18017866 Topic 6 Managerial Decision Making Decision vs Decision Making Decision

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  • 7/30/2019 18017866 Topic 6 Managerial Decision Making Decision vs Decision Making Decision

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    Topic 6: Managerial Decision Making

    Decision VS Decision Making

    Decision is a choice made from available alternatives

    Decision making is the process of identifying problems and opportunities and resolving them

    Programmed and Non programmed Decisions

    Programmed decisions: A decision made in response to a situation that has occurred often enough toenable decision rules to be developed and applied in the future

    Non programmed decision: A decision made in response to a situation that is unique, is poorly defined andlargely unstructured, and has important consequences for the organization

    Programmed and non programmed decisions differ because of the degree of certainty or uncertainty:

    Certainty: The situation in which all the information the decision maker needs is fully available Risk: A situation in which a decision has clear-cut goals and good information is available, but the

    future outcomes associated with each alternative are subject to chance Uncertainty: The situation that occurs when managers know which goals they wish to achieve, but

    information about alternatives and future events is incomplete

    Ambiguity: A condition in which the goals to be achieved or the problem to be solved is unclear,alternatives are difficult to define, and information about outcomes is unavailable

    Managers attempt to obtain information about decision alternatives

    Decision Making Models

    Classical Model, The Ideal, Rational Model:

    The classical model of decision making is based on rational economic assumptions and manager beliefsabout what ideal decision making should be.

    The managers are expected to make decisions that are economically sensible and in the organisations besteconomic interests.Four assumptions of the model

    The decision maker operates to accomplish goals that are known and agreed on. Problems areprecisely formulated and defined

    The decision maker strives for conditions of certainty, gathering complete information. All alternativesand potential results of each are calculated.

    Criteria for evaluating alternatives are known. The decision maker selects the alternative that willmaximize the economic return to the organisation.

    The decision maker is rational and uses logic to assign values, order preferences, evaluate alternatives,and make the decision that will maximize the attainment of organizational goals.

    Administrative Model:

    A decision-making model that describes how managers actually make decisions in complex situationsrather than dictating how they should make decisions according to a theoretical ideal

    Descriptive approach that recognizes human and environmental limitations that affect the degree towhich managers can pursue a rational decision-making process

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    In difficult situations, such as those characterized by nonprogrammed decisions, uncertainty, andambiguity, managers are typically unable to make economically rational decisions even if they want to

    The administrative model relies on assumptions different from those of the classical model and focuses onorganisational factors that influence individual decisions

    Decision goals often are vague, conflicting and lack consensus among managers. Managers often areunaware of problems or opportunities that exist in the organisation

    Rational procedures are not always used, and, when they are, they are confined to a simplistic view of the problem that does not capture the complexity of real organisational events

    Managers searches for alternatives are limited because of human, information and resourceconstraints.

    Most managers will settle for a satisficing rather than maximizing solution, partly because the havelimited information and partly because they have only vague criteria for what constitutes a maximizingsolution.

    Political Model:

    This model is useful for making non programmed decisions when conditions are uncertain, information islimited, and there are manager conflicts about what goals to pursue or what course of action to take.

    Most organizational decisions involve many managers who are pursuing different goals, and they have totalk with one another to share information and reach an agreement.

    Managers often engage in coalition building for making complex organizational decisions

    A coalition is an information alliance among managers who support a specific goal

    Coalition building is the process of forming alliances among managers. In other words, a manager whosupports a specific alternative talks informally to other executives and tries to persuade them to support thedecision.

    Without coalition, a powerful individual or group could derail the decision-making process

    Coalition building gives several managers an opportunity to contribute to decision making, enhancing their commitment to the alternative that is ultimately adopted

    The political model closely resembles the real environment in which most managers and decision makersoperate

    Decisions are complex and involve many people, information is often ambiguous, ad disagreement andconflict over problems and solutions are normal

    Four basic assumptions

    Organizations are made up of groups with diverse interests, goals, and values. Managers disagreeabout problem priorities and may not understand or share the goals and interests of other managers

    Information is ambiguous and incomplete. The attempt to be rational is limited by the complexity of many problems as well as personal and organisational constraints

    Managers do not have the time, resources, or mental capacity to identify all dimensions of the problemand process all relevant information. Managers talk to each other and exchange viewpoints to gather information and reduce ambiguity

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    Managers engage in the push and pull of debate to decide goals and discuss alternatives. Decisionsare the result of bargaining and discussion among coalition members

    Decision-Making Models:

    Selecting a Decision Making Model depend on

    managers personal preference Whether the decision is programmed or non-programmed Extent to which the decision is characterized by certainty, risk, uncertainty, or ambiguity

    Six Steps in the Managerial Decision Making Process1) Recognition of Decision Requirement2) When a problem or opportunity is presented, decisions must be made3) Problem occurs when organizational accomplishment is less than established goals4) Opportunity when managers see potential accomplishment that exceeds specified current goals5) Diagnosis and Analysis of Causes

    Managers must understand the situation (diagnosis)

    Managers ask a series of questions What is the state of disequilibrium affecting us? When did it occur? Where did it occur? How did it occur? To whom did it occur? What is the urgency of the problem? What is the interconnectedness of events? What result came from which activity?

    Generate possible alternative solutions

    For programmed decisions, feasible alternatives are easy to identify

    Nonprogrammed decisions, however require developing new courses of action

    In Selection of Desired Alternative, Managers will choose the most promising of several alternative coursesof action.

    The selection should fit the goals and objectives

    The manager tries to select the choice with the least amount of risk and uncertainty

    In Implementation of Chosen Alternative, Using managerial, administrative and persuasive abilities to ensurethat the alternative is carried out.

    Success depends on the managers ability to translate alternative into action

    Implementation requires communication, motivation, and leadership

    Personal Decision Framework

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    Not all managers make decisions in the same way.

    These differences can be explained by the concept of personal decision styles.

    Personal decision style refers to differences between people with respect to how they perceive problemsand make decisions.

    Research has identified four major decision styles. Directive Style Analytical Style Conceptual Style Behavioral Style

    Directive Style:

    People who prefer simple, clear-cut solutions to problems, Make decisions quickly, May consider only one or two alternatives, Efficient and rational, Prefer rules or procedures.

    Analytical Style:

    Complex solutions based on as much data as they can gather, Carefully consider alternatives, Basedecision on objective, rational data from management control systems and other sources, Search for bestpossible decision based on information available

    Conceptual Style:

    Consider a broad amount of information, More socially oriented than analytical style, Like to talk to othersabout the problem and possible solutions, Consider many broad alternatives, Relay on information frompeople and systems, Solve problems creativelyBehavioral Style:

    Have a deep concern for others as individuals, Like to talk to people one-on-one, Understand their feelingsabout the problem and the effect of a given decision upon them, Concerned with the personal developmentof others, May make decisions to help others achieve their goals

    Why Do Managers Make Bad Decisions? Being influenced by initial impressions Justifying past decisions Seeing what you want to see Perpetuating the status quo Being influenced by problem framing Overconfidence

    Innovative Group Decision Making Start with Brainstorming Engage in Rigorous Debate Avoid Groupthink Know When to Bail