MG4031 week 6 lecture 1

Decision Making

• Decision making is choosing a course of action from options.
• Programmed decisions are routine, repetitive, and occur regularly at lower organizational levels. They have short-term consequences and use readily available information, often applying pre-established rules (e.g., redundancy calculations).
• Non-programmed decisions are new, unstructured, and don't follow pre-existing rules. Judgment and creativity are crucial. They involve high-level management, have long-term consequences, and are complex with no established procedures (e.g., expanding to a new market).
• Management decisions often involve:
  • Lack or presence of conflict
  • Lack or presence of information or structure
  • Uncertainty or certainty

Decision Making Conditions

• Certainty: Alternatives have known costs/benefits and lead to clear outcomes. This is rare due to factors like digital disruption, trade wars, etc.
• Risk: Outcomes are sometimes unknown, but costs and benefits are known. (e.g., rolling a die)
  • Objective probability: Likelihood of an event based on hard data, usually statistical.
  • Subjective probability: Likelihood of an event based on personal judgment.
• Uncertainty: All aspects (alternatives, likelihood, outcomes) are unknown. This is the most complex and often requires intuition and judgment.

Decision Making Process

• 1. Identify and Diagnose the Problem: Recognizing the need for action and clearly defining the problem. It is a difference between the current state and a desired future state. Understanding the true cause is crucial, needing relevant details.
• 2. Identify Alternatives: Expanding options by considering ready-made or custom-made solutions to broaden possibilities and potentially gain competitive advantage.
• 3. Evaluate Alternatives: Assessing advantages, disadvantages, costs, and benefits of each option for optimal decision. This can be intuitive or analytically based.
• 4. Choose an Alternative: Selecting the most suitable option; returning to step two if no suitable option is apparent.
• 5. Implementation: Ensuring those involved fully understand why the choice was made and are committed to making it a success.
• 6. Evaluate: Gathering feedback at various organizational levels to identify any needed adjustments. Feedback is continuous, not just a one-time event.

Barriers to Good Decision Making

• Framing in terms of gains and losses: Decisions may be influenced by perceived gains or losses from a reference point. There can be a tendency to choose riskier strategies when presented with two potential losses.
• Psychological biases: Feelings, emotions influence decision-making.
• Illusion of control: Managers may overestimate their impact on outcome. This leads to underestimation of consequences and reduces long-term sustainability.
• Short-term gains over long-term success: Prioritizing immediate benefits over long-term strategies.
• Time pressure: Rushed decisions may lead to inadequate research and flawed conclusions. This can be detrimental to quality.