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  1. 1. Principles of Management Managing Decision Making Lecture 6
  2. 2. <ul><li>Managerial Decision Making : the process by which managers respond to opportunities and threats by analyzing options, and making decisions about goals and courses of action. </li></ul><ul><li>Programmed Decisions : routine, almost automatic process. </li></ul><ul><ul><li>Managers have made decision many times before. </li></ul></ul><ul><ul><li>There are rules or guidelines to follow. </li></ul></ul><ul><ul><li>Example: Deciding to reorder office supplies. </li></ul></ul><ul><li>Non-programmed Decisions : unusual situations that have not been often addressed. </li></ul><ul><ul><li>No rules to follow since the decision is new. </li></ul></ul><ul><ul><li>These decisions are made based on information, and a manger’s intuition, and judgment. </li></ul></ul><ul><ul><li>Example: Should the firm invest in a new technology? </li></ul></ul>Types of Decision Making 5–
  3. 3. The Classical Model <ul><li>Classical model of decision making : a prescriptive model that tells how the decision should be made. </li></ul><ul><ul><li>Assumes managers have access to all the information needed to reach a decision. </li></ul></ul><ul><ul><li>Managers can then make the optimum decision by easily ranking their own preferences among alternatives. </li></ul></ul><ul><li>Unfortunately, mangers often do not have all (or even most) required information. </li></ul>5–
  4. 4. The Classical Model List alternatives & consequences Rank each alternative from low to high Select best alternative Assumes all information is available to manager Assumes manager can process information Assumes manager knows the best future course of the organization 5–
  5. 5. The Administrative Model <ul><li>Administrative Model of decision making : Challenged the classical assumptions that managers have and process all the information. </li></ul><ul><ul><li>As a result, decision making is risky. </li></ul></ul><ul><li>Bounded rationality: There is a large number of alternatives and information is vast so that managers cannot consider it all. </li></ul><ul><ul><li>Decisions are limited by people’s cognitive abilities. </li></ul></ul><ul><li>Incomplete information: most managers do not see all alternatives and decide based on incomplete information. </li></ul>5–
  6. 6. Why Information is Incomplete Uncertainty & risk Ambiguous Information Time constraints & information costs Incomplete Information 5–
  7. 7. Organizational Decision Making <ul><li>Constraints on decision makers </li></ul><ul><ul><li>organizations cannot do whatever they wish </li></ul></ul><ul><ul><ul><li>face various constraints on their actions </li></ul></ul></ul><ul><li>Models of organizational decision processes (cont.) </li></ul><ul><ul><li>incremental model - major decisions arise through a series of smaller decisions </li></ul></ul><ul><ul><ul><li>piecemeal approach to larger solutions </li></ul></ul></ul><ul><ul><li>coalitional model - groups with differing preferences use power and negotiation to influence decisions </li></ul></ul><ul><ul><ul><li>used when people disagree about goals or compete for resources </li></ul></ul></ul>5–
  8. 8. Figure : Seven Steps in the Decision-Making Process Identifying opportunities and diagnosing problems Identifying objectives Generating alternatives Evaluating alternatives Choosing implementation strategies Monitoring and evaluating Reaching decisions 5–
  9. 9. Step 1: Identifying Opportunities and Diagnosing Problems <ul><li>The clear identification of opportunities or the diagnosis of problems that require a decision. </li></ul><ul><li>An assessment of opportunities and problems will only be as accurate as the information on which it is based. </li></ul><ul><li>Objectives reflect the results the organization wants to attain. Also called targets, standards or ends. </li></ul><ul><ul><li>The quantity and quality of the desired results should be specified, for these aspects will ultimately guide the decision maker in selecting the appropriate course of action. </li></ul></ul><ul><ul><li>Objectives can be measured on a variety of dimensions (monetary units, output per hour, % of defects, etc.) and whether the objectives are long-term versus short-term. </li></ul></ul>Step 2: Identifying Objectives: 5–
  10. 10. Step 3: Generating Alternatives <ul><li>Once an opportunity has been identified or a problem diagnosed correctly, a manager develops various ways to solve the problem and achieve objectives. </li></ul><ul><li>The alternatives can be standard and obvious as well as innovative and unique. </li></ul>Step 4: Evaluating Alternatives <ul><li>Determining the value or adequacy of the alternatives generated. </li></ul><ul><li>Predetermined decision criteria may be used in the evaluation process. </li></ul><ul><ul><li>Quality desired </li></ul></ul><ul><ul><li>Anticipated costs </li></ul></ul><ul><ul><li>Benefits </li></ul></ul><ul><ul><li>Uncertainties </li></ul></ul><ul><ul><li>Risks </li></ul></ul>5–
  11. 11. Evaluating Alternatives <ul><li>Is it legal? Managers must first be sure that an alternative is legal both in this country and abroad for exports. </li></ul><ul><li>Is it ethical? The alternative must be ethical and not hurt stakeholders unnecessarily. </li></ul><ul><li>Is it economically feasible? Can our organization’s performance goals sustain this alternative? </li></ul><ul><li>Is it practical? Does the management have the capabilities and resources to do it? </li></ul>5–
  12. 12. Step 5: Reaching Decisions <ul><li>Decision making is commonly associated with making a final choice. </li></ul><ul><li>Although choosing an alternative would seem to be a straightforward proposition, in reality the choice is rarely clear-cut. </li></ul>Step 6: Choosing Implementation Strategies <ul><li>The bridge between reaching a decision and evaluating the results. </li></ul><ul><li>The keys to effective implementation are: </li></ul><ul><ul><li>Sensitivity to those who will be affected by the decision. </li></ul></ul><ul><ul><li>Proper planning and consideration of the resources necessary to carry out the decision. </li></ul></ul>5–
  13. 13. Figure: Keys to Effective Implementation of Decisions 5–
  14. 14. Steps In The Implementation Plan Implementation Plan 5– List the resources and activities required to implement each step Estimate the time needed for each step Determine how things will look when the decision is fully operational Order the steps necessary to achieve a fully operational decision Assign responsibility for each step to specific individuals
  15. 15. Step 7: Monitoring and Evaluating <ul><li>No decision-making process is complete until the impact of the decision has been evaluated. </li></ul><ul><li>Managers must observe the impact of the decision as objectively as possible and take further corrective action if it becomes necessary. </li></ul>5–