3
-
1
Bateman
Snell
Management
Competing
in the
New Era
5th
Edition
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
Part One
Chapter 3 - Managerial Decision Making
Chapter Outline
Characteristics of Managerial Decisions
The Stages of Decision Making
The Best Decision
Barriers to Effective Decision Making
Decision Making in Groups
Managing Group Decision Making
Organizational Decision Making
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
3
Learning Objectives
After
studying Chapter 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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
4
Characteristics Of Managerial
Decisions
Risk
Uncertainty
Lack of
Structure
Conflict
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
5
Characteristics Of Managerial
Decisions
Lack
of structure
 programmed
decisions - decisions encountered and made in
the past
have
objectively correct answers
are solvable by using simple rules, policies, or numerical
computations
 nonprogrammed
decisions - new, novel, complex decisions
having no proven answers
a
variety of solutions exist, all of which have merits and
drawbacks
demand creative responses, intuition, and tolerance for
ambiguity
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
6
Characteristics Of Managerial
Decisions (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
good managers prefer to avoid or manage risk
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
7
Characteristics Of Managerial
Decisions (cont.)
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
8
The Stages Of Decision Making
Identifying and
diagnosing
the problem
Generating
alternative
solutions
Evaluating
alternatives
Making the
choice
Implementing
the decision
Evaluating
the decision
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
9
Stages Of Decision Making
Identifying
 recognize
and diagnosing the problem
that a problem exists and must be solved
problem
- discrepancy between current state and past
performance, current performance of other organizations, or
future expected performance
decision maker must want to resolve the problem and have the
resources to do so
Generating
alternative solutions
 ready-made
may
solutions - ideas that have been tried before
follow the advice of others who have faced similar problem
 custom-made
solutions
solutions - combining new ideas into creative
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
0
Stages Of Decision Making (cont.)
Evaluating
alternatives
 determining
the value or adequacy of the alternatives
 there are potentially more alternatives available than
managers may realize
 predict the consequences that will occur if the various
options are put into effect
 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
required
to prepare for different scenarios
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
1
Stages Of Decision Making (cont.)
Making
the choice
 maximize
- a decision realizing the best possible outcome
greatest
positive consequences and fewest negative
consequences
greatest benefit at the lowest cost and the largest expected total
return
 satisfice
- 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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
2
Stages Of Decision Making (cont.)
Implementing
 those
the decision
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
3
Steps In The Implementation Plan
Determine how things will
look when the decision
is fully operational
Assign responsibility for
each step to specific
individuals
Implementation
Plan
Estimate the time needed
for each step
Order the steps necessary
to achieve a fully
operational decision
List the resources and
activities required to
implement each step
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
4
Stages Of Decision Making (cont.)
Evaluating
the decision
 collecting
information on how well the decision is working
 if decision appears inappropriate, the process cycles back to
the first stage
The
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
5
Barriers 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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
6
Barriers To Effective Decision
Making (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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
7
Decision Making In Groups
Potential Advantages
Potential Disadvantages
1. Larger pool of information
1. One person dominates
1. More perspectives and
approaches
1. Satisficing
3. Intellectual stimulation
1. Groupthink - team spirit
discourages disagreement
3. People understand the
decision
1. Goal displacement - new
goals replace original goals
5. People are committed to
the decision
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
8
Managing Group Decision Making
Leadership
1. Avoid domination
2. Encourage input
3. Avoid groupthink
and satisficing
4. Remember goals
Constructive Conflict
1. Air legitimate
differences
2. Stay task-focused
3. Be impersonal
4. Play devil’s advocate
Effective Group
Decision Making
Creativity
1. Brainstorm
2. Avoid criticizing
3. Exhaust ideas
4. Combine ideas
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
1
9
Managing 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 satisficing
prevent group from losing sight of the primary objective
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
0
Managing Group Decision Making
(cont.)
Constructive
conflict
a
certain amount of constructive conflict should exist
 cognitive conflict - issue-based differences in perspectives or
judgments
most
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
 devil’s advocate - has the job of criticizing others
 dialectic - structured debate comparing two conflicting
courses of action
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
1
Managing Group Decision Making
(cont.)
Encouraging
 creativity
creativity
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
criticism
- group generates ideas about a problem
is withheld until all ideas have been proposed
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
2
Organizational Decision Making
Constraints
on decision makers
 organizations
face
Models
cannot do whatever they wish
various constraints on their actions
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
3
Constraints On Decision Makers
Financial
Organizational
Legal
Constraints
Human
Market
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
4
Organizational Decision Making
(cont.)
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
5
Organizational Decision Making
(cont.)
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
6
Plan For Crisis Management
Strategic
Actions
Psychological and
Cultural Actions
Technical and
Structural Actions
Crisis
Management
Communication
Actions
Evaluation and
Diagnostic Actions
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
7
Organizational Decision Making
(cont.)
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
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
3
-
2
8
Emergent Strategies
Action
Discovery
• Implementing
chosen option
• Correcting
deviations from
from plan
• Systematic gathering
• Analysis of the facts
• Monitoring
outcomes of
actions
Choice
• Set objectives
• Generate options
• Evaluate and select
acceptable, feasible,
suitable option
Copyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.