chapter 6: managers as decision makers

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  • 1. Management: Arab World Edition Robbins, Coulter, Sidani, Jamali Chapter 6: Managers as Decision Makers Lecturer: [Insert your name here]

2. 6-3 Copyright 2011 Pearson Education Learning Outcomes Follow this Learning Outline as you read and study this chapter. 6.1 The Decision-Making Process Define decision. Describe the eight steps in the decision-making process. 6.2 Managers Making Decisions Discuss the assumptions of rational decision making. Describe the concepts of bounded rationality, satisficing, and escalation of commitment. Explain intuitive decision making. 3. 6-4 Copyright 2011 Pearson Education Learning Outcomes 6.3 Types Of Decisions and Decision-Making Conditions Explain the two types of problems and decisions. Contrast the three decision-making conditions. Explain maximax, maximin, and minimax decision choice approaches. 6.4 Decision-Making Styles Describe two decision-making styles. Discuss the twelve decision-making biases. Explain the managerial decision-making model. Describe decision-making practices in the Arab context. 4. 6-5 Copyright 2011 Pearson Education Learning Outcomes 6.5 Effective Decision Making In Todays World Explain how managers can make effective decisions in todays world. List the six characteristics of an effective decision-making process. List the five habits of highly reliable organizations. 5. 6-6 Copyright 2011 Pearson Education The Decision-Making Process 1. Define decision. 2. Describe the eight steps in the decision-making process. 6. 6-7 Copyright 2011 Pearson Education Decision Making Decision Making a choice from two or more alternatives. 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 decisions effectiveness. 7. 6-8 Copyright 2011 Pearson Education The Situation Sarah is a sales manager whose reps need new laptops because their old ones are outdated and inadequate for doing their job. To make it simple, assume that it is not economical to add memory to the old computers and it is the companys policy to purchase, not lease. 8. 6-9 Copyright 2011 Pearson Education Exhibit 61 The Decision- Making Process 9. 6-10 Copyright 2011 Pearson Education Problem A discrepancy between an existing and desired state of affairs. Characteristics of Problems A problem becomes a problem when a manager becomes aware of it. There is pressure to solve the problem. The manager must have the authority, information, or resources needed to solve the problem. Step 1: Identifying the Problem 10. 6-11 Copyright 2011 Pearson Education Decision criteria are factors that are important (relevant) to resolving the problem such as: Costs that will be incurred (investments required) Risks likely to be encountered (chance of failure) Outcomes that are desired (growth of the firm) Step 2: Identifying Decision Criteria 11. 6-12 Copyright 2011 Pearson Education Decision criteria 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. Step 3: Allocating Weights to the Criteria 12. 6-13 Copyright 2011 Pearson Education Criterion Weight Memory and Storage 10 Battery life 8 Carrying Weight 6 Warranty 4 Display Quality 3 Exhibit 62 Criteria and Weights for Computer Replacement Decision 13. 6-14 Copyright 2011 Pearson Education Identifying viable alternatives Alternatives are listed (without evaluation) that can resolve the problem. Step 4: Developing Alternatives 14. 6-15 Copyright 2011 Pearson Education Appraising each alternatives strengths and weaknesses An alternatives appraisal is based on its ability to resolve the issues identified in steps 2 and 3. Step 5: Analyzing Alternatives 15. 6-16 Copyright 2011 Pearson Education Exhibit 63 Assessed Values of Laptop Computers Using Decision Criteria 16. 6-17 Copyright 2011 Pearson Education Choosing the best alternative The alternative with the highest total weight is chosen. Step 6: Selecting an Alternative 17. 6-18 Copyright 2011 Pearson Education Putting the chosen alternative into action Conveying the decision to and gaining commitment from those who will carry out the decision Step 7: Implementing the Alternative 18. 6-19 Copyright 2011 Pearson Education Exhibit 64 Evaluation of Laptop Alternatives Against Weighted Criteria 19. 6-20 Copyright 2011 Pearson Education 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? Step 8: Evaluating the Decisions Effectiveness 20. 6-21 Copyright 2011 Pearson Education Managers Making Decisions 1. Discuss the assumptions of rational decision making. 2. Describe the concepts of bounded rationality, satisficing, and escalation of commitment. 3. Explain intuitive decision making. 21. 6-22 Copyright 2011 Pearson Education Managers Making Decisions Decision making is part of all four managerial functions (next slide). In fact, that is why we say that decision making is the essence of management. And that is why managers when they plan, organize, lead, and control are called decision makers. 22. 6-23 Copyright 2011 Pearson Education Exhibit 65 Decisions in the Management Functions 23. 6-24 Copyright 2011 Pearson Education 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 organizations interests rather than in their personal interests. 24. 6-25 Copyright 2011 Pearson Education Making Decisions (contd) 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. Influence on decision making Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong. 25. 6-26 Copyright 2011 Pearson Education The Role of Intuition Intuitive decision making Making decisions on the basis of experience, feelings, and accumulated judgment. 26. 6-27 Copyright 2011 Pearson Education Exhibit 66 What Is Intuition? Source: Based on L. A. Burke and M. K. Miller, Taking the Mystery Out of Intuitive Decision Making, Academy of Management Executive, October 1999, pp. 9199. 27. 6-28 Copyright 2011 Pearson Education Types Of Decisions and Decision-Making Conditions 1. Explain the two types of problems and decisions. 2. Contrast the three decision-making conditions. 3. Explain maximax, maximin, and minimax decision choice approaches. 28. 6-29 Copyright 2011 Pearson Education 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 Programmed Decision A repetitive decision that can be handled by a routine approach. 29. 6-30 Copyright 2011 Pearson Education Types of Programmed Decisions 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. Policy A general guideline for making a decision about a structured problem. 30. 6-31 Copyright 2011 Pearson Education Policy, Procedure, and Rule Examples Policy Accept all customer-returned merchandise. 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. 31. 6-32 Copyright 2011 Pearson Education Problems and Decisions 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. 32. 6-33 Copyright 2011 Pearson Education Exhibit 67 Programmed Versus Nonprogrammed Decisions 33. 6-34 Copyright 2011 Pearson Education 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. 34. 6-35 Copyright 2011 Pearson Education Exhibit 68 Expected Value for Revenues from the Addition of One Ski Lift 35. 6-36 Copyright 2011 Pearson Education 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. Maximax: the optimistic managers choice to maximize the maximum payoff Maximin: the pessimistic managers choice to maximize the minimum payoff Minimax: the managers choice to minimize maximum regret 36. 6-37 Copyright 2011 Pearson Education Exhibit 69 Payoff Matrix 37. 6-38 Copyright 2011 Pearson Education Exhibit 610 Regret Matrix 38. 6-39 Copyright 2011 Pearson Education Decision-Making Styles 1. Describe two decision-makin

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