Management Presentation Chapter 4

Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4 Management Presentation Chapter 4

The Nature of Decision Making

the decision situation

Identifying alternatives Choosing

the “best” alternative

Putting the alternative into practice

Making effective decisions, as well as recognizing when a bad decision has been made and quickly responding to

it, is a key ingredient in organizational effectiveness

The Nature of Decision Making (cont’d)

–An effective decision optimizes some set of factors such as profits, sales,

employee welfare, and market share

–Managers make decisions about both problems and opportunities

–Sometimes it takes a long… time to see the result

Types of Decisions

–A decision that is relatively structured

or recurs with some frequency (or both)

–Example: Starting your car in the morning

Decision-Making Conditions

–The decision maker knows with reasonable certainty what the alternatives are and what conditions are associated with each alternative (Little ambiguity & low chance of making a bad decision)

–The decision maker knows the availability of each alternative and its potential payoffs and costs that are associated with risks

–The decision maker does not know all the alternatives, the risks associated with each, or the consequences of each alternative

FIGURE 4.1 Decision-Making Conditions

Level of ambiguity and chances of making a bad decision

Uncertainty Risk

Certainty

The decision maker faces conditions of…

Distinguishing Between Decision Making Conditions

Are there multiple possible outcomes?

Are the probabilities of the outcomes known? Decision is certain.

Decision is risky Decision is uncertain.

Management Challenge Question

• Your are captain of a container ship caught in a typhoon Water is leaking into the cargo and you are unsure of whether or not you should abandon ship

–What state of uncertainty is described in this scenario?

–How does the state of uncertainty affect the likelihood that you will make the correct decision?

–Do you think it is easier to make a decision under a condition of risk or a condition of

uncertainty?

FIGURE 4.2 The Classical Model of Decision Making

When faced with a decision

situation, managers should…

•obtain complete and perfect information

•eliminate uncertainty

•evaluate everything logically and rationally

…and end up with

a decision that best serves the interests of the organization

Classical Model tells managers how they should make decisions It assumes

that managers are logical and rational and that their decisions will be in the

best interests of the organization.

Table 4.1 Steps in the Rational Decision-Making Process

1 Recognizing and defining the

2 Identifying alternatives Both obvious and creative alternatives are desired In general, the more

important the decision, the more alternatives should be generated.

The plant manager can increase wages, increase benefits, or change hiring standards.

3 Evaluating alternatives Each alternative is evaluated to determine its feasibility, its satisfactoriness,

and its consequences.

Increasing benefits may not be feasible Increasing wages and changing hiring standards may satisfy all conditions.

4 Selecting the best alternative Consider all situational factors, and choose the alternative that best fits the

The chosen alternative is implemented into the organizational system The plant manager may need permission from corporate

headquarters The human resources department establishes a new wage

The plant manager notes that, six months later, turnover dropped to its previous level.

FIGURE 4.4 The Administrative Model of Decision Making

When faced with a decision situation,

…and end up with

a decision that may or may not serve the interests of the organization

In contrast to the classical model, the administrative model argues that

• Personal motives and biases (e.g lazy or do not want to face many alternatives)

• Cost of continuing to search for alternatives

How did you make the decision?

Question: Are you the type of satisficing or the type who

search for every possibility?

Classical Model vs Administrative Model

–Classical Model: It explains how managers can at least attempt to be more rational and logical when making decisions

–Administrative Model: It explains how managers inherit biases and limitations when making decisions

Behavioral Aspects of Decision Making (cont’d)

–A positive or negative political force in decision making which consists of an informal alliance

of individuals or groups formed to achieve a goal

recognize:

–How to assess whether coalitions are acting in the organization’s best interests

–How to constrain their dysfunctional effects

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password-Initial: Received full report from the CEO Roger Smith

Result: Roger retired and the coalition managed to divert the resources

Behavioral Aspects of Decision Making (cont’d)

–An innate belief about something

without conscious consideration

–A decision maker’s staying with

a decision even when it appears

to be wrong

–The extent to which a decision maker is willing to gamble when making a

decision

• Some managers are cautious about every decision they make.

• Some are extremely aggressive and willing to take risks.

It feels right!!

The feeling is usually not arbitrary but is based

on years of experience.

Behavioral Aspects of Decision Making (cont’d)

uncertainty, and risk related to one another?

– Escalation of commitment occurs when outcomes are not certain But managers have reason

to believe that a positive outcome may result

• Certainty: Would not invest in projects with low probabilities of payoff

• Uncertainty: May admit they don’t know the likely outcome

• Risk: Hope for the “best” even if the chances of the “best” occurring are low and that can lead to

escalation of commitment

Managerial Ethics and Decision Making

Individual Ethics

Managerial Ethics

Employees

Other economic agents

Organizational Ethics

Decisions may be influenced by the decision makers’ personal ethics or their own beliefs about right and wrong.

What Influences Decision Making

Satisficing Bounded rationality

Coalitions

Escalation of commitment

Intuition

Risk propensity

Influences on Decision Making

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password-Ethics Political forces

Group and Team Decision Making

in Organizations

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password-Interacting group or team

Delphi groups

Nominal group Forms of Group Decision Making

Group and Team Decision Making

–Interacting group or team

• Most common decision-making group

• Format: Consists of an existing group or newly formed team interacting and then making a decision Face)

(Face-to-• The interaction among people often sparks new ideas and promotes understanding But political processes

sometime play too big a role

–Delphi groups

• Is used to arrive at a consensus of expert opinion

• Format: Solicits input from a panel of experts who contribute individually (anonymously) Their opinions are combined and averaged

• Communicating through mail, email, etc.

• Best use for forecasting technological breakthroughs (e.g GM).

Group and Team Decision Making

–Nominal groups

• Unlike the Delphi method, in which group members do not see one another, nominal group members are brought together in a face-to-face setting But they are not allowed to talk to each other like the members

of interacting group They would be asked to write down as many alternatives as they can think of

• The members then take turns stating their ideas, which are recorded on a board at the front After all alternatives have been listed, more open discussion takes place

• Members are asked to vote or rank The highest-ranking alternative represents the decision of the group.

• Used most often to generate creative and innovative alternatives

Table 4.2 Advantages and Disadvantages of Group and Team Decision Making

More information and

knowledge are available.

More alternatives are likely to be generated.

More acceptance of the final decision

is likely.

Enhanced communication

of the decision may result.

Better decisions generally emerge.

The process takes longer than individual decision making, so it is costlier.

Compromise decisions resulting from indecisiveness may emerge One person may dominate the group.

Groupthink may influence a group or team’s desire for consensus and overwhelm its desire to reach the best possible decision

Groupthink: The group may arrive at decisions that are made not in the best interests of either the group or the organization, but rather to avoid conflict among group members.

Managing Group and Team Decision-Making Processes

• Be aware of the pros and cons of having a group or

team make a decision.

• Set deadlines for when decisions must be made.

• Avoid problems with dominance by managing group

• Appoint a group member to be a “devil’s advocate.”

• Hold a follow-up meeting to recheck the decision.

Promoting the Effectiveness of Group

and Team Decision Making: