Download CH05 Managerial Decision Making

CHAPTER 5
MANAGERIAL
DECISION MAKING
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–1
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
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–2
DECISION MAKING
The process by which
managers identify problems
and try to resolve them
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–3
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
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
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.
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–5
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.
• Non-rational models
Models suggesting information gathering and
processing limitations make it difficult for
managers to make optimal decisions.
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–6
NON-RATIONAL MODELS
• 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.
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–7
An optimal decision
is possible
All relevant information
is available
All relevant information is
understandable
All alternatives are known
Rational
decision
making
All possible outcomes known
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–8
Time constraints
Limited ability to
understand all factors
Inadequate base
of information
Limited memory of
decision-makers
‘Satisficing’
decision
making
Poor perception of factors
to be considered
in decision process
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–9
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
5–10
Identification of the problem
STEPS IN
DECISION MAKING
Generate alternative solutions
Evaluate alternatives
Choose
an alternative
Evaluation
of decision
effectiveness
Implement and monitor
the chosen alternative
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–11
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.
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–12
BARRIERS TO EFFECTIVE
DECISION MAKING
Complacency
Panic
Defensive
avoidance
Deciding
to
decide
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–13
DECISION-MAKING BIAS
• Framing
Tendency to make different decisions depending
on how a problem is presented.
• Prospect theory
Decision makers find the prospect of an actual
loss more painful than giving up the possibility of
a gain.
• 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
5–14
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.
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–15
DECISION ESCALATION
Situation signalling possibility of
escalating commitment and
accelerating losses
May take two forms:
• Non-rational escalation
• Sunk costs
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–16
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.
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–17
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
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–18
GROUP DECISION MAKING
Advantages:
• More information available
• Wide range of ideas/approaches
• Improved acceptance of decision
• Develops group members’ skills
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–19
GROUP DECISION MAKING
Disadvantages:
• More time-consuming
• Disagreement/time problems
• Open to individual dominance
• ‘Groupthink’ may arise
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–20
GROUP DECISION MAKING
ADVANTAGES
DISADVANTAGES
More information available
Time-consuming
More
alternative solutions
Delays & ill feeling possible
Increases solution
understanding & acceptance
Domination by individuals
Builds member
knowledge & skill base
Risk of groupthink
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–21
ENHANCING GROUP
DECISION MAKING
• Devil’s advocates
• Dialectical inquiry
• Groupware
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–22
TECHNIQUES TO IMPROVE
GROUP DECISIONS
Devil’s advocates
Dialectic inquiry
Groupware use
Better
group
decision
making
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–23
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.’
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–24
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.
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–25
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
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–26
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
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–27
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
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–28
TECHNIQUES TO ENHANCE
GROUP CREATIVITY
Brainstorming
Nominal group
technique
Better
group
creativity
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–29
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
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–30
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
Copyright  2005 McGraw-Hill Australia Pty Ltd
PPTs t/a Management: A Pacific Rim Focus 4e by Bartol, Tein, Matthews, Martin
5–31