Making Decisions - Management Textbook PDF

MAKING DECISIONS 2 Copyright © 2014 Pearson Education, Ltd 2-1  LEARNING OBJECTIVES 1. Describe the eight steps in the decision-making process. 2. Explain the four ways managers make d...

MAKING DECISIONS 2 Copyright © 2014 Pearson Education, Ltd 2-1  LEARNING OBJECTIVES 1. Describe the eight steps in the decision-making process. 2. Explain the four ways managers make decisions. 3. Classify decisions and decision-making conditions. Copyright © 2014 Pearson Education, Ltd 2-2 A key to success in management and in your career is knowing how to be an effective decision-maker. Copyright © 2014 Pearson Education, Ltd 2-3  Decision – making a THE DECISION- choice from MAKING two or more PROCESS alternatives. Copyright © 2014 Pearson Education, Ltd 2-4 EXAMPLE OF BAD DECISION- THE DECISION BY MANAGERS AT NASA TO LAUNCH THE CHALLENGER SPACE SHUTTLE- A DECISION THAT KILLS 7 ASTRONAUTS IN 1986 Copyright © 2014 Pearson Education, Ltd 2-5  DECISION-MAKING PROCESS Copyright © 2014 Pearson Education, Ltd 2-6 THE DECISION-MAKING PROCESS (CONT.) 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 (difference) between an existing and a desired condition. – Example – Amanda is a sales manager whose reps need new laptops. Copyright © 2014 Pearson Education, Ltd 2-7 THE DECISION-MAKING PROCESS (CONT.) Step 2: Identify Decision Criteria – Decision criteria are factors that are important (relevant) 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. Copyright © 2014 Pearson Education, Ltd 2-8 THE 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. Copyright © 2014 Pearson Education, Ltd 2-9  IMPORTANT DECISION CRITERIA Copyright © 2014 Pearson Education, Ltd 2-10 THE DECISION-MAKING PROCESS (CONT.) Step 4: Develop Alternatives – List viable alternatives that could resolve the problem. Copyright © 2014 Pearson Education, Ltd 2-11 POSSIBLE ALTERNATIVES Copyright © 2014 Pearson Education, Ltd 2-12 THE DECISION-MAKING PROCESS (CONT.) Step 5: Analyze Alternatives – Appraising each alternative’s strengths and weaknesses. – An alternative’s appraisal is based on its ability to resolve the issues related to the criteria and criteria weight. Copyright © 2014 Pearson Education, Ltd 2-13 THE DECISION-MAKING PROCESS (CONT.) Step 6: Select an Alternative Choosing the best alternative –The alternative with the highest total weight is chosen. Copyright © 2014 Pearson Education, Ltd 2-14 EVALUATION OF ALTERNATIVES Copyright © 2014 Pearson Education, Ltd 2-15 THE DECISION-MAKING PROCESS (CONT.) Step 7: Implement the Alternative Putting the chosen alternative into action Conveying the decision to and gaining commitment from those who will carry out the alternative Copyright © 2014 Pearson Education, Ltd 2-16 THE DECISION-MAKING PROCESS (CONT.) Step 8: Evaluate Decision 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? Copyright © 2014 Pearson Education, Ltd 2-17 ORAPAPA DECISION MAKING MODEL Copyright © 2014 Pearson Education, Ltd 2-18 WHY IS DECISION MAKING OFTEN DESCRIBED AS THE ESSENCE OF THE MANAGER’S JOB?  Decisions are made throughout the performance of all four functions of management.  Almost anything a manager does in terms of planning, organizing, leading, and controlling involves decision making. That’s why managers are often called decision makers. Copyright © 2014 Pearson Education, Ltd 2-19 DECISIONS MANAGERS MAY MAKE Copyright © 2014 Pearson Education, Ltd 2-20 DECISIONS MANAGERS MAY MAKE (CONT.) Copyright © 2014 Pearson Education, Ltd 2-21  MAKING DECISIONS: 1. RATIONALITY 1. Rational Decision-Making – describes choices that are logical and consistent while maximizing value. Assumptions of Rationality – The decision maker would be fully objective and logical. – The problem faced would be clear and unambiguous. – The decision maker would have a clear and specific goal and know all possible alternatives and consequences and consistently select the alternative that maximizes achieving that goal. Copyright © 2014 Pearson Education, Ltd 2-22  MAKING DECISIONS: 2. BOUNDED RATIONALITY 2. 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.” Escalation of commitment – an increased commitment to a previous decision despite evidence it may have been wrong. Copyright © 2014 Pearson Education, Ltd 2-23  MAKING DECISIONS: 3.THE ROLE OF INTUITION 3. Intuitive decision- making – Making decisions on the basis of experience, feelings, and accumulated judgment. Copyright © 2014 Pearson Education, Ltd 2-24  WHAT IS INTUITION? Copyright © 2014 Pearson Education, Ltd 2-25  MAKING DECISIONS: 4. THE ROLE OF EVIDENCE-BASED MANAGEMENT 4. Evidence-based management (EBMgt) – the systematic use of the best available evidence to improve management practice.  The four essential elements of EBMgt are: (1) the decision maker’s expertise and judgment; (2) external evidence that’s been evaluated by the decision maker; (3) opinions, preferences, and values of those who have a stake in the decision; and (4) relevant organizational (internal) factors such as context, circumstances, and organizational members. Copyright © 2014 Pearson Education, Ltd 2-26  STRUCTURED PROBLEMS AND PROGRAMMED DECISIONS Structured Problems – straightforward, familiar, and easily defined problems. Programmed decision – a repetitive decision that can be handled by a routine approach. Copyright © 2014 Pearson Education, Ltd 2-27  STRUCTURED PROBLEMS AND PROGRAMMED DECISIONS (CONT.) Managers rely on three types of programmed decisions: Procedure – a series of sequential steps ‫سلسلة‬ ‫من الخطوات المتتابعة‬used 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. Copyright © 2014 Pearson Education, Ltd 2-28  UNSTRUCTURED PROBLEMS AND NONPROGRAMMED DECISIONS Unstructured Problems – problems that are new or unusual and for which information is ambiguous or incomplete. Nonprogrammed decisions – unique and nonrecurring‫ غير متكررة‬and involve custom made solutions. Copyright © 2014 Pearson Education, Ltd 2-29  Lower-level managers mostly rely on programmed decisions (procedures, rules, and policies) because they confront familiar and repetitive problems.  As managers move up the organizational hierarchy, the problems they confront become more unstructured. Why? Because lower-level managers handle the routine decisions and let upper-level managers deal with the unusual or difficult decisions. Also, upper-level managers delegate routine decisions to their subordinates so they can deal with more difficult issues. Copyright © 2014 Pearson Education, Ltd 2-30  PROGRAMMED VERSUS NONPROGRAMMED DECISIONS Copyright © 2014 Pearson Education, Ltd 2-31  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 (probability) of certain outcomes. Uncertainty – a situation in which a decision maker has neither certainty nor reasonable probability estimates available. Copyright © 2014 Pearson Education, Ltd 2-32  QUESTIONS 1. Define Decision and describe the eight steps in the decision-making process. 2. Explain the four ways managers make decisions. 3. Classify decisions and decision-making conditions Copyright © 2014 Pearson Education, Ltd 2-33  APPLICATION OF CONCEPTS 1. Why is decision making often described as the essence of the manager’s job? 2. Find two examples each of procedures, rules, and policies. 3. Apply the eight steps of the decision-making process for making a “good decision”. Considering making a purchase, such as a car, mobile, computer, or house…etc. Compile a variety of decision criteria, and weighting each criterion then develop alternatives and analyze those alternatives based on your different criteria. Copyright © 2014 Pearson Education, Ltd 2-34