Principle and Practice of Management MGT

1. Managerial
Decision
Making
Chapter Three
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2. 3-2
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.
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. 3-3
Characteristics of
Managerial Decisions
Figure 3.1

4. 3-4
Lack of Structure
Programmed decisions
 Decisions encountered and made before, having
objectively correct answers, and solvable by
using simple rules, policies, or numerical
computations.
Nonprogrammed decisions
 New, novel, complex decisions having no proven
answers.

5. 3-5
Comparison of Types of Decisions
Table 3.1

6. 3-6
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.

7. 3-7
Uncertainty and Risk
Risk
 The state that exists when the probability of
success is less than 100 percent and losses may
occur.

8. 3-8
Conflict
Conflict
 Opposing pressures from different sources,
occurring on the level of psychological conflict or
of conflict between individuals or groups.

9. 3-9
Two Levels of Conflict
1. Individual decision makers experience
psychological conflict when several options
are attractive, or when none of the options is
attractive
2. Conflict arises between people

10. 3-10
The Phases of Decision Making
Generating
alternative
solutions
Evaluating
alternative
solutions
Making the
choice
Implementing
the decision
Evaluating the
decision
Identifying and
diagnosing the
problem

11. 3-11
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).

12. 3-12
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.

13. 3-13
Generating Alternative Solutions
Ready-made
solutions
 Ideas that have been
seen or tried before
Custom-made
solutions
 New, creative
solutions designed
specifically for the
problem

14. 3-14
Evaluating Alternatives
Evaluating alternatives
 Involves determining the value or adequacy of
the alternatives that were generated
 Which solution will be the best?
Contingency plans
 Alternative courses of action that can be
implemented based on how the future unfolds.

15. 3-15
Making the Choice
Maximizing
 A decision realizing the best possible outcome
Satisficing
 Choosing an option that is acceptable, although not
necessarily the best or perfect
Optimizing
 Achieving the best possible balance among several
goals

16. 3-16
Implementing the Decision
1. Determine how things will look when the
decision is fully operational.
2. Chronologically order the steps necessary to
achieve a fully operational decision.
3. List the resources and activities required to
implement each step.
4. Estimate the time needed for each step.
5. Assign responsibility for each step to specific
individuals.

17. 3-17
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?

18. 3-18
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

19. 3-19
The Best Decision
Vigilance
 A process in which a
decision maker
carefully executes all
stages of decision
making

20. 3-20
Barriers to Decision Making
Psychological biases
Time pressure
Social realities

21. 3-21
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.
Discounting the future
 A bias weighting short-term costs and benefits more
heavily than longer-term costs and benefits.

22. 3-22
Pros and Cons of Using a
Group to Make Decisions
Table 3.2

23. 3-23
Potential Problems of
Using a Group
Groupthink
 occurs when people
choose not to
disagree or raise
objections because
they don’t want to
break up a positive
team spirit
Goal displacement
 A condition that
occurs when a
decision-making
group loses sight of
its original goal and a
new, less important
goal emerges.

24. 3-24
Managing Group Decision Making

25. 3-25
Constructive Conflict
Cognitive conflict
 Issue-based differences in
perspectives or judgments.
Affective conflict
 Emotional disagreement
directed toward other
people.

26. 3-26
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.

27. 3-27
Encouraging Creativity
Creation
SynthesisModification

28. 3-28
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.

29. 3-29
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

30. 3-30
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.

31. 3-31
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