REVIEWER IN ENGINEERING MANAGEMENT CHAPTER#4: MANAGING DECISION MAKING Decision making- the act of choosing one alternative from among a set of alternatives. Programmed -A programmed decision is one that is relatively structured or recurs with some frequency (or both) Nonprogrammed decisions -are relatively unstructured and occur much less often in comparison with programmed decisions. Interacting groups- are decision-making groups or teams in which members openly discuss, argue about, and agree on the best alternative. Political forces- One major element of politics, coalitions, is especially relevant to decision making. A coalition is an informal alliance of individuals or groups formed to achieve a common goal. Satisficing -is the tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency. Examples: • The decision to have regular meals during the day is an example of a(n) programmed decision. • Marina has been working as a waitress at a restaurant for the past ten years. For the first time, she was falsely accused of robbery by her manager. Feeling humiliated, Marina decides to quit her job. Marina's decision to quit her job is an example of a(n) nonprogrammed decision. • The classical model of decision making assumes that: managers are rational and logical in their thought processes. -It is a prescriptive approach that tells managers how they should make decisions. • the first step in evaluating alternatives in rational decision making- determination of feasibility of the alternatives. -Each alternative be evaluated in terms of its feasibility, its satisfactoriness, and its consequences. • Rodney, the principal of a school, believes that the poor performance of students in economics is due to the poor quality of teaching. In order to remedy the situation, Rodney hires a new economics teacher. However, the students continue to perform poorly. Following the steps of rational decision making, which of the following steps should Rodney's take next after hiring the new economics teacher? He should evaluate the teaching quality of the new teacher. • Which of the following is a difference between the classical model and the administrative model of • decision making? Unlike the administrative model of decision making, the classical model explains how managers can at least attempt to be more rational and logical in their approaches to decisions. Charlotte was asked to select a suitable material supplier for her boutique over the weekend. Since Charlotte had plans of meeting her friends during the weekend, she did not choose the best supplier for her boutique. Instead, she selected the first supplier who met the minimum standards. Charlotte's decision-making strategy is an example of satisficing. Decisions- Making Conditions ➢ Decision Making Under Certainty- the decision maker knows with reasonable certainty, what the alternatives are and what condition are associated with each alternative. ➢ Decision Making Under Risk- the availability of each alternative and its potential payoffs and costs are all associated with risks. ➢ Decision Making Under Uncertainty- the decision maker does not know all the alternatives, the risk associated with each, or the consequences of each alternative. Steps in the Rational Decision- making Process 1. 2. 3. 4. 5. 6. Recognizing and Defining the decision situation. Identifying alternatives. Evaluating alternatives. Selecting the best alternative. Implementing the chosen alternative. Follow up and evaluating the results. Optimization- selecting the alternative that offers the best combination (balance) of feasibility, satisfactoriness, and affordability suited to the situation. Behavioral Aspects of Decision Making ➢ Bounded Rationality- the concept that decision makers are limited by their values and unconscious reflexes, skills, and habits. ➢ Satisficing- the tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency to resolve the problem. ➢ Coalition- a positive or negative political force in decision making which consists of an informal alliance of individuals or groups formed to achieve a goal. • Using Coalitions- when to use them, assessing their impact, constraining their effects. ➢ Intuition- an inmate belief about something without conscious consideration. ➢ Escalating of commitment- a decision maker’s staying with a decision even when it appears to be wong. ➢ Risk Propensity- the extent to which a decision maker is willing to gamble when making a decision. Managerial Ethics- Individual ethics combine with the organization’s ethics to create managerial ethics. Components of managerial ethics: • • • Relationships of the firm to employees Employees to the firm The firm to other economic agents Group and Team Decision Making Forms of group Decision Making ➢ Interacting groups or teams- consists of an existing group or newly formed team interacting and then making a decision. ➢ Delphi groups- developing a consensus of expert opinion from a panel of experts who individually contribute through a moderator. ➢ Nominal groups- generating ideas through the individual contributions of alternatives that are winnowed down to reach a decision. Decision Analysis Decision alternatives- are the different possible strategies the decision maker can employ. States of nature- refer to future events, not under the control of the decision maker. Influence diagram -is a graphical device showing the relationships among the decisions, the chance events, and the consequences. Payoff -is the consequence resulting from a specific combination of a decision alternative and a state of nature. Nodes - in an influence diagram, represents the decisions, chance events, and consequences. Market demand (not under our control) is an example of a states of nature. Decision Tree Nodes- Choice, Chance, Terminal Decision Analysis -used to select the best or most cost effective alternative. - assists in helping make decisions where there is uncertainty about some information. - aids in interpreting articles, reporting decision analysis. - displayed graphically via a decision tree. ICER- Incremental Cost Effectiveness Ratio. (change in costs)/ (change in outcomes) Arcs -show the direction of influence that the nodes have on one another. The six steps in Decision Making (THOMPSON LUMBER COMPANY) 1. Clearly define the problem at hand. ➢ Then company is considering expanding by manufacturing and marketing a new product-backyard storage shed. 2. List the possible alternatives. ➢ Do not develop the new product line at all. 3. Identify the possible outcomes or states of nature. ➢ The market could be favorable or unfavorable. 4. List the payoff ➢ Identify conditional values for the profits for large plant, small plant, and no developments for the two possible market conditions. 5. Select the decision model. ➢ This depends on the environment and amount of risk and uncertainty. 6. Apply the model to the data ➢ Solutions and analysis are then used to aid in decision- making. Types of Decision- Making Environments Type 1: Decision making under Certainty ➢ The decision maker knows with certainty the consequences of every alternative or decision choice. Type 2: Decision making under Uncertainty ➢ The decision maker does not know the probabilities of the various outcomes. Type 3: Decision making under Risk ➢ The decision maker knows the probabilities of the various outcomes. Decision Making Under Uncertainty 1. Maximax (optimistic) ➢ Used to find the alternative that maximizes the maximum payoff. 2. Maximin (pessimistic or conservative) ➢ Used to find the alternative that maximizes the minimum payoff. 3. Criterion of Realism (Hurwicz) ➢ This is a weighted average compromise between optimism and pessimism. 4. Equally Likely (Laplace) ➢ Considers all the payoffs for each alternative. 5. Minimax Regret ➢ Based on opportunity loss or regret, this is the difference between the optimal profit and actual payoff for a decision. Decision Making Under Risk ➢ This is Decision making when there are several possible states of nature, and the probabilities associated with each possible state are known. EMV for Thompson Lumper ➢ Suppose each market outcome has a probability of occurrence of 0.50. ➢ Highest EMV. CHAPTER #6: ORGANIZATION STRUCTURE AND DESIGN Examples 1. Darren manages an insurance company. His employees are very knowledgeable. He believes the company will improve as employees share their expertise with one another. Sometimes, he has to work hard to get the employees to open up. Darren's company uses the learning organization structure design. 2. The strength of the structural model utilized by Rick's company is that it is based on results of managers, but its main weakness is costs can be increased due to a decrease in efficiency. Rick's company utilizes a ____________ structure. Ans. Divisional 3. Wanda manages a small record store. She is the only manager. There is not departmentalization and she has a very informal management style. Her business is growing and she is finding it more difficult to maintain control. This is an example of what type of management structure? Ans. simple structure 4. A manager from a different department reprimanded Anna for having a messy work area. She was upset and offended, because she believes only her direct boss can provide her direction. This is an example of Unity of Command 5. A car dealership may have the following departments: sales, services, customer service, maintenance, marketing, finance, and administration. What type of organizational structure would work best for a car dealership? Ans. Matrix 6. When Julie asks her employees to complete a task, it usually happens because they respect her. Ans. Authority 7. Ginger works for an innovative marketing firm. It is very flexible and many employees work from home. Because there is so much freedom, communication can be difficult. This is an example of boundary-less structure design. 8. Rhonda is a project manager for an architecture firm. Her company has many specialists from different functional departments to work on one or more projects being led by project managers. The employees are flexible and decisions can be made quickly, but there are often conflicts between employees. The firm utilizes matrix-project structure design 9. Claire enjoys her job because the employees are included in decision making and empowered. However, there is a lot of pressure to meet goals and she does not always know who to go to with specific issues. Her company uses the team structure design. 10. Datacom's customer service center is highly specialized and can efficiently provide training because the employees work in departments where they all have similar jobs. However, the specialists become isolated from the rest of the organization and can lose sight of what is best for the company overall. This is an example of functional structure Organizing- The function of management that creates the organization's structure. Organizational Design- When managers develop or change the organization's structure. 6 Key Elements in Organizational Design- Work Specialization; departmentalization; authority, responsibility, and power; span of control; centralization and decentralization; and formalization. Work Specialization- Dividing work activities into separate job tasks; also called division of labor. Departmentalization- How jobs are grouped together. Functional Departmentalization- Grouping activities by functions performed Product Departmentalization- Grouping activities by major product areas Customer Departmentalization- Grouping activities by customer Geographical Departmentalization- Grouping activities on the basis of geography or territory Process Departmentalization- Grouping activities on the basis of work or customer flow. Organizational Structure- The formal arrangement of jobs within an organization Organizational Design- A process involving decisions about six key elements (work specialization, departmentalization, chain of command, span of control, centralization and decentralization, and formalization). Work Specializations- The degree to which tasks in the organization are divided into separate jobs with each step completed by a different person Chain of Command- The continuous line of authority that extends from upper levels of an organization to the lowest levels of the organization and clarifies who reports to who Authority- The rights to inherent in a managerial position to tell people what to do and to expect them to do it Job Characteristics: Core Dimensions Skill Variety -The number of tasks a person does in a job Task Identity- The extent to which the worker does a complete or identifiable portion of the total job Task Significance -The perceived importance of the task by the worker Autonomy -The degree of control the worker has over how the work is performed Feedback -The extent to which the worker knows how well the job is being performed Growth Need Strength-The desire for people to grow, develop, and expand their capabilities that is their response to the core dimensions. Departmentalization- The process of grouping jobs according to some logical arrangement. Tall Organizations –Are more expensive because of the number of managers involved. -Foster more communication problems because of the number of people through whom information must pass. Flat Organizations–Lead to higher levels of employee morale and productivity. -Create more administrative responsibility for the relatively few managers. Distributing Authority Authority- Power that has been legitimized by the organization. Delegation- The process by which managers assign a portion of their total workload to others. Coordination –The process of linking the activities of the various departments of the organization. Electronic Information Technology- E-mail and instant messaging. Electronic scheduling to coordinate arrangements for group meetings Bureaucratic Model (Max Weber)- A logical, rational, and efficient organization design based on a legitimate and formal system of authority. Woodward’s Findings- Unit or small-batch technology and continuous process firms tend to be organic—less rigid and more informal. Organization Designs –Mechanistic organizations occur most frequently in stable environments. –Organic organizations are found in unstable and unpredictable environments. Organizational Size- Defined as the total number of full-time or full-time equivalent employees. Organizational Life Cycle -The progression of organizations as they grow and mature—birth, youth, midlife, and maturity. Organization Design Functional or U-form (Unitary) Design- Organizational members and units are grouped into functional departments. Conglomerate or H-form (Holding) Design- Organization consists of a set of unrelated businesses with a general manager for each business. Divisional or M-form (Multidivisional) Design- Is based on multiple businesses in related areas operating within a larger organizational framework, following a strategy of related diversification. Matrix Design- An organizational arrangement based on two overlapping bases of departmentalization. Hybrid Design- Is based on two or more organization design forms such as a mixture of related divisions and a single unrelated division. -Most organizations use a modified form of organization design that permits them to have the flexibility to make strategic adjustments.
