Decision Making, Cost Management Video Lecture | Cost Management - B Com

decision-making can be regarded as the
cognitive process resulting in the
selection of a belief or a course of
action among several alternative
possibilities every decision-making
process produces a final choice that may
or may not prompt action decision-making
is the study of identifying and choosing
alternatives based on the values and
preferences of the decision-maker
decision-making is one of the central
activities of management and is a huge
part of any process of implementation
overview human performance with regard
to decisions has been the subject of
active research from several
perspectives psychological examining
individual decisions in the context of a
set of needs preferences and values the
individual has or seeks cognitive the
decision-making process regarded as a
continuous process integrated in the
interaction with the environment
normative the analysis of individual
decisions concerned with the logic of
decision-making and rationality and the
invariant choice it leads to
decision-making can also be regarded as
a problem-solving activity terminated by
a solution deemed to be satisfactory it
is therefore a reasoning or emotional
process which can be rational or
irrational and can be based on explicit
assumptions or tacit assumptions
rational choice theory encompasses the
notion that people try to maximize
benefits while minimizing costs some
have argued that most decisions are made
unconsciously Jim Nightingale states
that we simply decide without thinking
much about the decision process in a
controlled environment such as a
classroom instructors might try to
encourage students to weigh pros and
cons before making a decision this
strategy is known as Franklin's rule
however because such a rule requires
time cognitive resources and full access
to relevant information about the
decision this rule may not best describe
how people make decisions logical
decision-making is an important part of
all science-based professions where
specialists apply their knowledge in a
given area to make informed decisions
for example medical decision making
often involves a diagnosis in the
selection of appropriate
treatment some research using
naturalistic methods shows however that
in situations with higher time pressure
higher stakes or increased ambiguities
experts use intuitive decision making
rather than structured approaches a euro
following a recognition primed decision
that fits their experience ei euro and
arrive at a course of action without
wearing alternatives recent robust
decision research has formally
integrated uncertainty into its decision
making model decision analysis
recognized and included uncertainties in
its theorizing since its conception in
1964 a major part of decision-making
involves the analysis of a finite set of
alternatives described in terms of
evaluative criteria information overload
occurs when there is a substantial gap
between the capacity of information and
the ways in which people may or can
adapt the overload of information can be
related to problem of parallel
processing and tasking which effects
decision making these criteria may be
benefit or cost in nature then the
problem might be to rank these
alternatives in terms of how attractive
they are to the decision-maker s when
all the criteria are considered
simultaneously another goal might be to
just find the best alternative or to
determine the relative total priority of
each alternative when all the criteria
are considered simultaneously solving
such problems is the focus of
multi-criteria decision analysis also
known as multi criteria decision making
this area of decision making although
very old has attracted the interest of
many researchers and practitioners and
is still highly debated as there are
many MCD amcd M methods which may yield
very different results when they are
applied on exactly the same data this
leads to the formulation of a
decision-making paradox in regards to
management and decision making each
level of management is responsible for
different things top level managers look
at and create strategic plans were the
organization's vision goals and values
are taken into account to create a plan
that is cohesive with the mission
statement for mid-level managers
tactical plan
are created with specific steps with
actions that need to be executed to meet
the strategic objective finally the
frontline managers are responsible for
creating and executing operational plans
these plans include the policies
processes and procedures of the
organization each must take into account
the overall goals and processes of the
organization rational and irrational
decision making in economics it is
thought that if humans are rational and
free to make their own decisions then
they would behave according to rational
choice Theory this theory states that
people make decisions by determining the
likelihood of a potential outcome the
value of the outcome and then
multiplying the two for example with a
50% chance of winning $20 or a 100%
chance of winning $10 people more likely
to choose the first option in reality
however there are some factors that
affect decision-making abilities and
cause people to make irrational
decisions one of them being availability
bias availability bias is the tendency
for some items that are more readily
available in memory to be judged as more
frequently occurring for example someone
who watches a lot of movies about
terrorist attacks may think the
frequency of terrorism to be higher than
it actually is information overload
information overload is a gap between
the volume of information and the tools
we need to assimilate it it is proven in
some studies that the more information
overload the worse the quality of
decisions made there are five factors
personal information factors personal
qualifications experiences attitudes etc
information characteristics information
quality quantity and frequency tasks in
process standardized procedures or
methods organizational design
organizations cooperation processing
capacity and organization relationship
information technology IT management and
general Technology Hall a risk and todo
of with an assistant rash Affinia
described in illusion of knowledge
meaning that as individuals encounter
too much knowledge
actually interferes with their ability
to make rational decisions problem
analysis and decision making it is
important to differentiate between
problem analysis and decision making the
concepts are completely separate from
one another
traditionally it is argued that problem
analysis must be done first so that the
information gathered in that process may
be used towards decision making problem
analysis analyzed performance what
should the results be against what they
actually are
problems are merely deviations from
performance standards problem must be
precisely identified and described
problems are caused by a change from a
distinctive feature something can always
be used to distinguish between what
hasn't hasn't been affected by a cause
causes two problems can be deducted from
relevant changes found in analyzing the
problem most likely caused to a problem
is the one that exactly explains all the
facts decision-making objectives must
first be established objectives must be
classified and placed in order of
importance alternative actions must be
developed the alternative must be
evaluated against all the objectives the
alternative that is able to achieve all
the objectives is the tentative decision
the tentative decision is evaluated for
more possible consequences the decisive
actions are taken and additional actions
are taken to prevent any adverse
consequences from becoming problems and
starting both systems all over again
there are steps that are generally
followed that result in a decision model
that can be used to determine an optimal
production plan in a situation featuring
conflict role-playing may be helpful for
predicting decisions to be made by
involved parties decision planning
making a decision without planning is
fairly common but does not often end
well planning allows for decisions to be
made comfortably and in a smart way
planning makes decision-making a lot
more simple and it is decision will get
full benefits out of planning one
planning give chance to the
establishment of independent goals it is
a conscious and directed series of
choices to planning provide
the standard of measurement it is a
measurement of whether you are going
towards or further away from your goal
three planning converts values to action
you think twice about the plan and
decide what will help advance your plan
best for planning allows for limited
resources to be committed in an orderly
way always govern the use of what is
limited to you analysis paralysis
analysis paralysis is the state of over
analyzing the situation or citing
sources so that a decision or action is
never taken in effect paralyzing the
outcome everyday techniques
decision-making techniques can be
separated into two broad categories
group decision-making and individual
decision-making techniques group
decision-making techniques consensus
decision-making tries to avoid winners
and losers consensus requires that a
majority approve a given course of
action but that the minority agree to go
along with the course of action in other
words if the minority opposes the course
of action consensus requires that the
course of action be modified to remove
objectionable features voting based
methods range voting lets each member
school one or more of the available
options the option with the highest
average is chosen this method has
experimentally been shown to produce the
lowest Bayesian regret among common
voting methods even when voters are
strategic majority requires support from
more than 50% of the members of the
group thus the bar for action is lower
than with unanimity and a group of
losers is implicit to this rule
morality where the largest block in a
group decides even if it falls short of
a majority Delphi method is structured
communication technique for groups
originally developed for collaborative
forecasting but has also been used for
policymaking democracy is a facilitation
method that relies on the use of special
forms called democracy sheets to allow
large groups to collectively brainstorm
and recognize agreement on an unlimited
number of ideas they have authored
individual decision making techniques
pros and cons
the advantages and disadvantages of each
option popularized by Plato and Benjamin
Franklin contrast the costs and benefits
of all alternatives also called rational
decision-making simple prioritization
choosing the alternative with the
highest probability weighted utility for
each alternative satisficing examining
alternatives only until an acceptable
one is found elimination by aspects
choosing between alternatives using
mathematical psychology the technique
was introduced by a most risky in 1972
it is a cover elimination process that
involves comparing all available
alternatives by aspects the
decision-maker chooses an aspect any
alternatives without that aspect are
then eliminated the decision-maker
repeats this process with as many
aspects as needed until there remains
only one alternative preference trees in
1979 Trask and Schmo else attached
updated the elimination by aspects
technique by presenting a more ordered
and structured way of comparing the
available alternatives this technique
compared the alternatives by presenting
the aspects in a decided and sequential
order it became a more hierarchical
system in which the aspects are ordered
from general to specific acquiesce to a
person in authority or an expert just
following orders
flip ISM flipping a coin cutting a deck
of playing cards and other random or
coincidence methods prayer tarot cards
astrology orgas revelation or other
forms of divination taking the most
opposite action compared to the advice
of mistrusted authorities opportunity
cost calculating the opportunity cost of
each options and decide the decision
bureaucratic setup criteria for
automated decisions political negotiate
choices among interest groups
participative decision making a
methodology in which a single decision
maker in order to take advantage of
additional input opens up the
decision-making process to a group for a
collaborative effort use of a structured
decision-making method
individual decision-making techniques
can often be applied by a group as part
of a group decision-making technique and
need to use software for a decision
making process is emerging for
individuals and businesses this is due
to increasing decision complexity and an
increase in the need to consider
additional stakeholders categories
elements or other factors that affect
decisions stages of group
decision-making
according to be Aubrey Fisher there are
four stages or phases that should be
involved in all group decision-making
orientation members meet for the first
time and start to get to know each other
conflict once group members become
familiar with each other disputes little
fights and arguments occur group members
eventually work it out emergence the
group begins to clear up vague opinions
by talking about them reinforcements
members finally make a decision and
provide justification for it it is said
that critical norms in a group improves
the quality of decisions while the
majority of opinions do not this is due
to collaboration between one another and
when group members get used to and
familiar with each other they will tend
to argue and create more of a dispute to
agree upon one decision this does not
mean that all group members fully agree
they may not want argue further just to
be liked by other group members or to
fit in decision making steps each step
in the decision-making process may
include social cognitive and cultural
obstacles to successfully negotiating
dilemmas it has been suggested that
becoming more aware of these obstacles
allows one to better anticipate and
overcome them the Arkansas program
presents eight stages of moral
decision-making based on the work of
James wrest establishing community
creating and nurturing the relationships
norms and procedures that will influence
how problems are understood and
communicated this stage takes place
prior to and during a moral dilemma
perception recognizing that a problem
exists in
by identifying competing explanations
for the problem and evaluating the
drivers behind those interpretations
judgment sifting through various
possible actions or responses in
determining which is more justifiable
motivation examining the competing
commitments which may distract from a
more moral course of action and then
prioritizing and committing to moral
values over other personal institutional
or social values action following
through with action that supports the
more justified decision integrity is
supported by the ability to overcome
distractions and obstacles developing
implementing skills and ego strength
reflection in action reflection on
action other decision-making processes
have also been proposed one such process
proposed by Pam Brown of singleton
Hospital in Swansea Wales breaks
decision-making down into seven steps
outline your goal and outcome gather
data develop alternatives list pros and
cons of each alternative make the
decision immediately take action to
implement it learn from and reflect on
the decision cognitive and personal
biases bias is usually creep into
decision-making processes many different
people have made a decision about the
same question and then craft potential
cognitive interventions aimed at
improving the outcome of decision-making
here is a list of commonly debated
biases and judgment and decision-making
selective search for evidence people
tend to be willing to gather facts that
support certain conclusions but
disregard are the facts that support
different conclusions individuals who
are highly defensive in this manner show
significantly greater left frontal
cortex activity as measured by EEG than
do less defensive individuals premature
termination of search for evidence
people tend to accept the first
alternative that looks like it might
work cognitive inertia unwillingness to
change existing thought patterns in the
face of new circumstances selective
perception
we actively screen out information that
we do not think is important in one
demonstration of this effect discounting
of arguments with which one disagrees
was decreased by selective activation of
right frontal cortex wishful thinking a
tendency to want to see things in a
certain a euro usually positive via a
euro light which can distort perception
and thinking choice supportive bias
occurs when people distort their
memories have chosen and rejected
options to make the chosen options seem
more attractive recency people tend to
place more attention on more recent
information and either ignore or forget
more distant information the opposite
effect in the first set of data or other
information is termed primacy effect
repetition bias a willingness to believe
what one has been told most often and by
the greatest number of different sources
anchoring and adjustment decisions are
unduly influenced by initial information
that shapes our view of subsequent
information groupthink peer pressure to
conform to the opinions held by the
group source credibility bias a tendency
to reject a person's statement on the
basis of a bias against a person
organization or group to which the
person belongs people preferentially
accept statement by others that they
like incremental decision-making and
escalating commitment we look at a
decision as a small step in a process
and this tends to perpetuate a series of
similar decisions this can be contrasted
with zero based decision making
tribution asymmetry people tend to
attribute their own success to internal
factors including abilities and talents
but explain their failures in terms of
external factors such as bad luck the
reverse bias is shown when people
explain others success or failure role
fulfillment a tendency to conform to
others decision-making expectations
under estimating uncertainty in the
illusion of control people tend to
underestimate future uncertainty because
of a tendency to believe they have more
control over events than they really do
framing bias this is best avoided by
using numeracy with absolute measures of
efficacy sunk cost fallacy a specific
type of framing effect that affects
decision-making it involves an
individual making a decision about the
current situation based on what they
have previously invested in the
situation a possible example to this
would be an individual that is
refraining from dropping a class that
they are most likely to fail due to the
fact that they feel as though they have
done so much work in the course thus far
prospect theory involves the idea that
when faced with a decision-making event
an individual is more likely to take on
a risk when evaluating potential losses
and are more likely to avoid risks when
evaluating potential gains this can
influence one's decision-making
depending of the situation entails a
threat or opportunity reference class
forecasting was developed to eliminate
or reduce cognitive biases and
decision-making post decision analysis
evaluation and analysis of past
decisions is complementary to
decision-making see also mental
accounting and post-mortem documentation
cognitive styles influence of
myers-briggs type according to
behavioralist Isabel Briggs Myers a
person's decision-making process depends
to a significant degree on their
cognitive style Myers developed a set of
full bipolar dimensions called the
myers-briggs Type Indicator the terminal
points on these dimensions are thinking
and feeling
extraversion and introversion judgment
and perception and sensing and intuition
she claimed that a person's
decision-making style correlates well
with how they school on these four
dimensions for example someone who
scored near the thinking extraversion
sensing and judgment ends of the
dimensions would tend to have a logical
analytical objective critical and
empirical decision-making style however
some psychologists say that the MBTI
lacks reliability and validity and is
poorly constructed other studies suggest
that these national or cross-cultural
differences exist across entire
societies for example MERIS martinson's
has found that American Japanese and
Chinese business leaders each exhibit a
distinctive national style of
decision-making optimizing versus
satisficing Herbert a Simon coin the
phrase bounded rationality to express
the idea that human decision-making is
limited by available information
available time on the minds information
processing ability Simon also defined
two cognitive styles maximizes try to
make an optimal decision whereas
satisficers simply try to find a
solution that is good enough maximizes
tend to take longer making decisions due
to the need to maximize performance
across all variables and make trade-offs
carefully they also tend to more often
regret their decisions
combinatorial versus positional styles
and methods of decision making were
elaborated by Oren Katzenellenbogen the
founder of predisposition in theory in
his analysis on styles and methods
Katzen Ellenbogen referred to the game
of chess saying that a euro our chess
does disclose various methods of
operation notably the creation of
predisposition air euro methods which
may be applicable to other more complex
systems a euro in his book cats and
Ellenbogen states that apart from the
methods and sub methods there are two
major styles positional and
combinational both styles are utilized
in the game of chess according to
Katzenellenbogen
the two styles reflect two basic
approaches
the uncertainty deterministic and in
deterministic Katzenellenbogen a euro on
registered trademark s definition of the
two styles of the following the
combinational style is characterized by
a very narrow clearly defined primarily
material goal and a program that links
the initial position with the final
outcome in defining the combinational
style in chess cats and Ellenbogen
rights the combinational style features
are clearly formulated limited objective
namely the capture of material the
objective is implemented via a
well-defined and in some cases unique
sequence of moves aimed at reaching the
set goal as a rule this sequence leaves
no options for the opponent finding a
combinational objective allows the
player to focus all his energies on
efficient execution that is the player a
euro on Magister trade mark s analysis
may be limited to the pieces directly
partaking in the combination this
approach is the crux of the combination
and the combinational style of play the
positional style is distinguished by a
positional goal and a formation of semi
complete linkages between the initial
step and final outcome a euro only
unlike the combinational player the
positional player is occupied first and
foremost with the elaboration of the
position that will allow him to develop
in the unknown future in playing the
positional style the player must
evaluate relational and material
parameters as independent variables the
positional style gives the player the
opportunity to develop a position until
it becomes pregnant with a combination
however the combination is not the final
goal of the positional player a euro it
helps him to achieve the desirable
keeping in mind a predisposition for the
future development the Pyrrhic victory
is the best example of only a euro on
magister trademark s inability to think
positionally the positional style serves
to create a predisposition to the future
development of the position induce the
environment in a certain way absorb an
unexpected outcome in own ear euro
unregistered trademark s favor
avoid the negative aspects of unexpected
outcomes Katzenellenbogen writes as the
game progressed and defense became more
sophisticated the combinational style of
play declined the positional style of
chess does not eliminate the
combinational one with its attempt to
see the entire program of action in
advance the positional style merely
prepares the transformation to a
combination when the latter becomes
feasible uro neuroscience
decision-making is a region of intense
study in the fields of systems
neuroscience and cognitive neuroscience
several brain structures including the
anterior cingulate cortex orbitofrontal
cortex in the overlapping ventromedial
frontal cortex are believed to be
involved in decision-making processes a
recent neuroimaging study found
distinctive patterns of neural
activation in these regions depending on
whether decisions were made on the basis
of perceived personal volitional
following directions from someone else
patients with damage to the ventromedial
prefrontal cortex have difficulty making
advantageous decisions a common
laboratory paradigm for studying neural
decision-making is the two alternative
forced choice tasks in which a subject
has to choose between two alternatives
within a certain time a study of a two
alternative forced choice task involving
rhesus monkeys found that neurons in the
parietal cortex not only represent the
formation of a decision but also signal
the degree of certainty associated with
the decision another recent study found
that lesions to the ACC in the macaque
resulted in impaired decision-making in
the long run of reinforcement guided
tasks suggesting that the ACC may be
involved in evaluating past
reinforcement information and guiding
future action a 2012 study found that
rats and humans can optimally accumulate
incoming sensory evidence to make
statistically optimal decisions emotion
appears able to aid the decision-making
process decision-making often occurs in
the face of uncertainty about whether
one's choices will lead to benefit or
harm the somatic marker hypothesis is a
neurobiological theory of how decisions
are made in the face of uncertain
this theory holds that such decisions
are aided by emotions in the form of
bodily states that are elicited during
the deliberation of future consequences
and that marked different options for
behavior as being advantageous or
disadvantageous this process involves an
interplay between neural systems that
elicit emotional bodily states and
neural systems that map these emotional
bodily states although it is unclear
whether the studies generalized to all
processing subconscious processes have
been implicated in the initiation of
conscious volitional movements see the
neuroscience of freewill decision-making
in adolescents versus adults during
their adolescent years teens are known
for their high risk behaviors and rush
decisions there has not however been
that much research in this area recent
research has shown though that there are
some differences in cognitive processes
between adolescents and adults during
decision-making researchers have
concluded the differences in
decision-making are not due to a lack of
logical reasoning but more due to the
immaturity of psychosocial capacities
capacities that influence
decision-making examples would be
impulse control emotion regulation
delayed gratification and resistance to
peer pressure in the past
researchers have thought that adolescent
behavior was simply due to incompetency
regarding decision-making currently
researchers have concluded that adults
and adolescents are both competent
decision makers not just adults however
adolescents a euro on magister trademark
competent decision-making skills
decrease when psychosocial capacity's
become present recent research has shown
that risk-taking behaviors in
adolescents may be the product of
interactions between the socio-emotional
brain network and its cognitive control
network the socio emotional part of the
brain processes social and emotional
stimuli and has been shown to be
important in reward processing the
cognitive control Network assists in
planning and self-regulation both of
these sections of the brain change over
the course of puberty however the
emotional network changes quickly and
abruptly while the cognitive control
network changes more gradually because
of this difference in change the
cognitive control network which usually
regulates the socio-emotional Network
struggles to control the socio-emotional
network when psychosocial capacities are
present when adolescents are exposed to
social and emotional stimuli their socio
emotional network is activated as well
as areas of the brain involved in reward
processing because teens often gain a
sense of reward from risk-taking
behaviors their repetition becomes ever
more probable due to the reward
experienced in this the process mirrors
addiction teams can become addicted to
risky behavior because they are in a
high state of arousal and are rewarded
for it not only by their own internal
functions but also by their peers around
them this is why adults are generally
better able to control their risk taking
because their cognitive control system
has matured enough to the point where it
can control a socio-emotional Network
even in the context of high arousal or
when psychosocial capacities are present
also adults are less likely to find
themselves in situations that push them
to do risky things for example teens are
more likely to be around peers who peer
pressure them into doing things while
adults are not as exposed to this sort
of social setting see also adaptive
performance agent argument map analytic
hierarchy process business decision
mapping choice architecture choice
modelling decision downloading decision
engineering decision fatigue
decision-making software decision theory
references external links