchy but an end relative to the lower levels. However, in this hierarchy, an action is more value based when moving upwards in the hierarchy but more fact based when moving downwards.

Various types of decision-making models


Pure rationality model is the most rational decision making model because it allows decision makers to make the best decisions and achieve highest efficiency out of unlimited time, resources and knowledge in generating decisions. It assumes politics administration dichotomy in which the former identifies goals for the letter to achieve (Giannakos, 2004). However, the politically feasible and decision are made by comparing several immediately available alternatives (lindblom, 2005). The bounded rationality model is less rational than the pure rationality model but more rational than the incremental model. It is defined by Simon as “the achievement of given goals subject to subjective constraints” (Simon, 1982).

Requirements and limitations


However, there are a lot of assumptions, requirements without which the rational decision model is a failure. Therefore, they all have to be considered. The model assumes that we have or should or can obtain adequate information, both in terms of quality, quantity and accuracy. This applies to the situation as well as the alternative technical situations. It further assumes that you have or should or can obtain substantive knowledge of the cause and effect relationships relevant to the evaluation to the alternatives. In other words, it assumes that you have a thorough knowledge can rank the alternatives and choose the best of it. The following are the limitations for the rational decision making model.

• It requires a great deal of time.

• It requires great deal of information.

• It assumes rational, measurable criteria are available agreed upon.

• It assumes accurate, stable and complete knowledge of all the alternatives, preferences, goals and consequences.

• It assumes a rational, reasonable, non political world.

Consensus decision making


Consensus decision making is a group decision making process that not only seeks the agreement of most participants, but also the resolution or mitigation of minority objections. Consensus decision making is thus concerned primarily with that process.

While not as common as other decision making procedures, such as the parliamentary procedure explained in Robert’s rules of order, consensus is used by a wide variety of groups religious denominations such as the Quakers, economic policy bodies including the Dutch polar model and historical hanseatic league, anarchist organization, online forums and projects such as wikipedia, and even entire nations such as the haudenosaunee use consensus decision making.

Management by objective (MBO)


Management by objectives (MBO) is a systematic and organized approach that allows management to focus on achievable goals and to attain the best possible results from available resources.

It aims to increase organizational performance by aligning goals and subordinate objectives throughout the organization. Ideally, employees get strong input to identify their objectives, time lines for completion etc. MBO includes ongoing tracking and feedback in the process to reach objectives.

Management by objectives (MBO) was first outlined by peter drucker in 1954 in his book the practice of management in the 90s, peter ducker himself decreased the significance of this organization management method, when he said it’s just another tool. It is not the great cure for management inefficiency management by objectives works if you know the objectives, 90% of the time you don’t.

Core concepts


According to Druker managers should avoid the activity trap, getting so involved in their day to day activities that they forget their main purpose or objectives. Instead of just a few top managers, all managers should.

• Participate in the strategic planning process, in order to improve the implementability of the plan, and

• Implement a range of performance systems, designed to help the organization stay on the right track.

Managerial focus


MBO managers focus on the result, not the activity. They delegate tasks by negotiating a contract of goals with their subordinate without dictating a detailed roadmap for implementation. Management by objectives (MBO) is about setting yourself objectives and then breaking these down into more specific goals or key results.

Main principle


The principle behind management by objectives (MBO) is to make sure that everybody within the organization has a clear understanding of the aims or objectives of that organization as well as awareness of their own roles and responsibilities in achieving those aims. The complete MBO system is to get managers and empowered employees acting to implement achieve their plans, which automatically achieve those of the organization.

Where to use MBO


The MBO style is appropriate for knowledge based enterprises when your staff is competent it is appropriate in situation where you wish to build employees management and self leadership skills and tap their creativity, tactic knowledge and initiative. Management by objectives (MBO) is also used by chief executives of multinational corporations (MNCs) for their country managers abroad.

Individual responsibility


(MBO) creates a link between top managers strategic thinking and the strategy’s implementation lower down. Responsibility for objectives is passed from the organization to its individual members. It is especially important for knowledge based organizations where all members have to be able to control their own work by feeding back from their results to their objectives.

Management by objectives is achieved through self- control, the tool of effectiveness. Today the workers is a self-manager, whose decisions are of decisive importance for results.

In such an organization, management has to ask each employee three questions

1. What should we hold you accountable for?
2. What information do you need?
3. What information do you own the rest of us?

Management by objectives (MBO) is a process of agreeing upon objectives within an organization so that management and employees agree to the objectives and understand what they are in the organization.

The term management by objectives was first popularized by peter drucker in his 1950 book The practices of management.

Domains and level


Objectives can be set in all domains of activities (production, service, sales, R and D, human resources, finance, information system etc.)

Some objectives are collective, for a whole department or the whole company, other can be individualized.

Practice


MBO is an often achieved using set targets. MBO introduced the SMART criteria objectives for MBO must be SMART.(specific, measurable, achievable, relevant, and time specific).

Objectives need quantifying and monitoring. Reliable management information system are needed to establish relevant objectives and monitor their reach ratio in an objectives way. Pay incentives (bonuses) are often linked to results in reaching the objectives.

It did not address the importance of successfully responding to obstacles and constrains as essential to reaching a goal. The model din not adequately cope with the obstacles of.

• Defects in resources, planning and methodology

• The increase burden of managing the information organization challenge,

• The impact of a rapidly changing environment, which could alter the landscape enough to make yesterday’s goals and action plans irrelevant to the present.
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Review Questions
  • 1. Explain about Management by objectives.
  • 2. Explain the steps involved in decision making. What are the advantages of group decision making?
  • 3. Mention the types of policies.
  • 4. What is MBO? What are its merits?
  • 5. What are the factors affecting decision-making?
  • 6. What is Decision Tree.
  • 7. Differentiate between policies and procedures.
  • 8. Distinguish between MBO and MBE.
  • 9. Bring out the steps involved in Decision-making.
  • 10. What is meant by Decision tree?
  • 11. Define M.B.O. Explain the advantages and limitations of MBO.
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