Decision Making PDF

Decision Making TOPIC 6  The Nature of Managerial Decision Making Decision making The process by which managers respond to opportunities and threats that confront them by analyzing options and making determinations about sp...

Decision Making TOPIC 6  The Nature of Managerial Decision Making Decision making The process by which managers respond to opportunities and threats that confront them by analyzing options and making determinations about specific organizational goals and courses of action. Decisions in response to opportunities This occurs when managers respond to ways to improve organizational performance to benefit customers, employees, and other stakeholder groups. Decisions in response to threats Events inside or outside the organization are adversely affecting organizational performance, and managers seek ways to increase performance. © McGraw Hill 2  Decision Making Programmed decision Nonprogrammed decisions Programmed decision involves Nonroutine decision-making that routine, virtually automatic occurs in response to unusual, decision-making that follows unpredictable opportunities and established rules or guidelines. threats. Decisions have been made so No rules because the situation is many times in the past that unexpected or uncertain and managers have developed rules or managers lack the information guidelines to be applied when they would need to develop rules to certain situations inevitably occur. respond to it. Manufacturing supervisor hires new workers when existing workers’ overtime increases by more than 10 percent. © McGraw Hill 3  Decision Making Intuition Reasoned judgment Feelings, beliefs, and hunches that come Decision that requires time and effort and readily to mind, require little effort and results from careful information gathering, information gathering and result in on-the- generation of alternatives, and evaluation of spot decisions. alternatives. © McGraw Hill 4  The Classical Model 1 Classical model of decision-making A prescriptive approach to decision making based on the assumption that the decision-maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action. Optimum decision The most appropriate decision in light of what managers believe to be the most desirable consequences for their organization. Figure 7.1 The Classical Model of Decision-Making © McGraw Hill 5  The Administrative Model Administrative model An approach to decision-making that explains why decision-making is inherently uncertain and risky and why managers usually make satisfactory rather than optimum decisions. Based on 3 important concepts: bounded rationality, incomplete information, and satisficing. 1. Bounded rationality Cognitive limitations that constrain one’s ability to interpret, process, and act on information. 2. Incomplete information Because of risk and uncertainty, ambiguity, and time constraints. Figure 7.2 Why Information Is Incomplete © McGraw Hill 6  Causes of Incomplete Information Risk The degree of probability that the possible outcomes of a particular course of action will occur. Uncertainty The probabilities of alternative outcomes cannot be determined and future outcomes unknown. Ambiguous information Information is not cleat and can be interpreted in multiple and often conflicting ways. Young woman or old woman? Time constraints and information costs No time or money to search for all possible alternatives and evaluate potential consequences. 3. Satisficing Searching for and choosing a satisfactory response to problems and opportunities rather than trying to make the best decision. © McGraw Hill 7  Figure 7.4 Six Steps in Decision Making Access the text alternative for slide images. © McGraw Hill 8  Figure 7.5 General Criteria for Evaluating Possible Courses of Action Step 3 © McGraw Hill 9  Feedback Procedure 1. Compare what actually happened to what was expected to happen as a result of the decision. 2. Explore why any expectations for the decision were not met. 3. Derive guidelines that will help in future decision making. Step 6 © McGraw Hill 10  Cognitive Biases and Decision Making Heuristics Rules of thumb that simplify the process of making decisions. Systematic errors Errors that people make over and over and that result in poor decision-making. Figure 7.6 Sources of Cognitive Bias at the Individual and Group Levels © McGraw Hill 11  Sources of Cognitive Biases Confirmation Bias The tendency to make decisions based on strong existing beliefs even when evidence suggests those beliefs may be wrong. Representativeness A cognitive bias resulting from the tendency to generalize inappropriately from a small sample or from a single vivid event or episode. Illusion of control The tendency to overestimate one’s own ability to control activities and events. Top managers. Escalating commitment A source of cognitive bias resulting from the tendency to commit additional resources to a project even if evidence shows that the project is failing. © McGraw Hill 12  Group Decision Making 1 Superior to individual decision-making. Choices are less likely to fall victim to bias. Able to draw on combined skills of group members. Improve ability to generate feasible alternative. Potential disadvantages: 1. Can take much longer for groups than individuals to make decisions. 2. Can be difficult to get two or more managers to agree because of different interests and preferences. 3. Can be undermined by biases. Groupthink: Pattern of faulty and biased decision-making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision. © McGraw Hill 13  Figure 7.7 Devil’s Advocacy and Dialectical Inquiry Access the text alternative for slide images. © McGraw Hill 14  Organizational Learning and Creativity Organizational learning Managers seek to improve an employee’s desire and ability to understand and manage the organization and its task environment. Learning organization A learning organization is one in which managers try to maximize the ability of individuals and groups to think and behave creatively and, thus, maximize the potential for organizational learning to take place. Creativity A decision maker’s ability to discover original and novel ideas that lead to feasible alternative courses of action. Get off email and lose the desk! Think outside the box! © McGraw Hill 15  Figure 7.8 Senge’s Principles for Creating a Learning Organization Access the text alternative for slide images. © McGraw Hill 16  Promoting Group Creativity Brainstorming: Managers meet face-to-face to generate and debate many alternatives. Production blocking -There might be a loss of productivity in brainstorming sessions due to the unstructured nature of brainstorming. Nominal group technique: A decision-making technique in which group members write down ideas and solutions, read their suggestions to the whole group, and discuss and then rank the alternatives. Useful when an issue is controversial and when different managers might be expected to champion different courses of action. Delphi technique: A decision-making technique in which group members do not meet face-to- face but respond in writing to questions posed by the group leader. © McGraw Hill 17  Entrepreneurship Entrepreneurs Individuals who notice opportunities and decide how to mobilize the resources necessary to produce new and improved goods and services. Social entrepreneurs Individuals who pursue initiatives and opportunities and mobilize resources to address social problems and needs in order to improve society and well-being through creative solutions. Intrapreneurs Managers, scientists, or researchers who work inside an organization and notice opportunities to develop new or improved products and better ways to make them. © McGraw Hill 18  Characteristics of Entrepreneurs Open to experience. They are original thinkers and take risks. Internal locus of control. They take responsibility for their own actions. High self-esteem. They feel competent and capable. High need for achievement. They set high goals and enjoy working toward them. © McGraw Hill 19  Intrapreneurship and Organizational Learning Product champion A manager who takes “ownership” of a project and provides the leadership and vision that take a product from the idea stage to the final customer. Skunkworks A group of intrapreneurs who are deliberately separated from the normal operation of an organization to encourage them to devote all their attention to developing new products. Rewards for Innovation To encourage managers to bear risk and uncertainty, it is necessary to link performance to rewards. Increasingly, companies are rewarding intrapreneurs on the basis of the outcome of the product development process by granting them large bonuses, stock options and promotions, if the product sells. © McGraw Hill 20 Thank you