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Managerial Decision Making

Chapter Three

Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.

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Learning Objectives

LO1 Describe the kinds of decisions you will face as a manager.

LO2 Summarize the steps in making “rational” decisions.

LO3 Recognize the pitfalls you should avoid when making decisions.

LO4 Evaluate the pros and cons of using a group to make decisions.

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Learning Objectives (cont.)

LO5 Identify procedures to use in leading a decision-making group

LO6 Explain how to encourage creative decisionsLO7 Discuss the process by which decisions are

made in organizationsLO8 Describe how to make decisions in a crisis

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Characteristics of Managerial Decisions

Figure 3.1

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Lack of Structure

Programmed decisions Decisions encountered and made before, having

objectively correct answers, and solvable by using simple rules, policies, or numerical computations.

Nonprogrammed decisions New, novel, complex decisions having no proven

answers.

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Comparison of Types of DecisionsTable 3.1

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Uncertainty and Risk

Certainty The state that exists when decision makers have

accurate and comprehensive information.Uncertainty

The state that exists when decision makers have insufficient information.

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Uncertainty and Risk

Risk The state that exists when the probability of

success is less than 100 percent and losses may occur.

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Conflict

Conflict Opposing pressures from different sources,

occurring on the level of psychological conflict or of conflict between individuals or groups.

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Two Levels of Conflict

1. Individual decision makers experience psychological conflict when several options are attractive, or when none of the options is attractive

2. Conflict arises between people

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The Phases of Decision Making

Generating alternative solutions

Evaluating alternative solutions

Making the choice

Implementing the decision

Evaluating the decision

Identifying and diagnosing the

problem

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Identifying and Diagnosing the Problem

Typically, a manager realizes some discrepancy between the current state (the way things are) and a desired state (the way things ought to be).

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Identifying and Diagnosing the Problem

Such discrepancies may be detected by comparing current performance against (1) past performance, (2) the current performance of other organizations or units, or (3) future expected performance as determined by plans and forecasts.

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Generating Alternative Solutions

Ready-made solutions Ideas that have been

seen or tried before

Custom-made solutions New, creative

solutions designed specifically for the problem

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Evaluating Alternatives

Evaluating alternatives Involves determining the value or adequacy of

the alternatives that were generated Which solution will be the best?

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Evaluating Alternatives

Contingency plans Alternative courses of action that can be

implemented based on how the future unfolds.

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Making the Choice

Maximizing A decision realizing

the best possible outcome

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Question

___________ is achieving the best possible balance among several goals.

A. MaximizingB. SatisficingC. OptimizingD. Minimizing

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Making the Choice

Satisficing Choosing an option

that is acceptable, although not necessarily the best or perfect

Optimizing Achieving the best

possible balance among several goals

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Implementing the Decision

1. Determine how things will look when the decision is fully operational.

2. Chronologically order the steps necessary to achieve a fully operational decision.

3. List the resources and activities required to implement each step.

4. Estimate the time needed for each step.

5. Assign responsibility for each step to specific individuals.

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Implementing the Decision

What problems could this action cause?What can we do to prevent the problems?What unintended benefits or opportunities

could arise?How can we make sure they happen?How can we be ready to act when the

opportunities come?

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Evaluating the Decision

Feedback that suggests the decision is working implies that the decision should be continued and applied elsewhere in the organization.

Negative feedback means that either (1) implementation will require more time, resources, effort, or thought or (2) the decision was a bad one

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Question

___________ is the process in which a decision maker carefully executes all stages of decision making.

A. InnovationB. QualityC. SatisficingD. Vigilance

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The Best Decision

Vigilance A process in which a

decision maker carefully executes all stages of decision making

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Barriers to Decision Making

Psychological biases

Time pressure

Social realities

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Psychological Biases

Illusion of control People’s belief that they can influence events,

even when they have no control over what will happen

Framing effects A decision bias influenced by the way in which a

problem or decision alternative is phrased or presented.

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Psychological Biases

Discounting the future A bias weighting

short-term costs and benefits more heavily than longer-term costs and benefits.

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Pros and Cons of Using aGroup to Make Decisions

Table 3.2

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Potential Problems of Using a Group

Groupthink occurs when people

choose not to disagree or raise objections because they don’t want to break up a positive team spirit

Goal displacement A condition that

occurs when a decision-making group loses sight of its original goal and a new, less important goal emerges.

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Managing Group Decision Making

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Constructive Conflict

Cognitive conflict Issue-based

differences in perspectives or judgments.

Affective conflict Emotional

disagreement directed toward other people.

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Constructive Conflict

Devil’s advocate A person who has

the job of criticizing ideas to ensure that their downsides are fully explored.

Dialectic A structured debate

comparing two conflicting courses of action.

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Encouraging Creativity

Creation

Synthesis

Modification

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Brainstorming

Brainstorming A process in which group members generate as

many ideas about a problem as they can; criticism is withheld until all ideas have been proposed.

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Models of Organizational Decision Processes

Bounded rationality A less-than-perfect form of rationality in which

decision makers cannot be perfectly rational because decisions are complex and complete information is unavailable or cannot be fully processed

Incremental model Model of organizational decision making in which

major solutions arise through a series of smaller decisions

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Models of Organizational Decision Processes

Coalitional model Model of

organizational decision making in which groups with differing preferences use power and negotiation to influence decisions.

Garbage can model Model of

organizational decision making depicting a chaotic process and seemingly random decisions.

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Two Disasters

Table 3.3

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Decision Making in a Crisis

What kinds of crises could your company face?

Can your company detect a crisis in its early stages?

How will it manage a crisis if one occurs?How can it benefit from a crisis after it has

passed?

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Elements of a Crisis Plan

1. Strategic actions

2. Technical and structural actions

3. Evaluation and diagnostic actions

4. Communication actions

5. Psychological and cultural actions

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Video: PODs

What decision led to the creation of PODS?What common decisions do startups often

face?