Managing Decision Making and Problem Solving

9*Learning ObjectivesAfter studying this chapter, you should be able to:

Define decision making and discuss types of decisions and decision-making conditions.

Discuss rational perspectives on decision making, including the steps in decision making.

Describe the behavioral nature of decision making.

9*Chapter OutlineThe Nature of Decision MakingDecision Making DefinedTypes of DecisionsDecision-Making Conditions

Rational Perspectives on Decision MakingThe Classical Model of Decision MakingSteps in Rational Decision Making

Behavioral Aspects of Decision Making

The Administrative ModelPolitical Forces in Decision MakingIntuition and Escalation of CommitmentRisk Propensity and Decision MakingEthics and Decision Making

9*Decision-makingDecision making and decision-making process. Are they the same or different. Discuss

9*Decision-makingChoosingSteps

9*Decision MakingThe act of choosing one alternative from among a set of alternatives.

9*Best ?To reach a decision the best alternative is usually selected.

Discuss what is meant Best? Does it mean effective or efficient?Does it always mean to increase?Are decisions only used to solve problems?

9*Best = Effective

An effective decision is one that maximize or minimize

Managers make decisions about both problems and opportunities

9*Decision Making ProcessArrange the Decision-Making Steps

Identifying alternatives choosing the best alternative, and The process of recognizing and defining the nature of a decision situation, putting it into practiceEvaluate the alternatives

9*Types of DecisionsProgrammed DecisionsA decision that is a fairly structured decision or recurs with some frequency or both.Example: Starting your car in the morning.

Non-programmed decisionsA decision that is relatively unstructured and occurs much less often a programmed decision.Example: Choosing a vacation destination.

9*Decision-Making Conditions (contd)Figure 9.1

9*Decision-Making ConditionsDecision Making Under CertaintyA condition in which the decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative.

Decision Making Under RiskA condition in which the availability of each alternative and its potential payoffs and costs are all associated with risks.

Decision Making Under UncertaintyA condition in which the decision maker does not know all the alternatives, the risks associated with each, or the consequences of each alternative.

Rational Perspectives onDecision Making

9*Rational Perspectives onDecision MakingThe Classical Model of Decision Making

Figure 9.2

9*3. EVALUATE ALTERNATIVES

FeasibleSatisfactoryAffordableconsequences

9*Evaluating Alternatives in theDecision-Making Process

9*Steps in the Rational Decision-Making Process

Step

Detail

Example

1.Recognizing and defining the decision situation

Some stimulus indicates that a decision must be made. The stimulus may be positive or negative.

A plant manager sees that employee turnover has increased by 5 percent.

2.Identifying alternatives

Both obvious and creative alternatives are desired. In general, the more important the decision, the more alternatives should be considered.

The plant manager can increase wages, increase benefits, or change hiring standards.

3.Evaluating alternatives

Each alternative is evaluated to determine its feasibility, its satisfactoriness, and its consequences.

Increasing benefits may not be feasible. Increasing wages and changing hiring standards may satisfy all conditions.

9*Steps in the Rational Decision-Making Process (contd)

Step

Detail

Example

4.Selecting the best alternative

Consider all situational factors, and choose the alternative that best fits the managers situation.

Changing hiring standards will take an extended period of time to cut turnover, so increase wages.

5.Implementing the chosen alternative

The chosen alternative is implemented into the organizational system.

The plant manager may need permission from corporate headquarters. The human resource department establishes a new wage structure.

6.Following up and evaluating the results

At some time in the future, the manager should ascertain the extent to which the alternative chosen in step 4 and implemented in step 5 has worked.

The plant manager notes that, six months later, turnover has dropped to its previous level.

9*When faced with a decision situation managers actuallyBehavioral Aspects of Decision MakingThe Administrative Model of Decision Making

9*Behavioral Aspects ofDecision Making (contd)Bounded RationalityThe concept that decision makers are limited by their values and unconscious reflexes, skills, and habits.SatisficingThe tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency to resolve the problem.CoalitionA political force in decision making which consists of an informal alliance of individuals or groups formed to achieve a goal.

9*Behavioral Aspects ofDecision Making (contd)IntuitionAn innate belief about something without conscious consideration.Escalation of CommitmentA decision maker is staying with a decision even when it appears to be wrong.Risk PropensityThe extent to which a decision maker is willing to gamble when making a decision.

9*Behavioral Aspects ofDecision Making (contd)Ethics and Decision MakingIndividual ethics (personal beliefs about right and wrong behavior) combine with the organizations ethics to create managerial ethics.Components of managerial ethics:Relationships of the firm to employeesEmployees to the firmThe firm to other economic agents

9*Behavioral Aspects of Decision MakingThe Administrative Model of Decision Making

Figure 9.4