7/26/2019 06 Decision Making

1/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 1

Managerial Decision Making LearningManagerial Decision Making Learning

ObjectivesObjectives

After studying this slides 3, you ill kno!

the kinds of decisions you ill face as a "anager

ho to "ake #rational$ decisions

the %itfalls you should avoid hen "aking decisions the %ros and cons of using a grou% to "ake decisions

the %rocedures to use in leading a decision-"aking grou%

ho to encourage creative decisions

the %rocesses by hich decisions are "ade in organi&ations

ho to "ake decisions in a crisis

7/26/2019 06 Decision Making

2/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - '

Lack of

(tructure

)isk

*onflict

+ncertainty

*haracteristics Of Managerial Decisions*haracteristics Of Managerial Decisions

7/26/2019 06 Decision Making

3/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 3

*haracteristics Of Managerial Decisions*haracteristics Of Managerial Decisions

cont.cont.

Lack of structure

the usual state of affairs in "anagerial decision "aking

programmed decisions- decisions that have been encountered

and "ade in the %ast have objectively correct ansers

are solvable by using si"%le rules, %olicies, or nu"erical

co"%utations

nonprogrammer decisions- ne, novel, co"%le/ decisionshaving no %roven ansers

decision "aker "ust create or i"%ose a "ethod for "aking the

decision

7/26/2019 06 Decision Making

4/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 0

*o"%arison Of y%es Of Decisions*o"%arison Of y%es Of Decisions

2rogra""ed Decisions on%rogra""er Decisions

2roble"

2rocedure

4usiness

e/a"%le

5re6uent, re%etitive, routine

Much certainty regarding

cause and effect relationshi%s

De%endence on %olicies,

rules, and definite %rocedures

2eriodic reorders of inventory

ovel, unstructured Much

uncertainty regarding cause and

effect relationshi%s

ecessity for creativity, intuition,

tolerance for a"biguity, creative

%roble" solving

Diversification in ne %roducts

and "arkets

7/26/2019 06 Decision Making

5/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 7

*haracteristics Of Managerial Decisions*haracteristics Of Managerial Decisions

cont.cont.

+ncertainty and risk

certainty- have sufficient infor"ation to %redict %recisely the

conse6uences of one8s actions

uncertainty- have insufficient infor"ation to kno the

conse6uences of different actions

cannot esti"ate the likelihood of various conse6uences of their

actions

risk- available infor"ation %er"its esti"ation of the likelihood

of various conse6uences%robability of an action being successful is less than 199 %ercent,

and losses "ay occur

good "anagers %refer to managerisk

7/26/2019 06 Decision Making

6/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - :

*onflict

o%%osing %ressures fro" different sources

occurs at to levels

%sychological conflict - individual decision "akers! %erceive several attractive o%tions

%erceive no attractive o%tions

conflict beteen individuals or grou%s

fe decisions are ithout conflict

*haracteristics Of Managerial Decisions*haracteristics Of Managerial Decisions

cont.cont.

7/26/2019 06 Decision Making

7/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - ;

Identifying anddiagnosing

the problem

Generating

alternative

solutions

Evaluating

alternatives

Evaluating

the decision

Implementing

the decision

Making the

choice

he (tages Of Decision Makinghe (tages Of Decision Making

7/26/2019 06 Decision Making

8/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - enerating alternative solutions ready-made solutions- ideas that have been tried before

"ay follo the advice of others ho have faced si"ilar %roble"

custom-made solutions- co"bining ne ideas into solutions

7/26/2019 06 Decision Making

9/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - ?

(tages Of Decision Making cont.(tages Of Decision Making cont.

@valuating alternatives

deter"ining the value or ade6uacy of the alternatives

%redict the conse6uences that ill occur if the various o%tions

are %ut into effect "anagers should consider several ty%es of conse6uences

success or failure of the decision ill affect the track record of

the decision "aker

contingency plans- alternative courses of action that can bei"%le"ented based on ho the future unfolds

contingency %lans are necessary to %re%are for different

scenarios

7/26/2019 06 Decision Making

10/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 19

(tages Of Decision Making cont.(tages Of Decision Making cont.

Making the choicemaximize- a decision reali&ing the best %ossible outco"e

re6uires searching thoroughly for a co"%lete range of alternatives

each alternative is carefully assessed

co"%are one alternative to another

satisfies- choose an o%tion that is acce%table although not

necessarily the best or %erfect

co"%are the choice ith the goal, not against other o%tions

search for alternatives ends hen an okay solution is found

optimizing- achieving the best %ossible balance a"ong several

goals

7/26/2019 06 Decision Making

11/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 11

(tages Of Decision Making cont.(tages Of Decision Making cont.

="%le"enting the decision

those ho i"%le"ent the decision "ust!

understandthe choice and hy it as "ade

be committedto its successful i"%le"entationcan8t assu"e that things ill go s"oothly during

i"%le"entation

identify potential problems

identify potential opportunitiesalays e/%ect the une/%ected

7/26/2019 06 Decision Making

12/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 1'

List the resources and

activities re6uired to

i"%le"ent each ste%

@sti"ate the ti"e needed

for each ste%

Deter"ine ho things ill

look hen the decision

is fully o%erational

="%le"entation

2lan

Order the ste%s necessaryto achieve a fully

o%erational decision

Assign res%onsibility foreach ste% to s%ecific

individuals

(te%s =n he ="%le"entation 2lan(te%s =n he ="%le"entation 2lan

7/26/2019 06 Decision Making

13/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 13

(tages Of Decision Making cont.(tages Of Decision Making cont.

@valuating the decisioncollecting infor"ation on ho ell the decision is orking

evaluation is useful hether the feedback is %ositive or negative

if decision a%%ears ina%%ro%riate, the %rocess cycles back to the

first stage

he best decision

nothing can guarantee a #best$ decision

"ust be confident that theproceduresused are likely to %roducethe best decision given the circu"stances

vigilance- decision "aker carefully and conscientiously e/ecutes

all stages of decision "aking

7/26/2019 06 Decision Making

14/28McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 10

4arriers o @ffective Decision Making4arriers o @ffective Decision Making

2sychological biases

biases that interfere ith objective rationality

illusion of control- a belief that one can influence events

even hen one has no control over hat ill ha%%en

framing effects- ho %roble"s or decision alternatives are

%hrased or %erceived

subjective influences can override objective facts

discount the future- eigh short-ter" costs and benefits"ore heavily than longer-ter" costs and benefits

the avoidance of short-ter" costs or the seeking of short-ter"

reards "ay result in negative long-ter" conse6uences

3 17

7/26/2019 06 Decision Making

15/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 17

4arriers o @ffective Decision Making4arriers o @ffective Decision Making

cont.cont.

i"e %ressures

today8s econo"y %laces a %re"iu" on acting 6uickly and

kee%ing %ace

in order to "ake ti"ely and high-6uality decisions one "ust!

focus on real-time information

involve people more effectively and efficiently

rely on trusted e/%erts

take a realistic vie of conflict

(ocial realities

"any decisions result fro" intensive social interactions,

bargaining, and %oliticking

3 1:

7/26/2019 06 Decision Making

16/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 1:

Potential Advantages

1 Larger %ool of infor"ation

1 More %ers%ectives anda%%roaches

3 =ntellectual sti"ulation

3 2eo%le understand the

decision

7 2eo%le are co""itted to

the decision

2ros And *ons Of +sing A >rou% o2ros And *ons Of +sing A >rou% o

Make DecisionsMake Decisions

Potential Disadvantages

1 One %erson do"inates

1 (atisfying

1 >rou%think - tea" s%irit

discourages disagree"ent

1 >oal dis%lace"ent - ne

goals re%lace original goals

3 1;

7/26/2019 06 Decision Making

17/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 1;

Leadershi% 1 Avoid do"ination

' @ncourage in%ut

3 Avoid grou%think

and satisfying

0 )e"e"ber goals

@ffective >rou%

Decision Making

*onstructive *onflict 1 Air legiti"ate

differences

' (tay task-focused

3 4e i"%ersonal

0 2lay devil8s advocate

Managing >rou% Decision MakingManaging >rou% Decision Making

*reativity 1 4rainstor"

' Avoid critici&ing

3 @/haust ideas

0 *o"bine ideas

3 1

7/26/2019 06 Decision Making

18/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 1rou% Decision MakingManaging >rou% Decision Making

Leadershi% style

leader should atte"%t to "ini"i&e %rocess-related %roble"s

leader should!

avoid do"inating the discussion encourage less vocal "e"bers to e/%ress the"selves

"itigate %ressures for confor"ity

stay alert to grou%think and satisfying

%revent grou% fro" losing sight of the %ri"ary objective

3 1?

7/26/2019 06 Decision Making

19/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - 1?

Managing >rou% Decision MakingManaging >rou% Decision Making

cont.cont.

*onstructive conflict a certain a"ount of constructiveconflict should e/ist

cognitive conflict- issue-based differences in %ers%ectives or

judg"ents

a constructive ty%e of conflict can air legiti"ate differences of o%inion and develo% better ideas

affective conflict- e"otional disagree"ent directed toard other

%eo%le that is likely to be destructive conflict

to techni6ues used to %ur%osely %rogra" cognitive conflict devils advocate- has the job of critici&ing others

dialectic- structured debate co"%aring to conflicting courses of

action

3 - '9

7/26/2019 06 Decision Making

20/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 - '9

Managing >rou% Decision MakingManaging >rou% Decision Making

cont.cont.

@ncouraging creativity creativity is essential to survival and involves!

creation- bringing a ne thing into being

synthesis- joining to %reviously unrelated things

modification- i"%roving so"ething or giving it ne a%%lication

to beco"e creative one "ust!

recogni&e creative %otential in little o%%ortunities

obtain sufficient resources

esca%e fro" ork once in ahile and read idely

brainstorming- grou% generates ideas about a %roble"

evaluation of ideas is %ost%oned until all have been %ro%osed

3 - '1

7/26/2019 06 Decision Making

21/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 '1

Organi&ational Decision MakingOrgani&ational Decision Making

*onstraints on decision "akersorgani&ations cannot do hatever they ish

MarketHu"an

5inancial

*onstraints

LegalOrgani&ational

3 - ''

7/26/2019 06 Decision Making

22/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 ''

Organi&ational Decision Making cont.Organi&ational Decision Making cont.

Models of organi&ational decision %rocessesbounded rationality- decision "akers cannot be truly rational

because!

they have i"%erfect, inco"%lete infor"ation about alternatives

the %roble"s they face are so co"%le/ hu"an beings cannot %rocess all the infor"ation to hich they

are e/%osed

ti"e is li"ited

%eo%le in the organi&ation have conflicting goalshen the conditions above hold, %erfectly rational decision

"aking gives ay to "ore biased, subjective decision

%rocesses

3 - '3

O i i l i i ki .

7/26/2019 06 Decision Making

23/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading3 '3

Organi&ational Decision Making cont.Organi&ational Decision Making cont.

Models of organi&ational decision %rocesses cont. incremental model- "ajor decisions arise through a series of

s"aller decisions

%iece"eal a%%roach to larger solutions

coalitional model- grou%s ith differing %references use %oerand negotiation to influence decisions

used hen %eo%le disagree about goals or co"%ete for resources

garbage can model- a chaotic %rocess leading to see"ingly

rando" decisions occurs hen %eo%le are unsure of their goals and hat should be

done

a dra"atic de%arture fro" rationality in decision "aking

3 - '0

i i l i i ki .O i i l D i i M ki .

7/26/2019 06 Decision Making

24/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

HeadingOrgani&ational Decision Making cont.Organi&ational Decision Making cont.

egotiations and %olitics

negotiations necessary to galvani&e the %references of

co"%eting grou%s and individuals

organizational politics- %eo%le try to influence decisions to

%ro"ote their on interests

use %oer to %ursue hidden agendas

create common goals- hel%s to "ake decision "aking a

collaborative rather than a co"%etitive %rocess

Decision "aking in a crisis

stress and ti"e constraints "ake decisions less effective

should be %re%ared for crises in advance

3 - '7

7/26/2019 06 Decision Making

25/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

HeadingMistaken Assu"%tions! Ho ot oMistaken Assu"%tions! Ho ot o

Handle *risis Manage"entHandle *risis Manage"ent

e don8t have a crisise can handle a crisis

*risis "anage"ent is a lu/ury e can8t afford

=f a "ajor crisis ha%%ens, so"eone else ill rescue us

Accidents are just a cost of doing business

Most crises are the fault of bad individualsB therefore, there8s not "uch

e can do to %revent the"

Only e/ecutives need to be aare of our crisis %lansB hy scare our

e"%loyees or "e"bers of the co""unityC

e are tough enough to react to a crisis in an objective and rational"anner

he "ost i"%ortant thing in crisis "anage"ent is to %rotect the good

i"age of the organi&ation through %ublic relations and advertising

ca"%aigns

di3 - ':

2l 5 * i i M2l 5 * i i M t

7/26/2019 06 Decision Making

26/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

Heading2lan 5or *risis Manage"ent2lan 5or *risis Manage"ent

@valuation and

Diagnostic Actions

*o""unication

Actions

(trategic

Actions

*risis

Manage"ent

echnical and(tructural Actions

2sychological and*ultural Actions

H di3 - ';

O i ti l D i i M ki t .O i ti l D i i M ki t .

7/26/2019 06 Decision Making

27/28

McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.McGraw-Hill 2003 The McGraw-Hill Companies, Inc. All rights reserve.

HeadingOrgani&ational Decision Making cont.Organi&ational Decision Making cont.

@"ergent strategies the strategy that evolves fro" all the activities engaged in by

%eo%le throughout the organi&ation

result fro" dyna"ic %rocesses in hich %eo%le engage in

discovery, i"%le"ent decisions, and reconsider the initial

decision after discovering ne things by chance

e"ergent strategies "ay start at any organi&ational level

e"ergent strategies are generally the result of constructive%rocesses

H di3 - 'enerate o%tions

@valuate and selectacce%table, feasible,

suitable o%tion

Discovery(yste"atic gathering

and analysis of

the facts

Monitoring

outco"es of

actions

Action="%le"enting

chosen o%tion

*orrecting

deviations fro"fro" %lan

@"ergent (trategies@"ergent (trategies