ho van hien mba1 8chapter the manager as a decision maker the nature of managerial decision making...
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HO VAN HIEN MBA1
88Chapter
The Manager as a Decision Maker
The nature of Managerial Decision Making
Steps in the Decision- Making Process
Cognitive Biases & Decision Making
GroupDecisionMaking
Organizational
Learning &
Creating
HO VAN HIEN MBA2
Learning Objectives
• After studying the chapter, you should be able to:– Describe the six steps that managers should take
to make the best decisions.
– Explain how cognitive biases can affect decision making and lead managers to make poor decisions.
– Understand the characteristics of a decision and when organizations are facing the need to make a decision.
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OBJECTIVES
HO VAN HIEN MBA3
Learning Objectives (cont’d)
– Differentiate between programmed and nonprogrammed decisions, and explain why nonprogrammed decision making is a complex, uncertain process.
– Identify the advantages and disadvantages of group decision making, and apply techniques that can improve it.
– Recognize the role that organizational learning and creativity play in helping managers to improve their decisions.
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OBJECTIVES
HO VAN HIEN MBA4
Chapter Outline
• The Nature of Managerial Decision Making– Decision-Making Dilemmas in Canada– Programmed and Nonprogrammed Decision Making– The Classical Model– The Administrative Model
• Steps in the Decision-Making Process– Recognize the Need for a Decision– Generate Alternatives– Evaluate Alternatives– Choose Among Alternatives– Implement the Chosen Alternative– Learning from Feedback
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CHAPTER OUTLINE
HO VAN HIEN MBA5
Chapter Outline (cont’d)
• Cognitive Biases and Decision Making– Prior Hypothesis Bias– Representative Bias– Illusion of Control– Escalating Commitment
• Group Decision Making– Perils of Groupthink– Devil’s Advocacy and Dialectical Inquiry– Diversity Among Decision Makers
The nature of Managerial Decision Making
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CHAPTER OUTLINE
HO VAN HIEN MBA6
Chapter Outline (cont’d)
• Organizational Learning and Creativity– Creating a Learning Organization– Promoting Individual Creativity– Promoting Group Creativity– Promoting Creativity at the Global Level
The nature of Managerial Decision Making
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CHAPTER OUTLINETER
HO VAN HIEN MBA7
The Nature of Managerial Decision Making
• Decision Making– The process by which managers respond to
opportunities and threats by analyzing options, and making choices about goals and courses of action.
• Decisions in response to opportunities– occurs when managers respond to ways
to improve performance.• Decisions in response to threats
– occurs when managers are impacted by adverse events to the organization.
The nature of Managerial Decision Making
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Cognitive Biases & Decision Making
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THE NATURE OF MANAGERIAL DECISION MAKING
HO VAN HIEN MBA8
Decision-Making Dilemmas in Canada
• ‘Triple Bottom Line’ Approach– Economic– Social– Environmental
• Sustainability– need to pursue social
and environmental agendas
Need a systematic approach to decision-making that considers all aspects
The nature of Managerial Decision Making
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DECISION- MAKING DILEMMAS IN CANADA
HO VAN HIEN MBA9
• Programmed Decision– Routine, virtually automatic decision making that
follows established rules or guidelines.• same decision made many times before.• rules or guidelines to follow
based on past experience• Example: Disciplinary action
to be taken concerning a tardy
employee.
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PROGRAMMED & NONPROGRAMMED DECISION
HO VAN HIEN MBA10
• Non-Programmed Decisions– Nonroutine decision making that occurs in response
to unusual, unpredictable events.– no rules to follow since the decision is new.
• Example: Deciding to invest in additional production equipment to meet forecasted demand.
– based on:
Information Intuition Judgment
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PROGRAMMED & NONPROGRAMMED DECISION
HO VAN HIEN MBA11
• Classical Model of Decision Making– Prescriptive model (how decisions should be made)
– Assumes can identify and evaluate: • all possible alternatives and their consequences• preferences for each alternative • the most appropriate course of action.
– Make the Optimum decision• The most appropriate decision in light of what managers
believe to be the most desirable future consequences for their organization.
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THE CLASSICAL MODEL
HO VAN HIEN MBA12
Figure 8.1
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THE CLASSICAL MODEL OF DECISION MAKING
HO VAN HIEN MBA13
Figure 8.1
The nature of Managerial Decision Making
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THE CLASSICAL MODEL
HO VAN HIEN MBA14
• Administrative Model of Decision Making– 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.
– March and Simon
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THE ADMINISTRATIVE OF DECISION MAKING
HO VAN HIEN MBA15
• Administrative Model of Decision Making– Bounded rationality
• Too much information to consider• Decisions are limited by people’s cognitive abilities.
– Incomplete information• most managers do not see all alternatives and decide
based on incomplete information.• Caused by:
Uncertaintyand Risk
Ambiguousinformation
Time constraints and Costs
The nature of Managerial Decision Making
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HO VAN HIEN MBA16
The nature of Managerial Decision Making
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WHY INFORMATION IS COMPLETE
INCOMPLETEINFORMATION
Time constraints &Information costs
AmbiguousInformation
Uncertainty& Risk
HO VAN HIEN MBA17
• Risk– Degree of probability that possible outcomes will
occur.• If can assign probabilities for the likelihood of an
outcome’s failure or success
• Uncertainty– Probabilities cannot be given for outcomes and the
future is unknown.• Many decision outcomes are not known such as the
success of a new product introduction.
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CAUSE OF INCOMPLETE INFORMATION
HO VAN HIEN MBA18
• Ambiguous Information Information whose
meaning is not clear allowing it to be interpreted in multiple or conflicting ways.
Figure 8.3
Young Woman or Old
Woman?
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CAUSE OF INCOMPLETE INFORMATION
HO VAN HIEN MBA19
• Satisficing– Searching for and choosing
an acceptable, or satisfactory response to problems and opportunities, rather than trying to make the best decision.
• explore a limited number of options.• assume that the limited options represent all options.
A typical response when dealing with incomplete information.
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CAUSE OF INCOMPLETE INFORMATION (Cont’d)
HO VAN HIEN MBA20
The nature of Managerial Decision Making
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Recognize the need for a decision
Generate Alternatives
Assess Alternatives
Choose among Alternatives
Implement the choose Alternatives
Learn from feedback
Step 1
Step 2
Step 3
Step 4
Step 5
Step 6
SIX STEPS IN DECISION MAKING
HO VAN HIEN MBA21
Step 1. Recognize Need for a Decision– Sparked by an event such as environment changes.
Step 2. Generate Alternatives– Develop feasible alternative courses of action.
• if miss good alternatives,
the resulting decision is poor• hard to develop creative
alternatives, need to look
for new ideas.
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HO VAN HIEN MBA22
Step 3. Evaluate Alternatives– What are the advantages and disadvantages of
each alternative?– Managers should specify criteria, then evaluate.
Step 4. Choose Among Alternatives– When ranking,consider all information.
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HO VAN HIEN MBA23
General Criteria
for Evaluating Possible
Courses of Action
Legal?
Ethical?
Economical?
Practical?
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Step 5. Implement Chosen Alternative– carry out the alternative – assign responsibility and resources
Often a decision is made and not implemented.
Step 6. Learn From Feedback– consider what went right and wrong and learn for
the future.
Without feedback, managers do not learn from experience and will repeat the same mistake over.
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HO VAN HIEN MBA25
• Heuristics– Rules of thumb to deal with
complex situations.– use heuristics to deal with
bounded rationality.
• Systematic errors can result from use of an incorrect heuristic and will appear over and over since the rule used to make decision is flawed.
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HO VAN HIEN MBA26
Prior hypothesis
Representativeness
Illusion of control
Escalating commitment
CognitiveBiases
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SOURCES OF COGNITIVE BIASES AT THE INDIVIDUAL & GROUP LEVEL
HO VAN HIEN MBA27
• Prior Hypothesis Bias– Allowing strong prior beliefs about a relationship
between variables to influence decisions based on these beliefs even when evidence shows they are wrong.
• Representativeness– The decision maker incorrectly generalizes a
decision from a small sample or a single incident.
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TYPES OF COGNITIVE BIASES
HO VAN HIEN MBA28
• Illusion of Control– The tendency to overestimates one’s own
ability to control activities and events.
• Escalating Commitment– Committing considerable resources to project and
then committing more even if evidence shows the project is failing.
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TYPES OF COGNITIVE BIASES
HO VAN HIEN MBA29
• Most decisions are made in group settings.BETTER ALTERNATIVES
• Draw on combined skills and knowledge• Generate more feasible alternatives• Process more information
MORE ACCURATE• Correct each other’s errors and biases
MORE ACCEPTABLE• Increased cooperation and chances of successful
implementation
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GROUP DECISION MAKING
HO VAN HIEN MBA30
• Groupthink– Biased decision making resulting from group
members striving for agreement.• Group members rally around a central manager’s idea,
and blindly commit to the idea without considering alternatives.
• The group’s influence tends to convince each member that the idea must go forward.
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GROUP DECISION MAKING
HO VAN HIEN MBA31
• Devil’s Advocacy– A group member who defends
unpopular or opposing alternatives for the sake of argument
– One member of the group who acts as the devil’s advocate by critiquing the way the group identified alternatives and pointing out problems with the alternative selection.
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IMPROVED GROUP DECISION MAKING
HO VAN HIEN MBA32
• Dialectical Inquiry– Two different groups are assigned to the problem
and each group evaluates the other group’s choice of alternatives.
– Top managers then hear each group present their alternatives and each group can critique the other.
• Promote Diversity– Increasing the diversity in a group may result in
consideration of a wider set of alternatives.
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IMPROVED GROUP DECISION MAKING
HO VAN HIEN MBA33
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Source:
DEVIL’S ADVOCACY & DIALECTICAL INQUIRY
HO VAN HIEN MBA34
• Organizational Learning– Managers seek to
improve a employee’s desire and ability to understand and manage the organization and its task environment so as to raise effectiveness.
• The Learning Organization– Managers try to
maximize the people’s ability to behave creatively to maximize organizational learning.
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HO VAN HIEN MBA35
Figure 8.8
The nature of Managerial Decision Making
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SENGE’S PRINCIPLES FOR CREATING A LEARNING
1. Develop Personal Mastery
2. Build complex, challenging mental
models
4. Build ShareVision
3. Promote TeamLearning
5. Encourage systemsThinking
HO VAN HIEN MBA36
• Creativity– The ability of the decision maker to discover novel
ideas leading to a feasible course of action.• A creative management staff and employees are the key
to the learning organization.
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ORGANIZATIONAL LEARNING & CREATIVITY
HO VAN HIEN MBA37
• Personal Mastery– Managers empower employees and allow them to
create and explore.
• Mental Models– Challenge employees to find new, better methods
to perform a task.
• Team Learning– Is more important than individual learning since
most decisions are made in groups.
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CREATING A LEARNING ORGANIZATION
HO VAN HIEN MBA38
• Build a Shared Vision– People share a common mental model of the firm
to evaluate opportunities.
• Systems Thinking– Knowing and understanding how actions in one
area of the firm will impact other areas of the firm.
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CREATING A LEARNING ORGANIZATION
HO VAN HIEN MBA39
• Organizations can build an environment supportive of creativity.– Managers must provide employees with the ability
to take risks.• If people take risks, they will occasionally fail.
– To build creativity, periodic failures must be rewarded.
• This idea is hard to accept for some managers.
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PROMOTING INDIVIDUAL CREATIVITY
HO VAN HIEN MBA40
Brainstormingmeet face-to-face
generate and debate many alternatives.
not allowed to evaluate until all alternatives are listed
then the pros and cons of each are discussed and a short list created.
Production blockingMembers cannot absorb all information being presented during
the session and can forget even their own alternatives.
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PROMOTING GROUP CREATIVITY
HO VAN HIEN MBA41
Nominal Group Techniqueeach member writes down all alternatives
he or she would suggest.
alternatives are then read aloud without discussion until all have been listed
then discussion occurs
then each person ranks the alternatives andhighest ranking alternatives are chosen
– a more structured way to generate alternatives in writing – avoids the production blocking problem
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PROMOTING GROUP CREATIVITY
HO VAN HIEN MBA42
• Delphi TechniqueProvides a written format
without having all managers meet face-to-face.
Allows distant managers to participate.• Problem is distributed in written form to managers who
then generate written alternatives.• Responses are received and summarized by top
managers.• These results are sent back to participants for feedback,
and ranking.• The process continues until consensus is reached.
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PROMOTING GROUP CREATIVITY
HO VAN HIEN MBA43
SUMMARY
The nature of Managerial Decision Making
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HO VAN HIEN MBA44
THE END
The nature of Managerial Decision Making
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