The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Chapter
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
8
The Manager as a
Decision Maker
1
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning Objectives
Learning &
Creating
OBJECTIVES
• After studying the chapter, you should be able
to:
– Describe the six steps that managers should take
to make the best decisions.
– Explain how cognitive biases can affect decision
making and lead managers to make poor decisions.
– Understand the characteristics of a decision and
when organizations are facing the need to make a
decision.
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HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
Learning Objectives (cont’d)
OBJECTIVES
– Differentiate between programmed and
nonprogrammed decisions, and explain why
nonprogrammed decision making is a complex,
uncertain process.
– Identify the advantages and disadvantages of
group decision making, and apply techniques that
can improve it.
– Recognize the role that organizational learning and
creativity play in helping managers to improve
their decisions.
3
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Chapter Outline
Creating
CHAPTER OUTLINE
• The Nature of Managerial Decision Making
–
–
–
–
Decision-Making Dilemmas in Canada
Programmed and Nonprogrammed Decision Making
The Classical Model
The Administrative Model
• Steps in the Decision-Making Process
–
–
–
–
–
–
Recognize the Need for a Decision
Generate Alternatives
Evaluate Alternatives
Choose Among Alternatives
Implement the Chosen Alternative
Learning from Feedback
4
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Chapter Outline (cont’d)Creating
CHAPTER OUTLINE
• Cognitive Biases and Decision Making
–
–
–
–
Prior Hypothesis Bias
Representative Bias
Illusion of Control
Escalating Commitment
• Group Decision Making
– Perils of Groupthink
– Devil’s Advocacy and Dialectical Inquiry
– Diversity Among Decision Makers
5
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Chapter Outline (cont’d)Creating
CHAPTER OUTLINETER
• Organizational Learning and Creativity
–
–
–
–
Creating a Learning Organization
Promoting Individual Creativity
Promoting Group Creativity
Promoting Creativity at the Global Level
6
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
The Nature of ManagerialLearning &
Creating
Decision Making
THE NATURE OF MANAGERIAL DECISION MAKING
• Decision Making
– The process by which managers respond to
opportunities and threats by analyzing options, and
making choices about goals and courses of action.
• Decisions in response to opportunities
– occurs when managers respond to ways
to improve performance.
• Decisions in response to threats
– occurs when managers are impacted
by adverse events to the organization.
7
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Decision-Making DilemmasLearning
in &
Creating
Canada
DECISION- MAKING DILEMMAS IN CANADA
• ‘Triple Bottom Line’ Approach
– Economic
– Social
– Environmental
• Sustainability
– need to pursue social
and environmental agendas
Need a systematic approach to decision-making
that considers all aspects
8
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
PROGRAMMED & NONPROGRAMMED DECISION
• Programmed Decision
– Routine, virtually automatic decision making that
follows established rules or guidelines.
• same decision made many times before.
• rules or guidelines to follow
based on past experience
• Example: Disciplinary action
to be taken concerning a tardy
employee.
9
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
PROGRAMMED & NONPROGRAMMED DECISION
• Non-Programmed Decisions
– Nonroutine decision making that occurs in response
to unusual, unpredictable events.
– no rules to follow since the decision is new.
• Example: Deciding to invest in additional production
equipment to meet forecasted demand.
– based on:
Information
Intuition
10
Judgment
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
THE CLASSICAL MODEL
• Classical Model of Decision Making
– Prescriptive model (how decisions should be made)
– Assumes can identify and evaluate:
• all possible alternatives and their consequences
• preferences for each alternative
• the most appropriate course of action.
– Make the Optimum decision
• The most appropriate decision in light of what managers
believe to be the most desirable future consequences for
their organization.
11
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
THE CLASSICAL MODEL OF DECISION MAKING
Figure 8.1
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HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
THE CLASSICAL MODEL
Figure 8.1
13
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
THE ADMINISTRATIVE OF DECISION MAKING
• Administrative Model of Decision Making
– An approach to decision making that explains why
decision making is inherently uncertain and risky
and why managers usually make satisfactory rather
than optimum decisions.
– March and Simon
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HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
• Administrative Model of Decision Making
– Bounded rationality
• Too much information to consider
• Decisions are limited by people’s cognitive abilities.
– Incomplete information
• most managers do not see all alternatives and decide
based on incomplete information.
• Caused by:
Uncertainty
and Risk
Ambiguous
information
15
Time constraints
and Costs
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
WHY INFORMATION IS COMPLETE
Ambiguous
Information
Uncertainty
& Risk
INCOMPLETE
INFORMATION
Time constraints &
Information costs
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HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
CAUSE OF INCOMPLETE INFORMATION
• Risk
– Degree of probability that possible outcomes will
occur.
• If can assign probabilities for the likelihood of an
outcome’s failure or success
• Uncertainty
– Probabilities cannot be given for outcomes and the
future is unknown.
• Many decision outcomes are not known such as the
success of a new product introduction.
17
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
CAUSE OF INCOMPLETE INFORMATION
Young Woman
or Old Woman?
• Ambiguous
Information
Information whose
meaning is not clear
allowing it to be
interpreted in multiple
or conflicting ways.
Figure 8.3
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HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
CAUSE OF INCOMPLETE INFORMATION (Cont’d)
• Satisficing
– Searching for and choosing
an acceptable, or satisfactory response
to problems and opportunities,
rather than trying to make the best decision.
• explore a limited number of options.
• assume that the limited options represent all options.
A typical response when dealing
with incomplete information.
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HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
SIX STEPS IN DECISION MAKING
Step 1
Recognize the need for a decision
Step 2
Generate Alternatives
Step 3
Assess Alternatives
Step 4
Choose among Alternatives
Step 5
Implement the choose Alternatives
Step 6
Learn from feedback
20
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
Step 1. Recognize Need for a Decision
– Sparked by an event such as environment changes.
Step 2. Generate Alternatives
– Develop feasible alternative courses of action.
• if miss good alternatives,
the resulting decision is poor
• hard to develop creative
alternatives, need to look
for new ideas.
21
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
Step 3. Evaluate Alternatives
– What are the advantages and disadvantages of
each alternative?
– Managers should specify criteria, then evaluate.
Step 4. Choose Among Alternatives
– When ranking,consider all information.
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HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
General
Criteria
Legal?
for Evaluating
Possible
Courses of
Action
Ethical?
Economical?
Practical?
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HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
Step 5. Implement Chosen Alternative
– carry out the alternative
– assign responsibility and resources
Often a decision is made and not implemented.
Step 6. Learn From Feedback
– consider what went right and wrong and learn for
the future.
Without feedback, managers do not learn from
experience and will repeat the same mistake over.
24
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
• Heuristics
– Rules of thumb to deal with
complex situations.
– use heuristics to deal with
bounded rationality.
• Systematic errors can result
from use of an incorrect
heuristic and will appear over
and over since the rule used
to make decision is flawed.
25
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Cognitive
Biases &
Decision
Making
Steps in the
DecisionMaking
Process
Group
Decision
Making
Organizational
Learning &
Creating
SOURCES OF COGNITIVE BIASES AT THE INDIVIDUAL & GROUP
LEVEL
Illusion of control
Prior hypothesis
Cognitive
Biases
Escalating commitment
Representativeness
26
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
TYPES OF COGNITIVE BIASES
• Prior Hypothesis Bias
– Allowing strong prior beliefs about a relationship
between variables to influence decisions based on
these beliefs even when evidence shows they are
wrong.
• Representativeness
– The decision maker incorrectly generalizes a
decision from a small sample or a single incident.
27
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
TYPES OF COGNITIVE BIASES
• Illusion of Control
– The tendency to overestimates one’s own
ability to control activities and events.
• Escalating Commitment
– Committing considerable resources to project and
then committing more even if evidence shows
the project is failing.
28
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
GROUP DECISION MAKING
• Most decisions are made in group settings.
BETTER ALTERNATIVES
• Draw on combined skills and knowledge
• Generate more feasible alternatives
• Process more information
MORE ACCURATE
• Correct each other’s errors and biases
MORE ACCEPTABLE
• Increased cooperation and chances of successful
implementation
29
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
GROUP DECISION MAKING
• Groupthink
– Biased decision making resulting from group
members striving for agreement.
• Group members rally around a central manager’s idea,
and blindly commit to the idea without considering
alternatives.
• The group’s influence
tends to convince each
member that the idea
must go forward.
30
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
IMPROVED GROUP DECISION MAKING
• Devil’s Advocacy
– A group member who defends
unpopular or opposing alternatives
for the sake of argument
– One member of the group who acts as
the devil’s advocate by critiquing the
way the group identified alternatives
and pointing out problems with the
alternative selection.
31
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
IMPROVED GROUP DECISION MAKING
• Dialectical Inquiry
– Two different groups are assigned to the problem
and each group evaluates the other group’s choice
of alternatives.
– Top managers then hear each group present their
alternatives and each group can critique the other.
• Promote Diversity
– Increasing the diversity in a group may result in
consideration of a wider set of alternatives.
32
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
DEVIL’S ADVOCACY & DIALECTICAL INQUIRY
Source:
33
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
• Organizational Learning
– Managers seek to
improve a employee’s desire and
ability to understand and manage
the organization and its task
environment so as to raise
effectiveness.
• The Learning Organization
– Managers try to
maximize the people’s ability to
behave creatively
to maximize organizational learning.
34
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
SENGE’S PRINCIPLES FOR CREATING A LEARNING
1. Develop
Personal
Mastery
2. Build complex,
challenging mental
models
5. Encourage systems
Thinking
4. Build Share
Vision
3. Promote Team
Learning
Figure 8.8
35
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
ORGANIZATIONAL LEARNING & CREATIVITY
• Creativity
– The ability of the decision maker to discover novel
ideas leading to a feasible course of action.
• A creative management staff and employees are the key
to the learning organization.
36
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
CREATING A LEARNING ORGANIZATION
• Personal Mastery
– Managers empower employees and allow them to
create and explore.
• Mental Models
– Challenge employees to find new, better methods
to perform a task.
• Team Learning
– Is more important than individual learning since
most decisions are made in groups.
37
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
CREATING A LEARNING ORGANIZATION
• Build a Shared Vision
– People share a common mental model of the firm
to evaluate opportunities.
• Systems Thinking
– Knowing and understanding how actions in one
area of the firm will impact other areas of the firm.
38
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
PROMOTING INDIVIDUAL CREATIVITY
• Organizations can build an environment
supportive of creativity.
– Managers must provide employees with the ability
to take risks.
• If people take risks, they will occasionally fail.
– To build creativity, periodic failures must be
rewarded.
• This idea is hard to accept for some managers.
39
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
PROMOTING GROUP CREATIVITY
Brainstorming
meet face-to-face
generate and debate many alternatives.
not allowed to evaluate
until all alternatives are listed
then the pros and cons of each
are discussed and a short list created.
Production blocking
Members cannot absorb all information being presented during
the session and can forget even their own alternatives.
40
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
PROMOTING GROUP CREATIVITY
Nominal Group Technique
each member writes down all alternatives
he or she would suggest.
alternatives are then read aloud without discussion
until all have been listed
then discussion occurs
then each person ranks the alternatives and
highest ranking alternatives are chosen
– a more structured way to generate alternatives in writing
– avoids the production blocking
problem
41
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
PROMOTING GROUP CREATIVITY
• Delphi Technique
Provides a written format
without having all managers meet face-to-face.
Allows distant managers to participate.
• Problem is distributed in written form to managers who
then generate written alternatives.
• Responses are received and summarized by top
managers.
• These results are sent back to participants for feedback,
and ranking.
• The process continues until consensus is reached.
42
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Organizational
Group
Decision
Making
Learning &
Creating
SUMMARY
43
HO VAN HIEN MBA
The nature of
Managerial
Decision
Making
Steps in the
DecisionMaking
Process
Cognitive
Biases &
Decision
Making
Group
Decision
Making
Organizational
Learning &
Creating
THE END
44
HO VAN HIEN MBA