Lecture management a pacific rim focus chapter 5 managerial decision making

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CHAPTER 5

MANAGERIAL DECISION MAKING

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Decision making

Decision making

‘The process by which managers identify

organisational problems and try to

resolve them.’

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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.

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Managers as decision makers

Models of managerial decision making:

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

Models suggesting information gathering and processing

limitations make it difficult for managers to make optimal

decisions

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.

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Rational decision making

Rational decision making

All alternatives are known

All possible outcomes known

‘Satisficing’ decision making

‘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 & choose an alternative

Feasibility, quality, cost, reversibility, ethics, acceptability

• Implement and monitor

Plan and implement, evaluate effect on others, monitor

Evaluation

of decision effectiveness

Evaluation

of decision effectiveness

Implementation and monitoring

of the chosen alternative

Implementation and monitoring

of the chosen alternative

Steps in decision-making

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Individuals either deny the importance of a danger

/opportunity or deny any responsibility for taking action

Barriers to effective

decision-making

Complacency

Defensive avoidance

Panic

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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 judgements regarding the likelihood of a future event than one’s actual predictive

accuracy warrants

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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

Group decision making

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More alternative solutions

Enhancing group decision

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Techniques to improve group decisions

Member diversity

Better group decision making

Better group decision making

Expert members

Devil’s advocates

Groupware use

Dialectic inquiry

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.’

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Creativity in decision making

Creativity requires both:

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.

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TECHNIQUES TO ENHANCE GROUP CREATIVITY

Brainstorming

Better group creativity

Better group creativity

Delphi

technique

Scenario analysis

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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.

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.