Session 4 Decision Making -Rev

8/8/2019 Session 4 Decision Making -Rev

1/16

MANAGERIAL DECISION MAKING


2/16

MANAGERIAL DECISION MAKINGMANAGERIAL DECISION MAKING

A decision is an act requiring judgment that is

translated into action.

Decision making: the process by which managers respond to opportunitiesand threats by analyzing options, and making decisions about goals and

courses of action.

Decisions in response to opportunities: managers respond to ways to

improve organizational performance.

Decisions in response to threats: occurs when managers are impacted byadverse events to the organization.


3/16

TYPES OF DECISION MAKINGTYPES OF DECISION MAKINGProgrammed Decisions: routine, almost automatic

process.

y Managers have made decision many times before.

y There are rules or guidelines to follow.

y

Example: Deciding to reorder office supplies.Non-programmed Decisions: unusual situations that

have not been often addressed.

y No rules to follow since the decision is new.

y These decisions are made based on information,

and a mangers intuition, and judgment.y Example: Should the firm invest in a new

technology?


4/16


5/16

DECISION-MAKING CONDITIONS

Level of ambiguity and chances of making a bad decision

Lower Higher Moderate

Certainty UncertaintyRisk

The decision

maker faces

conditions of...

Figure 4.1


6/16

STEPS IN THE RATIONAL

DECISION-MAKING PROCESSSt p D t il Ex pl

1. Recognizing anddefining the decisionsituation

Some stimulus indicatesthat a decision must bemade. The stimulus may be

positive or negative.

A plant manager sees thatemployee turnover hasincreased by 5 percent.

2. Identifying alterna-tives

Both obvious and creativealternatives are desired. Ingeneral, the more importantthe decision, the morealternatives should beconsidered.

The plant manager canincrease wages, increasebenefits, or change hiringstandards.

3. Evaluating alterna-tives

Each alternative is evalu-ated to determine its

feasibility, itssatisfactoriness, and itsconsequences.

Increasing benefits may notbe feasible. Increasing

wages and changing hiringstandards may satisfy allconditions.

Table 4.1a


7/16


8/16

EVALUATING ALTERNATIVESEVALUATING ALTERNATIVES

Legal?Legal?

EthicalEthical

Economical?Economical?

Practical?

Is the possible course of action:Figure 6.5


9/16

EVALUATINGALTERNATIVESINTHE

DECISION-MAKINGPROCESS

Is the alternative

feasible?

liminate from

consideration

Is the alternative

satisfactory?

Are the alternatives

consequences

affordable?

Retain for further

considerationYes Yes Yes

liminate from

consideration

liminate from

consideration

No No No

Figure 4.3


10/16

Types ofDecision Making

1. Individual Decision Making

2. Group Decision Making


11/16

INDIVIDUALDECISIONMAKING

THREEAPPROACHES

THECLASSICALTHEORY- RATIONALMODEL

INDIVIDUALDECISIONMAKING

THREEAPPROACHES

THECLASSICALTHEORY- RATIONALMODEL

Rational model of decision making:

y Assumes managers have access to all the informationneeded to reach a decision.

y Managers can then make the optimum decision byeasily ranking their own preferences amongalternatives.

Disadvantage

Unfortunately, mangers often do not have all (or evenmost) required information.


12/16

BEHAVIOURAL THEORY

THE ADMINISTRATIVE MODEL

BEHAVIOURAL THEORY

THE ADMINISTRATIVE MODELAdministrative Model of decision making:

This model assumes that when the manager faces adecision situationIncomplete information :He uses incomplete

information as he does not see all alternatives anddecide based on incomplete information.

Bounded rationality: There is a large number ofalternatives and information is vast so that managerscannot consider it all


13/16

COGNITIVE BIASES AND DECISION

MAKING

COGNITIVE BIASES AND DECISION

MAKING

Suggests decision makers use heuristics to deal withbounded rationality.

y Aheuristic is a rule of thumb (enquiry,investigation, data collection, analysis and framingof rules) to deal with complex situations.

y If the heuristic is wrong, however, then poordecisions result from its use.


14/16

GROUP DECISION MAKINGGROUP DECISION MAKING

Many decisions are made in a group setting.

y Groups decision making can call on combined skills, andabilities.

There are some disadvantages with groups:

Group think: Biased decision making resulting from groupmembers striving for agreement.

y Usually occurs when group members rally around a centralmangers idea (CEO), and become blindly committed withoutconsidering alternatives.

y The group tends to convince each member that the idea mustgo forward.


15/16

IMPROVED GROUP DECISION

MAKING

IMPROVED GROUP DECISION

MAKING1. Devils Advocacy2. Dialectical inquiry


16/16

DEVILS ADVOCACYV.DIALECTIC INQUIRYDEVILS ADVOCACYV.DIALECTIC INQUIRY

Devils Advocacy

Presentation ofPresentation of

alternativealternative

Critique ofCritique of


ReassessReassess


acce t, modify, rejectacce t, modify, reject

Dialectic

InquiryAlter. 1Alter. 1

Debate the twoDebate the two

alternativesalternatives

ReassessReassess

alternativesalternatives

acce t 1 or 2, combineacce t 1 or 2, combine

Alter. 2Alter. 2

Documents

Session 4 Decision Making -Rev