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Managerial
Decision
Making

Chapter Three

McGraw-Hill/Irwin

Copyright © 2013 by The McGraw-Hill Companies, Inc. All righ...
Learning Objectives
LO1 Describe the kinds of decisions you will
face as a manager.
LO2 Summarize the steps in making
“rat...
Learning Objectives (cont.)
LO5 Identify procedures to use in leading a
decision-making group
LO6 Explain how to encourage...
Characteristics of Managerial
Decisions
Figure 3.1

3-4
Lack of Structure
Programmed

Nonprogrammed

decisions

decisions

 Decisions encountered
and made before,
having objec...
Comparison of Types of Decisions
Table 3.1

3-6
Uncertainty and Risk
Certainty
 The state that exists when decision makers
have accurate and comprehensive
information.
...
Uncertainty and Risk
Risk
 The state that exists when the probability of
success is less than 100 percent and losses
may...
Conflict
Conflict
 Opposing pressures from different sources,
occurring on the level of psychological
conflict or of con...
Two Levels of Conflict
Individual decision makers experience
psychological conflict when several
options are attractive, ...
The Stages of Decision Making
Identifying and
diagnosing the
problem

3-11
Identifying and Diagnosing the
Problem
Typically, a manager realizes some
discrepancy between the current state
(the way ...
Identifying and Diagnosing the
Problem
Such discrepancies may be detected by
comparing current performance against
(1) pa...
Generating Alternative Solutions
Ready-made

Custom-made

solutions

solutions

 Ideas that have been
seen or tried bef...
Evaluating Alternatives
Evaluating alternatives
 Involves determining the value or adequacy
of the alternatives that wer...
Evaluating Alternatives
Contingency plans
 Alternative courses of action that can be
implemented based on how the future...
Making the Choice
Maximizing
 A decision realizing the
best possible outcome

3-17
Question
___________ is achieving the best
possible balance among several goals.
A.Maximizing
B.Satisficing
C.Optimizing
D...
Making the Choice
Satisficing
 Choosing an option
that is acceptable,
although not
necessarily the best or
perfect

Opt...
Implementing the Decision
1. Determine how things will look when the
2.
3.
4.
5.

decision is fully operational.
Chronolog...
Implementing the Decision
What problems could this action cause?
What can we do to prevent the problems?
What unintende...
Evaluating the Decision
Feedback that suggests the decision is
working implies that the decision should
be continued and ...
Question
___________ is the process in which a
decision maker carefully executes all stages
of decision making.
A.Innovati...
The Best Decision
Vigilance
 A process in which a decision maker
carefully executes all stages of decision
making

3-24
Barriers to Decision Making

3-25
Psychological Biases
Illusion of control
 People’s belief that they can influence
events, even when they have no control...
Psychological Biases
Discounting the
future
 A bias weighting shortterm costs and
benefits more heavily
than longer-term...
Pros and Cons of Using a
Group to Make Decisions
Table 3.2

3-28
Potential Problems of Using a
Group
Groupthink
 A phenomenon that
occurs in decision
making when group
members avoid
dis...
Managing Group Decision Making

3-30
Constructive Conflict
Cognitive conflict
 Issue-based
differences in
perspectives or
judgments.

Affective conflict
 E...
Constructive Conflict
Devil’s advocate
 A person who has the
job of criticizing ideas
to ensure that their
downsides are...
Encouraging Creativity

3-33
Brainstorming
Brainstorming
 A process in which group members generate
as many ideas about a problem as they can;
critic...
Models of Organizational Decision
Processes
Bounded rationality
 A less-than-perfect form
of rationality in which
decisi...
Models of Organizational Decision
Processes
Coalitional model
 Model of organizational
decision making in which
groups w...
Two Disasters
Table 3.3

3-37
Decision Making in a Crisis
What kinds of crises could your company
face?
Can your company detect a crisis in its
early ...
Elements of a Crisis Plan
1. Strategic actions
2. Technical and structural actions
3. Evaluation and diagnostic actions
4....
Video: Decisions, Decisions
How important are emotions in making
decisions?
You are a shareholder. At the most recent
sh...
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Managerial Decision Making

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Managerial Decision Making

  1. 1. Managerial Decision Making Chapter Three McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
  2. 2. Learning Objectives LO1 Describe the kinds of decisions you will face as a manager. LO2 Summarize the steps in making “rational” decisions. LO3 Recognize the pitfalls you should avoid when making decisions. LO4 Evaluate the pros and cons of using a group to make decisions. 3-2
  3. 3. Learning Objectives (cont.) LO5 Identify procedures to use in leading a decision-making group LO6 Explain how to encourage creative decisions LO7 Discuss the process by which decisions are made in organizations LO8 Describe how to make decisions in a crisis 3-3
  4. 4. Characteristics of Managerial Decisions Figure 3.1 3-4
  5. 5. Lack of Structure Programmed Nonprogrammed decisions decisions  Decisions encountered and made before, having objectively correct answers, and solvable by using simple rules, policies, or numerical computations.  New, novel, complex decisions having no proven answers. 3-5
  6. 6. Comparison of Types of Decisions Table 3.1 3-6
  7. 7. Uncertainty and Risk Certainty  The state that exists when decision makers have accurate and comprehensive information. Uncertainty  The state that exists when decision makers have insufficient information. 3-7
  8. 8. Uncertainty and Risk Risk  The state that exists when the probability of success is less than 100 percent and losses may occur. 3-8
  9. 9. Conflict Conflict  Opposing pressures from different sources, occurring on the level of psychological conflict or of conflict between individuals or groups. 3-9
  10. 10. Two Levels of Conflict Individual decision makers experience psychological conflict when several options are attractive, or when none of the options is attractive Conflict arises between people 3-10
  11. 11. The Stages of Decision Making Identifying and diagnosing the problem 3-11
  12. 12. Identifying and Diagnosing the Problem Typically, a manager realizes some discrepancy between the current state (the way things are) and a desired state (the way things ought to be). 3-12
  13. 13. Identifying and Diagnosing the Problem Such discrepancies may be detected by comparing current performance against (1) past performance, (2) the current performance of other organizations or units, or (3) future expected performance as determined by plans and forecasts. 3-13
  14. 14. Generating Alternative Solutions Ready-made Custom-made solutions solutions  Ideas that have been seen or tried before  New, creative solutions designed specifically for the problem 3-14
  15. 15. Evaluating Alternatives Evaluating alternatives  Involves determining the value or adequacy of the alternatives that were generated  Which solution will be the best? 3-15
  16. 16. Evaluating Alternatives Contingency plans  Alternative courses of action that can be implemented based on how the future unfolds. 3-16
  17. 17. Making the Choice Maximizing  A decision realizing the best possible outcome 3-17
  18. 18. Question ___________ is achieving the best possible balance among several goals. A.Maximizing B.Satisficing C.Optimizing D.Minimizing 3-18
  19. 19. Making the Choice Satisficing  Choosing an option that is acceptable, although not necessarily the best or perfect Optimizing  Achieving the best possible balance among several goals 3-19
  20. 20. Implementing the Decision 1. Determine how things will look when the 2. 3. 4. 5. decision is fully operational. Chronologically order the steps necessary to achieve a fully operational decision. List the resources and activities required to implement each step. Estimate the time needed for each step. Assign responsibility for each step to specific individuals. 3-20
  21. 21. Implementing the Decision What problems could this action cause? What can we do to prevent the problems? What unintended benefits or opportunities could arise? How can we make sure they happen? How can we be ready to act when the opportunities come? 3-21
  22. 22. Evaluating the Decision Feedback that suggests the decision is working implies that the decision should be continued and applied elsewhere in the organization. Negative feedback means that either (1) implementation will require more time, resources, effort, or thought or (2) the decision was a bad one 3-22
  23. 23. Question ___________ is the process in which a decision maker carefully executes all stages of decision making. A.Innovation B.Quality C.Satisficing D.Vigilance 3-23
  24. 24. The Best Decision Vigilance  A process in which a decision maker carefully executes all stages of decision making 3-24
  25. 25. Barriers to Decision Making 3-25
  26. 26. Psychological Biases Illusion of control  People’s belief that they can influence events, even when they have no control over what will happen Framing effects  A decision bias influenced by the way in which a problem or decision alternative is phrased or presented. 3-26
  27. 27. Psychological Biases Discounting the future  A bias weighting shortterm costs and benefits more heavily than longer-term costs and benefits. 3-27
  28. 28. Pros and Cons of Using a Group to Make Decisions Table 3.2 3-28
  29. 29. Potential Problems of Using a Group Groupthink  A phenomenon that occurs in decision making when group members avoid disagreement as they strive for consensus Goal displacement  A condition that occurs when a decision-making group loses sight of its original goal and a new, less important goal emerges. 3-29
  30. 30. Managing Group Decision Making 3-30
  31. 31. Constructive Conflict Cognitive conflict  Issue-based differences in perspectives or judgments. Affective conflict  Emotional disagreement directed toward other people. 3-31
  32. 32. Constructive Conflict Devil’s advocate  A person who has the job of criticizing ideas to ensure that their downsides are fully explored. Dialectic  A structured debate comparing two conflicting courses of action. 3-32
  33. 33. Encouraging Creativity 3-33
  34. 34. Brainstorming Brainstorming  A process in which group members generate as many ideas about a problem as they can; criticism is withheld until all ideas have been proposed. 3-34
  35. 35. Models of Organizational Decision Processes Bounded rationality  A less-than-perfect form of rationality in which decision makers cannot be perfectly rational because decisions are complex and complete information is unavailable or cannot be fully processed Incremental model  Model of organizational decision making in which major solutions arise through a series of smaller decisions 3-35
  36. 36. Models of Organizational Decision Processes Coalitional model  Model of organizational decision making in which groups with differing preferences use power and negotiation to influence decisions. Garbage can model  Model of organizational decision making depicting a chaotic process and seemingly random decisions. 3-36
  37. 37. Two Disasters Table 3.3 3-37
  38. 38. Decision Making in a Crisis What kinds of crises could your company face? Can your company detect a crisis in its early stages? How will it manage a crisis if one occurs? How can it benefit from a crisis after it has passed? 3-38
  39. 39. Elements of a Crisis Plan 1. Strategic actions 2. Technical and structural actions 3. Evaluation and diagnostic actions 4. Communication actions 5. Psychological and cultural actions 3-39
  40. 40. Video: Decisions, Decisions How important are emotions in making decisions? You are a shareholder. At the most recent shareholder’s meeting the CEO explained his decision-making process as one where he closely follows Jonah Lehrer’s suggestion to “just go for it”. Do you have more confidence or less confidence in your company leadership? 3-40

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