Session 3MANAGERIAL DECISION

MAKING

Mata kuliah : A0012 – Manajemen Umum Tahun : 2010

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Learning Objectives• After studying Chapter 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• The Stages of Decision Making• The Best Decision• Barriers to Effective Decision Making• Decision Making in Groups• Managing Group Decision Making• Organizational Decision Making

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Lack ofStructure

Risk

Conflict

Uncertainty

Characteristics Of Managerial Decisions

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Characteristics Of Managerial Decisions

• Lack of structure– programmed decisions - decisions encountered and made in the past

• have objectively correct answers• are solvable by using simple rules, policies, or numerical

computations– nonprogrammed decisions - new, novel, complex decisions having

no proven answers

• a variety of solutions exist, all of which have merits and drawbacks

• demand creative responses, intuition, and tolerance for ambiguity

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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• good managers prefer to avoid or manage risk

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• 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

Characteristics Of Managerial Decisions (cont.)

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Identifying anddiagnosingthe problem

Generatingalternativesolutions

Evaluatingalternatives

Evaluatingthe decision

Implementingthe decision

Making thechoice

The Stages Of Decision Making

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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, or 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 creative solutions

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Stages Of Decision Making (cont.)• Evaluating alternatives

– determining the value or adequacy of the alternatives– there are potentially more alternatives available than

managers may realize– predict the consequences that will occur if the various options

are put into effect– 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• required to prepare for different scenarios

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Stages Of Decision Making (cont.)• Making the choice

– maximize - a decision realizing the best possible outcome• greatest positive consequences and fewest negative

consequences• greatest benefit at the lowest cost and the largest expected total

return– satisfice - 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

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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

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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

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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

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Potential Advantages

1. Larger pool of information

1. More perspectives and approaches

3. Intellectual stimulation

3. People understand the decision

5. People are committed to the decision

Decision Making In Groups

Potential Disadvantages

1. One person dominates

1. Satisficing

1. Groupthink - team spirit discourages disagreement

1. Goal displacement - newgoals replace original goals

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Leadership 1. Avoid domination 2. Encourage input 3. Avoid groupthink and satisficing 4. Remember goals

Effective GroupDecision Making

Constructive Conflict 1. Air legitimate differences 2. Stay task-focused 3. Be impersonal 4. Play devil’s advocate

Managing Group Decision Making

Creativity 1. Brainstorm 2. Avoid criticizing 3. Exhaust ideas 4. Combine ideas

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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 satisficing• prevent group from losing sight of the primary

objective

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Managing Group Decision Making (cont.)

• Constructive conflict– a certain amount of constructive conflict should exist– cognitive conflict - issue-based differences in perspectives or

judgments• most 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

– devil’s advocate - has the job of criticizing others– dialectic - structured debate comparing two conflicting courses of

action

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Managing Group Decision Making (cont.)

• Encouraging creativity– creativity 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• criticism is withheld until all ideas have been proposed

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Organizational Decision Making

• Constraints on decision makers– organizations cannot do whatever they wish

• face various constraints on their actions

• 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

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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

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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

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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