Nature of IT Decisions

7/26/2019 Nature of IT Decisions

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The Nature of Decision Making

Making effective decisions, as well asrecognizing when a bad decision has beenmade and quickly responding to mistakes, is akey ingredient in organizational effectiveness.

ome e!perts believe that decision making isthe most basic and fundamental of allmanagerial activities.

Decision making is most closely linked with the

"lanning function.#owever, it is also part of $rganizing, %eading and &ontrolling.



'hat is Decision Making(

) Decision making is theact of choosing onealternative from among a

set of alternatives.

) 'e have to first decidethat a decision has to be

made and then secondlyidentify a set of feasiblealternatives before weselect one.



Decision*Making "rocess

) Decision*Making "rocess includes+

recognizing and defining the nature of a decision

situation

identifying alternatives

choosing the best- most effective/ alternative andputting it into practice.



Decision*Making "rocess. . .(continued)

ometimes effective decisions must be

made to+

) $ptimize some set of factors such as profits, sales,

employee welfare and market share or

) Minimize loss, e!penses or employee turnover or

) elect best method for going out of business,laying off employees, or terminating a strategic

alliance.



Decision*Making "rocess. . .(continued)

Managers make decisions about both

problems 0undesirable situations1 and

opportunities 0desirable situations1.&utting costs by 234

%earning that the company has earned higher*

than*pro5ected profits

6t may take a long time before a managercan know for sure if the right decision was

made.



Types of Decisions

) "rogrammed decision is

one that is fairly

structured or recurs with

some frequency 0or both1.

) Nonprogrammed decision

is one that is unstructured

and occurs much less

often than a programmed

decision.



"rogrammed Decisions. . .

Many decisions regarding basic operating

systems and procedures and standard

organizational transactions fall into this

category.McDonald-s employees are trained to make the 7ig

Mac according to specific procedures.

tarbucks, and many other organizations, useprogrammed decisions to purchase new supplies

coffee beans, cups and napkins/.



Nonprogrammed Decisions. . .

Most of the decisions made by top managersinvolving strategy and organization design arenonprogrammed.

Decisions about mergers, acquisitions and takeovers, new

facilities, new products, labor contracts and legal issues arenonprogrammed decisions.

Managers faced with nonprogrammed decisionsmust treat each one as unique, investing greatamounts of time, energy and resources into

e!ploring the situation from all views.6ntuition and e!perience are ma5or factors inthese decisions.



Decision*Making &onditions

) Decision Making 8nder

&ertainty

) Decision Making 8nder

9isk

) Decision Making 8nder8ncertainty



Decision Making 8nder &ertainty

: state of certainty e!ists when a decision maker

knows, with reasonable certainty, what the

alternatives are and what conditions are

associated with each alternative.;ery few organizational decisions, however, are

made under these conditions.

The comple! and turbulent environment in which

businesses e!ist rarely allows for such

decisions.



Decision Making 8nder 9isk

: state of risk e!ists when a decision maker makes

decisions under a condition in which the availability of

each alternative and its potential payoffs and costs are

all associated with probability estimate.

Decisions such as these are based on past e!periences,

relevant information, the advice of others and one-s own

5udgment.

Decision is calculated- on the basis of which alternative

has the highest probability of working effectively. union

negotiations, "orsche-s 8; focus vs high*performance sports cars/



Decision Making 8nder 8ncertainty

: state of uncertainty e!ists when a decision maker doesnot know all of the alternatives, the risks associated witheach, or the consequences each alternative is likely tohave.

Most of the ma5or decision making in today-sorganizations is done under these conditions.

To make effective decisions under these conditions,managers must secure as much relevant information aspossible and approach the situation from a logical andrational view.

6ntuition, 5udgment and e!perience always play ma5orroles in the decision*making process under theseconditions.

See Figure 9.1, page 279.



: ;iew of Decision*Making

&onditions

Certainty Risk Uncertainty

Leve o! a"#iguity and c$ances o! "aking a #ad decision

Lo%er &oderate 'ig$er

$e decision

"aker !aces

conditions o!



9ational "erspectives on Decision Making

<eys to Decision Making

&lassical

Decision

Model

9ationalDecision

Making



&lassical Decision Model

) :n approach to decision making that tells

managers how they should make decisions.

) :pproach assumes that managers are logical

and rational.) :pproach assumes that managers- decisions will

be in the best interests of the organization.

) &onditions suggested in this approach rarely, ifever, e!ist.

See Figure 9.2, page 2*1.



+#tain co"pete and

per!ect in!or"ation.

i"inate uncertainty.

vauate everyt$ing

rationay and ogicay-

The &lassical Model of Decision

Making

$en !aced %it$ adecision situation,

"anagers

s$oud-

-and end up %it$ a

decision t$at #est

serves t$e interests

o! t$e organi/ation.



9ational Decision Making

Consists o! si0 () steps t$at keep t$e

decision "aker !ocused on !acts and ogic

and $ep guard against inappropriate

assu"ptions and pit!as.

esigned to $ep t$e "anager approac$ a

decision rationay and ogicay.



9ational Decision Making. . .(continued)

21 9ecognizing and defining the decision

situationa1 Need to define- precisely what the problem is.

b1 Manager must develop a completeunderstanding of the problem.

c1 Manager must carefully analyze and consider the

situation.




=1 6dentifying alternativesa1 Managers must realize that their alternatives may

be limited by legal, moral and ethical norms,

authority constraints, available technology,economic considerations and unofficial social

norms.




>1 ?valuating alternativesa1 ?ach alternative must pass successfully through three

stages before it may be worthy of consideration as asolution.

2. @easibility A 6s it financially possible( 6s it legally possible(

:re there limited human, material andBor informationalresources available(=. atisfactory A Does the alternative satisfy the conditions of

the decision situation( C34 increase in sales/

>. :ffordability A #ow will this alternative affect other parts ofthe organization( 'hat financial and non*financial costsare associated(

b1 The manager must put price tags- on the consequences ofeach alternative.

c1 ?ven an alternative that is both feasible and satisfactorymust be re5ected if the consequences are too e!pensive forthe total system.




1 electing an alternativea1 &hoosing the best alternative is the real test of

decision making.

b1 $ptimization is the goal because a decision islikely to affect several individuals or departments.

c1 @inding multiple acceptable alternatives may be

possibleE selecting one and re5ecting the others

may not be necessary.




C1 6mplementing the chosen alternativea1 Managers must consider people-s resistance to

change when implementing decisions.

b1 @or some decisions, implementation is easyE forothers, very difficult or time consuming.

c1 $perational plans are very useful in implementing

alternatives.

d1 Managers must also recognize that even when allof the alternatives and their consequences have

been evaluated as precisely as possible,

unanticipated consequences are still likely.




F1 @ollowing up and evaluating the resultsa1 Managers must evaluate the effectiveness of their decisions

A did the chosen alternative serve its original purpose(

#) 3! t$e i"pe"ented aternative appears not to #e

%orking, t$e "anager $as severa c$oices1. 4not$er previousy identi!ied aternative "ig$t #e

adopted or

2. Recogni/e t$at t$e situation %as not correcty de!ined

and start t$e process a over again or

5. ecide t$at t$e aternative $as not #een given enoug$ti"e to %ork or s$oud #e i"pe"ented in a di!!erent

%ay.

6See Figure 9.5 and a#e 9.1



@igure G.>+ ?valuating :lternatives

in the Decision*Making "rocess



7ehavioral :spects of Decision Making

) ometimes decision making must reflect

sub5ective considerations 0tastes, etc.1

) $ther behavioral aspects include+ political

forces, intuition, escalation ofcommitment, risk propensity and ethics.



7ehavioral :spects. . . (continued)

The :dministrative Model of Decision Making

#erbert : imon, a Nobel "rize winner in ?conomics,

developed the model to describe how decisions are

often made rather than to prescribe how they should be

made.

:rgues that decision makers have incomplete and

imperfect information, are constrained by bounded

rationality- and tend to satisfice- when making decisions.

7ounded rationality suggests that decision makers arelimited by their values and unconscious refle!es, skills

and habits. :merican vs foreign automakers/




atisficing is the tendency to search foralternatives only until one is found that meets

some minimum standard of sufficiency.

9ather than conducting an e!haustive searchfor the best possible alternative, decision

makers tend to search only until they identifyan alternative that meets some minimumstandard of sufficiency.



...and end up %it$ a

decision t$at "ay or

"ay not serve t$e

interests o! t$e

organi/ation.

The :dministrative Model of

Decision Making

Use inco"pete and

i"per!ect 3n!or"ation.

4re constrained #y

#ounded rationaity.

end to satis!ice-$en !aced %it$ a

decision situation

"anagers

actuay-




The &lassical and :dministrative Models paint quite a

different picture of decision making. #owever, each

may be used to better understand how managers

make decisions.

The &lassical Model attempts to e!plain how

managers can at least attempt to be more rational

and logical in their approach to decisions.

The :dministrative Model can be used by managers

to develop a better understanding of their inherentbiases and limitations.



7ehavioral @orces 6nfluencing Decisions

"olitical @orces in Decision Making

&oalition * an informal alliance of individuals or

groups formed to achieve a common goalstockholders,

directors, parliament blocs, etc/

6mpact of a coalition may be positive or negative.

Managers must recognize when to use coalitions,

how to assess if they are acting in the bestinterest of the organization and how to control

their negative effects.




6ntuition A is an innate belief about something,

without conscious consideration.

Deciding to do something because it feels right-

or one has a hunch-.

@eeling is based on years of e!perience and

practice in making decisions in similar situationsE

may help managers make occasional decisions without going through an a*to*z process.




?scalation of &ommitment A occurs when a

decision maker stays with a decision even

when it appears to be wrong. "an :m holdings/

Decision makers must guard against

sticking too long with an incorrect

decision.

#owever, managers should not bail out- of

a seemingly incorrect decision too soon.




9isk "ropensity A thee!tent to which adecision maker iswilling to gamblewhen making adecision.

$rganizational culture isa prime ingredient inencouraging differentlevels of risk.




?thics

Managerial ethics involves a

wide variety of decisions+

9elationships of the firm

to its employees closing a dept

to save money/

9elationships of the

employees to the firm9elationships of the firm

to other economic agents

Nature of IT Decisions

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