Management Chpt06


Published on

Published in: Business, Technology
  • Be the first to comment

  • Be the first to like this

No Downloads
Total views
On SlideShare
From Embeds
Number of Embeds
Embeds 0
No embeds

No notes for slide

Management Chpt06

  1. 1. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-1TheManager as aDecision Maker6
  2. 2. 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.
  3. 3. 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?
  4. 4. 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.
  5. 5. 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
  6. 6. 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.
  7. 7. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-7Why Information is IncompleteUncertaintyUncertainty& risk& riskAmbiguousAmbiguousInformationInformationTime constraints &information costsIncompleteIncompleteInformationInformationFigure 6.2
  8. 8. 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.
  9. 9. 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.
  10. 10. 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
  11. 11. 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.
  12. 12. 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.
  13. 13. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-13Evaluating AlternativesLegal?Legal?EthicalEthicalEconomical?Economical?Practical?Is the possible course of action:Figure 6.5
  14. 14. 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?
  15. 15. 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.
  16. 16. Irwin/McGraw-Hill ©The McGraw-Hill Companies, Inc., 20006-16Types of Cognitive BiasesPrior HypothesisRepresentativenessIllusion of ControlEscalating CommitmentCognitiveBiasesFigure 6.6
  17. 17. 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.
  18. 18. 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.
  19. 19. 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.
  20. 20. 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
  21. 21. 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.
  22. 22. 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
  23. 23. 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.
  24. 24. 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.
  25. 25. 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.
  26. 26. 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.
  27. 27. 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.