Professional Documents
Culture Documents
MAKING
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Risk Uncertainty
Lack of
Conflict
Structure
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
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
CHARACTERISTICS OF MANAGERIAL
DECISIONS (CONT.)
Conflict
opposing pressures from different sources
occurs at two levels
psychological conflict - individual decision makers:
perceive several attractive options
perceive no attractive options
Organizational
Problem
Programmed Nonprogrammed
Decisions Decisions
Problem
Solution
6-7
0
Political
PoliticalModel
Model
Administrative
AdministrativeModel
Model
Classical
ClassicalModel
Model
6-8
0
CHARACTERISTICS OF CLASSICAL,
ADMINISTRATIVE, AND POLITICAL
DECISION-MAKING MODELS
Making the
choice
Implementing
the decision
Evaluating
3-11
the decision
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
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
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
satisfies- 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
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
3-18
rewards may result in negative long-term consequences
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
Social realities
many decisions result from intensive social interactions,
bargaining, and politicking
DECISION MAKING IN GROUPS
Effective Group
Decision Making
Creativity
1. Brainstorm
2. Avoid criticizing
3. Exhaust ideas
4. Combine ideas
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
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
MANAGING GROUP DECISION MAKING
(CONT.)
Encouraging creativity
creativity involves:
creation - bringing a new thing into being
synthesis - joining two previously unrelated things
application
to become creative one must:
recognize creative potential in little opportunities
obtain sufficient resources
are exposed
time is limited
Financial
Organizational Legal
Constraints
Human Market
ORGANIZATIONAL DECISION MAKING
(CONT.)
Strategic
Actions
Action Discovery
• Implementing • Systematic gathering
chosen option • Analysis of the facts
• Correcting • Monitoring
deviations from outcomes of
from plan actions
Choice
• Set objectives
• Generate options
• Evaluate and select
acceptable, feasible,
suitable option
MANAGERS AS DECISION MAKERS:
PROBLEM SOLVING
APPROACHES
Rational model
Model suggesting managers engage in completely
rational decision processes, ultimately making optimal
decisions, and possess and understand all information
relevant to their decisions at the time they make them.
Non-rational models (Bounded Rationality)
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BOUNDED RATIONALITY
Intuition
The ability of managers to be perfectly rational
in making decisions is limited by facts such as:
Inadequate information
Time and cost constraints
cognitive capacity
Ex: satisficing model
Managers seek alternatives only until they find
one which looks satisfactory, rather than
seeking an optimal decision.
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An
An optimal
optimal decision
decision
is
is possible
possible
All
All relevant
relevant information
information
is
is available
available Rational
Rational
All
All relevant
relevant information
information is
is Decision
Decision
understandable
understandable
Making
Making
All
All alternatives
alternatives are
are known
known
All
All possible
possible outcomes
outcomes known
known
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Time
Time constraints
constraints
Limited
Limited ability
ability to
to
understand
understand all
all factors
factors ‘Satisficing’
‘Satisficing’
Inadequate
Inadequate base
of
base
of information
information
decision
decision
Limited
making
making
Limited memory
memory of
of
decision-makers
decision-makers
Poor
Poor perception
perception of
of factors
factors
to
to be
be considered
considered
in
in decision
decision process
process
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DECISION MAKING STYLE
high Tolerance for ambiguity
Analytic Conceptual
Directive Behavioural
low
Way of thinking
rational Creative or intuitive
QUERIES