Management Decisions PDF

Management Fifteenth Edition, Global Edition Topic 3 Managing Decisions Chapter 2 Making Decisions...

Management Fifteenth Edition, Global Edition Topic 3 Managing Decisions Chapter 2 Making Decisions Copyright © 2021 Pearson Education Ltd.  This is a very important topic as it is related to a scheme learning outcome for which you will be assessed. 2 Copyright © 2018 Pearson Copyright 2 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Learning Objectives 1 Describe the eight steps in the decision-making process. Develop your skill at being creative. 2 Explain the three ways managers make decisions. 3 Classify decisions and decision-making conditions. 4 Describe techniques for stimulating innovation. 3 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Be A Better Decision-Maker A key to success in management and in your career is knowing how to be an effective decision-maker. What is a Decision? Decision—a choice among two or more alternatives 4 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Exhibit 2-1 Decision-Making Process Exhibit 2-1 shows the eight steps in the decision-making process. This process is as relevant to personal decisions as it is to corporate decisions. 5 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Decision-Making Process Step 1: Identify a Problem Problem: an obstacle that makes it difficult to achieve a desired goal or purpose. Every decision starts with a problem, a discrepancy between an existing and a desired condition. Example: Amanda is a sales manager whose reps need new laptops. 6 Copyright © 2018 Pearson Education, Copyright Ltd. All Rights © 2021 Pearson Reserved Education Ltd. Decision-Making Process (cont.) Step 2: Identify the Decision Criteria Decision criteria are factors that are important to resolving the problem. Example : Amanda decides that memory and storage capabilities, display quality, battery life, warranty, and carrying weight are the relevant criteria in her decision 7 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Decision-Making Process (cont.) Step 3: Allocate Weights to the Criteria If the relevant criteria aren’t equally important, the decision maker must weight the items in order to give them the correct priority in the decision. Example : The weighted criteria for Amanda’s computer purchase are shown in Exhibit 2-2. 8 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Exhibit 2-2 Important Decision Criteria Criterion Weight Memory and storage 10 Battery life 8 Carrying weight 6 Warranty 4 Display quality 3 9 Copyright © 2018 Pearson Education, Ltd. All Rights Reserved Copyright © 2021 Pearson Education Ltd. Decision-Making Process (cont.) Step 4: Develop Alternatives List viable alternatives that could solve the problem. Example : Amanda identifies eight laptops as possible choices (shown in Exhibit 2-3). 10 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Exhibit 2.3 Possible Alternatives Laptop Memory Battery Carrying Warranty Display and Life Weight Quality Storage Acer Aspire E 10 3 10 8 5 Apple MacBook 8 5 7 10 10 Pro Dell XPS 13 8 7 7 8 7 Lenovo 7 8 7 8 7 ThinkPad Lenovo Yoga 8 3 6 10 8 Microsoft 10 7 8 6 7 Surface Book Razer Blade 4 10 4 8 10 Stealth 11 Copyright © 2021 Pearson Education Ltd. Decision-Making Process (cont.) Step 5: Analyze Alternatives and Step 6: Select an Alternative STEP 5: – Once you identify the alternatives, you need to analyze them using the criteria established in Step 2. STEP 6: – Choose the alternative that generates the highest total in Step 5. 12 Copyright © 2021 Pearson Education Ltd. Exhibit 2.4 Evaluation of Alternatives Laptop Memory Battery Carrying Warranty Display Total and Life Weight Quality Storage Acer Aspire E 100 24 60 32 15 231 Apple MacBook 80 40 42 40 30 232 Pro Dell XPS 13 80 56 42 32 21 231 Lenovo 70 64 42 32 21 229 ThinkPad Lenovo Yoga 80 24 36 40 24 204 Microsoft 100 56 48 24 21 249 Surface Book Razer Blade 40 80 24 32 30 206 Stealth 13 Copyright © 2021 Pearson Education Ltd. Decision-Making Process (cont.) Step 7: Implement the Alternative Put the chosen alternative into action. Convey the decision to those affected and get their commitment to it. 14 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Decision-Making Process (cont.) Step 8: Evaluate Decision Effectiveness Evaluate the result or outcome of the decision to see if the problem was resolved. If it wasn’t resolved, what went wrong? 15 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Rationality Rational Decision-Making: choices that are logical and consistent and maximize value Assumptions of rationality: – Rational decision maker is logical and objective – Problem faced is clear and unambiguous – Decision maker would have clear, specific goal and be aware of all alternatives and consequences – The alternative that maximizes achieving this goal will be selected – Decisions are made in the best interest of the organization 16 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Bounded Rationality Bounded rationality: decision making that’s rational, but limited (bounded) by an individual’s ability to process information Satisfice: accepting solutions that are “good enough” Rationality vs Bounded Rationality Rationality  Managers maximize. Bounded Rationality  Managers satisfice, rather than maximize. 17 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Intuition Intuitive decision-making: making decisions on the basis of experience, feelings, and accumulated judgment 18 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Exhibit 2.6 What is Intuition? Exhibit 2.6 shows the five different aspects of intuition identified by researchers studying managers’ use of intuitive decision making. 19 Copyright © 2021 Pearson Education Ltd. Types of Decisions: Structured Problems and Programmed Decisions Structured problems: straightforward, familiar, and easily defined problems Programmed decisions: repetitive decisions that can be handled by a routine approach 20 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Types of Programmed Decisions Procedure: a series of sequential steps used to respond to a well-structured problem Rule : an explicit statement that tells managers what can or cannot be done Policy: a guideline for making decisions 21 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Types of Decisions: Unstructured Problems and Nonprogrammed Decisions (cont.) Unstructured problems: problems that are new or unusual and for which information is ambiguous or incomplete Nonprogrammed decisions: unique and nonrecurring and involve custom made solutions 22 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd.  Exhibit 2-7 Programmed vs Nonprogrammed Decisions Characteristic Programmed Decisions Nonprogrammed Decisions Type of problem Structured Unstructured Managerial level Lower levels Upper levels Frequency Repetitive, routine New, unusual Information Readily available Ambiguous or incomplete Goals Clear, specific Vague Time frame for solution Short Relatively long Solution relies on… Procedures, rules, policies Judgment and creativity 23 Copyright © 2018 Pearson Education, Ltd. All Rights Reserved Copyright © 2021 Pearson Education Ltd. Decision-Making Conditions Certainty: a situation in which a manager can make accurate decisions because all outcomes are known Risk: a situation in which the decision maker is able to estimate the likelihood of certain outcomes Uncertainty: a situation in which a decision maker has neither certainty nor reasonable probability estimates available 24 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Exhibit 2-12 Overview of Managerial Decision Making Exhibit 2-12 provides an overview of managerial decision making. 25 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Stimulating Innovation One of the Scheme Learning Outcomes for BHMH2004 is Critical Thinking, Creativity, Problem-solving and Application of Concepts from Business Creativity - the ability to combine ideas in a Disciplines. unique way or to make an unusual associations between ideas. Innovation – taking creative ideas and turning them into useful products, services, or work methods. Source: page 209 of Chapter 7: Stimulating Innovation in your textbook - Robbins and Coulter 26 15thCopyright ed. (2021). © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Creative Group Decision making Business decisions are often made in group and hence how to make creative group decision making is an important issue. The following materials are taken from Fundamentals of Management, 3rd ed. By Robbins & Decenzo. 27 Copyright © 2018 Pearson Copyright 27 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Advantages of group decision making Provide more complete information Group also generate more alternatives Group decision making increase acceptance of a solution The process increase legitimacy* (*Note: The fact the individual decision maker has complete power and has not consulted others can create a perception that a decision was made autocratically and arbitrarily.) 28 Copyright © 2018 Pearson Copyright 28 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Disadvantages of group decision making Time consuming Minority domination: minority may has undue influence on the final decision Groupthink: the withholding by group members of different views in order to appear to be in agreement Ambiguous responsibility: no one is actually responsible 29 Copyright © 2018 Pearson Copyright 29 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Groupthink hinder decision making Research studies have found that groupthink symptoms were associated with poorer-quality decision outcomes. Groupthink can be minimized if – Group is cohesive – Group foster open discussion – Has an impartial leader who seeks input from all members 30 Copyright © 2018 Pearson Copyright 30 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. When are groups most effective Effectiveness of group decision making is influenced by size of the group: 5 or 7 are most effective 31 Copyright © 2018 Pearson Copyright 31 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Ways to improve group decision making (1) Brainstorming: An idea-generating process that encourage alternatives while withholding criticism – Leader states the problem so all participants understand – Members then ‘freewheel” as many alternatives as they can in a given time – No criticism is allowed and all the alternatives are recorded for later discussion and analysis 32 Copyright © 2018 Pearson Copyright 32 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Ways to improve group decision making (2) Nominal group technique: A decision-making technique in which group members are physically present but operate independently – Members secretly write a list of general problem areas or potential solution to a problem – Advantages: it permits the group to meet formally but does not restrict independent thinking 33 Copyright © 2018 Pearson Copyright 33 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd.  Ways to improve group decision making (3) Electronic meeting: A type of nominal group technique in which participants are linked by computer – Issues are presented to the participants, who type their responses onto their computer screens. Individual comments, as well as aggregate votes, are displayed on a projection screen. – The major advantages of electronic meetings are anonymity, honesty, and speed. – Disadvantages: typing speed difference, do not get credit for good idea, lack information richness of face-to-face oral communication 34 Copyright © 2018 Pearson Copyright 34 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Review Learning Objective 1 Describe the eight steps in the decision- making process. – 1. Identify problem – 2. Identify decision criteria – 3. Weight the criteria – 4. Develop alternatives – 5. Analyze alternatives – 6. Select alternative – 7. Implement alternative – 8. Evaluate decision effectiveness 35 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Review Learning Objective 2 (1 of 3) Explain the 3 ways managers make decisions. Rationality: making decisions when the goal is well- defined and everything is clear and unambiguous – Assumptions of rationality  The problem is clear and unambiguous  A single, well-defined goal is to be achieved  All alternatives and consequences are known  The final choice will maximize the payoff 36 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Review Learning Objective 2 (2 of 3) Bounded rationality says that managers make rational decisions but are bounded (limited) by their ability to process information. – Satisficing: when decision makers accept solutions that are good enough Intuitive decision making: making decisions on the basis of experience, feelings, and accumulated judgment  Intuition – Five aspects 37 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Review Learning Objective 3 (2 of 3) Programmed vs Nonprogrammed Decision. – Programmed decisions are repetitive decisions that can be handled by a routine approach and are used when the problem being resolved is straightforward, familiar, and easily defined (structured). – Nonprogrammed decisions are unique decisions that require a custom-made solution and are used when the problems are new or unusual (unstructured) and for which information is ambiguous or incomplete. 38 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Review Learning Objective 3 (2 of 2) Classify decisions and decision-making conditions. – Certainty is a situation in which a manager can make accurate decisions because all outcomes are known. – Risk is a situation in which a manager can estimate the likelihood of certain outcomes. – Uncertainty is a situation in which a manager is not certain about the outcomes and can’t even make reasonable probability estimates 39 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Review Learning Objective 4 Describe techniques for stimulating innovation. – Creativity – Innovation 40 Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Review Question 1 Which of the following is a situation of a structured problem? a. Not straightforward. b. Familiar. c. Incomplete. d. All of the above. 41 Copyright © 2018 Pearson Copyright 41 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Review Question 2 The Central Government has formed an independent investigating team to analyse the present situation and propose solutions for the high speed train in Mainland after the severe train crash and a series of service failures. Which of the following should the investigating team first engage in? a.Developing alternatives b.Identifying decision criteria c.Identifying a problem d.Allocating weights to the criteria 42 Copyright Copyright © 2018 Pearson ©© 2021 42 Education, Copyright 2021Ltd. Pearson Education All Rights Pearson Reserved Education Ltd. Ltd. Review Question 3 The leader of the investigation team is so sad about the casualties of the high-speed train crash in Zhejiang, and has directly proposed to suspend the whole development project of high-speed train. Which kind of intuitive decision making has he/she demonstrated? a.Affect-initiated decisions b.Cognitive-based decisions c.Experience-based decisions d.Subconscious mental processing 43 Copyright © 2018 Pearson Copyright Copyright ©© 43 Education, Ltd. 2021 2021 All Rights Pearson Pearson Reserved Education Education Ltd. Ltd. Review Question 4 Lisa set up Brainy Tutorial Center in Yau Ma Tei. Each year, she recruits additional tutors during May to June as she finds that student enrollment is usually increased by 15 to 20% during the examination period. So, Lisa is a/an ___________ and adopts __________ decision. a. decision maker; programmed b. implementer; groupthink c. controller; standard d. Decision maker; random 44 Copyright Copyright © 2018 Pearson ©© 2021 44 Education, Copyright 2021Ltd. Pearson Education All Rights Pearson Reserved Education Ltd. Ltd. Review Question 5 Deborah is the director of the research and development department of Top Beauty Cosmetics Company. Recently, Deborah and her team have invented a new anti-wrinkle product for target customers who are between 35 to 55 years old. She claimed that the new product has 80% chance to nourish skin elasticity and remove wrinkles completely, and 20% chance that no changes will occur. Which of the following condition is faced by Deborah? a. Risk b. Uncertainty c. Bounded rationality d. Complete information 45 Copyright © 2018 Pearson Copyright 45 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Review Question 6 Jenny’s Bakery’s staff handbook states clearly that no employees are allowed to take any remaining bakery home after the end of each working day. This is considered as part of its __________. a. policy b. procedure c. rule d. guideline 46 Copyright © 2018 Pearson Copyright 46 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd. Question 7 ____________ is an explicit statement that tells managers what can or cannot be done. Question 8 ____________ is a situation in which a manager can make accurate decisions because all outcomes are known. 47 Copyright © 2021 Pearson Education37 Ltd. Copyright © 2018 Pearson Education, Copyright © 2021 Ltd. All Rights Pearson Reserved Education Ltd. Terms to Know Decision Rule Problem Policy Decision criteria Unstructured problems Rational decision making Nonprogrammed decisions Bounded rationality Certainty Satisfice Risk Intuitive decision making Uncertainty Structured problems Brainstorming Programmed decision Nominal Group Procedure Electronic Meetings 48 Copyright © 2018 Pearson Copyright 48 Ltd. Education, © 2021 All Rights Pearson Reserved Education Ltd.