Download Jones - McGraw Hill Higher Education

The Nature of Managerial Decision
Making
Decision Making

The process by which managers respond to
opportunities and threats by analyzing options, and
making decisions about goals and courses of
action.


Decisions in response to opportunities—occurs when
managers respond to ways to improve organizational
performance.
Decisions in response to threats—occurs when managers
are impacted by adverse events to the organization.
7-1
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
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

7-2
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Decision Making
Non-Programmed Decisions


Nonroutine decision making that occurs in
response to unusual, unpredictable
opportunities and threats.
The are no rules to follow since the
decision is new.

Decisions are made based on information, and a
manager’s intuition, and judgment.
7-3
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Decision Making
– 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
 Intuition
7-4
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
The Classical Model of Decision Making
Figure 7.1
McGraw-Hill/Irwin
7-5
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
The Administrative Model
Administrative Model of Decision Making

Bounded rationality
There is a large number of alternatives and
available information can be so extensive that
managers cannot consider it all.
 Decisions are limited by people’s cognitive
abilities.


Incomplete information

most managers do not see all alternatives and
decide based on incomplete information.
7-6
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
The Administrative Model
Administrative Model of Decision Making

An approach to decision making that
explains why decision making is inherently
uncertain and risky and why managers
usually make satisfactory rather than
optimum decisions.
7-7
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Why Information Is Incomplete
Figure 7.2
McGraw-Hill/Irwin
7-8
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Six Steps in Decision Making
Figure 7.4
McGraw-Hill/Irwin
7-9
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
General
Criteria for
Evaluating
Possible
Courses of
Action
Figure 7.5
McGraw-Hill/Irwin
7-10
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Cognitive Biases and Decision
Making
Heuristics


Rules of thumb to deal with complex
situations.
Decision makers use heuristics to deal with
bounded rationality.
If the heuristic is wrong, however, then poor
decisions result from its use.
 Systematic errors can result from use of an
incorrect heuristic and will appear over and over
since the rule used to make decision is flawed.

7-11
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Sources of Cognitive Bias at the
Individual and Group Levels
Figure 7.6
McGraw-Hill/Irwin
7-12
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Group Decision Making
 Superior
to individual making
 Choices less likely to fall victim to bias
 Able to draw on combined skills of
group members
 Improve ability to generate feasible
alternatives
7-13
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Group Decision Making
 Allows
managers to process more
information
 Managers affected by decisions agree
to cooperate
7-14
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Group Decision Making
Groupthink

Biased decision making resulting from
group members striving for agreement.
Usually occurs when group members rally
around a central manager’s idea , and become
blindly commit to the idea without considering
alternatives.
 The group’s influence tends to convince each
member that the idea must go forward.

7-15
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Improved Group Decision Making
 Devil’s


Advocacy
A group member who defends unpopular or
opposing alternatives for the sake of
argument
One member of the group who acts as the
devil’s advocate by critiquing the way the
group identified alternatives and pointing
out problems with the alternative selection.
7-16
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Improved Group Decision Making
 Dialectical


Two different groups are assigned to the problem
and each group evaluates the other group’s choice
of alternatives.
Top managers then hear each group present their
alternatives and each group can critique the other.
 Promote

Inquiry
Diversity
Increasing the diversity in a group may result in
consideration of a wider set of alternatives.
7-17
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Organizational Learning and
Creativity
 Organizational

Managers seek to improve a employee’s
desire and ability to understand and
manage the organization and its task
environment so as to raise effectiveness.
 The

Learning
Learning Organization
Managers try to maximize the people’s
ability to behave creatively to maximize
organizational learning.
7-18
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Senge’s Principles for Creating a
Learning Organization
Figure 7.8
McGraw-Hill/Irwin
7-19
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Organizational Learning and
Creativity
Creativity

The ability of the decision maker to
discover novel ideas leading to a feasible
course of action.

A creative management
staff and employees are
the key to the learning
organization.
7-20
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Promoting Individual Creativity
Organizations can build an environment
supportive of creativity.

Managers must provide employees with the
ability to take risks.


If people take risks, they will occasionally fail.
To build creativity, periodic failures must be
rewarded.

This idea is hard to accept for some managers.
7-21
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
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.
Production blocking

Members cannot absorb all information being presented
during the session and can forget even their own
alternatives.
7-22
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Building Group Creativity
Nominal Group Technique

Provides a more structured way to generate
alternatives in writing.




Avoids the production blocking problem.
Similar to brainstorming except that each member is given
time to first write down all alternatives he or she would
suggest.
Alternatives are then read aloud without discussion until
all have been listed.
Then discussion occurs and alternatives are ranked.
7-23
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.
Building Group Creativity
Delphi Technique


Provides a written format without having all
managers meet face-to-face.
Delphi allows distant managers to participate.




Problem is distributed in written form to managers who
then generate written alternatives.
Responses are received and summarized by top
managers.
These results are sent back to participants for feedback,
and ranking.
The process continues until consensus is reached.
7-24
McGraw-Hill/Irwin
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.