Med_Chapter_03.ppt

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Managerial Decision Making

3

McGraw-Hill/Irwin

Management, 7/e Copyright 2007 The McGraw-Hill Companies, Inc. All rights reserved.


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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 makedecisions

The procedures to use in leading a decision-makinggroup

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 of Managerial Decisions


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Lack of Structure

Programmed Decisions

Decisions

encountered and

made before, having

objectively correct

answers, and solvable

by using simple rules,

policies, or numerical

computations

Non-programmed

Decisions

New, novel, complex

decisions having no

proven answers


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Comparison of Decision Types

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Uncertainty and Risk

We operate in an environmentthe Internetwhere theres an enormous amount of

uncertainty. You cant be sure whats goingto happen tomorrow, never mind next year.

The danger is that the uncertainty can leadto paralysis. You spend so much time tryingto nail down all the possibilities and risks,

you never get around to taking action. And if

that happensif you become indecisiveyoure dead.- George Conrades

Chairman and CEO Akamai Technologies

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Uncertainty and Risk

Certainty is the state that exists whendecision makers have accurate andcomprehensive information

Uncertainty is the state that exists whendecision makers have insufficient information

Risk is the state that exists when theprobability of success is less than 100%, andlosses may occur

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Conflict

Conflict exists when the manager must

consider opposing pressures from different

sources; occurs at two levels

Psychological conflict occurs when severaloptions are attractive, or when non of the

options is attractive

Interpersonal conflict

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Stages of Decision Making

Ideal decision making process will have six

stages

Identify and diagnose the problem

Generate alternative solutions Evaluate alternatives

Make the choice

Implement the decision Evaluate the decision

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Stages of Decision Making

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The Best Decision

To make the best decisionmanagers must usevigilance

Vigilance is a process inwhich a decision maker

carefully executes allstages of the decisionmaking process

Research shows that whenmanagers use a rational

decision making processthey tend to make betterdecisions

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Barriers to Effective Decision Making

Psychological Biases

Time Pressures

Social Realities

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Decision Making in Groups

The basic philosophy for group decision

making is that two heads are better than

one

Group performance is a function of twovariables

How effectively the group capitalizes on

potential advantages

How effectively the group minimizes potentialproblems

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Decision Making in Groups

Potential Advantages

Larger pool of

information

More perspectives and

approaches

Intellectual stimulation

People understand the

decision

People are committed tothe decision

Potential Disadvantages

One Person dominates

Satisficing

Group thing

Goal displacement

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Managing Group Decision Making

There are threefactors for effectivelymanaging groupdecision making

Appropriateleadership style

Constructive use ofdisagreement and

conflictThe enhancement of

creativity

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Managing Group Decision Making

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Brainstorming

Brainstorming is a

commonly used

technique used to

encourage creativity

It is a process in whichgroup members generate

as many ideas about a

problem as they can;

criticism is withheld

until all ideas have beenproposed

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Organizational Decision Making

Managers and groups make decisions within

organizations

Three additional concepts and process a

manager must consider when making adecision include

Constraints on decision makers

Organizational decision processes

Decision making during a crisis

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Constraints on Decision Makers

Managers face various constraints that

include:

Capital or product markets may make an

expensive new venture impossible Legal restrictions may restrain the kinds of

international business activities in which a

firm can participate

Labor unions may defeat a contract proposal

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Organizational Decision Making Models

Historically organizational decision makingwas viewed as a rational process

Simon challenged this view by proposing analternative to the rational decision making

process called bounded rationality Other decision making processes include

Incremental model

Coalition model

Garbage can model

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Decision Making During Crisis

During crisis managers must make decisionsunder a great deal of pressure

The organization should be prepared forcrises in advance

Managers should take time to create aneffective crisis management plan

During a crisis dont pretend nothinghappened rather communicate and reinforce

the organizations values

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How not to Handle a Crisis

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Questions for Crisis Planning

What kinds of crises could your company

face?

Can your company detect a crisis in its early

stages? How will it manage a crisis if one occurs?

How can it benefit from a crisis after it has

passed?

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Looking Ahead

Chapter 4: Planning and Strategic Management How to proceed through the basic steps in any planning

process How strategic planning integrates with tactical and

operational planning

Why I is important to analyze both the externalenvironment and the internal resources of the firmbefore formulation a strategy

The choices available for corporate strategy How companies can achieve competitive advantage

through business strategy How core competencies provide the foundation for

business strategy

The keys to effective strategy implementation

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Identifying and diagnosing the Problem

There is normally a realization that the

current state and the desired state are

different

This can be detected by comparing currentperformance against: past performance;

current performance of other organizations;

and future expected performance as

determined by plans and forecasts After identifying a problem the decision

maker must attempt to diagnose the true

cause of the problemReturn

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Generate Alternative Solutions

Solutions will range from ready made to

custom made

Ready made solutions are ideas that have been

seen or tried before Custom made solutions are new, creative

solutions designed specifically for the problem

Managers will generate some of the

alternative solutions based upon pastexperience

Return

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Evaluate Alternatives

Each alternative is evaluated based upon the

value or adequacy that it generates

Managers should consider several types of

consequences that each alternative willgenerate

Managers should also refer to the original

goals defined in the first stage of the decision

making process Contingency plans should also be developed

Return

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Make the choice

When making the decision the followingconcepts should be considered

Maximizing a decision will realize the bestpossible outcome

Satisficing means that an option was chosenbecause it was acceptable although it is notnecessarily the best option

Optimizing the decision means that the

organization is achieving the best possiblebalance among several goals

Return

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Psychological Biases

Illusion of control is a belief that once can influence eventseven when one has no control over what will happen

Framing effects refer to how problems or decisionsalternatives are phrased or presented, and how thesesubjective influences can override objective facts

Discounting the future is a bias weighting short term costsand benefits more heavily than longer-term costs andbenefits

Return

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Time Pressures

Tendencies of managers

Skimp on analysis

Suppress conflict

Make decisions without

consulting others How do you overcome

time pressures?

Rely on real time

information

Involve others Take a realistic view of

conflict

Return

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Social Realities

Interpersonal factors decrease decision-making effectiveness

Important decisions are marked by conflict

among interested parties Decisions are the result of intensive social

interactions, bargaining, and politicking

Return

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Constructive use of disagreement and


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Constructive use of disagreement and

conflict

Cognitive conflict is issue-based differences inperspectives or judgments

Affective conflict isemotional disagreement

directed toward other people Devils advocate is a person

who has the job of criticizingideas to ensure that theirdownsides are fully explored

Dialectic is a structured

debate comparing twoconflicting courses of action

Return

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Bounded Rationality

Bounded rationality states that decisionmakers cannot truly be objective because:

They have imperfect, incomplete information

The problems they face are so complex

Human beings cannot process all the informationto which they are exposed

There is not enough time to process all the relevantinformation

People within organizations have conflicting goals

Return

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Organizational Decision Making

Incremental Model occurs when decisionmakers make small decisions, take littlesteps, move cautiously, and move inpiecemeal fashion toward a bigger solution

Coalition model of organizational decisionmaking in which groups with differingpreferences use power and negotiations toinfluence decisions

Garbage can model of organizational decisionmaking depicting a chaotic process andseemingly random decisions

Return

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Crisis Management Plan

Strategic actions

Technical and structural actions

Evaluation and diagnostic actions

Communication actions Psychological and cultural actions

Return

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