Managerial Decision Making Learning Objectives

Managerial Decision Making Learning Objectives • After studying this slides 3, you will know: • the kinds of decisions you will face as a manager • how to make “rational” decisions • the pitfalls you should avoid when making decisions • the pros and cons of using a group to make decisions • the procedures to use in leading a decision-making group • how to encourage creative decisions • the processes by which decisions are made in organizations • how to make decisions in a crisis

Characteristics Of Managerial Decisions Risk Uncertainty Lack of Structure Conflict

Characteristics Of Managerial Decisions(cont.) Lack of structure the usual state of affairs in managerial decision making programmed decisions - decisions that have been encountered and made in the past have objectively correct answers are solvable by using simple rules, policies, or numerical computations nonprogrammer decisions - new, novel, complex decisions having no proven answers decision maker must create or impose a method for making the decision

Comparison Of Types Of Decisions Nonprogrammer Decisions Programmed Decisions Problem Procedure Business example Frequent, repetitive, routine. Much certainty regarding cause and effect relationships. Dependence on policies, rules, and definite procedures. Periodic reorders of inventory. Novel, unstructured. Much uncertainty regarding cause and effect relationships. Necessity for creativity, intuition, tolerance for ambiguity, creative problem solving. Diversification in new products and markets.

Characteristics Of Managerial Decisions (cont.) Uncertainty and risk certainty - have sufficient information to predict precisely the consequences of one’s actions uncertainty - have insufficient information to know the consequences of different actions cannot estimate the likelihood of various consequences of their actions risk - available information permits estimation of the likelihood of various consequences probability of an action being successful is less than 100 percent, and losses may occur good managers prefer to manage risk

Conflict opposing pressures from different sources occurs at two levels psychological conflict - individual decision makers: perceive several attractive options perceive no attractive options conflict between individuals or groups few decisions are without conflict Characteristics Of Managerial Decisions (cont.)

The Stages Of Decision Making Identifying and diagnosing the problem Generating alternative solutions Evaluating alternatives Making the choice Implementing the decision Evaluating the decision

Stages Of Decision Making Identifying and diagnosing the problem recognize that a problem exists and must be solved problem - discrepancy between current state and: past performance current performance of other organizations future expected performance decision maker must want to resolve the problem and have the resources to do so Generating alternative solutions ready-made solutions - ideas that have been tried before may follow the advice of others who have faced similar problem custom-made solutions - combining new ideas into solutions

Stages Of Decision Making (cont.) Evaluating alternatives determining the value or adequacy of the alternatives predict the consequences that will occur if the various options are put into effect managers should consider several types of consequences success or failure of the decision will affect the track record of the decision maker contingency plans - alternative courses of action that can be implemented based on how the future unfolds contingency plans are necessary to prepare for different scenarios

Stages Of Decision Making (cont.) Making the choice maximize - a decision realizing the best possible outcome requires searching thoroughly for a complete range of alternatives each alternative is carefully assessed compare one alternative to another satisfies - choose an option that is acceptable although not necessarily the best or perfect compare the choice with the goal, not against other options search for alternatives ends when an okay solution is found optimizing - achieving the best possible balance among several goals

Stages Of Decision Making (cont.) Implementing the decision those who implement the decision must: understand the choice and why it was made be committed to its successful implementation can’t assume that things will go smoothly during implementation identify potential problems identify potential opportunities always expect the unexpected

Steps In The Implementation Plan Determine how things will look when the decision is fully operational Assign responsibility for each step to specific individuals Order the steps necessary to achieve a fully operational decision Estimate the time needed for each step List the resources and activities required to implement each step Implementation Plan

Stages Of Decision Making (cont.) Evaluating the decision collecting information on how well the decision is working evaluation is useful whether the feedback is positive or negative if decision appears inappropriate, the process cycles back to the first stage The best decision nothing can guarantee a “best” decision must be confident that the procedures used are likely to produce the best decision given the circumstances vigilance - decision maker carefully and conscientiously executes all stages of decision making

Barriers To Effective Decision Making Psychological biases biases that interfere with objective rationality illusion of control - a belief that one can influence events even when one has no control over what will happen framing effects - how problems or decision alternatives are phrased or perceived subjective influences can override objective facts discount the future - weigh short-term costs and benefits more heavily than longer-term costs and benefits the avoidance of short-term costs or the seeking of short-term rewards may result in negative long-term consequences

Barriers To Effective Decision Making (cont.) Time pressures today’s economy places a premium on acting quickly and keeping pace in order to make timely and high-quality decisions one must: focus on real-time information involve people more effectively and efficiently rely on trusted experts take a realistic view of conflict Social realities many decisions result from intensive social interactions, bargaining, and politicking

Pros And Cons Of Using A Group ToMake Decisions Potential Disadvantages Potential Advantages • Larger pool of information • More perspectives and • approaches • Intellectual stimulation • People understand the • decision • People are committed to • the decision • One person dominates • Satisfying • Groupthink - team spirit • discourages disagreement • Goal displacement - new • goals replace original goals

Managing Group Decision Making Leadership 1. Avoid domination 2. Encourage input 3. Avoid groupthink and satisfying 4. Remember goals Constructive Conflict 1. Air legitimate differences 2. Stay task-focused 3. Be impersonal 4. Play devil’s advocate Creativity 1. Brainstorm 2. Avoid criticizing 3. Exhaust ideas 4. Combine ideas Effective Group Decision Making

Managing Group Decision Making Leadership style leader should attempt to minimize process-related problems leader should: avoid dominating the discussion encourage less vocal members to express themselves mitigate pressures for conformity stay alert to groupthink and satisfying prevent group from losing sight of the primary objective

Managing Group Decision Making (cont.) Constructive conflict a certain amount of constructive conflict should exist cognitive conflict - issue-based differences in perspectives or judgments a constructive type of conflict can air legitimate differences of opinion and develop better ideas affective conflict - emotional disagreement directed toward other people that is likely to be destructive conflict two techniques used to purposely program cognitive conflict devil’s advocate - has the job of criticizing others dialectic - structured debate comparing two conflicting courses of action

Managing Group Decision Making (cont.) Encouraging creativity creativity is essential to survival and involves: creation - bringing a new thing into being synthesis - joining two previously unrelated things modification - improving something or giving it new application to become creative one must: recognize creative potential in little opportunities obtain sufficient resources escape from work once in awhile and read widely brainstorming - group generates ideas about a problem evaluation of ideas is postponed until all have been proposed

Organizational Decision Making Constraints on decision makers organizations cannot do whatever they wish Financial Organizational Legal Human Market Constraints

Organizational Decision Making (cont.) Models of organizational decision processes bounded rationality - decision makers cannot be truly rational because: they have imperfect, incomplete information about alternatives the problems they face are so complex human beings cannot process all the information to which they are exposed time is limited people in the organization have conflicting goals when the conditions above hold, perfectly rational decision making gives way to more biased, subjective decision processes

Organizational Decision Making (cont.) Models of organizational decision processes (cont.) incremental model - major decisions arise through a series of smaller decisions piecemeal approach to larger solutions coalitional model - groups with differing preferences use power and negotiation to influence decisions used when people disagree about goals or compete for resources garbage can model - a chaotic process leading to seemingly random decisions occurs when people are unsure of their goals and what should be done a dramatic departure from rationality in decision making

Organizational Decision Making (cont.) Negotiations and politics negotiations necessary to galvanize the preferences of competing groups and individuals organizational politics - people try to influence decisions to promote their own interests use power to pursue hidden agendas create common goals - helps to make decision making a collaborative rather than a competitive process Decision making in a crisis stress and time constraints make decisions less effective should be prepared for crises in advance

Mistaken Assumptions: How Not To Handle Crisis Management We don’t have a crisis. We can handle a crisis. Crisis management is a luxury we can’t afford. If a major crisis happens, someone else will rescue us. Accidents are just a cost of doing business. Most crises are the fault of bad individuals; therefore, there’s not much we can do to prevent them. Only executives need to be aware of our crisis plans; why scare our employees or members of the community? We are tough enough to react to a crisis in an objective and rational manner. The most important thing in crisis management is to protect the good image of the organization through public relations and advertising campaigns.

Plan For Crisis Management Strategic Actions Psychological and Cultural Actions Technical and Structural Actions Communication Actions Evaluation and Diagnostic Actions Crisis Management

Organizational Decision Making (cont.) Emergent strategies the strategy that evolves from all the activities engaged in by people throughout the organization result from dynamic processes in which people engage in discovery, implement decisions, and reconsider the initial decision after discovering new things by chance emergent strategies may start at any organizational level emergent strategies are generally the result of constructive processes

Emergent Strategies • Action • Implementing • chosen option • Correcting • deviations from • from plan • Discovery • Systematic gathering • and analysis of • the facts • Monitoring • outcomes of • actions • Choice • Set objectives • Generate options • Evaluate and select • acceptable, feasible, • suitable option

Managerial Decision Making Learning Objectives