2.mgmt decision making

MANAGEMENT DECISION MANAGEMENT DECISION MAKINGMAKING

DECISIONS AND DECISION MAKING DECISIONS AND DECISION MAKING

A decision is a choice made from available alternatives.

Decision making is the process of identifying problems and opportunities and then resolving them.

Lack ofStructure

Risk

Conflict

Uncertainty

CHARACTERISTICS OF MANAGERIAL CHARACTERISTICS OF MANAGERIAL DECISIONSDECISIONS

CHARACTERISTICS OF MANAGERIAL CHARACTERISTICS OF MANAGERIAL DECISIONSDECISIONS

Lack of structure Programmed decisions - decisions encountered and

made in the past have objectively correct answers are solvable by using simple rules, policies, or numerical

computations Nonprogrammed decisions - new, novel, complex

decisions having no proven answers a variety of solutions exist, all of which have merits and

drawbacks demand creative responses, intuition, and tolerance for

ambiguity

CHARACTERISTICS OF MANAGERIAL CHARACTERISTICS OF MANAGERIAL DECISIONS (CONT.)DECISIONS (CONT.)

Uncertainty and risk certainty - have sufficient information to predict

precisely the consequences of one’s actions uncertainty - have insufficient information to know the

consequences of different actions cannot estimate the likelihood of various consequences of their

actions risk - available information permits estimation of the

likelihood of various consequences probability of an action being successful is less than 100

percent good managers prefer to avoid or manage risk

Conflict opposing pressures from different sources occurs at two levels

psychological conflict - individual decision makers: perceive several attractive options perceive no attractive options

conflict between individuals or groups

CHARACTERISTICS OF MANAGERIAL CHARACTERISTICS OF MANAGERIAL DECISIONS (CONT.)DECISIONS (CONT.)

CONDITIONS THAT AFFECT THE CONDITIONS THAT AFFECT THE POSSIBILITY OF DECISION POSSIBILITY OF DECISION

FAILUREFAILURE

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OrganizationalProblem

ProblemSolution

Low HighPossibility of Failure

Certainty Risk Uncertainty Ambiguity

ProgrammedDecisions

NonprogrammedDecisions

THREE DECISION MAKING MODELSTHREE DECISION MAKING MODELS

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Classical ModelClassical Model

Administrative ModelAdministrative Model

Political ModelPolitical Model

CHARACTERISTICS OF CLASSICAL, CHARACTERISTICS OF CLASSICAL, ADMINISTRATIVE, AND POLITICAL ADMINISTRATIVE, AND POLITICAL

DECISION-MAKING MODELSDECISION-MAKING MODELS

Classical Model Administrative Model Political Model

Clear-cut problem and goals.

Condition of certainty.

Full information about alternatives and their outcomes.

Rational choice by individual for maximizing outcomes.

Vague problem and goals.

Condition of uncertainty.

Limited information about alternatives and their outcomes.

Satisficing choice for resolving problem using intuition.

Pluralistic; conflicting goals.

Condition of uncertainty/ambiguity.

Inconsistent viewpoints; ambiguous information.

Bargaining and discussion among coalition members.

SIX STEPS IN THE MANAGERIAL DECISION-SIX STEPS IN THE MANAGERIAL DECISION-MAKING MAKING PROCESSPROCESS

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THE STAGES OF DECISION MAKINGTHE STAGES OF DECISION MAKINGIdentifying and

diagnosingthe problem

Generatingalternativesolutions

Evaluatingalternatives

Evaluatingthe decision

Implementingthe decision

Making thechoice

STAGES OF DECISION MAKINGSTAGES OF DECISION MAKING Identifying and diagnosing the problem

recognize that a problem exists and must be solved problem - discrepancy between current state and past

performance, current performance of other organizations, or future expected performance

decision maker must want to resolve the problem and have the resources to do so

Generating alternative solutions ready-made solutions - ideas that have been tried

before may follow the advice of others who have faced similar problem

custom-made solutions - combining new ideas into creative solutions

STAGES OF DECISION MAKING STAGES OF DECISION MAKING (CONT.)(CONT.)

Evaluating alternatives determining the value or adequacy of the alternatives there are potentially more alternatives available than

managers may realize predict the consequences that will occur if the various

options are put into effect success or failure of the decision will affect the track

record of the decision maker contingency plans - alternative courses of action that

can be implemented based on how the future unfolds required to prepare for different scenarios


Making the choice maximize - a decision realizing the best possible

outcome greatest positive consequences and fewest negative

consequences greatest benefit at the lowest cost and the largest expected

total return satisfies - choose an option that is acceptable although

not necessarily the best or perfect compare the choice with the goal, not against other options search for alternatives ends when an okay solution is found

optimizing - achieving the best possible balance among several goals


Implementing the decision those who implement the decision must:

understand the choice and why it was made be committed to its successful implementation

can’t assume that things will go smoothly during implementation identify potential problems identify potential opportunities

STEPS IN THE IMPLEMENTATION PLANSTEPS IN THE IMPLEMENTATION PLAN

List the resources andactivities required toimplement each step

Estimate the time neededfor each step

Determine how things willlook when the decision

is fully operational

ImplementationPlan

Order the steps necessaryto achieve a fully

operational decision

Assign responsibility foreach step to specific

individuals


Evaluating the decision collecting information on how well the decision is

working if decision appears inappropriate, the process cycles

back to the first stage The best decision

nothing can guarantee a “best” decision must be confident that the procedures used are likely to

produce the best decision given the circumstances vigilance - decision maker carefully and conscientiously

executes all stages of decision making

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BARRIERS TO EFFECTIVE DECISION BARRIERS TO EFFECTIVE DECISION MAKINGMAKING

Psychological biases biases that interfere with objective rationality illusion of control - a belief that one can influence

events even when one has no control over what will happen

framing effects - how problems or decision alternatives are phrased or perceived subjective influences can override objective facts

discount the future - weigh short-term costs and benefits more heavily than longer-term costs and benefits the avoidance of short-term costs or the seeking of short-term

rewards may result in negative long-term consequences

BARRIERS TO EFFECTIVE DECISION BARRIERS TO EFFECTIVE DECISION MAKING (CONT.)MAKING (CONT.)

Time pressures today’s economy places a premium on acting quickly

and keeping pace in order to make timely and high-quality decisions one

must: focus on real-time information involve people more effectively and efficiently rely on trusted experts take a realistic view of conflict

Social realities many decisions result from intensive social interactions,

bargaining, and politicking

DECISION MAKING IN GROUPSDECISION MAKING IN GROUPS

Potential Advantages

Larger pool of information

More perspectives and approaches

Intellectual stimulation

People understand the decision

People are committed to the decision

Potential Disadvantages

One person dominates

Satisficing

Groupthink - team spirit discourages disagreement

Goal displacement – new goals replace original goals

MANAGING GROUP DECISION MAKINGMANAGING GROUP DECISION MAKINGLeadership 1. Avoid domination 2. Encourage input 3. Avoid groupthink and satisficing 4. Remember goals

Effective GroupDecision Making

Constructive Conflict 1. Air legitimate differences 2. Stay task-focused 3. Be impersonal 4. Play devil’s advocate

Creativity 1. Brainstorm 2. Avoid criticizing 3. Exhaust ideas 4. Combine ideas

MANAGING GROUP DECISION MAKINGMANAGING GROUP DECISION MAKING

Leadership style leader should attempt to minimize process-related

problems leader should:

avoid dominating the discussion encourage less vocal members to express themselves mitigate pressures for conformity stay alert to groupthink and satisficing prevent group from losing sight of the primary objective

MANAGING GROUP DECISION MAKING MANAGING GROUP DECISION MAKING (CONT.)(CONT.)

Constructive conflict a certain amount of constructive conflict should exist cognitive conflict - issue-based differences in

perspectives or judgments most constructive type of conflict can air legitimate differences of opinion and develop better

ideas affective conflict - emotional disagreement directed

toward other people that is likely to be destructive devil’s advocate - has the job of criticizing others dialectic - structured debate comparing two conflicting

courses of action

MANAGING GROUP DECISION MAKING MANAGING GROUP DECISION MAKING (CONT.)(CONT.)

Encouraging creativity creativity involves:

creation - bringing a new thing into being synthesis - joining two previously unrelated things modification - improving something or giving it new

application to become creative one must:

recognize creative potential in little opportunities obtain sufficient resources escape from work once in awhile and read widely

brainstorming - group generates ideas about a problem criticism is withheld until all ideas have been proposed

ORGANIZATIONAL DECISION MAKINGORGANIZATIONAL DECISION MAKING Constraints on decision makers

organizations cannot do whatever they wish face various constraints on their actions

Models of organizational decision processes bounded rationality - decision makers cannot be truly

rational because: they have imperfect, incomplete information about alternatives the problems they face are so complex human beings cannot process all the information to which they

are exposed time is limited people in the organization have conflicting goals

CONSTRAINTS ON DECISION MAKERSCONSTRAINTS ON DECISION MAKERS

MarketHuman

Financial

Constraints

LegalOrganizational

ORGANIZATIONAL DECISION MAKING ORGANIZATIONAL DECISION MAKING (CONT.)(CONT.)

Models of organizational decision processes (cont.) incremental model - major decisions arise through a

series of smaller decisions piecemeal approach to larger solutions

coalitional model - groups with differing preferences use power and negotiation to influence decisions used when people disagree about goals or compete for

resources garbage can model - a chaotic process leading to

seemingly random decisions occurs when people are unsure of their goals and what should

be done


Negotiations and politics negotiations necessary to galvanize the preferences of

competing groups and individuals organizational politics - people try to influence

decisions to promote their own interests use power to pursue hidden agendas

create common goals - helps to make decision making a collaborative rather than a competitive process

Decision making in a crisis stress and time constraints make decisions less

effective should be prepared for crises in advance

PLAN FOR CRISIS MANAGEMENTPLAN FOR CRISIS MANAGEMENT

Evaluation andDiagnostic Actions

CommunicationActions

StrategicActions

CrisisManagement

Technical andStructural Actions

Psychological andCultural Actions


Emergent strategies the strategy that evolves from all the activities engaged

in by people throughout the organization result from dynamic processes in which people engage

in discovery, implement decisions, and reconsider the initial decision after discovering new things by chance

emergent strategies may start at any organizational level

emergent strategies are generally the result of constructive processes

EMERGENT STRATEGIESEMERGENT STRATEGIES

Choice

• Set objectives• Generate options

• Evaluate and selectacceptable, feasible,

suitable option

Discovery

• Systematic gathering• Analysis of the facts

• Monitoringoutcomes of

actions

Action

• Implementingchosen option• Correcting

deviations fromfrom plan

MANAGERS AS DECISION MAKERS:MANAGERS AS DECISION MAKERS: PROBLEM SOLVING PROBLEM SOLVING APPROACHESAPPROACHES

Rational modelModel suggesting managers engage in completely rational decision processes, ultimately making optimal decisions, and possess and understand all information relevant to their decisions at the time they make them.

Non-rational models (Bounded Rationality)Models suggesting information gathering and processing limitations make it difficult for managers to make optimal decisions. 32

BOUNDED RATIONALITYBOUNDED RATIONALITY

Intuition The ability of managers to be perfectly

rational in making decisions is limited by facts such as: Inadequate informationTime and cost constraints cognitive capacityEx: satisficing modelManagers seek alternatives only until they find one which looks satisfactory, rather than seeking an optimal decision.

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RationalDecisionMaking

RationalDecisionMaking

An optimal decision is possible

An optimal decision is possible

All relevant information is available

All relevant information is available

All relevant information is understandable

All relevant information is understandable

All alternatives are knownAll alternatives are known

All possible outcomes knownAll possible outcomes known

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‘Satisficing’decisionmaking

‘Satisficing’decisionmaking

Time constraintsTime constraints

Limited ability to understand all factors

Limited ability to understand all factors

Inadequate baseof information

Inadequate baseof information

Limited memory ofdecision-makers

Limited memory ofdecision-makers

Poor perception of factors to be considered

in decision process

Poor perception of factors to be considered

in decision process

DECISION MAKING STYLEDECISION MAKING STYLE

Analytic Conceptual

Directive Behavioural

low

high

rational Creative or intuitive

Way of thinking

Tolerance for

ambiguity

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2.mgmt decision making

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