lOMoARcPSD|50627647 Principles of management chapter 2 notes Principles of management (Princess Sumaya University for Technology) Scan to open on Studocu Studocu is not sponsored or endorsed by any college or university Downloaded by kinda kreishan (kindafurat@gmail.com) lOMoARcPSD|50627647 Chapte 2 Makin decision B : Kind Kreisha ● Th decisio -makin proces Ste 1: Identif Decision: making choices among alternatives ↳ Managers at all levels and in all areas of organizations make decisions. Problem: a discrepancy between an existing and a desired condition. Unfortunately, in the real world problems aren’t very obvious so managers need to be very vigilant. Managers also have to be cautious not to confuse problems with symptoms of the problem. The eight steps in the decision making process: proble ● Ste 2: Identif decisio criteri ● Decision criteria: criteria that define what’s important or relevant to solving a problem Ste 3: Allocat weight t th criteri Rarely are the relevant criteria equally important. So the decision maker needs to weigh the items in order to give them the correct priority. How? A simple way is to give the most important criteria a weight of 10 and then assign weights to the rest using that standard. Of course, you could use any number as the highest weight. The key is assessing the relative importance of the criteria. Ste 4: Develo alternative The fourth step in the decision-making process requires the decision maker to list 1 Downloaded by kinda kreishan (kindafurat@gmail.com) lOMoARcPSD|50627647 viable alternatives that could resolve the problem. In this step, a decision maker needs to be creative, and the alternatives are only listed - not evaluated just yet. Ste 5: Analyz alternative Once alternatives have been identified, the decision maker must evaluate them. How? By using the criteria developed in step 2. After you rate all the alternatives from 1-10 in every criterion, multiply the number by the assigned weight. The total score for each alternative, then, is the sum of the weighted criteria. Sometimes decision makers can skip this step. If one alternative scores highest in every criterion, you wouldn’t need to consider the weights because that alternative would already be the top choice. Or, if the weights were all equal, you could evaluate an alternative merely by summing up the assessed values for each one. Ste 6: Selec a alternativ The sixth step in the decision-making process is choosing the best alternative or the one that generated the highest total in step 5. Ste 7: Implemen th alternativ In step 7, the decision is put into action by conveying it to those affected and getting their commitment to it. Ste 8: Evaluat decisio e ectivenes The last step in the decision-making process involves evaluating the outcome or result of the decision to see whether the problem was resolved. If the evaluation shows that the problem still exists, then the manager needs to assess what went wrong. Was the problem incorrectly defined? Were errors made when evaluating alternatives? Was the right alternative selected but poorly implemented. Approache t decisio makin Although everyone in an organization makes decisions, decision making is particularly important to managers. It’s part of all four management functions. The fact that almost everything a manager does involves making decisions are always time-consuming, complex, or evident to an outside observer. Most decisions are routine. 5 perspectives on how managers make decisions: Rationalit Rational decision making: describes choices that are logical and consistent and maximize value Managers should be rational. This for example, should preclude allowing emotions or expediency to influence their choices. - Assumptions of rationality What does it mean to be a “rational” decision maker? A rational decision maker would be fully objective and logical. The problem faced would be clear and unambiguous, and the decision maker would have a clear and specific goal and know all possible alternatives and consequences. Finally, making decisions rationally would consistently lead to selecting the alternative that maximizes ● 2 Downloaded by kinda kreishan (kindafurat@gmail.com) lOMoARcPSD|50627647 the likelihood of achieving that goal. These assumptions apply to any decision personal or managerial. However, for managerial decision making, we need to add one additional assumption - decisions are made in the best interest of the organization. These assumptions of rationality aren’t very realistic. Managers don’t always act rationally. ● Intuitive decision making: making decisions on the basis of experience, feelings, and accumulated judgement. Bounde rationalit Despite the unrealistic assumptions, managers are expected to be rational when making decisions. They understand that “good” decision makers are supposed to do certain things and exhibit logical decision-making behaviors as they identify problems, consider alternatives, gather information, and act decisively but prudently. When they do so, they show others that they’re competent and that their decisions are the result of intelligent deliberation. However, a more realistic approach to describing how managers make decisions is the concept of bounded rationality. ● Bounded rationality: decision making that’s rational but limited (bounded) by an individual’s ability to process information. Because they can’t possibly analyze all information on all alternatives, managers satisfice rather than maximize. ● Satisfice: solutions that are satisfactory and sufficient or “good enough” They’re being rational within the limits (bounds) of their ability to process information. Intuitio Intuitive decision making can complement both rational and bounded rational decision making. First of all, a manager who has had experience with a similar type of problem or situation often can act quickly with what seems to be limited information because of that past experience. In addition, evidence indicates that individuals who experienced intense feelings and emotions when making decisions actually achieved higher decision-making performance, especially if they understood their feelings while making those decisions. Evidenc -base managemen Any decision-making process can be enhanced through the use of relevant and reliable evidence. That’s the reasoning behind evidence-based management (EBMgt) ● Evidence-based management (EBMgt): the systematic use of the 3 Downloaded by kinda kreishan (kindafurat@gmail.com) lOMoARcPSD|50627647 best available evidence to improve management practice. That evidence might be hard computer data, opinions of experts, or the prior experience of colleagues. In essence, EBMgt is an attempt to operationalize rationally. The 4 essential elements of EBMgt: - The decision maker's expertise and judgment - External evidence that’s been evaluated by the decision maker - Opinions, preferences, and values of those who have a stake in the decision - Relevant organizational (internal) factors such as context, circumstances, and organizational members The strength or influence of each of these elements on a decision will vary with each decision. Sometimes, the decision maker’s intuition might be given greater emphasis in the decision; other times it might be the opinions of stakeholders; and at other times, it might be ethical considerations. The key for managers is to recognize and understand the mindful, conscious choice as to which elements are most important and should be emphasized in making a decision. Crowdsourcin Crowdsourcing: relying on a network of people outside the organization’s traditional set of decision makers to solicit ideas via the internet. Finding innovative solutions to problems is one of several uses of crowdsourcing in organizations. Crowdsourcing can help managers gather insights from customers, suppliers, or other groups to help make decisions such as what ● products to develop, where they should invest, or even who to promote. Powered by the collective experiences and ideas of many, crowdsourcing can help managers make better-informed decisions by getting diverse input from sources outside the typical management hierarchy. Type of decision Structure problem an programme decision Structured problems: Straightforward, familiar, and easily defined problems. ● Programmed decision: a repetitive decision that can be handled by a routine approach. When a problem is structured the “develop-the-alternatives” stage of the decision-making procedure either doesn’t exist or is given very little attention. Why? Because once the structured problem is identified, the solution is usually self-evident or at least reduced to a few alternatives that are familiar and have proved successful in the past. Structured problems don't require managers to develop and weigh decision criteria. Instead, the manager relies on one of three types of programmed decisions: procedure, rule, or policy. ● Procedure: a series of sequential steps used to respond to a well-structured problem. The only difficulty with procedures is identifying the issue. Once it's identified, the procedure is clear. ● Rule: an explicit statement that tells managers what can and cannot be done. ● 4 Downloaded by kinda kreishan (kindafurat@gmail.com) lOMoARcPSD|50627647 Rules are often used because they’re simple to follow and ensure consistency. ● Policy: a guideline for making decisions. In contrast to a rule, a policy defines the general parameters for a decision maker rather than explicitly stating what can and cannot be done. Policies usually contain an ambiguous term that leaves interpretation up to the decision maker. Unstructure problem an nonprogramme decision . Unstructured problems: problems that are new or unusual and for which information is ambiguous and incomplete. When problems are unstructured, managers must rely on nonprogrammed decision making in order to develop unique solutions. ● Nonprogrammed decisions: unique and nonrecurring decisions that require a custom-made solution. ● Comparin decisio type - Type of problem ↪ Programmed decision: Structured ↪ Nonprogrammed decision: Unstructured - Managerial level ↪ Programmed decision: Lower levels ↪ Nonprogrammed decision: Upper levels - Frequency ↪ Programmed decision: Repetitive, routine ↪ Nonprogrammed decision: New, unusual - Information ↪ Programmed decision: Readily available ↪ Nonprogrammed decision: Ambiguous or incomplete - Goals ↪ Programmed decision: Clear, specific ↪ Nonprogrammed decision: Vague - Time frame for solution ↪ Programmed decision: Short ↪ Nonprogrammed decision: Relatively long - Solution relies on… ↪ Programmed decision: Procedures, rules, policies ↪ Nonprogrammed decision: Judgement and creativity. Decisio -makin style Research on decision styles has identified four different individual approaches to making decisions. People differ along two dimensions. One of these dimensions is an individual’s way of thinking. Some of us tend to be more rational and logical in the way we think or process information. Rational types look at information in order to make sure it’s logical and consistent before proceeding to make a decision. Others tend to be more creative and intuitive. Intuitive types don’t have to process information in a certain order but are comfortable looking at it as a whole. The other dimension describes an individual’s tolerance for ambiguity. Again, some of us have a low tolerance for ambiguity and prefer order and certainty in the way we structure information so ambiguity is minimized. In contrast, some of us can tolerate high levels of ambiguity and can process many thoughts at the same time. 5 Downloaded by kinda kreishan (kindafurat@gmail.com) lOMoARcPSD|50627647 When these two dimensions are diagrammed, they form four styles of decision-making. These are directive, analytic, conceptual, and behavioral. - - Individuals with a conceptual style tend to be very broad in their outlook and consider many alternatives. Their focus is long range and they are very good at finding creative solutions to problems. The behavioral style categorizes decision makers who work well with others. They’re concerned with the achievement of peers and those working for them and are receptive to suggestions from others, relying heavily on meetings for communication. This type of manager tries to avoid conflict and seeks acceptance from others. Decisio -makin biase an erro - - The directive style has low tolerance for ambiguity and seeks rationality. They are efficient and logical. They are efficient and logical, but their efficiency concerns result in decisions being made with minimal information and with few alternatives assessed. Directives make decisions fast and they focus on the short run. The analytic type has a much greater tolerance for ambiguity than do directive decision makers. This means that analytic types are more comfortable than directives when uncertainty is involved in a decision. Analytic managers would be best characterized as careful decision makers with the ability to adapt or cope with new situations. When managers make decisions they may use shortcuts or heuristics. ● Heuristics: shortcuts that managers use to simplify or speed up decision making. Heuristics can be useful because they make sense of complex, uncertain, and ambiguous information. However, sometimes they may lead to errors and biases in processing and evaluating information. Decision-making errors and biases: 1- When decision makers think they know more than they do or hold unrealistically positive views of themselves and their performance, they’re exhibiting the overconfidence bias. 2- The immediate gratification bias describes decision makers who want immediate rewards and would like to avoid immediate costs. For those individuals, decision choices that provide quick payoffs are more appealing than those with payoffs in the future. 6 Downloaded by kinda kreishan (kindafurat@gmail.com) lOMoARcPSD|50627647 3- The anchoring effect describes how decision makers fixate on initial information as a starting point and then, once set, fail to adequately adjust for subsequent information. 4- when decision makers selectively organize and interpret events based on their biased perceptions, they’re using the selective perception bias. 5- Decision makers who seek out information that reaffirms their past choices and discounts information that contradicts past judgement exhibit the confirmation bias. 6- The framing bias occurs when decision makers select and highlight certain aspects of a situation while excluding others. They distort what they see and create incorrect reference points. 7- The availability bias happens when decision makers tend to remember events that are not recent and vivid in their memory. 8- When decision makers assess the likelihood of an event based on how closely it resembles other events or sets of events, that’s the representation bias. Managers exhibiting this bias draw analogies and see identical situations where they don’t exist. 9- The randomness bias explains the actions of decision makers who try to make meaning out of random events. 10- The sunk costs error occurs when decision makers forget that current choices can’t correct the past. 11- Decision makers who are quick to take credit for their successes and to blame failure on outside factors are exhibiting the self-serving bias. 12- The hindsight bias is the tendency for decision makers to falsely believe that they would have accurately predicted the outcome of an event once that outcome is actually known. Managers avoid the negative effects of the biases and errors by: - Being aware of them and not using them. - Training - Be aware of the heuristics they use and evaluate their appropriateness. - Ask trusted individuals to point out their weaknesses in their decision-making style and work on those weaknesses. Cu in -edg approache fo improvin decisio makin The last 20 years has seen a dramatic change in the ability of management to access information. A major impetus for this change has been technology. Desig thinkin The way managers approach decision making - using a rational and analytical mindset in identifying problems, coming up with alternatives, evaluating alternatives, and choosing one of those alternatives - may not be the best, and is certainly not the only choice in today’s environment. That’s where design thinking comes in ● Design thinking: approaching management problems as designers approach design problems. To think like a designer means to consider how an object or process might be redesigned - sometimes to the point of being completely redone. Design thinking means opening up your perspectives and gaining insights by using observation and inquiry skills and not relying simply on rational analysis. 7 Downloaded by kinda kreishan (kindafurat@gmail.com) lOMoARcPSD|50627647 Bi dat an a tificia intelligenc Big data: huge and complex sets of data. These data sets are composed of so much information that traditional data-processing application software i unable to deal with them Big data has opened the door to widespread use of artificial intelligence (AI). ● Artificial intelligence: using the power of computers to replicate the reasoning functions of humans. AI increasingly facilitates machine learning and deep learning. ● Machine learning: a method of data analysis that automates analytical model building. It’s a branch of AI based on the idea that systems can learn from data, identify patterns, and make decisions with little or no human assistance. ● Deep learning: use of algorithms to create a hierarchical level of artificial neural networks that simulate functions of the human brain. This enables machines to process data in a nonlinear fashion. ● Analytics: Mathematics, statistics, predictive modeling, and machine learning to find meaningful patterns and knowledge in a date set. We can state unequivocally that AI usage among all businesses is sure to expand in the near future. And with this trend toward using technology to access and interpret information, managers will be less dependent on inconsistent and incomplete data. There will be less need to rely on intuition. AI software can learn through experience, so decisions will ● increasingly reflect the goals and values of the manager. The result will be managerial decisions that more closely approach the assumptions of rationality. 8 Downloaded by kinda kreishan (kindafurat@gmail.com)
