Information as an Aid to Decision Making

Herbert Simon said that a decision maker follows the process of decision making
disregarding the decision or the type of decision and the motive behind the decision.
This process is followed consciously or without knowing it. We can put this process in
the Decision Making Model.Simon (1977) describes the process of decision making as
comprising four steps:

1. Intelligence 2. Design 3. Choice 4. Review and implementation

The intelligence stage encompasses collection, classification, processing, and

presentation of data relating to the organization and its environment. This is necessary
to identify situations calling for decision.

During the decision stage, the decision maker outlines alternative solutions, each of
which involves a set of actions to be taken. The data gathered during the intelligence
stage are now used by statistical and other models to forecast possible outcomes for
each alternative. Each alternative can also be examined for technological, behavioral,
and economic feasibility.

In the choice stage, the decision maker must select one of the alternatives that will
best contribute to the goals of the organization.

In the review stage, past choices can be subjected to review during implementation
and monitoring to enable the manager to learn from mistakes. Information plays an
important role in all four stages of the decision process. Figure 1 indicates the
information requirement at each stage, along with the functions performed at each stage
and the feedback loops between stages.

DECISION MAKING can be regarded as an outcome of mental processes (cognitive

process) leading to the selection of a course of action among several alternatives.
Every decision making process produces a final choice. The output can be an action or
an opinion of choice. Human performance in decision making terms has been the
subject of active research from several perspectives. From a psychological perspective,
it is necessary to examine individual decisions in the context of a set of needs,
preferences an individual has and values they seek. From a cognitive perspective, the
decision making process must be regarded as a continuous process integrated in the
interaction with the environment. From a normative perspective, the analysis of
individual decisions is concerned with the logic of decision making and rationality and
the invariant choice it leads to. Yet, at another level, it might be regarded as a problem
solving activity which is terminated when a satisfactory solution is found. Therefore,
decision making is a reasoning or emotional process which can be rational or irrational,
can be based on explicit assumptions or tacit assumptions.
Logical decision making is an important part of all science-based professions, where
specialists apply their knowledge in a given area to making informed decisions. Some
research shows, however, that in situations with higher time pressure, higher stakes, or
increased ambiguities, experts use intuitive decision making rather than structured
approaches.

The major characteristics of the business decision making are:

(a) Sequential in nature.

(b) Exceedingly complex due to risks and tradeoffs.
(c) Influenced by personal values
(d) Made in institutional settings and business environment.

A. The business decision making is sequential in nature. In business, the decisions are
not isolated events. Each of them has a relation to some other decision or situation. The
decision may appear as a “snap” decision but it is made only after a long chain of
developments and a series of related earlier decision.

B. The decision making process is a complex process in the higher hierarchy of

management. The complexity is the result of many factors, such as the inter-relationship
among the experts or decision makers, a job responsibility, a question of feasibility, the
codes of morals and ethics, and a probable impact on business.

C The personal values of the decision maker play a major role in decision making. A
decision otherwise being very sound on the business principle and economic rationality
may be rejected on the basis of the personal values, which are defeated if such a
decision is implemented. The culture, the discipline and the individual’s commitment to
the goals will decide the process and success of the decision.

D. Whatever may be the situation, if one analyses the factors underlying the decision
making process, it would be observed that there are common characteristics in each of
them. There is a definite method of arriving at a decision: and it can be put in the form of
decision process model.

The decision making process requires creativity, imagination and a deep understanding
of human behavior. The process covers a number of tangible and intangible factors
affecting the decision process. It also requires a foresight to predict the post-decision
implications and a willingness to face those implications. All decisions solve a problem
but over a period of time they give rise to a number of other problems.

Decision making process

We use our decision making skills to solve problems by selecting one course of action
from several possible alternatives. Decision making skills are also a key component of
time management skills. Decision making can be hard. Almost any decision involves
some conflicts or dissatisfaction. The difficult part is to pick one solution where the
positive outcome can outweigh possible losses. Avoiding decisions often seems easier.
Yet, making your own decisions and accepting the consequence is the only way to stay
in control of your time, your success, and your life.

Types of Decision

The types of decisions are based on the degree of knowledge about the outcomes or the
events yet to take place. If the manager has full and precise knowledge of the event or
outcome which is to occur, then his problem of the decision making is not a problem. If
the manager has full knowledge, then it is a situation of certainty. If he has partial
knowledge or a probabilistic knowledge, then it is decision making under risk. If the
manager does not have any knowledge whatsoever, then it is decision making under
uncertainty.

A good system tries to convert a decision making situation under uncertainty to the
situation under risk and further to certainty. Decision making in the operations
management, is a situation of certainty. This is mainly because the manager in this field
has fairly good knowledge about the events which are to take place, has full knowledge
of environment, and has predetermined decision alternatives for choice or for selection.

Decision making at the middle management level is of the risk type. This is because of
the difficulty in forecasting an event with hundred per cent accuracy and the limited
scope of generating the decision alternatives.

At the top management level, it is a situation of total uncertainty of account of

insufficient knowledge of the external environment and the difficulty in forecasting
business growth on a long-term basis.

A good design gives adequate support to all the three levees of management.
A manager can make three kinds of decision:

Structured – which are repetitive and need a definite routine and procedure to
deal with them, e.g. stock is below 15 %, so an order need to be place with a
supplier.
Unstructured – require knowledge, insight, and evaluation. They may well
crop up without warning, and the right decision can be critical.
Semi-structured- some decision procedures can be pre-specified but not enough to
lead to a recommended decision

Nature of Decision
Decision making is a complex situation. To resolve the complexity, the decisions are
classified as programmed and non-programmed decisions.
If a decision can be based on a rule, method or even guidelines, it is called the
programmed decision. If the stock level of an item is 200 numbers, then the decision to
raise a purchase requisition for 400 numbers is a programmed-decision-making
situation. The decision maker here is told to make a decision based on the instructions
or on the rule of ordering a quantity of 400 items when its stock level reaches 200. If
such rules can be developed wherever possible, then the system itself can be designed
to make a decision and even execute. The system in such cases plays the role of a
decision maker based on a given rule or a method. Since the programmed decision is
made through MIS, the effectiveness of the rule can be analyzed and the rule can be
revived and modified from time to time for an improvement. The programmed decision
making can be delegated to a lower level in the management cadre.

A decision which cannot be made by using a rule or a model is the non-programmed

decision. Such decisions are infrequent but the stakes are usually larger. Therefore,
they cannot be delegated to the lower level. The non-programmed-decision situation
can help to some extent, in identifying the problem, giving the relevant information to
handle the specific decision making situation.