CH 7 SLIDES - Class.pptx

 Annoucements Preparation slide/Recorded slides Quiz closed yesterday at 11H59 p.m Online Class Quiz will be done today before 14h00 Test will be written on Saturday the 10th of August Test 1 Revision Wednesday Library sessions (Monday the 5th August ) Wednesday we doing Chapter 8 ...

 Annoucements Preparation slide/Recorded slides Quiz closed yesterday at 11H59 p.m Online Class Quiz will be done today before 14h00 Test will be written on Saturday the 10th of August Test 1 Revision Wednesday Library sessions (Monday the 5th August ) Wednesday we doing Chapter 8  Chapter 7: Fundamentals of decision-making Learning Outcomes After studying this chapter, you should be able to: Define decision-making Explain the conditions of certainty, risk, and uncertainty under which decisions are made Describe the Adaptive Decision-Making (ADM) characteristics of routine, adaptive, and innovative decisions Explain how goals affect decision-making Compare and contrast the rational, bounded rationality, and political models of decision-making Explain knowledge management as a means of creating and using an information base for quality decision-making Describe the basic features of the Delphi technique, simulation, and scenario- forecasting aids Apply four quality management decision aids: benchmarking, the Deming cycle, Pareto analysis, and the Fishbone (Ishikawa) Diagram. Introducing the decision-making process Decision-making includes defining problems, gathering information, generating alternatives, and choosing a course of action. Managers and employees can base various types of decisions on the nature of the problem to be solved, the possible solutions available, and the degree of risk involved. Effective managers rely on several managerial competencies to make and implement decisions. Decision-making underlies most managerial competencies Decision-making conditions The conditions under which individuals in an organisation make decisions also reflect the environmental forces (developments and events) that individuals cannot control, and that may, in the future, influence the outcomes of their decisions. Decisions are thus affected by forces that can range from new technologies or the entrance of new competitors into a market, to new laws, or political turmoil. Besides attempting to identify and measure the magnitude of these forces, managers must estimate their potential impact. Often, people must base their decisions on limited available information. The amount of information that is available and the accuracy of this information as well as the depth of individuals’ managerial competencies are, therefore, crucial to sound decision-making. Figure 7.1 Conditions under which decisions are made (p. 185) Big data and decision-making Tapping into large- scale, fast-moving, complex streams of Big data has rapidly datasets has the moved to being a potential to mainstream activity fundamentally Big data refers to in organisations. transform the way datasets that are organisations make both big and high in decisions. variety and velocity, which makes them difficult to handle using traditional tools and techniques. Table 7.1 The five V’s of big data (p. 189) Source: Jeble, Kumari & Patil (2017); Davenport (2014) Benefits of big data Improved ability Increased value Better to adapt to Benefits of scale delivery predictions change Organisations Using The Organisations will gain controlled interconnected that can intelligence experiments on ness and capture large from data and the available interdependenc volumes of translate this data, the e of the valuable data intelligence into organisation structures and use the business value can better within big data data effectively predict the will enable at scale, will behaviour of business have a their customers managers to competitive and use this determine the advantage over knowledge to effect of other their possible organisations. advantage. changes more easily Types of decisions New managers typically use a different decision-making behaviour from that of experienced executives. The decision-making behaviour of a successful chief executive officer (CEO) might be quite opposite to that of the decision-making behaviour of a first-level supervisor. The difference is partly due to the types of decisions and partly to understanding what works at each level. New managers often start out with a more directive, decisive, command-orientated behaviour, and gradually move toward more openness, a diversity of viewpoints, and interactions with others as they move up the hierarchy. Managers and employees must make decisions in a variety of situations. No single decision-making method will cover all of them. In general, though, the decision-maker should begin by accurately defining the problem at hand, moving on to evaluating alternative solutions, and finally making a decision. Types of problems and solutions The types of problems and solutions that managers and other employees deal with range from the relatively common and well defined, to the unusual and ambiguous. Routine decisions Standard choices made in response to relatively well-defined and common problems with alternative solutions. Adaptive decisions choices made in response to a combination of moderately unusual and uncommon problems with alternative solutions. involve modifying and improving upon past routine decisions and practices. Innovative decisions Innovative decisions are made when the problems on hand have no obvious solutions. The decision-makers must depend on their own experience, creativity, and intuition to decide on the course of action. These decisions are made when solutions to the problem are ambiguous and unusual. The solutions frequently involve a series of small, interrelated decisions made over a period of months or even years. Leading-edge innovations may take years to develop, involving numerous professional specialists and teams. Because innovative decisions normally represent a sharp break with the past, they normally do not happen in a logical, orderly sequence. Figure 7.2 Framework for decision-making (p. 191) Goals and decision-making Decision-making in organisations under the conditions of risk and uncertainty is associated directly with goals in one of two ways: 1. The decision-making process is triggered by a search for better ways to achieve established goals. 2. The decision-making process is triggered by an effort to discover new goals, revise current goals, or drop outdated goals. Setting goals is especially important in adaptive and innovative decision-making. Benefits of setting goals 1. Goals serve to focus individual and organisational decisions and efforts. In terms of the organisation, goals provide a set of stated expectations that everyone can understand and work to achieve. 2. Goals aid the planning process. After diagnosing problems and the competition, managers usually establish goals as a part of their planning efforts. 3. Goals motivate people and stimulate better performance. Clear and specific goals often raise productivity and improve the quality of work. General and operational goals Operational goals General goals state what is to be provide broad achieved in direction for quantitative terms, decision-making in for whom and qualitative terms. within what period. Role of stakeholders Figure 7.3 Stakeholders, alternatives, and goals (p. 193) Decision-making models The rational model The bounded rationality model The political model These models have been developed to represent different decision-making processes. Each model provides valuable insights into these processes. Rational decision-making model Figure 7.4 Rational decision-making model (p. 194)  Step 1 Define and diagnose the problem Problem definition and diagnosis involves three critical skills: noticing, interpreting, and incorporating. Step 2: Set goals After individuals or teams have defined a problem, they can set specific goals for eliminating it. Step 3: Search for alternative solutions This step might include such actions as seeking additional information, thinking creatively, consulting experts, and undertaking research. However, when there seems to be no feasible solution for reaching a goal, there may be a need to modify the goal.  Step 4 Compare and evaluate alternative solutions This step emphasises expected results and determining the relative cost of each alternative. Step 5: Choose from among alternative solutions Complex and ambiguous problems involve high degrees of risk or uncertainty, making the choice of an alternative solution difficult. Step 6: Implement the solution selected If the selected solution cannot be implemented for some reason, another one should be considered. Step 7: Follow-up and control Corrective measures should be taken if implementation does not produce desirable results. Bounded rationality model (making different decisions with the same info) The bounded rationality model refers to an individual’s tendencies to do the following: Select less than the best goal or alternative solution (known as satisficing) Engage in a limited search for alternative solutions Have inadequate information and control over external and internal environmental forces influencing the outcomes of decisions Allow information-processing biases to influence decision- making. Satisficing the practice of selecting an acceptable goal or alternative solution rather than searching extensively for the best goal or solution. Figure 7.5 Factors influencing a satisficing decision (p. 197)  Limited search Individuals usually make only a limited search for alternative solutions to a problem, considering options until they find one that seems adequate. Inadequate or misinterpreted information Individuals frequently have inadequate information about the precise nature of the problems facing them, and the consequences of each alternative. Information-processing biases availability bias (recalling and overestimating) selective perception bias (what expected to see, you see) concrete information bias (direct experience prevail) law of small numbers bias (few incidents as representative) gambler’s fallacy bias (similar event will occur) Political model The political model describes the decision-making process in terms of the particular interests and goals of powerful external and internal stakeholders. Power → the ability to influence or control individual, departmental, team, or organisational decisions and goals. To have power is to influence or control the following factors: The definition of the problem for own advantage The choice of the goal The consideration of alternative solutions The selection of the alternative to be implemented The actions and success of the organisation. Knowledge management Knowledge management is the art and science of creating, measuring, distributing, enhancing, evaluating, and integrating the information base of an organisation, and building on its intellectual assets. (collective intelligence) Knowledge management consists of three main parts: Explicit knowledge (reports, books, websites) Tacit knowledge (experience, skills, competencies) Enabling technologies (AI) Knowledge management drivers – the information age replaced the industrial age. It can be a competitive advantage Knowledge management targets The application of knowledge management has three natural targets: Teams Knowledge management provides a method of sharing ideas as well as identifying best practices. Customers The ability to understand customers’ needs, buying patterns, and expectations is key in establishing and improving long-term relationships between the organisation and its customers. Employees Through knowledge management, organisations can track every aspect of their employees including skills and abilities, performance management, and training and development. Tools to assist in forecasting (predicting, projecting) Scenario A scenario is a written description of a possible future. Multiple scenarios are simply written s descriptions of several possible futures. The forecasting aid based on the consensus of a panel of experts. The experts refine their opinions, step Delphi by step, until they reach consensus. techniqu e Simulati A simulation is a representation of a real system. A simulation model usually describes the on behaviour of the real system (or some aspect of it) in quantitative and/or qualitative terms A tool to assist in promoting creativity The creative process: Preparatio Concentrat Incubation n ion Illuminatio Verification n Tools to help in promoting quality Figure 7.7 The benchmarking process (p. 209) The concept of continuous improvement is a key to total quality management. Decisions about continuous improvement are driven by the goals of providing better quality, improving efficiency, and being responsive to customers. Accordingly, improvements typically: Enhance value to the customer through improved and new products and services Reduce errors, defects, and waste Increase responsiveness to customer changes and expectations Elevate productivity and effectiveness in the use of all resources. The Deming cycle (aid of improving quality) Figure 7.8 The Deming cycle (p. 211) Pareto analysis Figure 7.9 Pareto analysis diagram (p. 213) 80% of profits come from 20% of the company’s effort. 80% of sales come from 20% of products or services. 80% of sales are made by 20% of sellers. 80% of clients come from 20% of marketing activities. It helps managers to focus The Fishbone (Ishikawa) Diagram (possible effect of the problem) Figure 7.10 Fishbone Diagram (p. 214) Chapter Summary The fundamentals of decision-making include defining problems, gathering information, generating alternatives, and defining a course of action. Decisions may be classified as routine, adaptive, or innovative. Decision- making is coupled with the achievement of goals. There are three decision-making models: rational, bounded rationality, and political. Knowledge management is the art and practice of obtaining and transforming information and using intellectual assets to create value for an organisation’s employees and customers. Forecasting is the process of estimating future events and conditions in an organisation’s environment. Quality management is concerned with improving how well a product, service, or process does what it is supposed to do, as well as raising the standards and specifications for what it is supposed to do.