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Management book...........................
1.
Chapter 6 DECISION MAKING: THE
ESSENCE OF THE MANAGER’S JOB © Prentice Hall, 2002 6-1
2.
Learning Objectives You should
learn to: – Outline the steps in the decision-making process – Explain why decision making is so pervasive in organizations – Describe the rational decision maker – Contrast the perfectly rational and boundedly rational approaches to decision making – Explain the role that intuition plays in the decision-making process © Prentice Hall, 2002 6-2
3.
Learning Objectives (cont.) You
should learn to: – Identify the two types of decision problems and the two types of decisions that are used to solve them – Differentiate the decision conditions of certainty, risk, and uncertainty – Describe the different decision-making styles © Prentice Hall, 2002 6-3
4.
Decisions – choices from
two or more alternatives – all organizational members make decisions Decision-Making Process – a comprehensive, 8-step process – Step 1 - Identifying a Problem • problem - discrepancy between an existing and a desired state of affairs –must be such that it exerts pressure to act –manager is unlikely to characterize a situation as a problem unless s/he has resources necessary to act Decision Making © Prentice Hall, 2002 6-4
5.
The Decision-Making Process Problem Identification “My
salespeople need new computers” Identification of Decision Criteria Price Weight Warranty Screen type Reliability Screen size Allocation of Weights to Criteria Reliability 10 Screen size 8 Warranty 5 Weight 5 Price 4 Screen type 3 Development of Alternatives Acer Compaq Gateway HP Micromedia NEC Sony Toshiba Implementation of an Alternative Gateway Evaluation of Decision Effectiveness Analysis of Alternatives Acer Compaq Gateway HP Micromedia NEC Sony Toshiba Selection of an Alternative Acer Compaq Gateway HP Micromedia NEC Sony Toshiba © Prentice Hall, 2002 6-5
6.
Decision-Making Process (cont.) –
Step 2 - Identifying Decision Criteria • decision criteria - what’s relevant in making a decision – Step 3 - Allocating Weights to the Criteria • must weight the criteria to give them appropriate priority in the decision – Step 4 - Developing Alternatives • list the viable alternatives that could resolve the problem without evaluating them – Step 5 - Analyzing Alternatives • each alternative is evaluated against the criteria Decision Making (cont.) © Prentice Hall, 2002 6-6
7.
Assessed Values of
Notebook Computer Alternatives Against Decision Criteria © Prentice Hall, 2002 6-7
8.
Evaluation of Laptop
Computer Alternatives Against Criteria and Weights © Prentice Hall, 2002 6-8
9.
Decision Making (cont.) Decision-Making
Process (cont.) – Step 6 - Selecting an Alternative • choosing the best alternative from among those considered – Step 7 - Implementing the Alternative • implementation - conveying the decision to those affected by it and getting their commitment to it –participation in decision-making process inclines people to support the decision –decision may fail if it is not implemented properly – Step 8 - Evaluating Decision Effectiveness • determine whether the problem is resolved © Prentice Hall, 2002 6-9
10.
Decisions in the
Management Functions © Prentice Hall, 2002 6-10
11.
© Prentice Hall,
2002 6 1
12.
The Manager As
Decision Maker Rational Decision Making – decisions are consistent, value-maximizing choices within specified constraints – managers assumed to make rational decisions – Assumptions of Rationality - decision maker would: –be objective and logical –carefully define a problem –have a clear and specific goal –select the alternative that maximizes the likelihood of achieving the goal –make decision in the firm’s best economic interests • managerial decision making seldom meets all the tests © Prentice Hall, 2002 6-12
13.
Assumptions Of Rationality Rational Decision Making Problem
is clear and unambiguous Single, well- defined goal is to be achieved All alternatives and consequences are known Preferences are clear Preferences are constant and stable No time or cost constraints exist Final choice will maximize payoff © Prentice Hall, 2002 6-13
14.
The Manager As
Decision Maker (cont.) Bounded Rationality – behave rationally within the parameters of a simplified decision-making process that is limited by an individual’s ability to process information – satisfice - accept solutions that are “good enough” – escalation of commitment - increased commitment to a previous decision despite evidence that it may have been wrong • refusal to admit that the initial decision may have been flawed © Prentice Hall, 2002 6-14
15.
The Manager As
Decision Maker (cont.) Role of Intuition – intuitive decision making - subconscious process of making decisions on the basis of experience and accumulated judgment • does not rely on a systematic or thorough analysis of the problem • generally complements a rational analysis © Prentice Hall, 2002 6-15
16.
What Is Intuition? Decisions
based on experience Decisions based on feelings and emotions Decisions based on ethical values or culture Decisions based on subconscious data Decisions based on skills, knowledge, or training Intuition Affect- initiated decisions Experienced- based decisions Values or ethics-based decisions Subconscious mental processing Cognitive- based decisions © Prentice Hall, 2002 6-16
17.
The Manager As
A Decision Maker (cont.) Types of Problems and Decisions – Well-Structured Problems - straightforward, familiar, and easily defined – Programmed Decisions - used to address structured problems –minimize the need for managers to use discretion –facilitate organizational efficiency • procedure - series of interrelated sequential steps used to respond to a structured problem • rule - explicit statement of what to do or not to do • policy - guidelines or parameters for decision making © Prentice Hall, 2002 6-17
18.
The Manager As
A Decision Maker (cont.) Types of Problems and Decisions (cont.) – Poorly-Structured Problems - new, unusual problems for which information is ambiguous or incomplete – Nonprogrammed Decisions - used to address poorly- structured problems • produce a custom-made response • more frequent among higher-level managers – few decisions in the real world are either fully programmed or nonprogrammed © Prentice Hall, 2002 6-18
19.
Types Of Problems,
Types Of Decisions, And Level In The Organization Programmed Decisions Nonprogrammed Decisions Level in Organization Top Lower Well-structured Ill-structured Type of Problem © Prentice Hall, 2002 6-19
20.
The Manager As
A Decision Maker (cont.) Decision-Making Conditions – Certainty - outcome of every alternative is known • idealistic rather than realistic – Risk - able to estimate the probability of outcomes stemming from each alternative • expected value - the conditional return from each possible outcome –multiply expected revenue from each outcome by the probability of each outcome © Prentice Hall, 2002 6-20
21.
Expected Value for
Revenues from the Addition of One Ski Lift © Prentice Hall, 2002 6-21
22.
The Manager As
A Decision Maker (cont.) Decision-Making Conditions (cont.) – Uncertainty - not certain about outcomes and unable to estimate probabilities • psychological orientation of decision maker –maximax choice - optimistic »maximizing the maximum possible payoff –maximin choice - pessimistic »maximizing the minimum possible payoff –minimax - minimize the maximum “regret” © Prentice Hall, 2002 6-22
23.
Payoff Matrix © Prentice
Hall, 2002 6-23
24.
Regret Matrix © Prentice
Hall, 2002 6-24
25.
The Manager As
A Decision Maker (cont.) Decision-Making Styles – two dimensions define the approach to decision making • way of thinking - differs from rational to intuitive • tolerance for ambiguity - differs from a need for consistency and order to the ability to process many thoughts simultaneously – define four decision-making styles • Directive - fast, efficient, and logical • Analytic - careful and able to adapt or cope with new situations • Conceptual - able to find creative solutions • Behavioral - seek acceptance of decisions © Prentice Hall, 2002 6-25
26.
Decision-Making Styles Analytic Directive Behavioral Rational
Intuitive Way of Thinking Conceptual High Low Tolerance for Ambiguity © Prentice Hall, 2002 6-26
27.
© Prentice Hall,
2002 6 2 Linear–Nonlinear Thinking Style Profile These four dimensions are collapsed into two styles. 1. linear thinking style, using external data and facts and processing this information through rational, logical thinking 2. nonlinear thinking style, preference for internal sources of information (feelings and intuition) and processing this information with internal insights, feelings, and hunches to guide decisions and actions.
28.
© Prentice Hall,
2002 6 2
29.
Managing Workforce Diversity Diversity
in Decision Making – Advantages - diverse employees: • provide fresh perspectives • offer differing interpretations of problem definition • increase the likelihood of creative and unique solutions – Disadvantages - diverse employees: • require more time to reach a decision • may have problems of communication • may create a more complex, confusing, and ambiguous decision-making process • may have difficulty in reaching agreement © Prentice Hall, 2002 6-29
30.
© Prentice Hall,
2002 6 3 1.Understand cultural differences. is there only one “best” way worldwide to make decisions? Or does the “best way depend on the values, beliefs, attitudes, and behavioral patterns of the people involved?”28 2. Know when it’s time to call it quits.
31.
© Prentice Hall,
2002 6 3 3. Use an effective decision-making process. process has these six characteristics: (1)It focuses on what’s important; (2)It’s logical and consistent; (3)It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking; (4)It requires only as much information and analysis as is necessary to resolve a particular dilemma; (5) It encourages and guides the gathering of relevant information and informed opinion; and (6) It’s straightforward, reliable, easy to use,flexible.”3
32.
© Prentice Hall,
2002 6 3 4. Build an organization that can spot the unexpected and quickly adapt to the changed environment. (1)They’re not tricked by their success. (2) They defer to the experts on the front line. (3) They let unexpected circumstances provide the solution. (4) They embrace complexity. Because business is complex, these organizations recognize that it “takes complexity to sense complexity.”
33.
© Prentice Hall,
2002 6 3 these organizations aim for deeper understanding of the situation. They ask “why” and keep asking why as they probe more deeply into the causes of the problem and possible solutions. (5) Finally, they anticipate, but also recognize their limits. These organizations do try to anticipate as much as possible, but they recognize that they can’t anticipate everything. As Weick says, they don’t “think, then act.They think by acting. By actually doing things, you’ll find out what works and what doesn’t.”
34.
Overview Of Managerial
Decision Making Decision-Making Process Types of Problems and Decisions • Well-structured - programmed • Poorly structured - nonprogrammed Decision-Making Conditions • Certainty • Risk • Uncertainty Decision Maker Style • Directive • Analytic • Conceptual • Behavioral Decision-Making Approach • Rationality • Bounded Rationality • Intuition Decision • Choose best alternative - maximizing - satisficing • Implementing • Evaluating © Prentice Hall, 2002 6-34
35.
© Prentice Hall,
2002 6 3
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