MCD2040 Managing People and Organisations

Week 6: Managing Information and Decision Making

Reading: Chapter 6

Theme: Managing
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What do the icons mean?

When you see the below icons, do the following:

Pages
6 - 10

Pages in the textbook Complete the question. Watch the video. Complete the quiz. Web link on slide.
where you can read more Make sure to click
about the specific it for more
learning objective. information.

Remember:
• The weekly quizzes are worth 1% (10% in total for the course)
• You cannot do the quizzes if you have NOT watched the videos
• Week 7 lecture will be discussed in Week 8 tutorials

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This week we will learn:

• Understanding the relationship between POLC, and managing information

and decision making Provide examples of: planning, organising, leading
and controlling; information and decisions.
• Different types of problems and different types of decisions
• How managers can conduct effective decision making
• Examine the three different ways managers make decisions: rational,
bounded rational and intuition.
• Explain how a manager uses the 8 step decision making process using a
real business example.

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 Learning Objective 1

Decision Making and POLC

• Managers face what kind of problems?
• Make what kind of decisions?
188,
197-199
Decision Making
• Decision making is the ‘process of choosing between alternatives’
• Decision making is a vital part of the manager’s role
o Decisions are made about:
 Planning: deciding objectives
 Organising: allocating resources
 Leading: deciding how to motivate people
 Controlling: deciding how to measure outcomes and performance
and how to fix problems

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POLC – the Four Functions of Management (Fayol)

Planning

Decision Making occurs in every

function of POLC but is
particularly important in the
Functions of Planning stage as this is where
Management
Controlling
(Fayol,
Organising the critical objectives are set and
1916) the ways the organisation
intends to achieve them through
strategies and plans.

Leading

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The Manager as Decision Maker
• Although everyone in an organisation makes decisions, decision making is
particularly important to managers.
• Managers – when they plan, organise, lead and control – are frequently called
decision makers. In fact, we can say that decision making is essential for
managing.
• The fact that almost everything a manager does involves making decisions does
not mean that decisions are always long, complex or easy for an outsider to
identify or understand.
• Managers make dozens of routine decisions every day, such as which employee
will work what shift next week, what information should be included in a report,
or how to solve a customer’s complaint.

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Decision Making within POLC

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POLC – at Pana Chocolate, a vegan chocolate store in Australia
Planning decisions for Pana Chocolate
About Pana Choco
• Pana have to decide on their goals – do they want more profit, more late
sales, less risk, to keep the business the same?
• When they have decided on this goal – in this case more sales – they
have to decide on the strategy to achieve the goal – selling Coles
supermarkets
Control decisions P Organising decisions
• Pana must monitor the results of their new
• Pana now have to decide how to use their
relationship with Coles
resources- who is going to do the work
• If problems occur, such as Pana not being able C Functions
Management
of
O needed to carry out the strategy to reach their
to deliver enough chocolate to supply Coles goal
customers they will have to decide how they • Who will be talking with Coles? Who’s job will
will take corrective action – open a new factory?
L it be to arrange for the chocolate to be
delivered to Coles stores?
Leading decisions for Pana Chocolate
• Pana Barbounis, founder and director must decide how he will inspire and motivate his
team to carry out the work they have been organised to do.
• Will he offer bonus payments if the distribution through Coles results in increased profit?
• Will he give workers shares in the business to give them a closer connection to its
results?
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Understanding Decisions – first need to understand problems
• Understanding the nature of the problem helps decide the problem-
solving process and ensure you solve the right problem
Types of Managerial problems:

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Different ways of decisions to solve managerial problems
Managers apply solutions
Programmed decisions: from past experience to a
routine problem.
• Are structured or recurring (happens again and again)
• An example is a personal decision you make such as your daily routines (get
up, have a shower, walk the dog then eat breakfast).
• An organisational example is standard operating procedures: when we open
the store we first clean it, then take money out of the safe, count it, put it
into the cash register, prepare products for the day and open the doors.
Non-programmed decisions: Managers apply specific
solutions crafted for a unique
• Are unstructured and occur less often problem.
• A personal example is a job you choose, this doesn’t happen often
• In an organisation, an example is crisis management e.g. fire in the
restaurant 12
 Learning Objective 2

Three ways managers make decisions

194-195
What are the different ways managers make decisions?

Rationality

3 Types of
Bounded
DECISION Rationality

Making.
Intuition

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Making Decisions: Rationality
• Managerial decision making is assumed to be rational decision making.
• What that means is that managers make logical and consistent choices to
maximise value.
• Assumption of rationality: A rational decision maker would be fully
objective and logical.
• The problem faced would be clear and unambiguous, and the decision
maker would have a clear and specific goal and know all possible
alternatives and consequences.
• Finally, making decisions rationally would consistently lead to selecting
the alternative that maximises the likelihood of achieving that goal.
• A rational decision generally ‘makes sense’ because it is logical and all the
options and consequences were considered.
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Rational Decision Making

Assumptions of Rationality

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Assumptions of Rationality – explained
The problem is clear and unambiguous
• A problem is a difference between what you have and what you want to have
o For example: workers need new laptops
• What the business has
o Old unsuitable computers
• What the business wants to have
o New computers that help workers to do their jobs effectively and efficiently
• Managers do not always know what is wrong with the resources they have or know what
the resources are that they need to have
A single, well-defined goal is to be achieved
• Many decisions that managers make are trying to achieve several different goals
• Low cost, high quality, available in a short time
• Trying to meet several different goals at the same time makes decisions more complicated
and less rational
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 Assumptions of Rationality
All alternatives and consequences are known
• It can be difficult or impossible for a manager to know about all of the possible alternative
solutions that are available to fix a problem
• Equally, it is impossible for a manager to be able to accurately predict the consequences of
choosing a particular solution
• The Manager has the information of the options: e.g. Microsoft surface pro, Dell laptop,
MacBook and HP spectre including price, warranty, maintenance and software support costs.
Understands that if buy Apple products then the entire organisation needs to shift to Mac
operating systems.
Preferences are clear
• Where there is a conflict in the manager’s mind about choosing between different options, it
will help the manager to make a rational decision if they know what the organisation wants
• If the manager is choosing a new computer and has to choose between a computer with the
best price or the best performance, the preference of the organisation – cost or quality –
should be known and the importance placed on warranty and preference for software.
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Assumptions of Rationality
Preferences are constant and stable
• In addition to knowing what the preferences of the organisation are, in order to make a
decision that will result in the best possible outcome for the business, these preferences
must not change during the decision making process.
• After choosing the computers with the best quality and longest warranty, the organisation
should instruct the manager that in the future they should choose the computer with the
lowest price after 50 of the 100 computers are purchased.
No time or cost constraints exist
• This is one of the hardest assumptions of rationality to meet. Managers must be efficient.
They cannot spend unlimited time or money making decisions.
• In our example, this could be that they don’t need computers today or next week but they
will need to place an order in the next 6 months with a flexible budget e.g. between
$2000 to $3000. These are not strong restrictions.
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Assumptions of Rationality
Final choice will maximise payoff
• If it is possible for a manager to meet all of these assumptions for a rational decision,
then certainly the decision is likely to have the best possible result for the
organisation.
• The choice of the computer was the right one with staff happy using it, limited
technical problems and adequate software support.
• A clear unambiguous problem, with a single well defined goal, where all
alternatives and the consequences of choosing these alternatives are
known, where the preferences of the organisation are known and stable,
where no time or cost constraints exist – these are the ideal
circumstances for making a rational decision – but as we will discuss in
the first video, most decisions made by managers cannot meet these
assumptions. 20
Bounded Rationality
• Similar to Rationality but a manager is constrained somehow or limited (hence the term
‘bounded’ – to bind). These could include:
o Time
o Money
o Lack of Information

• Decisions are made within the parameters of a simplified model that captures the
essential features of a problem (similar to Rationality)
• Decisions are deemed: “Good enough” meaning it may not be the best but within the
constraint of needing it today, it will do the job.
• Managers are still expected to make a good decision, but the quality of the decision will
be affected by the quality and the quantity of resources – (the bounds or limits) – that the
decision maker has.
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Making Decisions: Bounded Rationality
• Despite the limits to perfect rationality, managers are expected to follow a
rational process when making decisions. Certain aspects of the decision-
making process are not realistic with respect to how managers make
decisions.
o Managers tend to operate under assumptions of bounded rationality; that is, they
make decisions rationally, but are limited (or bounded) by their ability to process
information due to a lack of resources, experience or simply time to process it.
o Because they cannot possibly analyse all information on all alternatives, managers
satisfice, rather than maximise. That is, they accept solutions that are ‘good
enough’. They are being rational within the limits (bounds) of their ability to
process information.

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Real World Example of Rational/Bounded Rational Decisions
• Pana Barbounis founded Pana Chocolate in Melbourne,
Australia with the intention of creating a rich, luxurious
chocolate the whole world could enjoy.
• The story of Pana Chocolate started with one person making
it, packing it and riding around on his scooter delivering each
bar. Pana has grown his team to deliver thousands of
packages of Chocolate around Australia, and now – the
world.

Suggest how Pana Barbounis or other Pana Chocolate managers

could decide who to employ as a new kitchen assistant or
marketing manager?

Image: Pana Barbounis, Pana Chocolate Founder

Credit: https://panachocolate.com/about/
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Real World Example of Rational and Bounded Rational Decisions
Managers at Pana chocolate must make decisions all the time. Some of these decisions are simple enough
to meet most of the assumptions of rational decisions, but most decisions are too complicated or cannot
have the resources needed to be a rational decision. When hiring a new kitchen worker, this is a relatively
frequent and simple decision, with a clear goal – hire a worker who can produce chocolate efficiently and
effectively. Hiring a new marketing manager is much more complicated as a marketing manager can be
used for some many different goals and objectives.
When Pana managers make decisions about who they will hire they will never know all the possible
alternatives (workers who could fill the positions) and they cannot know the consequences of choosing any
of these workers (what would happen if they hired a worker – what would their performance be? How
would they get along with other workers?). Pana managers must accept that there will be limits to their
decision and that while they may not make a perfectly rational decision, they should decide on a worker
that will be good enough to get the job done.

Why is this decision not perfectly rational?

What limits will managers have to accept? Will it still be a good decision?

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Learning Objective 2
Making Decisions: Rationality and Bounded Rationality
Test your knowledge

Video 1 on Moodle Complete the quiz

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 Learning Objective 2 Continue

Three ways managers make decisions: Intuition

195-196
Making Decisions: The Role of Intuition
• Although decisions should be made rationally by Managers, they often are
influenced by subconscious or conscious factors – their intuition.
• Intuition is the ability to have an understanding on a situation or information
without the need for reasoning. Its where you trust your ‘instincts’.
• Managers often use their intuition which researching showing it may actually
help to improve their decision making including creativity & innovation.
• What is intuitive decision making? It is making decisions on the basis of
experience, feelings and accumulated judgment.
• Making a decision on intuition or ‘gut-feeling’ does not necessarily happen
independently of rational analysis; rather, the two complement each other.
Therefore it is often used WITH rationality rather than as a separate option.

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 Intuitive Decision Making: explained
• A manager who has had experience with a similar type of problem or
situation often can act quickly with what appears to be limited information
because of that past experience.
• A recent study has found that individuals who experience intense feelings and
emotions when making decisions actually achieve higher decision-making
performance, especially when they understand their feelings as they are
making decisions.
For example: A worker at a McDonald’s restaurant has called in sick on what is expected to be a busy
day. The manager has a list of people to call (in order) to cover such situations. Rather than calling the
first 2 people on the list who have worked there for one month and are quite slow, the manager’s past
experience of busy days has taught him you need the best people to work on busy days. So he calls
the third person on the list as they work fast unsupervised with 3 years of experience and never say
no to extra shifts. Problem solved quickly based on the manager’s experience and knowledge.

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What is Intuition?

Intuition:
Decisions based on experience,
feelings & accumulated judgement

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What is Intuition?
Using intuition to choose a new computer
Choose a computer
company that produces
products in an ethical and
sustainable way that
matches the ethics and
values of the manager
Choose a computer that your
brain tells you is the right
choice. The manager goes to
sleep at night and wakes up in
the morning knowing which
computer they will choose.
Choose a computer because
you have used that brand
since you were a teenager
and you have never had any
problems with any
computers from this brand
Choose a fancy looking
computer with a happy
advertisement because you
are in a good mood and this
Choose a computer because your brain uses the choice matches your
knowledge it has about computers and the training feelings.
you have received about purchasing new assets for
the business, so you select the computer that is
going to provide the best value for money – not the
best or the cheapest – but what your brain has
learned to think is the best cost benefit ratio option
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Real World Example of Intuitive Decision Making
Managers use their intuition to make decisions all the time. At McDonalds, an experienced manager
can use their intuition to help them make a decision more quickly, and because it is a decision they
have made successfully and unsuccessfully many times in the past, their intuition can help them to
make a good decision as well. Managers should learn from their mistakes in order not to repeat them.
Our brains are wonderfully complex and capable of helping or hurting decisions that we make. If a
McDonalds manager has the right skills, knowledge and training, then their brain can help them make
cognitive-based decisions. Managers must try not to let their emotions influence their decisions. If a
manager at McDonalds was in a good mood they may make a decision to hire a worker that they
would not make if they were in a bad mood. Decision making should be consistent and based on the
information that a manager has. Time is a scarce resource for a store manager at McDonalds, by using
their intuition over who to hire as a new worker, the manager may make a good decision and still have
time to check on the competition by having lunch at Hungry Jacks!

Why do managers use their intuition?

How can it help their decision making? Do you think it is a good idea for a McDonalds
manager to use their intuition when hiring workers?

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Making Decisions: Intuition

Test your knowledge

Video 2 on Moodle Complete the quiz

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 Learning Objective 3

The 8 Step Decision Making Process

188-193
Steps in the decision making process

When a manager does the 8 steps of the decision making process, they are conducting generally a rational
decision.

Source: Robbins, et al. (2016). Management: The Essentials

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Step 1: Identifying a Problem
• What is a problem?
o A discrepancy between an existing and desired state of affairs
o In other words – what are we trying to achieve? What is the goal of this process?

• What constitutes a problem?

o You know what the business has is not what the business needs to have to reach
their goals
o This creates pressure for the manager to take action so that the business and the
manager can be effective
o The manager will have to gather resources to be able to solve this problem

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Step 1: Identifying a problem
• In the real world, most problems do not tell managers that they are
problem, a manager needs good conceptual skills to identify problems.
• Symptom or problem? A manager might think that workers stealing
money is the problem, when actually not paying workers enough money
so they can buy what they need to survive is the problem.
• What one manager considers a problem might not be seen as such by
another manager.
• A manager who fixes the wrong problem perfectly is likely to be just as
bad as a manager who does not identify any problems and so does
nothing.
• Identifying problems is not simple or easy

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Applying this step through an example.. ZAP Inc.

Let’s say we are an electrical business – ‘ZAP Inc.’ with 5

electricians and 3 administration people in our office.
Our issue: we have grown lately and need another vehicle for the
business. We have to buy a Toyota as we have a business account
with them:
Problem: What Toyota should we buy?

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Step 2: Identifying decision criteria
• Once a manager has identified a problem, the decision criteria important
to solving it must be identified.
• Managers must determine what is important to use to choose between
alternatives
• For a new worker, it could be experience and education, for a new car, it
could be price and safety.

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Step 2: Developing criteria at ZAP Inc.
• Warranty?
• Can we carry tools?
• How safe is it?
• Price?
• Is there room to carry materials? E.g. wire? Cables? Piping?
• Comfort?

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Step 3: Allocating Weights
• The manager must then decide which criteria are the most and least
important
• The criteria identified in step 2 are not usually equally important, so the
decision maker must weigh the items in order to give them the correct
priority in the decision.
• A simple approach is to give the most important criterion a weight of 10 and
then assign weights to the rest against that standard.
• A criterion with a weight of 10 would be twice as important as one given a 5.
• The idea is to prioritise the criteria you identified in step 2 by assigning a
weight to each.
• For a new worker, experience could have a weight of 10 and education a
weight of 8.
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Effective decision-making in today’s world
• Today’s business world revolves around making decisions, often risky
ones, usually with incomplete or inadequate information, and under
intense time pressure.
• It is not easy to make good business decisions in today’s rapid-paced and
messy world.
• Things happen too quickly. Customers come and go in the click of a mouse
or the swipe of a screen. Market landscapes can shift dramatically
overnight along several dimensions. Competitors can enter or exit a
market without warning.
• If a business is to thrive and prosper under such conditions, managerial
decision making must adapt to these realities. Most managers are making
one decision after another, and as if that were not challenging enough,
more is at stake than ever before.
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Guidelines for making effective decisions
• Decision making is serious business.
• Your abilities and track record as an effective decision maker will
determine how your organisational work performance is evaluated and
whether you will be promoted to higher and higher positions of
responsibility.
• Here are some guidelines to help you be a better decision maker:
o understand cultural differences
o create standards for good decision making
o know when it is time to call it quits
o use an effective decision-making process
o develop your ability to think clearly.

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 This week we have…..
• Learnt that Managers want to make good decisions – that is, choose the ‘best’
alternative, implement it, and determine whether or not it takes care of the
situation that called for a decision.
• Examined what is Decision Making and how does it link into the four functions
of management.
• Explored the three ways managers make decision:
o Rationality
o Bounded Rationality
o Intuition
• Discussed the 8 step decision making process which is generally part of a
rational decision.
• Reviewed how to be effective in decision making.
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