Decision Ch. 4

8/17/2019 Decision Ch. 4

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The manager as a decisionmaker


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Managerial decision makin

• Decision making: the process by which managerespond to opportunities and threats by analyzioptions, and making decisions about goals andcourses of action.

• Decisions in response to opportunities: managerespond to ways to improve organizationalperformance.

• Decisions in response to threats: occurs whenmanagers are impacted by adverse events to thorganization.


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The classical model

• Classical model of decision making: a prescriptmodel that tells how the decision should be ma

• Assumes managers have access to all the information needreach a decision.

•Managers can then make the optimum decision by easily ratheir own preferences among alternatives.

• Unfortunately, managers often do not have all (even most re!uired information.


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Decision making process

• Step 1: dentifying a problem

• Step !: dentifying a decision criteria

• Step ": Allocating weights to the criteria

• Step #: Developing alternatives

• Step $: Analy%ing alternatives

• Step &: Selecting an alternative

• Step ': mplementing the alternative

• Step (: )valuating decision e*ectiveness


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The classical model

"istalternatives

#conse!uence

s

$ank each

alternativefrom low to

high

%elect bestalternative

&ssumes allinformation is

available tomanager

&ssumes manager

can processinformation

&ssumes managerknows the bestfuture course ofthe organization


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Making decisions

• $ational decision making: A type of decision making in which care logical and consistent and ma+imi%e value

• Assumptions of ,ationality: 1- problems would be clear and unamdecision making would be speci/c and all possible outcomes will bknown. !- decisions are made in the best interest of the organi%ati

• Decision managers make decision in all four functions of managem• 0lanning

• rgani%ing

• 2eading

• 3ontrolling


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The Administrative model

• &dministrative 'odel of decision making: Challenged the classassumptions that managers have and process all the informatio

• As a result decision making is risky.

• ounded rationality : )here is a large number of alternatives aninformation is vast so that managers cannot consider it all.

•

Decisions are limited by people4s cognitive abilities.,

Decision making that is rational but not limited 5bounded- by an individual4s abilitprocess information.

• *ncomplete information: most managers do not see all alternatand decide based on incomplete information.


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6hy information is incomple

Uncertainty #$isk

&mbiguousinformation

)ime constraints # informationcosts

*ncomplete

information


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ncomplete information facto

• *ncomplete information e+ists due to many issu

• ,isk: managers know a given outcome can fail or succeed aprobabilities can be assigned.

• 8ncertainty: probabilities cannot be given for outcomes an

future is unknown.Many decision outcomes are not known such as a new produc

introduction.

• Ambiguous information: information whose meaning is not

nformation can be interpreted in di*erent ways.


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ncomplete information facto

• )ime constraints and *nformation costs: 'anagdo not have the time or money to search for allalternatives.

• This leads the manager to again decide based on incomple

information.• %atiscing: 'anagers e+plore a limited number

options and choose an acceptable decision raththan the optimum decision.

• This is the response of managers when dealing with incominformation.

• Managers assume that the limited options they e+amine re


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6hat is intuition

ntuition

)+perience9based

decisions

alues or

ethics baseddecisions

Subconsciousmental

processing

A*ect9

initiateddecisions

3ognitive9based

decisions


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Decision making ; role of

intuition• ntuitive decision making: Making decisions on the b

of e+perience feelings and accumulated


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Types of decision making

• -rogrammed Decisions: routine, almost automatic proces

• Managers have made decision many times before.

• There are rules or guidelines to follow.

• )+ample: Deciding to reorder o*ice supplies.

• on/programmed Decisions: unusual situations that have

been often addressed.• =o rules to follow since the decision is new.

• These decisions are made based on information and a manger4s intuitio


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Structured problems and

programmed decisions• %tructured problem: a straightforward familiar and e

de/ned problem.

• -rogrammed decision: a repetitive decision that can bhandled using a routine approach.

•-rocedure: a series of se>uential steps used to respondwell9structured problem.

• $ule: e+plicit statement of what should or should not be

• -olicy: guidelines for making decisions.


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8nstructured problems and no

programmed decisions• Unstructured problem: a problem that is new or

unusual and for which information is ambiguous orincomplete.

• on/programmed decision: a uni>ue and non9rec

decision that re>uires a custom9made solution.


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Decision9making condition

• Certainty : A situation in which a decision maker camake accurate decisions because all outcomes are k

• $isk: A situation in which the decision maker is ablestimate the likelihood of certain outcomes.

• Uncertainty: A situation in which a decision makerneither certainty nor reasonable probability estimatavailable.


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Decision9making styles

• "inear thinking style: A decision making characteby a person4s preference for using e+ternal data andand processing this information through rational logthinking.

• on/linear thinking style: A decision stylecharacteri%ed by a person4s preference for internalsources of information and processing this informatiwith internal insights feelings and hunches.


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Decision making biases and

errors• Make sense of information which is ambiguous unc

and comple+.

• ,efer to /gure &.11 pg. 1"$ 51?th )d.-


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verview of managerial decis

making

Decision9making

process

Types of problems andDecisions

1. 6ell structured9programmed

!. 8nstructured9nonprogrammed

Decision9making conditions1.3ertainty

!. ,isk ". 8ncertainty

Decision makingapproach1. ,ationality!. @ounded

rationality". ntuition

Decision maker4sstyle

1. 2inear thinkingstyle

!. =onlinearthinking style

Dec1. 3h

ma

altema

sat!. mp

". )v

Decisioerrors


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Decision9making in today4s

world• 8nderstand cultural di*erences

• Bnow when it4s time to call it >uits

• 8se an e*ective decision9making process

• @uild an organi%ation that can spot the une+pected a

>uickly adapt to the changed environment


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Croup decision making

• 'any decisions are made in a group setting.

• Croups tend to reduce cognitive biases and can call on combined and abilities.

• )here are some disadvantages with groups:

• 0roup think: biased decision making resulting from members striving for agreement.

• 8sually occurs when group members rally around a central mang53)- and become blindly committed without considering alterna

• The group tends to convince each member that the idea must go f


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@uilding group creativity

• rainstorming: managers meet face/to/face togenerate and debate many alternatives.

• Croup members are not allowed to evaluate alternatives unalternatives are listed.

•

@e creative and radical in stating alternatives.• 6hen all are listed then the pros and cons of each are disc

and a short list created.

Documents

Decision Ch. 4