Robbins Fom06 Basic 04

8/13/2019 Robbins Fom06 Basic 04

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PowerPoint Presentation by Charlie CookThe University of West Alabama

C H A P T E R

4Part II: Planning

Fundamentals of ManagementSixth EditionRobbins and DeCenzowith contributions from Henry Moon

2008 Prentice Hall, Inc.All rights reserved.

Foundations ofDecision Making


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2008 Prentice Hall, Inc. All rights reserved. 42

L E A R N I N G O U T C O M E S

1. Describe the steps in the decision-making process.

2. Identify the assumptions of the rational decision-

making model.

3. Explain the limits to rationality.4. Define certainty, risk, and uncertainty as they relate to

decision making.

5. Describe the actions of the bounded-rational decision

maker.

6. Identify the two types of decision problems and the

two types of decisions that are used to solve them.

After reading this chapter, you will be able to:


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L E A R N I N G O U T C O M E S (contd)

7. Define heuristics and explain how they affect the

decision-making process.

8. Identify four decision-making styles.

9. Describe the advantages and disadvantages of groupdecisions.

10. Explain three techniques for improving group decision

making.

After reading this chapter, you will be able to:


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Decision-Making

Decision-Making Process

A set of eight steps that includes identifying a

problem, selecting a solution, and evaluating the

effectiveness of the solution

ProblemA discrepancy between an existing and a desired

state of affairs

Decision Criteria

Factors that are relevant in a decision


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What are the organizations long-term objectives?

What strategies will best achieve those objectives?

What should the organizations short-term objectives What is the most efficient means of completing tasks?

What might the competition be considering?

What budgets are needed to complete department

How difficult should individual goals be?

EXHIBIT 41 Examples of Planning Decisions


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EXHIBIT 42 The Decision-Making Process


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EXHIBIT 43 Criteria and Weights in Car-Buying Decision(Scale of 1 to 10)


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EXHIBIT 44 Assessment of Car Alternatives


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EXHIBIT 45 Weighting of Vehicles(Assessment Criteria Criteria Weight)


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Decision-Making (contd)

Decision Implementation

Putting a decision into action; includes conveying the

decision to the persons who will be affected by it and

getting their commitment to it.


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Making Decisions: The Rational Model

Certainty

The implication that the outcome of every possible

alternative is known.

Uncertainty

A condition under which there is not full knowledgeof the problem and reasonable probabilities for

alternative outcomes cannot be determined.

Risk

The probability that a particular outcome will resultfrom a given decision.


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EXHIBIT 46 Assumptions of Rationality


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What Is Creative Potential?

Expertise

Understanding, abilities, knowledge, proficiencies,

necessary in the field of creative endeavor.

Creative-Thinking Skills

The personality characteristics associated withcreativity, the ability to use analogies, as well as the

talent to see the familiar in a different light.

Intrinsic Task Motivation

The desire to work on something because itsinteresting, involving, exciting, satisfying, or

personally challenging.


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EXHIBIT 47 Three Elements of Creativity

Source: T. M. Amabile. Motivating Creativity in

Organizations, California Management Review

(Fall 1997), p. 43. Copyright 1997,by The Regents of the University of California.

Reprinted by permission of the Regents.


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Making Decisions: The Rational Model

Rational

Describes choices that are consistent and value-

maximizing within specified constraints.

Bounded Rationality (Herbert Simon)

Behavior that is rational within the parameters of asimplified model that captures the essential features

of a problem.

Satisfice

Making a good enough decision: choosing the first-identified alternative that satisfactorily and sufficiently

solves the problem.


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Common Decision-Making Errors

Heuristics: Using Judgmental Shortcuts

Availability heuristic

The tendency to base judgments on information that is

readily available.

Representative heuristic

The tendency to base judgments of probability on things(objects or events) that are familiar

Escalation of commitment

An increased commitment to a previous decision despite

negative information about the decisions present outcomes.


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How Do Problems and Decisions Differ?

Well-Structured Problems

Straightforward, familiar, easily defined problems

Ill-Structured Problems

New problems in which information is ambiguous or incomplete

Programmed Decision

A repetitive decision that can be handled by a routine approach

Nonprogrammed Decisions

Decisions that must be custom-made to solve unique andnonrecurring problems


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Programmed Decision-Making Aids

Policy

A general guide that establishes parameters for

making decisions about recurring problems.

Procedure

A series of interrelated sequential steps that can beused to respond to a well-structured problem (policy

implementation).

Rule

An explicit statement that tells managers what theyought or ought not to do (limits on procedural

actions).


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EXHIBIT 48 Types of Problems, Types of Decisions,and Level in the Organization


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Technology And Decision Making

Expert Systems Software that acts like an expert in analyzing and

solving ill-structured problems

Use specialized knowledge about a particular problem area

rather than general knowledge

Use qualitative reasoning rather than numerical calculations

Perform at a level of competence higher than that of

nonexpert humans.

Neural Networks

Software that is designed to imitate the structure of

brain cells and connections among them


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Decision-Making Styles

Directive Conceptual

Styles of DecisionMaking

Analytic Behavioral


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EXHIBIT 49 Decision-Making Styles


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Group Decision Making

Advantages

Makes more accuratedecisions

Provides more complete

information

Offers a greater diversity

of experiences and

perspectives

Generates more

alternatives

Increases acceptance of asolution

Increases the legitimacy of

a decision.

Disadvantages

Is more time-consumingand less efficient

Can result in minority

domination that influences

decision process

Can produce increased

pressures to conform to

the groups mindset

(groupthink)

Can create ambiguous

responsibility for the

outcomes of decisions


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When Are Groups Most Effective?

High Need for Creativity

Groups tend to be more creative than individuals.

Acceptance of the Final Solution

Groups help increase the acceptance of decisions.

Effectiveness of Group Decision MakingGroups of five to seven members are optimal for

decision process speed and quality.


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Improving Group Decision Making

BrainstormingElectronicMeeting

Making GroupDecision Making

More Creative

Nominal GroupTechnique


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National Culture and Decision-Making

Practices

Decision-making practices differ from country to

country by:

Participation: groups, teams, individuals

Power distance: who will make the decision Level of risk: uncertainty avoidance

Efficiency of decision making: pace of decisions

Alternatives considered: many or few

Consensus building: ringsei

Decision-making style: rational, autocratic or

participative


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Quantitative

ModuleQUANTITATIVE DECISION-MAKING AIDS


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EXHIBIT QM1 Payoff Matrix for Visa


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EXHIBIT QM2 Regret Matrix for Visa


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EXHIBIT QM3 Decision Tree and Expected Values for Renting a Large orSmall Retail Space


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EXHIBIT QM4 Break-Even Analysis

BE = [TFC/(PVC)]


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EXHIBIT QM5 Popular Financial Controls


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EXHIBIT QM6 Production Data for Virus Software

4R + 6S < 2,400

2R + 2S < 900


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EXHIBIT QM7 Graphical Solution to Frees Linear Programming Problem


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Queuing Theory

Queuing Theory

Balancing the cost of having a waiting line against

the cost of service to maintain that line.

where P= probability of ncustomers waiting in line, n= 3 customers,arrival rate = 2 per minute, and service rate = 4 minutes per customer


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Economic Order Quantity Model

Fixed-Point Reordering System

A preestablished point for replenishing inventory

Economic Order Quantity (EOQ)

A technique for balancing purchase, ordering,

carrying, and stock-out costs to derive the optimumquantity for a purchase order.

D= forecasted demand for the item

OC= cost of placing each order

V= value or purchase price of the item

CC= carrying cost (as percentage) of total inventory


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EXHIBIT QM8 Determining the Optimum Economic Order Quantity


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Economic Order Quantity Example

Forecast sales: 4,000 units a year

Unit cost: $50.00 each

Ordering cost: $35.00 per order

Carrying costs: 20% of units value.

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