Management_007 Manager as Decision Maker

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C h a

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C h a

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77The Manager as a

Decision Maker

The Manager as a

Decision Maker



7-2© 2006 The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin

Learning ObjectivesLearning Objectives

After studying the chapter, you should be able to:

Differentiate between programmed andnonprogrammed decisions, and explain why

nonprogrammed decision making is a complex,

uncertain process.

Describe the six steps that managers should take

to make the best decisions.

Explain how cognitive biases can affect decision

making and lead managers to make poor

decisions.




Learning ObjectivesLearning Objectives

Explain the role that organizational learning

and creativity play in helping managers toimprove their decisions.

Identify the advantages and disadvantagesof group decision making, and describe

techniques that can improve it.




The Nature of Managerial Decision

Making

The Nature of Managerial Decision

MakingDecision Making

The process by which managers respond toopportunities and threats by analyzing options, and

making decisions about goals and courses of

action. Decisions in response to opportunities—occurs when

managers respond to ways to improve organizational

performance.

Decisions in response to threats—occurs when managers

are impacted by adverse events to the organization.




Decision MakingDecision Making

Programmed Decision

Routine, virtually automatic decisionmaking that follows established rules or

guidelines. Managers have made the same decision many

times before

There are rules or guidelines to follow based on

experience with past decisions

Little ambiguity involved





Non-Programmed Decisions

Nonroutine decision making that occurs inresponse to unusual, unpredictable

opportunities and threats. The are no rules to follow since the

decision is new. Decisions are made based on information, and a

manager’s intuition, and judgment.





Intuition – feelings, beliefs, and hunches that

come readily to mind, require little effort andinformation gathering and result in on-the-spot

decisions

Reasoned judgment – decisions that take

time and effort to make and result from careful

information gathering, generation ofalternatives, and evaluation of alternatives




The Classical ModelThe Classical Model

Classical Model of Decision Making

A prescriptive model of decision making thatassumes the decision maker can identify and

evaluate all possible alternatives and their

consequences and rationally choose the mostappropriate course of action.

Optimum decision The most appropriate decision in light of what managers

believe to be the most desirable future consequences for

their organization.




The Classical Model of Decision MakingThe Classical Model of Decision Making

Figure 7.1




The Administrative ModelThe Administrative Model

Administrative Model of Decision Making

Bounded rationality There is a large number of alternatives and

available information can be so extensive that

managers cannot consider it all.

Decisions are limited by people’s cognitiveabilities.

Incomplete information most managers do not see all alternatives and

decide based on incomplete information.




The Administrative ModelThe Administrative Model

Administrative Model of Decision Making

An approach to decision making thatexplains why decision making is inherently

uncertain and risky and why managersusually make satisfactory rather than

optimum decisions.




Why Information Is IncompleteWhy Information Is Incomplete

Figure 7.2




Causes of Incomplete InformationCauses of Incomplete Information

Risk

The degree of probability that the possibleoutcomes of a particular course of action willoccur.

Managers know enough about a given outcome to be ableto assign probabilities for the likelihood of its failure orsuccess

Uncertainty Probabilities cannot be given for outcomes and the

future is unknown.

Many decision outcomes are not known such as thesuccess of a new product introduction.





Time constraints and information costs –

managers have neither the time normoney to search for all possible

alternatives and evaluate potentialconsequences





Young Womanor Old Woman

Ambiguous

Information Information whose

meaning is not clear

allowing it to be

interpreted in multiple

or conflicting ways.

Figure 7.3





Satisficing

Searching for and choosing an acceptable, orsatisfactory response to problems andopportunities, rather than trying to make the best

decision. Managers explore a limited number of options and choose

an acceptable decision rather than the optimum decision.

Managers assume that the limited options they examinerepresent all options.

This is the typical response of managers when dealingwith incomplete information.




Six Steps in Decision MakingSix Steps in Decision Making

Figure 7.4




Decision Making StepsDecision Making Steps

Step 1. Recognize Need for a Decision

Sparked by an event such as environmentchanges.Managers must first realize that a decision must be made.

Step 2. Generate Alternatives Managers must develop feasible alternative

courses of action. If good alternatives are missed, the resulting decision is

poor.

It is hard to develop creative alternatives, so managers

need to look for new ideas.





Step 3 Evaluate Alternatives

What are the advantages anddisadvantages of each alternative?

Managers should specify criteria, thenevaluate.

When ranking, all information needs to beconsidered.





Step 4 Evaluate alternatives

Criteria

Legality Is the alternative legal both in this country andabroad for exports?

Ethicalness Is the alternative ethical and will not bringharm stakeholders unnecessarily?

Economic Feasibility Can organization’s performance goals sustainthis alternative?

Practicality Does the management have the capabilitiesand resources required to implement thealternative?




GeneralCriteria for

EvaluatingPossible

Courses of Action

Figure 7.5





Step 5. Implement Chosen Alternative

Managers must now carry out the alternative. Often a decision is made and not implemented.

Step 6. Learn From Feedback Managers should consider what went right and

wrong with the decision and learn for the future.

Without feedback, managers do not learn fromexperience and will repeat the same mistake over.

C iti Bi d D i iC iti Bi d D i i




Cognitive Biases and Decision

Making

Cognitive Biases and Decision

MakingHeuristics

Rules of thumb to deal with complexsituations.

Decision makers use heuristics to deal withbounded rationality. If the heuristic is wrong, however, then poor

decisions result from its use. Systematic errors can result from use of an

incorrect heuristic and will appear over and over

since the rule used to make decision is flawed.

S f CS f C iti Bi t th




Sources of Cognitive Bias at the

Individual and Group Levels

Sources of Cognitive Bias at the

Individual and Group Levels

Figure 7.6




Types of Cognitive BiasesTypes of Cognitive Biases

Prior Hypothesis Bias

Allowing strong prior beliefs about arelationship between variables to influencedecisions based on these beliefs evenwhen evidence shows they are wrong.

Representativeness

The decision maker incorrectly generalizesa decision from a small sample or a singleincident.




Types of Cognitive BiasesTypes of Cognitive Biases

Illusion of Control

The tendency to overestimates one’s ownability to control activities and events.

Escalating Commitment Committing considerable resources to

project and then committing more even ifevidence shows the project is failing.




Group Decision MakingGroup Decision Making

Superior to individual making

Choices less likely to fall victim to bias

Able to draw on combined skills of

group members

Improve ability to generate feasible

alternatives






Group Decision MakingGroup Decision Making

Groupthink

Biased decision making resulting fromgroup members striving for agreement.

Usually occurs when group members rallyaround a central manager’s idea , and become

blindly commit to the idea without considering

alternatives. The group’s influence tends to convince each

member that the idea must go forward.




Improved Group Decision MakingImproved Group Decision Making

Devil’s Advocacy

A group member who defends unpopular oropposing alternatives for the sake of

argument One member of the group who acts as the

devil’s advocate by critiquing the way the

group identified alternatives and pointing

out problems with the alternative selection.




Improved Group Decision MakingImproved Group Decision Making

Dialectical Inquiry

Two different groups are assigned to the problemand each group evaluates the other group’s choice

of alternatives.

Top managers then hear each group present theiralternatives and each group can critique the other.

Promote Diversity Increasing the diversity in a group may result in

consideration of a wider set of alternatives.




Devil’s Advocacy and Dialectical InquiryDevil’s Advocacy and Dialectical Inquiry

Figure 7.7

Organizational Learning andOrganizational Learning and




Organizational Learning and

Creativity


CreativityOrganizational Learning

Managers seek to improve a employee’sdesire and ability to understand andmanage the organization and its task

environment so as to raise effectiveness.

The Learning Organization

Managers try to maximize the people’sability to behave creatively to maximizeorganizational learning.

Senge’s Principles for Creating aSenge’s Principles for Creating a




Senge s Principles for Creating a

Learning?

Senge s Principles for Creating a

Learning?

Figure 7.8




Creating a Learning OrganizationCreating a Learning Organization

Personal Mastery

Managers empower employees and allow them tocreate and explore.

Mental Models

Challenge employees to find new, better methods

to perform a task.

Team Learning Is more important than individual learning since

most decisions are made in groups.




Creating a Learning OrganizationCreating a Learning Organization

Build a Shared Vision

People share a common mental model ofthe firm to evaluate opportunities.

Systems Thinking Knowing and understanding how actions in

one area of the firm will impact other areasof the firm.

Organizational Learning andOrganizational Learning and





Creativity


CreativityCreativity

The ability of the decision maker todiscover novel ideas leading to a feasible

course of action. A creative management

staff and employees are

the key to the learningorganization.




Promoting Individual CreativityPromoting Individual Creativity

Organizations can build an environment

supportive of creativity. Managers must provide employees with the

ability to take risks. If people take risks, they will occasionally fail.

To build creativity, periodic failures must berewarded.

This idea is hard to accept for some managers.

G C




Building Group CreativityBuilding Group Creativity

Brainstorming

Managers meet face-to-face to generate anddebate many alternatives.

Group members are not allowed to evaluate alternatives

until all alternatives are listed. When all are listed, then the pros and cons of each are

discussed and a short list created.

Production blocking Members cannot absorb all information being presented

during the session and can forget even their own

alternatives.

B ildi G C ti it





Nominal Group Technique

Provides a more structured way to generatealternatives in writing.

Avoids the production blocking problem.

Similar to brainstorming except that each member is giventime to first write down all alternatives he or she would

suggest.

Alternatives are then read aloud without discussion untilall have been listed.

Then discussion occurs and alternatives are ranked.

B ildi G C i iB ildi G C ti it





Delphi Technique

Provides a written format without having allmanagers meet face-to-face.

Delphi allows distant managers to participate.

Problem is distributed in written form to managers whothen generate written alternatives.

Responses are received and summarized by topmanagers.

These results are sent back to participants for feedback,and ranking.

The process continues until consensus is reached.

M i E l F ll hi f h RiM i E l F ll hi f th Ri




Movie Example: Fellowship of the RingMovie Example: Fellowship of the Ring

How does the council of Elrond use

the decision-making process todecide the fate of the Ring?

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Management_007 Manager as Decision Maker