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MANAGEMENT DECISION

MAKING
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DECISIONS AND DECISION MAKING

A decision is a choice made from


available alternatives.

 Decision making is the process of


identifying problems and
opportunities and then resolving
them.
CHARACTERISTICS OF MANAGERIAL
DECISIONS

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

 conflict between individuals or groups


CONDITIONS THAT AFFECT THE 0
POSSIBILITY OF DECISION
FAILURE

Organizational
Problem

Low Possibility of Failure High


Certainty Risk Uncertainty Ambiguity

Programmed Nonprogrammed
Decisions Decisions

Problem
Solution
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THREE DECISION MAKING MODELS

Political
 PoliticalModel
Model

Administrative
 AdministrativeModel
Model

Classical
 ClassicalModel
Model

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CHARACTERISTICS OF CLASSICAL,
ADMINISTRATIVE, AND POLITICAL
DECISION-MAKING MODELS

Classical Model Administrative Model Political Model


Clear-cut problem and goals. Pluralistic; conflicting goals.
Vague problem and goals.
Condition of certainty. Condition of
Condition of uncertainty.
Full information about uncertainty/ambiguity.
Limited information about
alternatives and their
alternatives and their outcomes. Inconsistent viewpoints;
outcomes. ambiguous information.
Satisficing choice for resolving
Rational choice by individual Bargaining and discussion
problem using intuition.
for maximizing outcomes. among coalition members.
SIX STEPS IN THE MANAGERIAL DECISION-
0
MAKING PROCESS
THE STAGES OF DECISION MAKING
Identifying and
diagnosing
the problem
Generating
alternative
solutions
Evaluating
alternatives

Making the
choice

Implementing
the decision

Evaluating
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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

 optimizing- achieving the best possible balance


among several goals
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’tassume that things will go smoothly during


implementation
 identify potential problems
 identify potential opportunities
STEPS IN THE IMPLEMENTATION PLAN

Determine how things will


look when the decision
is fully operational

Assign responsibility for Order the steps necessary


each step to specific to achieve a fully
individuals Implementation operational decision
Plan

List the resources and


Estimate the time needed
activities required to
for each step
implement each step
STAGES OF DECISION MAKING
(CONT.)
 Evaluating the decision
 collecting information on how well the decision is
working
 if decision appears inappropriate, the process cycles
back to the first stage
 The best decision
 nothingcan guarantee a “best” decision
 must be confident that the procedures used are likely to
produce the best decision given the circumstances
 vigilance - decision maker carefully and conscientiously
executes all stages of decision making
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
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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

 rely on trusted experts

 take a realistic view of conflict

 Social realities
 many decisions result from intensive social interactions,
bargaining, and politicking
DECISION MAKING IN GROUPS

Potential Advantages Potential Disadvantages

 Larger pool of information  One person dominates


 More perspectives and  Satisficing
approaches
 Intellectual stimulation  Groupthink - team spirit
 People understand the discourages disagreement
decision  Goal displacement – new
 People are committed to goals replace original goals
the decision
MANAGING GROUP DECISION MAKING
Leadership Constructive Conflict
1. Avoid domination 1. Air legitimate
2. Encourage input differences
3. Avoid groupthink 2. Stay task-focused
and satisficing 3. Be impersonal
4. Remember goals 4. Play devil’s advocate

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

 mitigate pressures for conformity

 stay alert to groupthink and satisficing

 prevent group from losing sight of the primary objective


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
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
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


CONSTRAINTS ON DECISION MAKERS

Financial

Organizational Legal

Constraints

Human Market
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
 coalitionalmodel - 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
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
PLAN FOR CRISIS MANAGEMENT

Strategic
Actions

Psychological and Technical and


Cultural Actions Structural Actions
Crisis
Management

Communication Evaluation and


Actions Diagnostic Actions
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
EMERGENT STRATEGIES

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)

Models suggesting information gathering and


processing limitations make it difficult for managers to
make optimal decisions.

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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