Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4
The Nature of Decision Making • Decision Making – The act of choosing one alternative from among a set of alternatives • Decision-Making Process: Recognizing Identifying alternatives and defining Choosing Putting the alternative the “best” alternative into practice the decision situation Making effective decisions, as well as recognizing when a bad decision has been made and quickly responding to it, is a key ingredient in organizational effectiveness 4–2 The Nature of Decision Making (cont’d) • Decision-Making Process (cont’d) – An effective decision optimizes some set of factors such as profits, sales, employee welfare, and market share – Managers make decisions about both problems and opportunities – Sometimes it takes a long… time to see the result 4–3 Types of Decisions • Programmed Decision – A decision that is relatively structured or recurs with some frequency (or both) – Example: Starting your car in the morning • Nonprogrammed Decision – A decision that is relatively unstructured and occurs much less often than a programmed decision – Example: Choosing a vacation destination 4–4 Decision-Making Conditions • Decision Making Under Certainty – The decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative (Little ambiguity & low chance of making a bad decision) • Decision Making Under Risk – The decision maker knows the availability of each alternative and its potential payoffs and costs that are associated with risks • Decision Making Under Uncertainty – The decision maker does not know all the alternatives, the risks associated with each, or the consequences of each alternative 4–5 FIGURE 4.1 Decision-Making Conditions The decision maker faces conditions of… Certainty Risk Uncertainty Level of ambiguity and chances of making a bad decision Lower Moderate Higher 4–6 Distinguishing Between Decision Making Conditions Are there multiple possible outcomes? Yes No Are the probabilities of the outcomes known? Yes Decision is risky Decision is certain No Decision is uncertain 4–7 Management Challenge Question • Your are captain of a container ship caught in a typhoon Water is leaking into the cargo and you are unsure of whether or not you should abandon ship – What state of uncertainty is described in this scenario? – How does the state of uncertainty affect the likelihood that you will make the correct decision? – Do you think it is easier to make a decision under a condition of risk or a condition of uncertainty? • Let’s play a game! 4–8 FIGURE 4.2 The Classical Model of Decision Making When faced with a decision situation, managers should… • obtain complete and perfect information • eliminate uncertainty • evaluate everything logically and …and end up with a decision that best serves the interests of the organization rationally Classical Model tells managers how they should make decisions It assumes that managers are logical and rational and that their decisions will be in the best interests of the organization 4–9 Table 4.1 Steps in the Rational Decision-Making Process Step Detail Example Recognizing and defining the Some stimulus indicates that a decision must be made The stimulus may A plant manager sees that employee turnover has increased by decision situation be positive or negative percent Identifying alternatives Both obvious and creative alternatives are desired In general, the more The plant manager can increase wages, increase benefits, or change important the decision, the more alternatives should be generated hiring standards Each alternative is evaluated to determine its feasibility, its satisfactoriness, Increasing benefits may not be feasible Increasing wages and and its consequences changing hiring standards may satisfy all conditions Consider all situational factors, and choose the alternative that best fits the Changing hiring standards will take an extended period of time to cut manager’s situation turnover, so increase wages The chosen alternative is implemented into the organizational system The plant manager may need permission from corporate Evaluating alternatives Selecting the best alternative Implementing the chosen alternative headquarters The human resources department establishes a new wage structure Following up and evaluating the At some time in the future, the manager should ascertain the extent to The plant manager notes that, six months later, turnover dropped to results which the alternative chosen in step and implemented in step has its previous level worked 4–10 FIGURE 4.4 The Administrative Model of Decision Making When faced with a decision situation, managers actually… • use incomplete and imperfect information • are constrained by bounded rationality …and end up with a decision that may or may not serve the interests of the organization • tend to satisfice In contrast to the classical model, the administrative model argues that decision makers have incomplete and imperfect information and are constrained by bounded rationality 4–11 Administrative Model • Bounded Rationality – The concept that decision makers are limited by their values and unconscious reflexes, skills, and habits • Satisficing – The tendency to search for alternatives only until one is found that meets some minimum standard of sufficiency to resolve the problem • • Personal motives and biases (e.g lazy or not want to face many alternatives) Cost of continuing to search for alternatives Question: Are you the type of satisficing or the type who search for every possibility? How did you make the decision? 4–12 Classical Model vs Administrative Model • Which is more correct? – Classical Model: It explains how managers can at least attempt to be more rational and logical when making decisions – Administrative Model: It explains how managers inherit biases and limitations when making decisions 4–13 Behavioral Aspects of Decision Making (cont’d) Initial: Received full report from the CEO Roger Smith • Coalition Result: Roger retired and the coalition managed to divert the resources – A positive or negative political force in decision making which consists of an informal alliance of individuals or groups formed to achieve a goal • Using Coalitions – could lead to either positive or negative impact Managers must recognize: – When to use them – How to assess whether coalitions are acting in the organization’s best interests – How to constrain their dysfunctional effects © 2014 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use 4–14 Behavioral Aspects of Decision Making (cont’d) • Intuition – An innate belief about something without conscious consideration It feels right!! The feeling is usually not arbitrary but is based on years of experience • Escalation of Commitment – A decision maker’s staying with a decision even when it appears to be wrong • Risk Propensity – The extent to which a decision maker is willing to gamble when making a decision • • Some managers are cautious about every decision they make Some are extremely aggressive and willing to take risks 4–15 Behavioral Aspects of Decision Making (cont’d) • In what ways are escalation of commitment and decision making under certainty, uncertainty, and risk related to one another? – Escalation of commitment occurs when outcomes are not certain But managers have reason to believe that a positive outcome may result • • • Certainty: Would not invest in projects with low probabilities of payoff Uncertainty: May admit they don’t know the likely outcome Risk: Hope for the “best” even if the chances of the “best” occurring are low and that can lead to escalation of commitment 4–16 Managerial Ethics and Decision Making Employees Individual Managerial Organizational Ethics Ethics Ethics Other economic agents Decisions may be influenced by the decision makers’ personal ethics or their own beliefs about right and wrong 4–17 What Influences Decision Making Political forces Bounded rationality Satisficing Intuition Influences on Decision Making Escalation of commitment Risk Coalitions propensity Ethics © 2014 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use 4–18 Group and Team Decision Making in Organizations Forms of Group Decision Making Interacting Delphi Nominal group or team groups group © 2014 Cengage Learning All rights reserved May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a passwordprotected website for classroom use 4–19 Group and Team Decision Making • Forms of Group Decision Making – Interacting group or team • • Most common decision-making group Format: Consists of an existing group or newly formed team interacting and then making a decision (Face-toFace) • The interaction among people often sparks new ideas and promotes understanding But political processes sometime play too big a role – Delphi groups • • Is used to arrive at a consensus of expert opinion Format: Solicits input from a panel of experts who contribute individually (anonymously) Their opinions are combined and averaged • • Communicating through mail, email, etc Best use for forecasting technological breakthroughs (e.g GM) 4–20 Group and Team Decision Making • Forms of Group Decision Making – Nominal groups • Unlike the Delphi method, in which group members not see one another, nominal group members are brought together in a face-to-face setting But they are not allowed to talk to each other like the members of interacting group They would be asked to write down as many alternatives as they can think of • The members then take turns stating their ideas, which are recorded on a board at the front After all alternatives have been listed, more open discussion takes place • • Members are asked to vote or rank The highest-ranking alternative represents the decision of the group Used most often to generate creative and innovative alternatives 4–21 Table 4.2 Advantages and Disadvantages of Group and Team Decision Making Advantages Disadvantages More information and The process takes longer than individual decision making, so it is knowledge are available costlier More alternatives are likely to be generated Compromise decisions resulting from indecisiveness may emerge More acceptance of the final decision One person may dominate the group is likely Enhanced communication Groupthink may influence a group or team’s desire for consensus and overwhelm its desire to reach the best possible decision of the decision may result Better decisions generally emerge Groupthink: The group may arrive at decisions that are made not in the best interests of either the group or the organization, but rather to avoid conflict among group members 4–22 Managing Group and Team Decision-Making Processes Promoting the Effectiveness of Group and Team Decision Making: • Be aware of the pros and cons of having a group or • team make a decision • • Set deadlines for when decisions must be made Have each group member individually and critically evaluate all alternatives • As a manager, not make your position known too early Avoid problems with dominance by managing group membership • Appoint a group member to be a “devil’s advocate.” • Hold a follow-up meeting to recheck the decision 4–23