lecture 3 -principles of management

7/27/2019 Lecture 3 -Principles of Management

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Principles of Management

Lecture 3

Planning and Decision Making

: Sonya Omer

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Todays Agenda

Decision making process

Four ways managers make decision

Classify decision and decision making

conditions Decision making styles

Decision making errors and biases

Forecasting Decision Aid

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Tip for POM Course

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Decision Making

Decision Making a choice from two or more alternatives.

Problem

An obstacle that makes it difficult to achievethe desired goals and objectives.

The Decision-Making Process The process by which managers identify

organizational problems and attempt to resolvethem.


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Decision Making Process

1. Identification of problem

2. Identification of Decision Criteria

3. Allocation of weights to criteria4. Development of alternatives

5.Analysis of alternatives

6. Decide on an alternative7. Implementation of decision

8. Evaluation of decision


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Step 1: Identify the Problem

Problem

A discrepancy between an existing and desiredstate of affairs.

Characteristics of Problems

A problem becomes a problem when a managerbecomes aware of it.

There is pressure to solve the problem.

The manager must have the authority, information,or resources needed to solve the problem.



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Step 2: Identifying Decision Criteria

Decision criteria are factors that are important(relevant) to resolving the problem.

Costs that will be incurred (investments required)

Risks likely to be encountered (chance of failure)

Outcomes that are desired (growth of the firm)

Step 3: Allocating Weights to the Criteria

Decision criteria are not of equal importance:

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Step 4: Developing Alternatives Identifying viable alternatives

Step 5: Analyzing AlternativesAppraising each alternatives strengths and

weaknesses



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Assessed Values of Laptop ComputersUsing Decision Criteria


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Step 6: selecting an alternative Choosing the best alternative

Step 7: implementing the alternative Putting the chosen alternative into action



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Evaluation of Laptop Alternatives AgainstWeighted Criteria


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Step 8: Evaluating the Decisions

Effectiveness

The soundness of the decision is judged by itsoutcomes.

How effectively was the problem resolved byoutcomes resulting from the chosen alternatives?

If the problem was not resolved, what went wrong?



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Making Decisions

Rationality

Managers make logical, consistent, value-maximizing choices with specifiedconstraints.

Assumptions are that decision makers:

Are perfectly rational, fully objective, and logical.

Have carefully defined the problem and

identified all viable alternatives. Have a clear and specific goal

Will select the alternative that maximizesoutcomes in the organizations interests rather

than in their personal interests.


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Making Decisions

Bounded Rationality Managers make decisions rationally, but are limited

(bounded) by their ability to process information.

Assumptions are that decision makers:

Will not seek out or have knowledge of all alternatives

Will satisfice

Influence on decision making

Escalation of commitment: an increased commitment to aprevious decision despite evidence that it may have beenwrong.


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Intuitive decision making

Making decisions on the basis of experience,feelings, and accumulated judgment.

Five aspects of intuition Experience-based decision

Affect-initiated decision (feelings and emotions)

Cognitive-based decision (skills, knowledge, training) Subconscious mental processing

Value or ethics based decision

Making Decisions


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Types of Programmed Decisions

Policy

A general guideline for making a decisionabout a structured problem.

Example: Accept all customer-returnedmerchandise.

Procedure

A series of interrelated steps that a managercan use to respond (applying a policy) to astructured problem.

Example: Follow all steps for completingmerchandise return documentation.


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Rule

An explicit statement that limits what a

manager or employee can or cannot do. Example: Managers must approve all

refunds over $50.00.

Example: No credit purchases are refundedfor cash.

Types of Programmed Decisions


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Types of Problems and Decisions

Unstructured Problems Problems that are new or unusual and for

which information is ambiguous orincomplete.

Problems that will require custom-madesolutions.

Nonprogrammed Decisions Decisions that are unique and nonrecurring.

Decisions that generate unique responses.

Programmed versus


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Programmed versusNonprogrammed Decisions

T f P bl d L l i


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Programmed

Decisions

NonprogrammedDecisions Level inOrganization

Top

LowerWell-structured

Ill-structured

Type of

Problem

Types of Problems and Level inOrganizations


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Decision-Making Conditions

CertaintyA situation in which a manager can make an

accurate decision because the outcome ofevery alternative choice is known.

Risk

A situation in which the manager is able toestimate the likelihood (probability) of

outcomes that result from the choice ofparticular alternatives.


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Decision-Making Conditions

Uncertainty

Limited information prevents estimation ofoutcome probabilities for alternativesassociated with the problem and may force

managers to rely on intuition, hunches, andgut feelings.


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Decision-Making Styles

Dimensions of Decision-Making Styles Ways of thinking

Rational, logical, and analytical

Intuitive, creative, and unique

Source of information

External data and facts

Internal sources: feelings and intuition


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Decision-Making Styles

Linear Thinking Style Decision style characterized by a persons

preference for

using external data and facts and

processing this information through rational, logicalthinking.

Nonlinear Thinking Style

Decision style characterized by personspreference for

Internal sources of information with

Internal insights, feelings and intuition to guide

decisions and actions.


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Decision-Making Errors and Biases


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FORECASTING

DECISION AID

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Forecasting

Process of making predictions aboutchanging conditions and future eventsthat may significantly affect the business

of an organization.

Categories of forecasting methods

Quantitative Qualitative or Judgmental

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Forecasting Approaches

Quantitative Forecasting

Relies on numerical data and mathematicalmodels to predict future conditions.

Used when situation is stable and historical

data exists. Existing products

Current technology

E.g. forecasting sales of Sony televisions inPakistan.

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Qualitative or Judgmental Forecasting Relies on individual judgments or committee

agreements regarding future conditions.

Aimed primarily at predicting long-termtrends.

Used when situation is vague and little dataexist

New products New technology


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Qualitative forecasting techniques: Delphi method

Judgments of panel of experts on a specificissue relating to the future.

Jury of executive opinion Executives hold a meeting and estimate a

forecast for a particular item.

Sales-force composite Predict future sales.

Estimates from individual salespersons and salesmanagers are reviewed for reasonableness, then

aggregated.


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lecture 3 -principles of management

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