Decision making

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Decision making

  1. 1. Chapter 9 Decision Making
  2. 2. Types of Decisions and Problems Decision making is the process of identifying opportunities A decision is a choice made from available alternatives Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 2
  3. 3. Programmed and Nonprogrammed Decisions Programmed Decisions – Recurring problems – Apply rule Nonprogrammed Decisions – Unique situations – Poorly defined – Unstructured – Important consequences Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 3
  4. 4. Facing Certainty and Uncertainty • Difference between programmed and unprogrammed decisions • Uncertainty depends on the amount and value of information available • Certainty – situation in which all information is fully available • Risk – the future outcomes associated with an alternative are subject to chance Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 4
  5. 5. 9.1 Conditions That Affect the Possibility of Decision Failure Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 5
  6. 6. • Ambiguity makes decisions difficult – 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 Ambiguity and Conflict Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 6
  7. 7. The Ideal, (Classical) 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 Managers are expected to make decisions that are economically sensible and in the organization ‘s best economic interest. Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 7
  8. 8. 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 • Satisficing – decision makers choose the first solution that satisfies minimal decision criteria Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 8
  9. 9. • 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 Steps in the Administrative Model Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 9
  10. 10. 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 Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 10
  11. 11. 9.2 Comparing the Models Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 11
  12. 12. Decision-Making Steps 1. Recognition of Decision Requirement – identify problem or opportunity 2. Diagnosis and Analysis – analyze underlying causal factors 3. Develop Alternatives – define feasible alternatives 4. Selection of Desired Alternative – alternative with most desirable outcome 5. Implementation of Chosen Alternative – use of management persuasive abilities to execute 6. Evaluation and Feedback – gather information about effectiveness Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 12
  13. 13. 9.3 Six Steps in the Managerial Decision-Making Process Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 13
  14. 14. 9.4 Decision Alternatives with Different Levels of Risk Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 14
  15. 15. 9.5 Personal Decision Framework Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 15 Many managers depend on their own decision-making style to make decisions
  16. 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 Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 16
  17. 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 Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 17
  18. 18. Innovative Group Decision Making • Start with brainstorming – spontaneous suggestions in a group • Engage in rigorous debate – use divergent points of view to focus problems • Avoid groupthink – acknowledge disagreement as value instead of blind agreement • Act with speed – some decisions have to be made incredibly quickly • Don’t ignore crisis – managers should expect and plan for crises (with speed) • Know when to bail – good managers must know when to pull the plug! Copyright ©2012 by South-Western, a division of Cengage Learning. All rights reserved. 18

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