MANAGERIAL DECISION MAKING WEEK FIRST ASSIGNMENT

MANAGERIAL DECISION MAKING WEEK FIRST ASSIGNMENT

Decision-making describes the process by which a course of action is selected to deal with a specific problem. The success of an organization depends greatly on the decisions of managers. There are two major types of models used by managers to make decisions rational model and non-rational models. In the rational model, managers engage in rational decision-making processes. Any rational decision-making process consists of six basic steps. Those steps are: define the problem, identify the criteria, weight the criteria, generate alternative solutions, rate each alternative on each criterion, and compute the optimal decision. These decision making steps which is mentioned in the text book are really practical.

The six steps problem solving steps are widely used by the different organization and individual knowingly and unknowingly. I have an example how junior student in my university apply these six steps problem solving process to solve the problem. This is real problem of a under graduate student where some student used to come late in class and leave early. Because of that whole class used were affected. Therefore, both students and teacher decided to apply the systematic problem solving approach to solve the problem. Below are the different steps they apply to solve the problem applying the six steps problem solving approach.

 Steps One In this first step they define what is their real problem is. To identify the real problem they apply brain storming by the teacher and student to define the real problem not just the symptom of the problem.

 Problem statement: Some students come late in class and leave early than other students who come on time. These have not only affected those students who come late but also those who are on time.

Steps two

Analyze the Problem: after analysis and discussion it is discovered that students who were leaving early needed to catch the bus to go home or they would have to wait an additional hour for another bus. For some students this meant that they would not be at home when their children arrived from school.

Steps three:

            Generate potential solutions: after defining the problem and analyzing it number of alternatives is discovered as a potential solution to the problems. They are:

§  The teacher should come early for students who needed to be there early.

§  Stay and catch the bus later

§  Come to school 15 minute earlier

§  Don’t take the entire break

§  Find another way to get to school

§  The teacher should have learners mark when they came and leave the school

Step 4

Select and plan the solution: Now that there are wide varieties of possible solution and it is time to select the best solution to fix the problem given the circumstances, resources and other considerations. In this step they are trying to figure out what is the best solution to the problem. They discussed number of factors which directly affect the solution like cost associated with the problems, time which is needed to implement the solution, procedures of the given solution, rules and regulation which should be considered before finalizing the particular solution. After the long discussion they come up with the following solution to the problem.

§  Students who needed to leave early come to class early

§  All students would be expected to return from the break at the correct time.

§  All students would sign in exactly when they come to class

§  All students would sign out at the exact time they left the class

§  All students would keep calendar and monitor their attendance them self

Steps five & six

Implement the solution and evaluate the solution: The selected solution is implemented and solution is evaluated. After few months, they found that those students who used to come late discover their own group and schedule their class in such a way that they can balance their class and their family affairs. Which not only solved the particular class problem but also provide a unique system to the whole university that they started letting the student choose their own preferred time where student can choose what time preference they would like to have and design different class and section accordingly. Finally, it is found that student application increased by 26% and admission gone up by 14.5% next year.

System one Vs System two thinking

System 1 thinking is absolutely the best way to go when the situations we are facing are highly similar to previous situations we’ve faced over and over. In System 1 thinking, decision makers relies heavily on a number of heuristics (cognitive maneuvers), key situational characteristics, readily associated ideas, and vivid memories to arrive quickly and confidently at a judgment. System 1 thinking is particularly helpful in familiar situations when time is short and immediate action is required.

System 2 thinking on the other hand, is useful for making judgments when we find ourselves in unfamiliar situations and have more time to figure out the things. It allows us to process abstract concepts, to deliberate, to plan ahead, to consider options carefully, to review and revise our work in the light of relevant guidelines or standards or rules of procedure. While System 2 decisions are also influenced by the correct or incorrect application of heuristic maneuvers, this is the system which relies on well articulated reasons and more fully developed evidence. It is reasoning based on what we have learned through careful analysis, evaluation, explanation, and self-correction. This is the system which values intellectual honesty, analytically anticipating what happens next, maturity of judgment, fair-mindedness, elimination of biases, and truth-seeking. This is the system which we rely on to think carefully trough complex, novel, high- stakes, and highly integrative problems.

It is true that, a complete System 2 thought process is not necessary for every managerial decision or for every small negotiation we may face. When we're negotiating with our coworkers over where to go for lunch, when we're setting deadlines for low-priority tasks, or when we're informally discussing items that we plan to revisit later in more detail, System 1 thought will be sufficient. Taking the time to logically reason through every decision can be costly, even leading to decision paralysis. However, we should engage in System 2 thought during our most important negotiations.

We apply system one thinking most of the time in our day to day life. Few days ago we went to one Mexican restaurant to celebrate our friend’s birthday party. We apply system one thinking to choose the restaurant because there was no logical reason why we choose that specific restaurant. After going to the restaurant we saw the menu and order some food again applying system two thinking because we order whatever looks familiar to us and we choose the food looking at their name rather than understanding how they cook and from what they made of. But I do apply system two thinking to buy a car few days ago. When I realized that I need a car, then I first ask myself how much I can pay for the car. After that I choose the brand of car, color, model, etc. After deciding all these sort of things I started looking for the available alternatives. Finally I bought one which maximum satisfies my criteria.

When I read text book of our managerial decision making, chapter 1^st, it was interesting to know that how often we apply system 1 thinking. Even the situation demands system two thinking we tend to apply system one thinking.  Surprisingly, I realized that I applied system 1 thinking when I decided to come to Tiffin University. I choose Tiffin just because they are first to issue my I-20 than other five different university where I had send my application.

Many times we do huge mistake by applying system one thinking instead of system two thinking. In my previous example of Tiffin University, I later realized it was my mistake to choose Tiffin University because there were other better options. Two other university where I applied were offered me attractive scholarship but I was too late to accept the opportunities. Nowadays we have tendency to rely on System 1 thinking when making decisions or passing judgment. We invariably go with our first or our gut instinct. Time limitation is one of the reasons for why we often apply system 1 thinking even though we know that the situation is demanding system two thinking. We just don’t have time to be rational and logical, to explore and analyze the alternatives. But we can make better decision if we apply system two thinking in our non routine managerial decision.

Judgment heuristic:

Another concept I like in the first two chapters is judgment heuristic. Judgmental heuristics are principles or methods by which one makes assessments or judgments of probability simpler. These heuristic are often very useful but sometimes they lead to systematic errors. Representativeness and anchoring are sometimes known as heuristics - "rules of thumb" that humans use to perform abstract reasoning in cognitively economical ways. Heuristics save time and effort, but often fail utterly when presented with data outside of their "domain of expertise". These failures tend to difficult to notice, because  the thinking processes responsible for judging the overall quality of our thinking processes are plagued by the biases as well, and  they are so widespread and natural that few people notice them, and decisions made based on heuristics feel good - they're intuitively satisfying regardless of their correctness. When I was in primary school student I used to go to school by school bus. I used to be on time every day but in the rainy day my grandmother used to generalize that the school bus will come late  prepare the my lunch and Tiffin late because of that  I used to be late school bus always came at their predefined time no matter whatever the weather. For example, here is one Heuristics my brother use to make his  business decisions slightly simpler: If he can’t think of a solution to a particular problem he encounter,  then he works  backwards to find out how he  might have got there.  And he doesn’t take new business opportunity which doesn’t align with the stated vision and purpose of the organization.

In conclusion, judgment heuristics typically focus on how heuristics can lead to poor judgments. However, most of the time heuristics are “rules of thumb” which is used to make complex decisions easier. They are particularly used to create a method that often rapidly leads to a solution that is usually reasonably close to the best possible answer, although they are a form of fuzzy logic and not always accurate in all contexts.

References:

Dunning, D., Meyerowitz, J., Holzberg, A. (2003.) "Ambiguity and Self-Evaluation: The Role of Idiosyncratic Trait Definitions in Self-Serving Assessments of Ability." In Heuristics and Biases.

Bazerman, H, Max,. Moore A. Don.(2009) “Judgement in Managerial Decision Making’’. Wiley