Business Management PDF

13:17 BUSINESS MANAGEMENT The Decision-making Process Making Decisions LEARNING OBJECTIVE 1 Describe the eight steps in the decision-making process. ...

13:17 BUSINESS MANAGEMENT The Decision-making Process Making Decisions LEARNING OBJECTIVE 1 Describe the eight steps in the decision-making process.  13:17 The Decision-making Process Managers at all levels and in all areas of All organizational members make decisions that organizations make decisions. That is, they affect their jobs and the organization they work make choices among alternatives. for. For instance, top-level managers make decisions Decision making is best understood as a process about their organization’s goals, where to locate rather than just a choice. Even for something as manufacturing facilities, what new markets to straightforward as deciding where to go for lunch, move into, or whether to cancel hit TV shows. you do more than just choose burgers or pizza or hot dogs. Middle- and lower-level managers make decisions about production schedules, product Granted, you may not spend a lot of time quality problems, pay raises, and employee contemplating your lunch decision, but you still discipline. go through the process when making that decision. Exhibit 2-1 shows the eight steps in the Our objective is on how managers make decision-making process decisions. But making decisions isn’t something that just managers do.  13:17 The Decision-making Process Step 1: Identify a Problem Step 2: Identify Decision Criteria Every decision starts with a problem, a Once a manager has identified a problem, he or discrepancy between an existing and a desired she must identify the decision criteria important condition. or relevant to resolving the problem. Whether explicitly stated or not, every decision maker has Managers have to be cautious not to confuse criteria guiding his or her decisions. problems with symptoms of the problem. For instance, is a 5 percent drop in sales a problem? Or are declining sales merely a symptom of the real problem, such as poor-quality products, high prices, bad advertising, or shifting consumer preferences? The Decision-making Process Step 3: Allocate Weights to the Criteria Of course, you could use any number as the highest weight. The key is assessing the relative Rarely are the relevant criteria equally important. importance of the criteria. So the decision maker needs to weight the items in order to give them the correct priority in the The weighted criteria for our example are shown decision. in Exhibit 2-2. How? A simple way is to give the most important criterion a weight of 10 and then assign weights to the rest using that standard.  13:17 The Decision-making Process Step 4: Develop Alternatives The fourth step in the decision-making process requires the decision maker to list 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 (See Exhibit 2-3.). The Decision-making Process Step 5: Analyze Alternatives Once alternatives have been identified, a decision maker must evaluate each one. How? By using the criteria established in step 2. When you multiply each alternative by the assigned weight, you get the weighted alternatives as shown in Exhibit 2-4. The total score for each alternative, then, is the sum of its weighted criteria.  13:17 The Decision-making Process Step 6: Select an Alternative Step 8: Evaluate Decision Effectiveness The sixth step in the decision-making process is The last step in the decision-making process choosing the best alternative or the one that involves evaluating the outcome or result of the generated the highest total in step 5. In our decision to see whether the problem was example (Exhibit 2-4), you would choose the resolved. If the evaluation shows that the Microsoft Surface Book because it scored higher problem still exists, then the manager needs to than all other alternatives (249 total). assess what went wrong. Was the problem incorrectly defined? Were errors made when evaluating alternatives? Was the right alternative Step 7: Implement the Alternative selected but poorly implemented? In step 7, the decision is put into action by conveying it to those affected and getting their commitment to it. Research evidence indicates that if the people who must implement a decision participate in the process, they’re more likely to support it than if you just tell them what to do. Making Decisions LEARNING OBJECTIVE 2 Explain the five approaches managers can use when making decisions.  13:17 Approaches to Decision Making Although everyone in an organization makes decisions, decision making is particularly important to managers. As Exhibit 2-5 shows, it’s part of all four managerial functions. That’s why managers—when they plan, organize, lead, and control—are called decision makers. Approaches to Decision Making The fact that almost everything a manager does It’s the type of decision you almost forget is a involves making decisions doesn’t mean that decision. And managers also make dozens of decisions are always time-consuming, complex, these routine decisions every day; for example, or evident to an outside observer. which employee will work what shift next week, what information should be included in a report, Most decisions are routine. For instance, every or how to resolve a customer’s complaint. day of the year you make a decision about what to eat for dinner. It’s no big deal. You’ve made Keep in mind that even though a decision seems the decision thousands of times before. It’s a easy or has been faced by a manager a number pretty simple decision and can usually be of times before, it’s still a decision. Let’s look at handled quickly. five perspectives on how managers make decisions.  13:17 Approaches to Decision Making 1.Rationality We assume that managers will use rational decision making; that is, they’ll make logical and However, a more realistic approach to describing consistent choices to maximize value. how managers make decisions is the concept of bounded rationality, which says that managers make decisions rationally but are limited 2.Bounded Rationality (bounded) by their ability to process information. Despite the unrealistic assumptions, managers Because they can’t possibly analyze all are expected to be rational when making information on all alternatives, managers decisions. They understand that “good” decision satisfice rather than maximize. makers are supposed to do certain things and exhibit logical decision-making behaviors as they That is, they accept solutions that are identify problems, consider alternatives, gather satisfactory and sufficient or “good enough.” information, and act decisively but prudently. They’re being rational within the limits (bounds) of their ability to process information. When they do so, they show others that they’re competent and that their decisions are the result of intelligent deliberation. Approaches to Decision Making 3.Intuition Managers often use their intuition to help their decision making. What is intuitive decision making? It’s making decisions on the basis of experience, feelings, and accumulated judgment. Researchers studying managers’ use of intuitive decision making have identified five different aspects of intuition, which are described in   13:17 Approaches to Decision Making 4.Evidence-Based Management 5.Crowdsourcing Any decision-making process can be enhanced refers to relying on a network of people outside through the use of relevant and reliable the organization’s traditional set of decision evidence, whether it’s buying a cell phone plan or makers to solicit ideas via the internet. deciding on a new office location. Finding innovative solutions to problems is one of That’s the reasoning behind evidence-based several uses of crowdsourcing in organizations. management (EBMgt), the systematic use of Crowdsourcing can help managers gather the best available evidence to improve insights from customers, suppliers, or other management practice. And that evidence might groups to help make decisions such as what be hard computer data, opinions of experts, or products to develop, where they should invest, or the prior experience of colleagues. In essence, even who to promote. Powered by the collective EBMgt is an attempt to operationalize rationality. experiences and ideas of many, crowdsourcing can help managers make better-informed decisions by getting diverse input from sources outside the typical management hierarchy. Making Decisions LEARNING OBJECTIVE 3 Classify decisions.  13:17 Types of Decisions Some problems are straightforward. The decision For instance, a restaurant server spills a drink on maker’s goal is clear, the problem is familiar, and a customer’s coat. The customer is upset and the information about the problem is easily defined manager needs to do something. Because it’s and complete. not an unusual occurrence, there’s probably some standardized routine for handling it. For Examples might include when a customer returns example, the manager offers to have the coat a purchase to a store, when a supplier is late cleaned at the restaurant’s expense. This is what with an important delivery, how a news team we call a programmed decision, a repetitive responds to a fast-breaking event, or how a decision that can be handled by a routine approach. college handles a student wanting to drop a class. Such situations are called structured Because the problem is structured, the manager problems because they’re straightforward, doesn’t have to go to the trouble and expense of familiar, and easily defined. going through an involved decision process. The “develop-the-alternatives” stage of the decision- making process either doesn’t exist or is given little attention. Why? Because once the structured problem is defined, the solution is usually self-evident or at least reduced to a few alternatives that are familiar and have proved successful in the past. Types of Decisions A procedure is a series of sequential steps a The third type of programmed decisions is a manager uses to respond to a structured policy, a guideline for making a decision. In problem. The only difficulty is identifying the contrast to a rule, a policy establishes general problem. Once it’s clear, so is the procedure. parameters for the decision maker rather than specifically stating what should or should not be done. Policies typically contain an ambiguous A rule is an explicit statement that tells a term that leaves interpretation up to the decision manager what can or cannot be done. Rules are maker. frequently used because they’re simple to follow Here are some sample policy statements: and ensure consistency. For example, rules about lateness and absenteeism permit The customer always comes first and should supervisors to make disciplinary decisions rapidly always be satisfied. and fairly. We promote from within, whenever possible. Employee wages shall be competitive within community standards.  13:17 Types of Decisions Not all the problems managers face can be solved using programmed decisions. Many organizational situations involve unstructured problems, new or unusual problems for which information is ambiguous or incomplete. In unstructured problems, managers must rely on nonprogrammed decision making in order to develop unique solutions. Nonprogrammed decisions are unique and nonrecurring and involve custom-made solutions. MAIN COURSEBOOK 20