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- 1. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–1 CHAPTER 5 MANAGERIAL DECISION MAKING
- 2. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–2 LECTURE OUTLINE • Nature of managerial decision making • Managers as decision makers • Effective decision making • Group decision making • Creativity in decision making • Barriers to effective decision making
- 3. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–3 DECISION MAKING The process by which managers identify problems and try to resolve them
- 4. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–4 NATURE OF MANAGERIAL DECISION MAKING Types of problems faced: • Crisis problems Serious: require immediate action • Non-crisis problems Require resolution but not both immediate and important • Opportunity problems Opportunity for organisational gain IF appropriate action taken
- 5. Activity…. You are working as marketing manager in (Pepsi and Coke) you confront with a problem of low Demand of your product in Asian markets. Now you wants to introduce a new kind of beverage? Q: Identify the kind of beverage which induce the demand of customers of Asian markets and apply the decision making steps to introduce new product into the market? Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–5
- 6. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–6 NATURE OF MANAGERIAL DECISION MAKING Decision-making situations: • Programmed decisions Routine, repetitive, well-structured situations by use of pre-determined decision rules. • Non-programmed decision-making Pre-determined decision rules are impractical due to novel &/or ill-structured situations. • The element of risk Possibility that a chosen decision could lead to losses rather than intended results.
- 7. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–7 MANAGERS AS DECISION MAKERS Models of managerial decision making: • Rational model Model suggesting managers engage in completely rational decision processes, ultimately making optimal decisions, and possess and understand all information relevant to their decisions at the time they make them.
- 8. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–8 Rational decision making Rational decision making An optimal decision is possible An optimal decision is possible All relevant information is available All relevant information is available All relevant information is understandable All relevant information is understandable All alternatives are knownAll alternatives are known All possible outcomes knownAll possible outcomes known
- 9. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–9 NON-RATIONAL MODELS • Non-rational models Models suggesting information gathering and processing limitations make it difficult for managers to make optimal decisions. – Satisficing model Managers seek alternatives only until they find one which looks satisfactory, rather than seeking an optimal decision. – Incremental model Managers make the smallest response possible to reduce the problem to at least a tolerable level. – Rubbish bin model Managers behave in virtually a random way in making non- programmed decisions.
- 10. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–10 ‘Satisficing’ decision making ‘Satisficing’ decision making Time constraintsTime constraints Limited ability to understand all factors Limited ability to understand all factors Inadequate base of information Inadequate base of information Limited memory of decision-makers Limited memory of decision-makers Poor perception of factors to be considered in decision process Poor perception of factors to be considered in decision process
- 11. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–11 EFFECTIVE DECISION MAKING Steps to effective decision making: • Identify the problem Scan for change, categorise as problem/non-problem, diagnose nature and cause. • Generate alternative solutions Uncritically brainstorm to develop alternatives, combine & improve ideas. • Evaluate and choose an alternative Feasibility, quality, cost, reversibility, ethics, acceptability. • Implement and monitor Plan and implement, evaluate effect on others, monitor.
- 12. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–12 Evaluation of decision effectiveness Evaluation of decision effectiveness Identification of the problemIdentification of the problem Generate alternative solutionsGenerate alternative solutions Evaluate alternativesEvaluate alternatives Choose an alternative Choose an alternative Implement and monitor the chosen alternative Implement and monitor the chosen alternative STEPS IN DECISION MAKING
- 13. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–13 BARRIERS TO EFFECTIVE DECISION MAKING • Complacency Individuals either do not see signs of danger/opportunity, or avoid them. • Defensive avoidance Individuals either deny the importance of a danger/ opportunity or deny any responsibility for taking action. • Panic Individuals become so upset they frantically seek a way to solve the problem. • Deciding to decide Decision makers accept the challenge and follow an effective decision-making process.
- 14. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–14 BARRIERS TO EFFECTIVE DECISION MAKING Complacency Defensive avoidance Panic Deciding to decide
- 15. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–15 DECISION-MAKING BIAS • Framing Tendency to make different decisions depending on how a problem is presented. 1. Would you accept a bet with a 10% chance of winning $95 but a 90% chance of losing $5? And would you buy a $5 lottery ticket that had a 10% chance of winning $100? 2. The U.S. is preparing for the outbreak of an unusual disease, which is predicted to affect 600 people. You are to imagine that you have the authority to choose between two treatments. – Treatment A: You save 200 lives. – Treatment B: There is a 1/3 probability that 600 will be saved and a 2/3 probability that no one will be saved. – Which treatment do you choose?
- 16. • Prospect theory Decision makers find the prospect of an actual loss more painful than giving up the possibility of a gain. – E.g. what would you choose: to get $900 or take a 90% chance of winning $1000 (and a 10% chance of winning 0)? • Representativeness Tendency to be overly influenced by stereotypes in making judgments about the likelihood of occurrences. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–16
- 17. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–17 DECISION-MAKING BIAS • Availability Tendency to judge the likelihood of an occurrence on the basis of the extent to which other like instances can easily be recalled. • Anchoring & adjustment Tendency to be influenced by an initial figure, even when the information is largely irrelevant. • Overconfidence Tendency to be more certain of judgments regarding the likelihood of a future event than one’s actual predictive accuracy warrants.
- 18. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–18 DECISION ESCALATION Situation signalling possibility of escalating commitment and accelerating losses May take two forms: • Non-rational escalation • Sunk costs
- 19. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–19 DECISION ESCALATION Non-rational escalation • Tendency to increase commitment to a previously selected course of action beyond the level expected if the manager followed an effective decision-making process. Sunk costs • Costs which, once incurred, are not recoverable and should not enter into considerations of future courses of action.
- 20. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–20 DECISION ESCALATION ‘Escalating commitment and accelerating losses’ Non-rational escalation: increased commitment of resources beyond rational limits Sunk costs: not recoverable, and should not influence decision-making
- 21. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–21 GROUP DECISION MAKING Advantages: • More information available • Wide range of ideas/approaches • Improved acceptance of decision • Develops group members’ skills
- 22. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–22 GROUP DECISION MAKING Disadvantages: • More time-consuming • Disagreement/time problems • Open to individual dominance • ‘Groupthink’ may arise
- 23. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–23 GROUP DECISION MAKING ADVANTAGESADVANTAGES More information availableMore information available More alternative solutions More alternative solutions Increases solution understanding & acceptance Increases solution understanding & acceptance Builds member knowledge & skill base Builds member knowledge & skill base DISADVANTAGESDISADVANTAGES Time-consumingTime-consuming Delays & ill feeling possibleDelays & ill feeling possible Domination by individualsDomination by individuals Risk of groupthinkRisk of groupthink
- 24. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–24 ENHANCING GROUP DECISION MAKING • Devil’s advocates • Dialectical inquiry • Groupware
- 25. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–25 Better group decision making Better group decision making Devil’s advocatesDevil’s advocates Groupware useGroupware use Dialectic inquiryDialectic inquiry TECHNIQUES TO IMPROVE GROUP DECISIONS
- 26. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–26 CREATIVITY IN DECISION MAKING ‘Creativity is the cognitive process of developing an idea, concept, commodity or discovery viewed as novel by its creator or target audience.’
- 27. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–27 CREATIVITY IN DECISION MAKING Creativity requires both: • Convergent thinking Attempting to move logically to a problem solution. • Divergent thinking Generating new ways of viewing a problem and seeking novel alternatives.
- 28. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–28 CREATIVITY IN DECISION MAKING Three basic ingredients necessary for creativity: • Domain-relevant skills Expertise in a field relevant to the problem • Creativity-relevant skills Skills in generating novel ideas, approaches, modes of thinking about problems • Task motivation Interest in the task for its own sake, a desire to resolve the problem
- 29. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–29 STAGES OF CREATIVITY • PREPARATION Gathering information, defining problem, generating alternatives • INCUBATION Subconscious mental activity, divergent thinking • ILLUMINATION Insights gained, breakthroughs made • VERIFICATION Test validity of insight, logical thinking
- 30. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–30 ENHANCING GROUP CREATIVITY • Brainstorming Group members generate as many novel ideas as they can on a topic, without evaluation • Nominal group technique Enhances creativity and decision making by integrating individual work and group interaction within ground rules
- 31. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–31 BrainstormingBrainstorming Better group creativity Better group creativityNominal group technique Nominal group technique TECHNIQUES TO ENHANCE GROUP CREATIVITY
- 32. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–32 LECTURE SUMMARY • Nature of managerial decision making Problem types, problem situations • Managers as decision makers Rational and non-rational models • Effective decision making Ideal decision-making process
- 33. Copyright © 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin 5–33 LECTURE SUMMARY • Barriers to effective decision making Complacency, defensive avoidance, panic, decision-making bias, decision escalation • Group decision making Advantages & disadvantages, enhancing group performance • Creativity in decision making Divergent and non-divergent thinking, necessary skills, enhancing group creativity
Editor's Notes
- Page 130
- This lecture explores the nature of managerial decision making, including types of problems and decision-making situations managers can face. Managers as decision makers are evaluated and the steps in an effective decision-making process are considered. Further discussion can be found on page 132.
- Page 133
- Most first-line and many middle managers’ decisions are programmed, whereas top-level managers face few programmed decisions. See Figure 5.2 in text, page 134. Further discussion can be found on pages 133-134.
- The rational model assumes that managers have all relevant information, all necessary time and make decisions in the best interests of the organisation – this is unrealistic but serves a reference point for actual decision-making behaviour. The non-rational model examines the behaviour and motivation of managers in making non-optimal decisions. Further discussion can be found on pages 135-136.
- Page 135
- Pages 135-136
- Page 135
- While managers control few factors affecting decision success, they do control the process used to make decisions. Experts suggest that decisions will be more effective, with a greater likelihood of success, if the steps in Table 5.2 (see text page 137) are followed. Further discussion can be found on pages 136-140.
- Pages 136-137
- As the non-rational model suggests, managers rarely follow the four step model. In addition to this problem, there are barriers to effective decision making, namely the four basic coping patterns that affect behaviour when facing a problem. Further discussion can be found on pages 140-141.
- Page 141
- Biases not only affect a decision maker’s evaluation of alternatives but also influence the process of identifying problems and alternative solutions. Further discussion can be found on pages 143-145.
- Pages 144-145
- Pages 145-146
- Page 145
- Page 145
- Major organisational decisions are normally made by groups to gain from diverse outlooks. Such an approach has both advantages and disadvantages. Further discussion can be found on pages 146-147.
- Groupthink describes the tendency that cohesive groups have to seek agreement about an issue before assessing the situation realistically. According to groupthink theory, members avoid causing disagreements or giving information that might unsettle discussion because they do not want to disturb the cohesion of the group. Further discussion can be found on page 146.
- Page 147
- Ideally managers should seek to avoid the pitfalls of group decision making and to enhance the benefits by creating critical discussion and encouraging collaboration. Further discussion can be found on pages 146-147.
- Page 147
- Creativity is crucial to problem solving which yields organisational innovations. Further discussion can be found on page 149.
- The solving of many problems that require a creative solution requires the use of both convergent and divergent thinking. Convergent thinking helps define a problem and evaluate possible solutions. Divergent thinking helps develop alternate views of the problem and seek new ways to manage them. Further discussion can be found on page 149.
- Pages 150-152
- Page 153
- Other ways of enhancing group creativity are: the Delphi method and scenario analysis (See Chapter 5, Supplement, page 166.) Further discussion can be found on pages 153-154.
- Pages 153-154
- Page 157
- Page 157