Lec 3 Ch05 - Decision Making Upload

Chapter 3 Review
CHAPTER 5 MANAGERIAL DECISION MAKING
External ENVIRONMENT Internal ENVIRONMENT

Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
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LECTURE OUTLINE
Nature of managerial decision
DECISION MAKING
The process by which managers IDENTIFY problems and try to RESOLVE them
making Managers as decision makers Effective decision making Barriers to effective decision making Group decision making
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NATURE OF MANAGERIAL DECISION MAKING

Types of problems faced:
Crisis problems
Serious: require immediate action
NATURE OF MANAGERIAL DECISION MAKING

Decision-making situations:
Programmed decisions
Routine, repetitive, well-structured situations by use of pre-determined decision rules.
Non-crisis problems
Require resolution but not both immediate and important
Non-programmed decision-making
Pre-determined decision rules are IMPRACTICAL due to novel &/or ill-structured situations.
Opportunity problems
Opportunity for organisational gain IF appropriate action taken
The element of risk

Possibility that a chosen decision could lead to losses rather than intended results.
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MANAGERS AS DECISION MAKERS Managerial decision making model: Rational model Non-rational models
MANAGERS AS DECISION MAKERS

Models of managerial decision making: RATIONAL MODEL 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.
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MANAGERS AS DECISION MAKERS

Models of managerial decision making:
NON-RATIONAL MODELS
Satisficing model
Managers seek alternatives only until they find one which looks satisfactory, rather than seeking an optimal decision.
Non-rational models Models suggesting information gathering and processing limitations make it difficult for managers to make optimal decisions.
Incremental model
Managers make the smallest response possible to reduce the problem to at least a tolerable level.
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An optimal decision is possible All relevant information is available All relevant information is understandable All alternatives are known All possible outcomes known
Time constraints Limited ability to understand all factors
Rational decision making

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Inadequate base of information Limited memory of decision-makers Poor perception of factors to be considered in decision process
Satisficing decision making
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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.
Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin Copyright 2005 McGraw-Hill Australia Pty Ltd PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
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BARRIERS TO EFFECTIVE DECISION MAKING

Complacency
Individuals either do not see signs of danger/opportunity, or avoid them.
BARRIERS TO EFFECTIVE DECISION MAKING

Complacency Panic
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.
Defensive avoidance
Deciding to decide
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DECISION-MAKING BIAS
Representativeness Availability Anchoring & adjustment Overconfidence
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Representativeness
Tendency to be overly influenced by stereotypes in making judgments about the likelihood of occurrences. Example: deciding to hire someone simply because he/she graduated from the same school attended by your most successful new hire. Potential bias: fail to identify important and unique factors relevant to the decision.
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Availability
occurs when people use information readily available from memory as a basis for assessing a current event or situation. Example: deciding whether or not to invest in a new product Potential bias: readily available information may be fallible and may reflect irrelevant factors.
Anchoring & adjustment
Tendency to be influenced by an initial figure, even when the information is largely irrelevant. Example: deciding on a new salary level for an employee by simply adjusting upward their prior years salary by a reasonable %. Potential bias: the decision may be inappropriately biased
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Overconfidence
Tendency to be more certain of judgments regarding the likelihood of a future event than ones actual predictive accuracy warrants.
DECISION ESCALATION
If at first you dont succeed, try, try again. BUT If at first you dont succeed, try, try again. Then quit. No use being a damn fool about it.
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DECISION ESCALATION
Situation signalling possibility of escalating commitment and accelerating losses i.e. continuing a course of action that is not working.
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
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GROUP DECISION MAKING

Advantages:
More information available Wide range of ideas/approaches Improved acceptance of decision Develops group members skills

Disadvantages:
More time-consuming Disagreement/time problems Open to individual dominance Groupthink may arise
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ADVANTAGES
More information available More alternative solutions Increases solution understanding & acceptance Builds member knowledge & skill base
TECHNIQUES TO IMPROVE GROUP DECISIONS

Devils advocates
DISADVANTAGES
Time-consuming
Delays & ill feeling possible
Dialectic inquiry Groupware use
Domination by individuals Risk of groupthink
Better group decision making

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LECTURE SUMMARY
Nature of managerial decision making
Problem types, problem situations
LECTURE SUMMARY
Barriers to effective decision making
Complacency, defensive avoidance, panic, decision-making bias, decision escalation
Managers as decision makers

Rational and non-rational models
Group decision making

Advantages & disadvantages, enhancing group performance
Effective decision making

Ideal decision-making process
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Chapter 3 Review

CHAPTER 5 MANAGERIAL DECISION MAKING

External ENVIRONMENT Internal ENVIRONMENT

NATURE OF MANAGERIAL DECISION MAKING

NATURE OF MANAGERIAL DECISION MAKING

The element of risk

MANAGERS AS DECISION MAKERS

MANAGERS AS DECISION MAKERS

Time constraints Limited ability to understand all factors

Rational decision making

Satisficing decision making

EFFECTIVE DECISION MAKING

Generate alternative solutions

Evaluate and choose an alternative

Implement and monitor

BARRIERS TO EFFECTIVE DECISION MAKING

BARRIERS TO EFFECTIVE DECISION MAKING

GROUP DECISION MAKING

GROUP DECISION MAKING

GROUP DECISION MAKING

TECHNIQUES TO IMPROVE GROUP DECISIONS

Delays & ill feeling possible

Dialectic inquiry Groupware use

Domination by individuals Risk of groupthink

Better group decision making

Managers as decision makers

Group decision making

Effective decision making

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