Chapter Managerial Decision Making © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Types of Decisions and Problems Decision making is the process of identifying opportunities Decision is a choice made from available alternatives © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Programmed and Nonprogrammed Decisions Programmed Decisions Recurring problems Apply rule Nonprogrammed Decisions Unique situations Poorly defined Unstructured Important consequences © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Facing Certainty and Uncertainty Difference between programmed and unprogrammed decisions Certainty – Situation in which all information is fully available Risk – Future outcomes associated with an alternative are subject to chance Uncertainty - Depends on the amount and value of information available © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 9.1 Conditions that Affect the Possibility of Decision Failure © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Ambiguity and Conflict Ambiguity - Making decisions in difficult situations The goals and the problem are unclear Wicked decisions involve conflict over goals and have changing circumstances, fuzzy information, and unclear links There is often no “right” answer © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part The Ideal, Rational Model Rational economic assumptions drive decisions Operates to accomplish established goals, problem is defined Decision maker strives for information and certainty, alternatives evaluated Criteria for evaluating alternatives is known; select alternative with maximum benefit Decision maker is rationale and uses logic Normative─ how a decision maker should make a decision © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part How Managers Actually Make Decisions Administrative/descriptive approach How managers really make decisions Recognize human and environmental limitations Bounded rationality – People have limits or boundaries on how rational they can be Satisficing – Decision makers choose the first solution that satisfies minimal decision criteria © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Steps in the Administrative Model Goals are often vague Rational procedures are not always used Managers’ searches for alternatives are limited Most managers settle for satisficing Intuition – Quick apprehension of situation based on practice and experience © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part Decision-Making Model: Political Decisions involve managers with diverse interests Managers must engage in coalition building Informal alliance to support specific goal Without a coalition, powerful groups can derail the decision-making process Political model resembles the real environment © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 10 Decision-Making Model: Political Assumptions of the political model Organizations are made up of groups with diverse interests, goals, and values Information is ambiguous and incomplete Lack of time, resources, or mental capacity to process all information regarding a problem Decisions are the result of bargaining and discussion among coalition members © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 11 9.2 Characteristics of Classical, Administrative, and Political Decision-Making Models © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 12 Decision-Making Steps Recognition of Decision Requirement – Identify problem or opportunity Diagnosis and Analysis – Analyze underlying causal factors Develop Alternatives – Define feasible alternatives Selection of Desired Alternative – Alternative with most desirable outcome Implementation of Chosen Alternative – Use of managerial, administrative, and persuasive abilities to execute chosen alternative Evaluation and Feedback – Gather information about effectiveness © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 13 9.3 Six Steps in the Managerial Decision-Making Process © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 14 9.4 Decision Alternatives with Different Levels of Risk © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 15 9.5 Personal Decision Framework © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 16 Personal Decision Framework Directive style – People who prefer simple, clear-cut solutions to problems Analytic style – Managers prefer complex solutions based on a lot of data Conceptual style – Managers like a broad amount of information Behavioral style – Managers with a deep concern for others © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 17 Why Do Managers Make Bad Decisions? Being influenced by initial impressions Justifying past decisions Seeing what you want to see Perpetuating the status quo Being influenced by problem framing Overconfidence © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 18 Innovative Decision Making Mechanisms to help reduce bias-related decision errors: Start with brainstorming Use hard evidence Engage in rigorous debate Avoid groupthink Know when to bail Do a postmortem © 2016 Cengage Learning All Rights Reserved May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part 19