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Management Chpt06

Management Chpt06






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    Management Chpt06 Management Chpt06 Presentation Transcript

    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-1TheManager as aDecision Maker6
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-2Managerial Decision MakingDecision making: the process by whichmanagers respond to opportunities andthreats by analyzing options, and makingdecisions about goals and courses of action.Decisions in response to opportunities:managers respond to ways to improveorganizational performance.Decisions in response to threats: occurs whenmanagers are impacted by adverse events tothe organization.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-3Types of Decision MakingProgrammed Decisions: routine, almostautomatic process. Managers have made decision many times before. There are rules or guidelines to follow. Example: Deciding to reorder office supplies.Non-programmed Decisions: unusualsituations that have not been oftenaddressed. No rules to follow since the decision is new. These decisions are made based on information, and amanger’s intuition, and judgment. Example: Should the firm invest in a new technology?
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-4The Classical ModelClassical model of decision making: aprescriptive model that tells how the decisionshould be made. Assumes managers have access to all the informationneeded to reach a decision. Managers can then make the optimum decision by easilyranking their own preferences among alternatives.Unfortunately, mangers often do not have all(or even most) required information.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-5The Classical ModelList alternativesList alternatives& consequences& consequencesRank each alternativeRank each alternativefrom low to highfrom low to highSelect bestSelect bestalternativealternativeAssumes all informationis available to managerAssumes manager canprocess informationAssumes manager knowsthe best future course ofthe organizationFigure 6.1
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-6The Administrative ModelAdministrative Model of decisionmaking: Challenged the classicalassumptions that managers have and processall the information. As a result, decision making is risky.Bounded rationality: There is a large numberof alternatives and information is vast so thatmanagers cannot consider it all. Decisions are limited by people’s cognitive abilities.Incomplete information: most managers donot see all alternatives and decide based onincomplete information.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-7Why Information is IncompleteUncertaintyUncertainty& risk& riskAmbiguousAmbiguousInformationInformationTime constraints &information costsIncompleteIncompleteInformationInformationFigure 6.2
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-8Incomplete Information FactorsIncomplete information exists due to manyissues: Risk: managers know a given outcome can fail orsucceed and probabilities can be assigned. Uncertainty: probabilities cannot be given for outcomesand the future is unknown.Many decision outcomes are not known such as a newproduct introduction. Ambiguous information: information whose meaning isnot clear.Information can be interpreted in different ways.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-9Incomplete Information FactorsTime constraints and Information costs:Managers do not have the time or money tosearch for all alternatives. This leads the manager to again decide based onincomplete information.Satisficing: Managers explore a limitednumber of options and choose an acceptabledecision rather than the optimum decision. This is the response of managers when dealing withincomplete information. Managers assume that the limited options they examinerepresent all options.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-10Decision Making StepsRecognize need forRecognize need fora decisiona decisionFrame the problemFrame the problemGenerate & assessGenerate & assessalternativesalternativesChoose amongChoose amongalternativesalternativesImplement chosenImplement chosenalternativealternativeLearn from feedbackLearn from feedbackFigure 6.4
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-11Decision Making Steps1. Recognize need for a decision: Managersmust first realize that a decision must bemade.Sparked by an event such as environment changes.2. Generate alternatives: managers mustdevelop feasible alternative courses of action.If good alternatives are missed, the resulting decision ispoor.It is hard to develop creative alternatives, so managersneed to look for new ideas.3. Evaluate alternatives: what are theadvantages and disadvantages of eachalternative?Managers should specify criteria, then evaluate.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-12Decision Making Steps4. Choose among alternatives: managers rankalternatives and decide.When ranking, all information needs to be considered.5. Implement choose alternative: managersmust now carry out the alternative.Often a decision is made and not implemented.6. Learn from feedback: managers shouldconsider what went right and wrong withthe decision and learn for the future.Without feedback, managers never learn fromexperience and make the same mistake over.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-13Evaluating AlternativesLegal?Legal?EthicalEthicalEconomical?Economical?Practical?Is the possible course of action:Figure 6.5
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-14Evaluating AlternativesIs it legal? Managers must first be sure thatan alternative is legal both in this country andabroad for exports.Is it ethical? The alternative must be ethicaland not hurt stakeholders unnecessarily.Is it economically feasible? Can ourorganization’s performance goals sustain thisalternative?Is it practical? Does the management have thecapabilities and resources to do it?
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-15Cognitive BiasesSuggests decision makers use heuristics todeal with bounded rationality. A heuristic is a rule of thumb to deal with complexsituations. If the heuristic is wrong, however, then poor decisionsresult from its use.Systematic errors can result from use of anincorrect heuristic. These errors will appear over and over since the ruleused to make decision is flawed.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-16Types of Cognitive BiasesPrior HypothesisRepresentativenessIllusion of ControlEscalating CommitmentCognitiveBiasesFigure 6.6
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-17Types of Cognitive BiasesPrior hypothesis bias: manager allows strong priorbeliefs about a relationship between variables and makesdecisions based on these beliefs even when evidenceshows they are wrong.Representativeness: decision maker incorrectlygeneralizes a decision from a small sample or oneincident.Illusion of control: manager over-estimates their abilityto control events.Escalating commitment: manager has alreadycommitted considerable resource to project and thencommits more even after feedback indicates problems.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-18Group Decision MakingMany decisions are made in a group setting. Groups tend to reduce cognitive biases and can call oncombined skills, and abilities.There are some disadvantages with groups:Group think: biased decision making resultingfrom group members striving for agreement. Usually occurs when group members rally around acentral manger’s idea (CEO), and become blindlycommitted without considering alternatives. The group tends to convince each member that the ideamust go forward.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-19Improved Group Decision MakingDevil’s Advocacy: one member of the groupacts as the devil’s advocate and critiques theway the group identified alternatives. Points out problems with the alternative selection.Dialectical inquiry: two different groups areassigned to the problem and each groupevaluates the other group’s alternatives. Top managers then hear each group present theiralternatives and each group can critique the other.Promote diversity: by increasing the diversityin a group, a wider set of alternatives may beconsidered.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-20Devil’s Advocacy v. Dialectic InquiryDevil’s AdvocacyPresentation ofPresentation ofalternativealternativeCritique ofCritique ofalternativealternativeReassessReassessalternativealternativeaccept, modify, rejectaccept, modify, rejectDialectic InquiryAlter. 1Alter. 1Debate the twoDebate the twoalternativesalternativesReassessReassessalternativesalternativesaccept 1 or 2, combineaccept 1 or 2, combineAlter. 2Alter. 2Figure 6.7
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-21Organizational Learning & CreativityOrganizational Learning: Managers seek toimprove member’s ability to understand theorganization and environment so as to raiseeffectiveness. The learning organization: managers try to improve thepeople’s ability to behave creatively to maximizeorganizational learning .Creativity: is the ability of the decision makerto discover novel ideas leading to a feasiblecourse of action. A creative management staff and employees are the keyto the learning organization.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-22Senge’s Learning Organization PrinciplesFigure 6.8Develop PersonalMasteryBuild SharedVisionBuild complex,Build complex,challengingchallengingmental modelsmental modelsPromote TeamPromote TeamLearningLearningEncourageEncourageSystemsSystemsThinkingThinking
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-23Creating a Learning OrganizationSenge suggests top managers follow severalsteps to build in learning: Personal Mastery: managers empower employees andallow them to create and explore. Mental Models: challenge employees to find new, bettermethods to perform a task. Team Learning: is more important than individuallearning since most decisions are made in groups. Build a Shared Vision: a people share a commonmental model of the firm to evaluate opportunities. Systems Thinking: know that actions in one area of thefirm impacts all others.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-24Individual CreativityOrganizations can build an environmentsupportive of creativity. Many of these issues are the same as for the learningorganization. Managers must provide employees with the ability totake risks. If people take risks, they will occasionally fail.Thus, to build creativity, periodic failuresmust be rewarded. This idea is hard to accept for some managers.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-25Building Group CreativityBrainstorming: managers meet face-to-faceto generate and debate many alternatives.Group members are not allowed to evaluate alternativesuntil all alternatives are listed.Be creative and radical in stating alternatives.When all are listed, then the pros and cons of each arediscussed and a short list created.Production blocking is a potential problemwith brainstorming.Members cannot absorb all information being presentedduring the session and can forget their own alternatives.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-26Building Group CreativityNominal Group Technique: Provides a morestructured way to generate alternatives inwriting.Avoids the production blocking problem.Similar to brainstorming except that each member isgiven time to first write down all alternatives he or shewould suggest.Alternatives are then read aloud without discussion untilall have been listed.Then discussion occurs and alternatives are ranked.
    • Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-27Building Group CreativityDelphi Technique: provides for a writtenformat without having all managers meetface-to-face.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. Delphi allows distant managers to participate.