Heading
Managerial
Decision Making Learning
Objectives
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3- 1
After studying this slides 3, you will know:
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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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Characteristics
HeadingOf Managerial Decisions
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Risk
Uncertainty
Lack of
Structure
Conflict
3- 2
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Characteristics
HeadingOf Managerial Decisions
(cont.)
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3- 3
Lack of structure
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the usual state of affairs in managerial decision making
programmed decisions - decisions that have been encountered
and made in the past
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have objectively correct answers
are solvable by using simple rules, policies, or numerical
computations
nonprogrammer decisions - new, novel, complex decisions
having no proven answers
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decision maker must create or impose a method for making the
decision
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Comparison
Of Types Of Decisions
Heading
Programmed Decisions
Problem
Frequent, repetitive, routine.
Much certainty regarding
cause and effect relationships.
3- 4
Nonprogrammer Decisions
Novel, unstructured. Much
uncertainty regarding cause and
effect relationships.
Procedure Dependence on policies,
rules, and definite procedures.
Necessity for creativity, intuition,
tolerance for ambiguity, creative
problem solving.
Business Periodic reorders of inventory.
example
Diversification in new products
and markets.
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Characteristics
HeadingOf Managerial Decisions
(cont.)
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3- 5
Uncertainty and risk
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certainty - have sufficient information to predict precisely the
consequences of one’s actions
uncertainty - have insufficient information to know the
consequences of different actions
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cannot estimate the likelihood of various consequences of their
actions
risk - available information permits estimation of the
likelihood of various consequences
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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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Characteristics
HeadingOf Managerial Decisions
(cont.)
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3- 6
Conflict
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opposing pressures from different sources
occurs at two levels
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psychological conflict - individual decision makers:
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perceive several attractive options
perceive no attractive options
conflict between individuals or groups
few decisions are without conflict
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The Stages
Of Decision Making
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3- 7
Identifying and
diagnosing
the problem
Generating
alternative
solutions
Evaluating
alternatives
Making the
choice
Implementing
the decision
Evaluating
the decision
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Stages Of
Decision Making
Heading
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Identifying and diagnosing the problem
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recognize that a problem exists and must be solved
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problem - discrepancy between current state and:
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3- 8
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
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ready-made solutions - ideas that have been tried before
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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.)
Heading
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Evaluating alternatives
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determining the value or adequacy of the alternatives
predict the consequences that will occur if the various options
are put into effect
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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
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contingency plans are necessary to prepare for different scenarios
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Stages Of
Decision Making (cont.)
Heading
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3 - 10
Making the choice
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maximize - a decision realizing the best possible outcome
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satisfies - choose an option that is acceptable although not
necessarily the best or perfect
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requires searching thoroughly for a complete range of
alternatives
each alternative is carefully assessed
compare one alternative to another
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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Stages Of
Decision Making (cont.)
Heading
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3 - 11
Implementing the decision
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those who implement the decision must:
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can’t assume that things will go smoothly during
implementation
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understand the choice and why it was made
be committed to its successful implementation
identify potential problems
identify potential opportunities
always expect the unexpected
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Steps InHeading
The Implementation Plan
3 - 12
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
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Order the steps necessary
to achieve a fully
operational decision
List the resources and
activities required to
implement each step
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Stages Of
Decision Making (cont.)
Heading
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Evaluating the decision
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3 - 13
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 stage
The best decision
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nothing can guarantee a “best” decision
must be confident that the procedures used are likely to
produce the best decision given the circumstances
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vigilance - decision maker carefully and conscientiously executes
all stages of decision making
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BarriersHeading
To Effective Decision Making
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3 - 14
Psychological biases
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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
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subjective influences can override objective facts
discount the future - weigh short-term costs and benefits
more heavily than longer-term costs and benefits
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the avoidance of short-term costs or the seeking of short-term
rewards may result in negative long-term consequences
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BarriersHeading
To Effective Decision Making
(cont.)
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Time pressures
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today’s economy places a premium on acting quickly and
keeping pace
in order to make timely and high-quality decisions one must:
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3 - 15
focus on real-time information
involve people more effectively and efficiently
rely on trusted experts
take a realistic view of conflict
Social realities
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many decisions result from intensive social interactions,
bargaining, and politicking
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Pros And
Cons Of Using A Group To
Heading
Make Decisions
3 - 16
Potential Disadvantages
Potential Advantages
1.
Larger pool of information
1.
One person dominates
1.
More perspectives and
approaches
1.
Satisfying
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
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Managing
Group Decision Making
Heading
Leadership
1. Avoid domination
2. Encourage input
3. Avoid groupthink
and satisfying
4. Remember goals
3 - 17
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
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Managing
Group Decision Making
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Leadership style
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leader should attempt to minimize process-related problems
leader should:
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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
Heading
(cont.)
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3 - 19
Constructive conflict
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a certain amount of constructive conflict should exist
cognitive conflict - issue-based differences in perspectives or
judgments
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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
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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
Heading
(cont.)
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3 - 20
Encouraging creativity
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creativity is essential to survival and involves:
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to become creative one must:
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creation - bringing a new thing into being
synthesis - joining two previously unrelated things
modification - improving something or giving it new application
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
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evaluation of ideas is postponed until all have been proposed
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3 - 21
Organizational
HeadingDecision Making
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Constraints on decision makers
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organizations cannot do whatever they wish
Financial
Organizational
Legal
Constraints
Human
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Market
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Organizational
HeadingDecision Making (cont.)
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3 - 22
Models of organizational decision processes
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bounded rationality - decision makers cannot be truly
rational because:
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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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Organizational
HeadingDecision Making (cont.)
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Models of organizational decision processes (cont.)
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incremental model - major decisions arise through a series of
smaller decisions
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coalitional model - groups with differing preferences use
power and negotiation to influence decisions
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piecemeal approach to larger solutions
used when people disagree about goals or compete for resources
garbage can model - a chaotic process leading to seemingly
random decisions
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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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Organizational
HeadingDecision Making (cont.)
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Negotiations and politics
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negotiations necessary to galvanize the preferences of
competing groups and individuals
organizational politics - people try to influence decisions to
promote their own interests
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3 - 24
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
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stress and time constraints make decisions less effective
should be prepared for crises in advance
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Heading
Mistaken
Assumptions: How Not To
Handle Crisis Management
3 - 25
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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3 - 26
Plan For
Crisis Management
Heading
Strategic
Actions
Psychological and
Cultural Actions
Communication
Actions
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Crisis
Management
Technical and
Structural Actions
Evaluation and
Diagnostic Actions
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Organizational
HeadingDecision Making (cont.)
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3 - 27
Emergent strategies
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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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3 - 28
Emergent
Strategies
Heading
Action
• Implementing
chosen option
• Correcting
deviations from
from plan
Choice
• Set objectives
• Generate options
• Evaluate and select
acceptable, feasible,
suitable option
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Discovery
• Systematic gathering
and analysis of
the facts
• Monitoring
outcomes of
actions
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