6Chapter

Decision MakingDecision Making

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Learning ObjectivesAfter reading this chapter, you should be able to:

Know how to implement the six stages of management decision making.

Apply the criteria of quality and acceptance to a decision. Recognize the characteristics of management decisions:

programmability, uncertainty, risk, conflict, and decision scope.

Reap the advantages and avoid the disadvantages of group decision making.

Develop the skill of time management to allow adequate time to make decisions.

Know when to delegate, and do so wisely.

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Introduction

Making decisions under conditions of risk and uncertainty is one of the most important activities that managers engage in.

Generally, there is a lack of information and a limited amount of time available to make the decision.

Procrastinating and not making a decision sometimes has greater risk than making it.

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Decision Making

The process of identifying problems and opportunities and resolving them.

Management decisions can be made by managers, teams, or individual employees, depending on: The scope of the decision, and The design and structure of the

organization.

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Characteristics of Management Decision Making

ProgrammabilProgrammabilityity

UncertaintyUncertainty

RiskRiskConflictConflict

Decision Decision ScopeScope

Crisis

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Programmability

Uncertainty

Characteristics of Management Decision Making (Cont)

Non-programmed Decisions

Certainty

Uncertainty

Programmed Decisions

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Risk – occurs when the outcome of management decision is uncertain Risk has both positive and negative aspectsDecision environment for risk vary depending upon company

culture and size

Conflict – occurs when there are opposing goals, scares resources, or differences in priorities

Crisis – a situation that involves small amounts of time to make a decision that can impact the survival of the organization

Characteristics of Management Decision Making (Cont)

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Decision Scope – the effect and time horizon of a decisionStrategic Decisions – long term perspective of 2-5 years and

affect on the organizationTactical Decisions – short term perspective of 1 year or less and

focus on subunitsOperational Decisions – shortest time perspective, generally

less than a year, often measured on a daily or weekly basis

Characteristics of Management Decision Making (Cont)

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Stages of Decision Making

Identifying Identifying and and

diagnosing diagnosing the problemthe problem

Generating Generating alternative alternative solutionssolutions

Evaluating Evaluating alternativesalternatives

Selecting Selecting the best the best

alternativealternativeImplementing Implementing the decisionthe decision

Evaluating Evaluating the decisionthe decision

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Typical problems that require decisions

A high level of employee turnover.A reduction in firm profits.Unacceptable levels of “shrinkage” in a store.Lower than planned quality of finished goods.An unexpected increase in workplace injuries.The invention of a new technology that can

increase the productivity of the workforce.

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Evaluating Alternatives

Decision criteria should be related to the performance goals of the organization and its subunits.

Decision criteria can include: Costs Profits Timeliness Whether the decision will work Fairness

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Evaluating Alternatives (continued)

A practical way to apply decision criteria is to consider: Decision quality – aspect of decision making based on such

facts as costs, revenues, and product design specifications. Decision acceptance – aspect of decision making based on

people’s feelings.

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Approaches to selecting the best alternative

Optimizing – selecting the best alternative from among multiple criteria.

Satisficing – selecting the first alternative solution that meets a minimum criterion.

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Key factors for successful implementation

Providing resources (staff, budgets, office space) that will be needed for the activities that are required for successful implementation.

Exercising leadership to persuade others to move the implementation forward.

Developing communication and information systems that enable management to know if the decision alternative is meeting its planned objectives.

Recognition and rewards for individuals and teams that are successful with implementation.

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Assumptions of the Rational Decision Making Process

The problem is clear and unambiguous.

There is a single, well-defined goal that all parties agree to.

Full information is available about criteria.

All the alternatives and their consequences are known.

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Assumptions of the Rational Decision Making Process (continued)

The decision preferences are clear.

The decision preferences are constant and stable over time.

There are no time and cost constraints affecting the decision.

The decision solution will maximize the economic payoff.

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Factors That Limit Rational Decision Making

Organization PoliticsOrganization Politics

Emotions and Personal Emotions and Personal PreferencesPreferences

Illusion of ControlIllusion of Control

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Nonrational Decision Making Models

Satisficing Model

Bounded rationality – the ability of a manager to be perfectly rational is limited by factors such as cognitive capacity and time constraints

Therefore, decision makers apply heuristics , or decision rules, that quickly eliminate alternatives

By using the heuristic known as satisficing, a manager seeks out the first decision alternative that appears to be satisfactory

Satisficing is an accurate model many management decisions.

Nonrational Decision Making Models (continued)

Garbage Can Model

This model suggests that managers have a set of preestablished solutions to problems located in “garbage cans.”

The garbage can model is likely to be used when decision makers are undisciplined and have no clear immediate goals.

The decision making process lacks structureThis can lead to serious difficulties

Advantages and Disadvantages of Group Decision Making

Advantages Increased acceptance Greater pool of

knowledge Different perspectives Greater comprehension Training ground

Disadvantages Social pressure Minority domination Logrolling Goal displacement “Groupthink”

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Groupthink

Groupthink can occur in very cohesive teams where there is pressure to avoid conflict and reach agreement

Likelihood of groupthink increases when Peer pressure to conform is great A highly directive leader presses for a particular interpretation of

the problem and course of action The need to process a complex and unstructured issue under

crisis conditions exists The group is isolated

Politics of Decision Making

Dominant Coalition – members of the organization with access to important and scarce resources that pool their power base to control organizational strategy and decision making

Organizational slack – resources in excess of what is required by the organization to survive. Decisions must be made as to the use of organizational slack – dividends, pay raises, corporate jets, ski resorts, etc.

Side payments are used to ensure loyalty to the coalition and cooperation of organizational members not a part of the coalition

Managing Group Decision Making

Leadership StyleLeadership Style

Devil’s Advocate RoleDevil’s Advocate Role

Stimulating CreativityStimulating Creativity

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Leader Decision Making Styles

Decide and persuade

Discover facts and decide

Consult and decide

Consult with group and decide

Group decision

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Decision Making Techniques to Stimulate Group Creativity

BrainstormingBrainstorming StoryboardingStoryboarding

Nominal Group Nominal Group Technique Technique

(NGT)(NGT)

Delphi Delphi TechniqueTechnique

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Skills for decision making process

Time management skills To make good decisions, managers

need time to understand the problem and develop creative solutions.

Delegation skills Managers who know how to delegate are

able to accomplish more than those who feel the need to be involved in every decision, no matter how trivial.

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Effective Time Management Practices

Plan a list of things that need to be done today. Plan weekly, monthly, and annual schedules of

activities. Schedule difficult and challenging activities when

you are at your highest level of energy and alertness.

Set deadlines.

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Effective Time Management Practices (continued)

Answer phone messages and e-mail

in batches during a lull in your

work schedule.

Have a place to work uninterrupted.

Do something productive during non-productive

activities.

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Effective Delegation

Determine what you want done.

Match the desired task with the most appropriate employee.

Communicate clearly when assigning the task.

Ask questions to make sure the task is fully understood.

Set clear guidelines.

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Effective Delegation (continued)

Keep communication channels open. Allow employees to do the task the way they

feel comfortable doing it. Trust employees’ capabilities. Check on the progress of the assignment. Hold the employee responsible for the work. Recognize what the employee has done, and

show appropriate appreciation.

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Applications of Management Perspectives—For the Manager

Procrastination is a major barrier to effective decision making.

Managers need to establish clear priorities by: Determining which activities produce the greatest value. Setting dates for completion of these activities.

Setting priorities forces managers to make decisions and helps control procrastination.

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Applications of Management Perspectives—For Managing Teams

Overly relying on team meetings is a barrier to making effective team decisions.

A team should be able to manage its workflow if: Subgroups or individual team members are assigned tasks; and They are given responsibility for decision making associated with these

tasks.

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Applications of Management Perspectives—For Individuals

When you feel fearful, angry, anxious, or frustrated: You are not likely to think clearly and focus on the

problem. It is not a good time to make a decision.

It is better to postpone the decision until after you have coped with the source of the stress and are in a more comfortable emotional state.

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