11/3/2012

Decision Making, Learning, Creativity, and Entrepreneurship

Chapter 5 website

Learning Objectives
LO1 Understand the nature of managerial decision making LO2 Describe the six steps that managers should take to make the best decisions LO3 Identify the advantages and disadvantages of group decision making, and describe techniques that can improve it

Mark Gosling Office: D404 Phone: 5417 Email: markg@mail.nkuht.com.tw

5-1

5-2

The Nature of Managerial Decision Making

Decision Making
The process by which managers respond to opportunities and threats by analyzing options, and making determinations about specific organizational goals and courses of action

Decision Making
Programmed Decision
Routine, virtually automatic decision making that follows established rules or guidelines.
Managers have made the same decision many times before There are rules or guidelines to follow based on experience with past decisions Little ambiguity involved

5-3

5-4

Decision Making
Non-Programmed Decisions
Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats.

Decision Making
Intuition
feelings, beliefs, and hunches that come readily to mind, require little effort and information gathering and result in on-the-spot decisions

Reasoned judgment
decisions that take time and effort to make and result from careful information gathering, generation of alternatives, and evaluation of alternatives

5-5

5-6

11/3/2012

The Classical Model

Classical Model of Decision Making
A prescriptive model of decision making that assumes the decision maker can identify and evaluate all possible alternatives and their consequences and rationally choose the most appropriate course of action

The Classical Model of Decision Making

5-7

Figure 5.1

5-8

The Administrative Model

Administrative Model of Decision Making
explains why decision making is uncertain and risky

Why Information Is Incomplete

explains why managers usually make satisfactory rather than optimum decisions

5-9

Figure 5.2

5-10

Causes of Incomplete Information

Risk
The degree of probability that the possible outcomes of a particular course of action will occur

Causes of Incomplete Information

Ambiguous Information
Information that can be interpreted in multiple and often conflicting ways.

Uncertainty
the probabilities of alternative outcomes cannot be determined and future outcomes are unknown
Young Woman or Old Woman Figure 5.3
5-11

5-12

11/3/2012

Causes of Incomplete Information

Time constraints and information costs
managers have neither the time nor money to search for all possible alternatives and evaluate potential consequences

Causes of Incomplete Information

Satisficing
Searching for and choosing an acceptable, or satisfactory response to problems and opportunities, rather than trying to make the best decision Managers explore a limited number of options and choose an acceptable decision rather than the optimum decision

5-13

5-14

Six Steps in Decision Making

Decision Making Steps

Step 1. Recognize Need for a Decision Sparked by an event such as environment changes. Managers must first realize that a decision must be made.

Figure 5.4

5-15

5-16

Decision Making Steps

Step 2. Generate Alternatives Managers must develop feasible alternative courses of action
If good alternatives are missed, the resulting decision is poor It is hard to develop creative alternatives, so managers need to look for new ideas

Decision Making Steps

Step 3. Evaluate Alternatives What are the advantages and disadvantages of each alternative? Managers should specify criteria, then evaluate.

5-17

5-18

11/3/2012

General Criteria for Evaluating Possible Courses of Action

Decision Making Steps

Step 4. Choose Among Alternatives Rank the various alternatives and make a decision
Tendency is for managers to ignore critical information, even when available

Figure 5.5

5-19

5-20

Decision Making Steps

Step 5. Implement Chosen Alternative Managers must now carry out the alternative Often a decision is made and not implemented

Decision Making Steps

Step 6. Learn From Feedback Compare what happened to what was expected to happen Explore why any expectations for the decision were not met Derive guidelines that will help in future decision making

5-21

5-22

Group Decision Making

Superior to individual Improve ability to making generate feasible alternatives Choices less likely to fall victim to bias Allows managers to process more Able to draw on information combined skills of group members Managers affected by decisions agree to cooperate
5-23

Building Group Creativity

Brainstorming
Managers meet face-to-face to generate and debate many alternatives. Group members are not allowed to evaluate alternatives until all alternatives are listed. When all are listed, then the pros and cons of each are discussed and a short list created.

5-24

11/3/2012

Building Group Creativity

Nominal Group Technique
A decision-making technique in which group members write down ideas and solutions, read their suggestions to the whole group, and discuss and then rank the alternatives

Building Group Creativity

Delphi Technique
A decision-making technique in which group members do not meet face-to-face but respond in writing to questions posed by the group leader

5-25

5-26

Group Decision Making

Groupthink
A pattern of faulty and biased decision making that occurs in groups whose members strive for agreement among themselves at the expense of accurately assessing information relevant to a decision

Group Decision Making

Devils Advocacy
Critical analysis of a preferred alternative to ascertain its strengths and weaknesses before it is implemented

5-27

5-28