Decision Making-Introduction to Public Administration-Lecture Handout, Exercises for Introduction to Public Administration
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Decision Making-Introduction to Public Administration-Lecture Handout, Exercises for Introduction to Public Administration

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Objectives for this course are: concept of public administration, management, organization, evolution of concept of public administration, role of government, core fictions of public manager, structure of government and ...
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Microsoft Word - MGT111 - Introduction to Public Administration.doc

Introduction To Public Administration–MGT111 VU

© Copyright Virtual University of Pakistan 76

LESSON 21

DECISION MAKING At the end of the lecture the students will be able to under the relations between decision making and planning:

- Understand the importance of decision making to planning - Limitation of rational decision making process - Approaches to decision making

Definition

First of all we will define decision making. It is defined as the selection of course of action. It is the core of planning. A plan cannot exist unless decision has been made. Decision making is the most important action by managers. Theories on Decision Making There are many theories of decision making but we will discuss the following:

1. Organizational Process Model 2. Rationality in Decision Making

Organizational Process Model All organization follows rules, procedures & system. Decisions in organizations are made according to the procedures and systems that organizations have for example a centralized organization decisions will come from top done. In organization where authority is dispersed participative decisions will be made. So the processes and standard operating procedure (SOP) will determine the quality of decisions made. Rationality in Decision Making

It is said that effective decision making must be rational. But what is rationality. When is a thinking person deciding rationally? People deciding rationally are attempting to reach goals in a systematic way. They collect all:

1) relevant information, 2) analyze information, 3) evaluate and 4) make choice So these are 4 basic steps in making a rational decision. If we follow these steps can we make “best

decision”? Can we get all information for all alternatives. Limited Rationality

People have worked on the issues pertaining to all information to be collected for all alternatives. What has been analyzed is that it is humanly impossible to collect all information for all alternatives. A manager must settle for limited rationality. Information is limited, time is limited and certainty is limited. Therefore managers dislike risk and do not reach the best solution. The decision making is ‘satisfying’, that is, picking a course of action that is good enough Steps in Rational Decision Making

1. Search for alternatives: Given that we know our objectives, the first step in decision making is to search for alternatives. Search for alternatives is based on the concept of ‘limiting’ factor. The Principle of the limiting factor’ is to recognize and overcome factors that stand critically in the way of goals; the best course of action can be selected.

2. Evaluation of Alternatives: the next step in decision making is to evaluate and select one that contributes best to the goals

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Introduction To Public Administration–MGT111 VU

© Copyright Virtual University of Pakistan 77

When deciding about one alternative, managers can use three basic approaches: 1. Experience 2. Experimentation 3. Research and Analysis Usually mangers use their experience and judgment to select an alternative. Experience and

judgment is really reliance on the past. The other method by which managers select alternatives is experimentation, i.e., managers would

try an alternative and see its results. The 3rd method is arriving at alternatives through researching and analysis. The interrelationship

between the 3 methods is shown in Figure 1.

Figure 1

Types of Decision It would be better to know the types of decision that organizations usually take. These are:

1. Programmed 2. Non Programmed

1. Programmed

A programmed decision is structured or repetitive or routine decision. Example: Reordering of standard inventory item, checking at a check post

Reliance on the

past

How to Select from among alternatives

Choice made

Experimentation

Research and Analysis

Basis for Selecting from Among Alternative Courses of Action

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Introduction To Public Administration–MGT111 VU

© Copyright Virtual University of Pakistan 78

2. Non-Programmed Non-programmed decisions are used for unstructured, novel and ill-defined situations of non

recurring nature. Example: introduction of new product in the market,

Figure 2

Figure 2 attempts to explain the problems that organizations may be confronted with and the level at which decisions will be made. At the lowest level in hierarchy structured and programmed decisions are made. Whereas non-programmed and unstructured decisions are made at the highest level in organization. Decision Making Situations

All decisions are made in some degree of uncertainty. Uncertainty is related to the unknown future. Certainty varies from relative certainty to uncertainty. With increase in uncertainty the risk increases. This increase in risk is based on the degree of information about future. The distant the decision is to be made in future more uncertain is the situation.

There are two methods by which quality of decision and certainty can be improved. These are: 1. Mathematical model (objective probabilities) 2. Judgement and experience (subjective probabilities)

Approaches to Decision making

A number of modern techniques are used to improve the quality of decision making under normal conditions of uncertainty. The most important are:

1. Risk Analysis 2. Decision tree 3. Preference theory

1. Risk Analysis: An intelligent decision maker would like to know the size of risk they are taking in deciding to choose a course of action.

Example: There is a situation where you have to take decision and you have worked out the probabilities of gains i.e., for situation 1 the gain is zero and the probability you will have zero gains is 90%. Looked other way there is 10% probability that you will not have zero gains. The highest gain is 35 points and the probability is 40%. So as decision maker you will decide which gains to pick? Where the probably of gains is high? The probability of gain is highest where gain is 10 and probability 80%. But the probability of high gain (35) is only 40%. A manager who is not risk averse will go for last gain.

Structured

Un- Structured Non Programmed

Programmed

Highest Level

Lowest Level

Nature of Problems and Decision making in Organization

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Introduction To Public Administration–MGT111 VU

© Copyright Virtual University of Pakistan 79

Gain 0 10 15 20 25 30 35 Probability.90 .80 .70 .65 .60 .50 .40 of achieving this gain

2. Decision Tree: A decision tree approach makes it possible to see major alternatives and the subsequent decisions may depend on events in future. Figure 3 is depicting a decision tree for an organization to choose between either have permanent security staff of its own or to contract out security service. For each choice the cost of success and failure is worked out. If the decision to have permanent security staff is taken, then the successful implementation will give gain of Rs.100, 000 and failure will cost Rs.200, 000. So in the final analysis we see contracting out as giving more gains.

3. Preference or utility theory explains individual attitude toward risk. Some people are willing to take small risk (risk averters), others are willing to take greater risk (gambler)

Example: If there are 60% chance of being right and having 20 gains or 40% chance of being wrong and have 30 gains. Would the person take the risk of taking that decision for 40 chances and having higher gains? Factors Affecting Decision-Making Process

Following are some of the factors that influence decision making:

1. Personal Differences: People have different personality, experiences and perception and that influences their decision making.

2. Role of Knowledge: The knowledge of people varies, therefore, individual managers will make decision on the amount of knowledge they possess.

3. Institutional Factors: Institutional factors such as organization structure, procedure and system affect decision making.

Concepts

Rational decision: a systematic and sequential process of making decisions and achieving objectives.

Limited rationality: managers have limited time and information therefore their

Permanent Security 200000

Contracting 100000

Success 100000

Failure 200000

Success 200000

Failure 100000

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