managerial decision making learning objectives

McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill © 2003 The McGraw-Hill Companies, Inc. All rights reserved.

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Managerial Decision Making Learning Managerial Decision Making Learning ObjectivesObjectives

After studying this slides 3, you will know: the kinds of decisions you will face as a manager how to make “rational” decisions the pitfalls you should avoid when making decisions the pros and cons of using a group to make decisions the procedures to use in leading a decision-making group how to encourage creative decisions the processes by which decisions are made in organizations how to make decisions in a crisis


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Lack ofStructure

Risk

Conflict

Uncertainty

Characteristics Of Managerial DecisionsCharacteristics Of Managerial Decisions


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Characteristics Of Managerial DecisionsCharacteristics Of Managerial Decisions(cont.)(cont.)

Lack of structure the usual state of affairs in managerial decision making programmed decisions - decisions that have been encountered

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

computations nonprogrammer decisions - new, novel, complex decisions

having no proven answers decision maker must create or impose a method for making the

decision


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Comparison Of Types Of Decisions Comparison Of Types Of Decisions

Programmed Decisions Nonprogrammer Decisions

Problem

Procedure

Business example

Frequent, repetitive, routine.Much certainty regarding cause and effect relationships.

Dependence on policies, rules, and definite procedures.

Periodic reorders of inventory.

Novel, unstructured. Much uncertainty regarding cause and effect relationships.

Necessity for creativity, intuition,tolerance for ambiguity, creative problem solving.

Diversification in new products and markets.


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Characteristics Of Managerial Decisions Characteristics Of Managerial Decisions (cont.)(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,

and losses may occur good managers prefer to manage risk


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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 few decisions are without conflict

Characteristics Of Managerial Decisions Characteristics Of Managerial Decisions (cont.)(cont.)


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Identifying anddiagnosing

the problem

Generatingalternativesolutions

Evaluatingalternatives

Evaluatingthe decision

Implementingthe decision

Making thechoice

The Stages Of Decision MakingThe Stages Of Decision Making


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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 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 solutions


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Stages Of Decision Making (cont.)Stages Of Decision Making (cont.)

Evaluating alternatives determining the value or adequacy of the alternatives predict the consequences that will occur if the various options

are put into effect managers should consider several types of consequences

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 contingency plans are necessary to prepare for different

scenarios


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Making the choice maximize - a decision realizing the best possible outcome

requires searching thoroughly for a complete range of alternatives each alternative is carefully assessed compare one alternative to another

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


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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

always expect the unexpected


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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

Steps In The Implementation PlanSteps In The Implementation Plan


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Evaluating the decision collecting information on how well the decision is working evaluation is useful whether the feedback is positive or negative if decision appears inappropriate, the process cycles back to the

first stageThe 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 MakingBarriers To Effective Decision Making

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


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Barriers To Effective Decision Making Barriers To Effective Decision Making (cont.)(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


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Potential Advantages

1. Larger pool of information

1. More perspectives and approaches

3. Intellectual stimulation

3. People understand the decision

5. People are committed to the decision

Pros And Cons Of Using A Group ToPros And Cons Of Using A Group ToMake DecisionsMake Decisions

Potential Disadvantages

1. One person dominates

1. Satisfying

1. Groupthink - team spirit discourages disagreement

1. Goal displacement - newgoals replace original goals


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Leadership 1. Avoid domination 2. Encourage input 3. Avoid groupthink and satisfying 4. Remember goals

Effective GroupDecision Making

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

Managing Group Decision MakingManaging Group Decision Making

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


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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 satisfying prevent group from losing sight of the primary objective


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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 a 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 conflict

two techniques used to purposely program cognitive conflict devil’s advocate - has the job of criticizing others dialectic - structured debate comparing two conflicting courses of

action


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Managing Group Decision Making Managing Group Decision Making (cont.)(cont.)

Encouraging creativity creativity is essential to survival and 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 evaluation of ideas is postponed until all have been proposed


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Organizational Decision MakingOrganizational Decision Making

Constraints on decision makers organizations cannot do whatever they wish

MarketHuman

Financial

Constraints

LegalOrganizational


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Organizational Decision Making (cont.)Organizational Decision Making (cont.)

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

when the conditions above hold, perfectly rational decision making gives way to more biased, subjective decision processes


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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 a dramatic departure from rationality in decision making


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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


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Mistaken Assumptions: How Not To Mistaken Assumptions: How Not To Handle Crisis ManagementHandle Crisis Management

We don’t have a crisis.We can handle a crisis.Crisis management is a luxury we can’t afford.If a major crisis happens, someone else will rescue us.Accidents are just a cost of doing business.Most crises are the fault of bad individuals; therefore, there’s not much we can do to prevent them.Only executives need to be aware of our crisis plans; why scare our employees or members of the community?We are tough enough to react to a crisis in an objective and rational manner.The most important thing in crisis management is to protect the good

image of the organization through public relations and advertising campaigns.


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Plan For Crisis ManagementPlan For Crisis Management

Evaluation andDiagnostic Actions

CommunicationActions

StrategicActions

CrisisManagement

Technical andStructural Actions

Psychological andCultural Actions


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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


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Choice• Set objectives

• Generate options• Evaluate and selectacceptable, feasible,

suitable option

Discovery• Systematic gathering

and analysis of the facts

• Monitoringoutcomes of

actions

Action• Implementingchosen option• Correcting

deviations fromfrom plan

Emergent StrategiesEmergent Strategies

managerial decision making learning objectives

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