Download - Session 4 Decision Making -Rev
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MANAGERIAL DECISION MAKING
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MANAGERIAL DECISION MAKINGMANAGERIAL DECISION MAKING
A decision is an act requiring judgment that is
translated into action.
Decision making: the process by which managers respond to opportunitiesand threats by analyzing options, and making decisions about goals and
courses of action.
Decisions in response to opportunities: managers respond to ways to
improve organizational performance.
Decisions in response to threats: occurs when managers are impacted byadverse events to the organization.
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TYPES OF DECISION MAKINGTYPES OF DECISION MAKINGProgrammed Decisions: routine, almost automatic
process.
y Managers have made decision many times before.
y There are rules or guidelines to follow.
y
Example: Deciding to reorder office supplies.Non-programmed Decisions: unusual situations that
have not been often addressed.
y No rules to follow since the decision is new.
y These decisions are made based on information,
and a mangers intuition, and judgment.y Example: Should the firm invest in a new
technology?
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DECISION-MAKING CONDITIONS
Level of ambiguity and chances of making a bad decision
Lower Higher Moderate
Certainty UncertaintyRisk
The decision
maker faces
conditions of...
Figure 4.1
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STEPS IN THE RATIONAL
DECISION-MAKING PROCESSSt p D t il Ex pl
1. Recognizing anddefining the decisionsituation
Some stimulus indicatesthat a decision must bemade. The stimulus may be
positive or negative.
A plant manager sees thatemployee turnover hasincreased by 5 percent.
2. Identifying alterna-tives
Both obvious and creativealternatives are desired. Ingeneral, the more importantthe decision, the morealternatives should beconsidered.
The plant manager canincrease wages, increasebenefits, or change hiringstandards.
3. Evaluating alterna-tives
Each alternative is evalu-ated to determine its
feasibility, itssatisfactoriness, and itsconsequences.
Increasing benefits may notbe feasible. Increasing
wages and changing hiringstandards may satisfy allconditions.
Table 4.1a
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EVALUATING ALTERNATIVESEVALUATING ALTERNATIVES
Legal?Legal?
EthicalEthical
Economical?Economical?
Practical?
Is the possible course of action:Figure 6.5
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EVALUATINGALTERNATIVESINTHE
DECISION-MAKINGPROCESS
Is the alternative
feasible?
liminate from
consideration
Is the alternative
satisfactory?
Are the alternatives
consequences
affordable?
Retain for further
considerationYes Yes Yes
liminate from
consideration
liminate from
consideration
No No No
Figure 4.3
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Types ofDecision Making
1. Individual Decision Making
2. Group Decision Making
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INDIVIDUALDECISIONMAKING
THREEAPPROACHES
THECLASSICALTHEORY- RATIONALMODEL
INDIVIDUALDECISIONMAKING
THREEAPPROACHES
THECLASSICALTHEORY- RATIONALMODEL
Rational model of decision making:
y Assumes managers have access to all the informationneeded to reach a decision.
y Managers can then make the optimum decision byeasily ranking their own preferences amongalternatives.
Disadvantage
Unfortunately, mangers often do not have all (or evenmost) required information.
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BEHAVIOURAL THEORY
THE ADMINISTRATIVE MODEL
BEHAVIOURAL THEORY
THE ADMINISTRATIVE MODELAdministrative Model of decision making:
This model assumes that when the manager faces adecision situationIncomplete information :He uses incomplete
information as he does not see all alternatives anddecide based on incomplete information.
Bounded rationality: There is a large number ofalternatives and information is vast so that managerscannot consider it all
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COGNITIVE BIASES AND DECISION
MAKING
COGNITIVE BIASES AND DECISION
MAKING
Suggests decision makers use heuristics to deal withbounded rationality.
y Aheuristic is a rule of thumb (enquiry,investigation, data collection, analysis and framingof rules) to deal with complex situations.
y If the heuristic is wrong, however, then poordecisions result from its use.
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GROUP DECISION MAKINGGROUP DECISION MAKING
Many decisions are made in a group setting.
y Groups decision making can call on combined skills, andabilities.
There are some disadvantages with groups:
Group think: Biased decision making resulting from groupmembers striving for agreement.
y Usually occurs when group members rally around a centralmangers idea (CEO), and become blindly committed withoutconsidering alternatives.
y The group tends to convince each member that the idea mustgo forward.
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IMPROVED GROUP DECISION
MAKING
IMPROVED GROUP DECISION
MAKING1. Devils Advocacy2. Dialectical inquiry
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DEVILS ADVOCACYV.DIALECTIC INQUIRYDEVILS ADVOCACYV.DIALECTIC INQUIRY
Devils Advocacy
Presentation ofPresentation of
alternativealternative
Critique ofCritique of
alternativealternative
ReassessReassess
alternativealternative
acce t, modify, rejectacce t, modify, reject
Dialectic
InquiryAlter. 1Alter. 1
Debate the twoDebate the two
alternativesalternatives
ReassessReassess
alternativesalternatives
acce t 1 or 2, combineacce t 1 or 2, combine
Alter. 2Alter. 2