Decision Making PDF

ninth edition STEPHEN P. ROBBINS MARY COULTER Decision-Making: The Essence of the Manager’s Job...

ninth edition STEPHEN P. ROBBINS MARY COULTER Decision-Making: The Essence of the Manager’s Job Chapter # 6 © 2007 Prentice Hall, Inc. PowerPoint Presentation by Charlie Cook All rights reserved. The University of West Alabama  Decision Making Decision  Making a choice from two or more alternatives. Top-level managers make decisions about their organization's goals, where to locate manufacturing facilities, what new markets to move into, and what products or services to offer. Middle and lower-level managers make decisions about setting weekly or monthly production schedules, handling problems that arise, allocating pay raises, and selecting or disciplining employees. The Decision-Making Process  Identifying a problem and decision criteria and allocating weights to the criteria.  Developing, analyzing, and selecting an alternative that can resolve the problem.  Implementing the selected alternative.  Evaluating the decision’s effectiveness. © 2007 Prentice Hall, Inc. All rights reserved. 6–2  Exhibit 6–1 The Decision-Making Process © 2007 Prentice Hall, Inc. All rights reserved. 6–3  Step 1: Identifying the Problem Problem  A discrepancy between an existing and desired state of affairs.  Problem identification is subjective. Characteristics of Problems  A problem becomes a problem when a manager becomes aware of it.  There is pressure to solve the problem. If there is no pressure, the problem can be postponed.  The manager must have the authority, information, or resources needed to solve the problem. © 2007 Prentice Hall, Inc. All rights reserved. 6–4  Step 2: Identifying Decision Criteria Decision criteria are factors that are important (relevant) to resolving the problem.  Costs that will be incurred (investments required)  Risks likely to be encountered (chance of failure)  Outcomes that are desired (growth of the firm) Step 3: Allocating Weights to the Criteria Decision criteria (identified in step 2) are not of equal importance:  Assigning a weight to each item places the items in the correct priority order of their importance in the decision making process. © 2007 Prentice Hall, Inc. All rights reserved. 6–5  Step 4: Developing Alternatives Identifying viable alternatives  Alternatives are listed (without evaluation) that can resolve the problem. Step 5: Analyzing Alternatives Appraising each alternative’s strengths and weaknesses  An alternative’s appraisal is based on its ability to resolve the issues identified in steps 2 and 3. © 2007 Prentice Hall, Inc. All rights reserved. 6–6  Step 6: Selecting an Alternative Choosing the best alternative  The alternative with the highest total weight is chosen. Step 7: Implementing the Alternative Putting the chosen alternative into action.  Conveying the decision to and gaining commitment from those who will carry out the decision. © 2007 Prentice Hall, Inc. All rights reserved. 6–7  Step 8: Evaluating the Decision’s Effectiveness The soundness of the decision is judged by its outcomes.  How effectively was the problem resolved by outcomes resulting from the chosen alternatives?  If the problem was not resolved, what went wrong? © 2007 Prentice Hall, Inc. All rights reserved. 6–8  Exhibit 6–5 Decisions in the Management Functions © 2007 Prentice Hall, Inc. All rights reserved. 6–9  Making Decisions Rationality  Managers make consistent, value-maximizing choices with specified constraints.  Assumptions are that decision makers:  Are perfectly rational, fully objective, and logical.  Have carefully defined the problem and identified all viable alternatives.  Have a clear and specific goal  Will select the alternative that maximizes outcomes in the organization’s interests rather than in their personal interests. © 2007 Prentice Hall, Inc. All rights reserved. 6–10  Making Decisions (cont’d) Bounded Rationality  Managers make decisions rationally, but are limited (bounded) by their ability to process information.  Assumptions are that decision makers:  Will not seek out or have knowledge of all alternatives  Will satisfice—choose the first alternative encountered that satisfactorily solves the problem—rather than maximize the outcome of their decision by considering all alternatives and choosing the best. They accept solutions that are "good enough."  Influence on decision making  Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong. © 2007 Prentice Hall, Inc. All rights reserved. 6–11  The Role of Intuition Intuitive decision making  It’s a subconscious process of making decisions on the basis of experience, feelings, and accumulated judgment. There are five aspects of intuition; © 2007 Prentice Hall, Inc. All rights reserved. 6–12  Types of Problems and Decisions Structured Problems  Involve goals that are clear.  Are familiar (have occurred before).  Are easily and completely defined—information about the problem is available and complete.  E.g. customer's wanting to return a purchase to a retail store, college's handling of a student wanting to drop a class  The "develop-the-alternatives" stage in the decision-making process either doesn't exist or is given little attention. Programmed Decision  A repetitive decision that can be handled by a routine approach. © 2007 Prentice Hall, Inc. All rights reserved. 6–13  Types of Programmed Decisions Policy  A general guideline for making a decision about a structured problem. It establishes parameters. Procedure  A series of interrelated steps that a manager can use to respond (applying a policy) to a structured problem. Rule  An explicit statement that limits what a manager or employee can or cannot do. © 2007 Prentice Hall, Inc. All rights reserved. 6–14  Policy, Procedure, and Rule Examples Policy Accept all customer-returned merchandise, the customer always comes first and should always be satisfied, employee wages shall be competitive within community standards. Procedure  Follow all steps for completing merchandise return documentation. Rules  Managers must approve all refunds over $50.00.  No credit purchases are refunded for cash.  Rules about lateness and absenteeism permit supervisors to make disciplinary decisions rapidly and with a relatively high degree of fairness. © 2007 Prentice Hall, Inc. All rights reserved. 6–15  Problems and Decisions (cont’d) Unstructured Problems  Problems that are new or unusual and for which information is ambiguous or incomplete.  Problems that will require custom-made solutions. Nonprogrammed Decisions  Decisions that are unique and nonrecurring.  Decisions that generate unique responses. © 2007 Prentice Hall, Inc. All rights reserved. 6–16  Decision-Making Conditions Certainty  A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known. Risk A situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives. The ability to assign probabilities to outcomes may be the result of personal experiences or secondary information. © 2007 Prentice Hall, Inc. All rights reserved. 6–17  Decision-Making Conditions Uncertainty  Limited information prevents estimation of outcome probabilities for alternatives associated with the problem and may force managers to rely on intuition, hunches, and “gut feelings”.  Under conditions of uncertainty, the choice of alternative is influenced by the limited amount of information available to the decision maker. © 2007 Prentice Hall, Inc. All rights reserved. 6–18  Decision-Making Styles Dimensions of Decision-Making Styles  Ways of thinking  Rational, orderly, and consistent  Intuitive, creative, and unique  Tolerance for ambiguity  Low tolerance: require consistency and order  High tolerance: multiple thoughts simultaneously © 2007 Prentice Hall, Inc. All rights reserved. 6–19  Decision-Making Styles (cont’d) Types of Decision Makers  Directive  Use minimal information and consider few alternatives.  Analytic  Make careful decisions in unique situations.  Conceptual  Maintain a broad outlook and consider many alternatives in making decisions.  Behavioral  Avoid conflict by working well with others and being receptive to suggestions. © 2007 Prentice Hall, Inc. All rights reserved. 6–20  Exhibit 6–12 Decision-Making Matrix © 2007 Prentice Hall, Inc. All rights reserved. 6–21  Exhibit 6–13 Common Decision-Making Errors and Biases © 2007 Prentice Hall, Inc. All rights reserved. 6–22  Decision Making for Today’s World Guidelines for making effective decisions:  Understand cultural differences.  Know when it’s time to call it quits.  Use an effective decision-making process. Habits of highly reliable organizations (HROs)  Are not tricked by their success.  Defer to the experts on the front line.  Let unexpected circumstances provide the solution.  Embrace complexity.  Anticipate, but also anticipate their limits. © 2007 Prentice Hall, Inc. All rights reserved. 6–23  Characteristics of an Effective Decision- Making Process It focuses on what is important. It is logical and consistent. It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking. It requires only as much information and analysis as is necessary to resolve a particular dilemma. It encourages and guides the gathering of relevant information and informed opinion. It is straightforward, reliable, easy to use, and flexible. © 2007 Prentice Hall, Inc. All rights reserved. 6–24