Characteristics of Managerial Decisions

1. Characteristics of Managerial Decisions 3-1

2. Lack of Structure Programmed decisions Decisions encountered and made before, having objectively correct answers, and solvable by using simple rules, policies, or numerical computations. Non programmed decisions New, novel, complex decisions having no proven answers. 3-2

3. Comparison of Types of Decisions 3-3

4. 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. 3-4

5. Uncertainty and Risk Risk The state that exists when the probability of success is less than 100 percent and losses may occur. 3-5

6. Conflict Conflict Opposing pressures from different sources, occurring on the level of psychological conflict or of conflict between individuals or groups. 3-6

7. Two Levels of Conflict Individual decision makers experience psychological conflict when several options are attractive, or when none of the options is attractive Conflict arises between people 3-7

8. The Stages of Decision Making 3-8

9. 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 3-9

10. Implementing the Decision Determine how things will look when the decision is fully operational. Chronologically order the steps necessary to achieve a fully operational decision. List the resources and activities required to implement each step. Estimate the time needed for each step. Assign responsibility for each step to specific individuals. 3-10

11. 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? 3-11

12. 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 3-12

13. Barriers to Decision Making 3-13

14. 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. 3-14

15. Psychological Biases Discounting the future A bias weighting short-term costs and benefits more heavily than longer-term costs and benefits. 3-15

16. Pros and Cons of Using aGroup to Make Decisions 3-16

17. Potential Problems of Using a Group Groupthink A phenomenon that occurs in decision making when group members avoid disagreement as they strive for consensus Goal displacement A condition that occurs when a decision-making group loses sight of its original goal and a new, less important goal emerges. 3-17

18. Managing Group Decision Making 3-18

19. Constructive Conflict Cognitive conflict Issue-based differences in perspectives or judgments. Affective conflict Emotional disagreement directed toward other people. 3-19

20. 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. 3-20

21. 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. 3-21

22. 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 3-22

23. 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. 3-23

24. Two Disasters 3-24

25. Destination CEO: Allstate What do you think would be the most challenging part of being CEO of Allstate? Do you agree with Liddy�s decision not to write or renew homeowners� policies in hurricane-prone areas? Why or why not? 3-25 BusinessWeek TV�s Destination CEO Name: Allstate CEO of Company: Edward M. Liddy � Themes: Decision making, managerial skills, ethics � Suggested chapters: 3, 1, 4 � Short paragraph about the video. � You have probably heard their commercials. �You�re in good hands with Allstate.� Allstate Corporation, headquartered in Northbrook, Illinois, has survived in a competitive insurance environment for over 75 years. It is the largest publically held insurer of automobiles and homes in the U.S., doing$35 billion of business annually. � Edward Liddy served as Allstate CEO from 1999 until late 2006*. Liddy�s first job after graduation was as an analyst with Ford Motor Company. Liddy was described as unflappable and analytical during the years when hurricanes Rita, Katrina, and Wilma hit coastal areas and Allstate experienced catastrophic losses. Yet the company continued to earn a profit as a result of Liddy�s willingness to make some difficult decisions. Liddy began his career as chief financial officer at Sears, Roebuck and Co., when Allstate was a subsidiary of the retail giant. While at Sears, Liddy was known for making tough financial choices, such as getting rid of the legendary Sears catalog. He converted full-time Allstate agents to independent contractors. In his final years as CEO, Liddy faced criticism from customers regarding Allstate�s decision to refuse to write new policies in hurricane-prone coastal areas. � In an industry based on risk, former Allstate CEO Ed Liddy faced many challenging decisions. Although not all of his decisions have been popular, Liddy has helped Allstate remain a profitable company during some troubled times. Allstate trades on the NYSE under the symbol ALL. � *Edward Liddy was replaced by Thomas J. Wilson, No. 2 in command as Allstate CEO in 2006. http://findarticles.com/p/articles/mi_qn4155/is_20060919/ai_n16732521 � � 3-4 multiple choice questions with answers regarding video topics � Allstate was once a subsidiary of what company? Nordstrom�s Sears Ford Motor Company Coca Cola Allstate is headquartered in what city? Albany New York San Antonio, Texas Indianapolis, Indiana Northbrook, Illinois Liddy began his career at Allstate working as a(n)? Chief financial officer Chief information officer Chief executive officer Analyst 2-3 essay or discussion questions with suggested answers regarding video topics � Discuss the importance of Liddy�s technical, conceptual and personal skills as CEO at Allstate. Students� responses will vary. Students should indicate that Liddy possessed strong financial technical skill which continued to aid him as he became CEO. Top-level managers are typically more concerned with the overall organization and spend more time on strategy, so their conceptual and decision-making skills are very important. While Liddy made made tough financial decisions, his interpersonal and communication skills (people skills) were sometimes criticized.  What do you think would be the most challenging part of being CEO of Allstate?Students� responses will vary. Typical responses might include making tough financial decisions and knowing if you are making the correct (ethical) decisions.  Do you agree with Liddy�s decision not to write or renew homeowners� policies in hurricane-prone areas? Why or why not? Students� responses will vary. Some students may see it more ethical for insurance companies not to accept the business. Insurance companies need to be profitable to remain in business. Customers must be able to afford insurance rates in order to purchase policies. Even though insurers use risk modeling firms to estimate the probability of loss, unpredictable weather in recent years has made it almost impossible to accurately forecast rates. � BusinessWeek TV�s Destination CEO Name: Allstate CEO of Company: Edward M. Liddy � Themes: Decision making, managerial skills, ethics � Suggested chapters: 3, 1, 4 � Short paragraph about the video. � You have probably heard their commercials. �You�re in good hands with Allstate.� Allstate Corporation, headquartered in Northbrook, Illinois, has survived in a competitive insurance environment for over 75 years. It is the largest publically held insurer of automobiles and homes in the U.S., doing$35 billion of business annually. � Edward Liddy served as Allstate CEO from 1999 until late 2006*. Liddy�s first job after graduation was as an analyst with Ford Motor Company. Liddy was described as unflappable and analytical during the years when hurricanes Rita, Katrina, and Wilma hit coastal areas and Allstate experienced catastrophic losses. Yet the company continued to earn a profit as a result of Liddy�s willingness to make some difficult decisions. Liddy began his career as chief financial officer at Sears, Roebuck and Co., when Allstate was a subsidiary of the retail giant. While at Sears, Liddy was known for making tough financial choices, such as getting rid of the legendary Sears catalog. He converted full-time Allstate agents to independent contractors. In his final years as CEO, Liddy faced criticism from customers regarding Allstate�s decision to refuse to write new policies in hurricane-prone coastal areas. � In an industry based on risk, former Allstate CEO Ed Liddy faced many challenging decisions. Although not all of his decisions have been popular, Liddy has helped Allstate remain a profitable company during some troubled times. Allstate trades on the NYSE under the symbol ALL. � *Edward Liddy was replaced by Thomas J. Wilson, No. 2 in command as Allstate CEO in 2006. http://findarticles.com/p/articles/mi_qn4155/is_20060919/ai_n16732521 � � 3-4 multiple choice questions with answers regarding video topics � Allstate was once a subsidiary of what company? Nordstrom�s Sears Ford Motor Company Coca Cola Allstate is headquartered in what city? Albany New York San Antonio, Texas Indianapolis, Indiana Northbrook, Illinois Liddy began his career at Allstate working as a(n)? Chief financial officer Chief information officer Chief executive officer Analyst 2-3 essay or discussion questions with suggested answers regarding video topics � Discuss the importance of Liddy�s technical, conceptual and personal skills as CEO at Allstate.