Decision Making

1. Strategic Decisions and Routine Decisions
2. Programmed Decisions and Non-Programmed Decisions
3. Policy Decisions and Operating Decisions
4. Oragnizational Decisions and Personal Decisions
5. Individual and Group Decisions

Daniel Kahneman, System 1 and System 2 Thinking concept in "Thinking, Fast and Slow".

System 1 is the intuitive "gut reaction". System 2 is the analytical "critical way of making decisions".

Good decisions come from experience.
Experience comes from making bad decisions.

- Mark Twain

Some key advices from mindtools :

1. Establish a Positive Decision-Making environment(Include all stakeholders and engage in open and honest discussions)
2. Generate Potential Solutions(Brainstorming and Creativity)
3. Evaluate Solutions(Understand risks, Impact Analysis, Feasibility)
4. Decide(Decision Matrix Analysis and Paired Comparison Analysis)
5. Check Decisions(Intuitive, intinctive level and The Ladder of Inference)
6. Communicate and Implement(Project Management and Change Management)

The process has a number of steps which are abbreviated as DECIDE.

1. Define goals
2. Establish your Criteria
3. Choose good options
4. Identify the pros and cons
5. Decide the most logical option for your situation
6. Evaluate the results

Types of Decisions

Tactical Decisions

What a manager makes over and over again adhering to certain established rules.

Strategic Decision

Influence the future and influence the entire organization

Programmed Decisions

Reptitive decisions.

Non-Programmable Decisions

Complex and deserve subjective treatment.

Basic Decisions

Need careful deliberation and are of crucial importance.

Routine Decisions

Repetitive and require lesser consideration

Organizational

Executive takes in his official capacity and can be delegated to others.

Personal

Individual capacity and not as a member of the organization.

Policy Decisions

Top management led decisions

Operating Decisions

For the lower management to execute the policy decisions.

Decision Making Styles

1. Authoritative
2. Consultative
3. Voting
4. Consensus

Cost Benefit Analysis

Costs are :

1. Money
2. Time
3. Effort
4. Risk

Benefits are :

1. More profits
2. Less costs

Hurdles of Decision making

Level of Decision Making Not Clear Sometimes, there is ambiguity in the level of power a manager holds, whether he holds the right to make modifications in the existing system. This often leads to confusion in the minds of the manager, especially at a middle-level manager.

Lack of Time

Hasty decisions often lead to disastrous effects. However, businesses are subject to emergencies and often, as a decision making authority, you need to take a call in the limited time available. This can pose a most difficult hurdle for most leaders, however, an effective leader has to go through these testing times.

Lack of reliable data

Lack of reliable data can be a major hindrance in making apt decisions. Ambiguous and incomplete data often makes it difficult for them to make an appropriate decision, which may not be the best suited for any organization.

Risk-Taking Ability

Any decision attracts a fair deal of risk of resulting into negative outcome. However, it is necessary to take calculated risks for an effective decision. Also, at the same time, casual attitude and completely ignoring risks will not result in taking appropriate decisions.

Too Many Options

A manager can be in a dilemma if there are too many options for an effective solution. Finding the appropriate one can be very difficult, especially if a particular decision favours a department over the other.

Inadequate Support

A manager, however good he may be, cannot work without an adequate support level from his subordinates. Lack of adequate support either from top level or grass root level employees may result in a great jeopardy for the manager.

Lack of Resources

A manager may find it difficult to implement his decisions due to lack of resources- time, staff, equipment. In these cases, he should look out for alternative approaches which fit in the available resources. However, appropriate steps must be taken in case he feels that lack of resources may stop the growth of the organization.

Inability to Change

Every organization has its own unique culture which describes its working policies. However, some policies are not conducive to managers who are looking out for a change. The rigid mentality of top-level management and the subordinates are the biggest hurdle, wherein a manager cannot make positive amendments even if he wishes to do so.

6 biases of decision making

The base rate bias

Base rate is underlying probability unconditioned by prior events.

Example :

Study : You're most likely to break your phone in the kitchen.
Bias : How long do you spend in each room?

The confirmation bias

Tedency for people to seek out information that conforms to preexistent viewpoint and ignore the opposing information.

Find evidence that disproves your idea.

The availability bias

Making judgements about the probability of events based on hw easy it is to think of examples. (If you can think of it, it must be important)

1. Think about why you're making a decision
2. Research
3. Look for contrary examples
4. Ask for opinions
5. Be wary of media stories

The Hindsight Bias

Inclination to think past events were predictable.

Causes memory distortions.

The overconfidence bias

Unwarranted faith in your intuition.

• Oversimplification
• Not accounting for luck
• Expertise

The sunk cost bias

Sunk cost : A resource you've used and can't get back.

Increase expenditure by saying that a lot has been spent, what's a little more.

1. Why are we doing this?
2. What were our assumptions?
3. Are the assumptions still valid?

Acting Decisively

1. How certain about it are yu?
2. What is the smallest decision you can make?
   1. develop a hypothesis
   2. test

Ask :

1. How solid the decision is?
2. What others think?
3. Double check