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ManagerialDecision

Making

Chapter 03

Copyri ght 2011 by the McGraw-H il l Companies, Inc. Al l r ights reserved.McGraw-Hill/Irwin

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Learning Objectives

LO1Describe the kinds of decisions you will face

as a manager

LO2Summarize the steps in making rationaldecisions

LO3Recognize the pitfalls you should avoid

when making decisionsLO4Evaluate the pros and cons of using a group

to make decisions

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Learning Objectives (cont.)

LO5Identify procedures to use in leading a

decision-making group

LO6Explain how to encourage creative decisionsLO7Discuss the process by which decisions are

made in organizations

LO8Describe how to make decisions in a crisis

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Characteristics of Managerial Decisions

3-4Figure 3.1

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Lack of Structure

Programmed decisions

Decisions encountered

and made before, having

objectively correct

answers, and solvable by

using simple rules,

policies, or numerical

computations.

Non programmed

decisions

New, novel, complex

decisions having no

proven answers.

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Uncertainty and Risk

Certainty

The state that exists when decision makers have

accurate and comprehensive information.

Uncertainty

The state that exists when decision makers have

insufficient information.

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Uncertainty and Risk

Risk

The state that exists

when the probability

of success is lessthan 100 percent and

losses may occur.

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Two Levels of Conflict

Individual decision makers experience

psychologicalconflict when several options

are attractive, or when none of the options isattractive

Conflict arises between people

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The Stages of Decision Making

3-11

Generatingalternativesolutions

Evaluatingalternativesolutions

Making thechoice

Implementingthe decision

Evaluating the

decision

Identifying and

diagnosing the

problem

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Identifying and Diagnosing the Problem

Typically, a manager realizes some

discrepancy between the currentstate (the

way things are) and a desiredstate (the way

things ought to be).

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Identifying and Diagnosing the Problem

Such discrepancies may be detected by

comparing current performance against (1)

past performance, (2) the current

performance of other organizations or units,

or (3) future expected performance as

determined by plans and forecasts.

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Generating Alternative Solutions

Ready-made

solutions

Ideas that have been

seen or tried before

Custom-made

solutions

New, creative

solutions designed

specifically for the

problem

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Evaluating Alternatives

Evaluating alternatives

Involves determining the value or adequacy of the

alternatives that were generated

Which solution will be the best?

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Evaluating Alternatives

Contingency plans

Alternative courses

of action that can be

implemented basedon how the future

unfolds.

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Making the Choice

Maximizing

A decision realizing

the best possible

outcome

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Question

___________ is achieving the best possiblebalance among several goals

A. Maximizing

B. Satisficing

C. Optimizing

D. Minimizing

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Making the Choice

Satisficing

Choosing an option that is acceptable, although

not necessarily the best or perfect

Optimizing

Achieving the best possible balance among several

goals

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Implementing the Decision

1. Determine how things will look when the decision is

fully operational.

2. Chronologically order the steps necessary to

achieve a fully operational decision.

3. List the resources and activities required to

implement each step.

4. Estimate the time needed for each step.5. Assign responsibility for each step to specific

individuals.

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Implementing the Decision

What problems could this action cause?

What can we do to prevent the problems?

What unintended benefits or opportunities could

arise?

How can we make sure they happen?

How can we be ready to act when the opportunities

come?

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Evaluating the Decision

Feedback that suggests the decision is

working implies that the decision should be

continuedand applied elsewhere in the

organization.

Negativefeedback means that either (1)

implementation will require more time,

resources, effort, or thought or (2) the

decision was a bad one

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Question

___________ is the process in which a decision

maker carefully executes all stages of decision

making.

A. Innovation

B. Quality

C. SatisficingD. Vigilance

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The Best Decision

Vigilance

A process in which a decision maker carefully

executes all stages of decision making

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Barriers to Decision Making

3-25

Psychological biases

Time pressure

Social realities

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Psychological Biases

Illusion of control

Peoples belief that they can influence events,

even when they have no control over what will

happen

Framing effects

A decision bias influenced by the way in which a

problem or decision alternative is phrased or

presented.

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Psychological Biases

Discounting the

future

A bias weighting

short-term costs andbenefits more heavily

than longer-term

costs and benefits.

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Pros and Cons of Using a

Group to Make Decisions

3-28

Table 3.2

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Potential Problems of Using a Group

Groupthink

A phenomenon that

occurs in decision

making when groupmembers avoid

disagreement as they

strive for consensus

Goal displacement

A condition that

occurs when a

decision-makinggroup loses sight of

its original goal and a

new, less important

goal emerges.

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Managing Group Decision Making

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Constructive Conflict

Cognitive conflict

Issue-based

differences in

perspectives orjudgments.

Affective conflict

Emotional

disagreement

directed towardother people.

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Constructive Conflict

Devils advocate

A person who has

the job of criticizing

ideas to ensure thattheir downsides are

fully explored.

Dialectic

A structured debate

comparing two

conflicting courses ofaction.

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Encouraging Creativity

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Creation

Synthesis

Modification

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Brainstorming

Brainstorming

A process in which group members generate as

many ideas about a problem as they can; criticism

is withheld until all ideas have been proposed.

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Models of Organizational Decision

Processes

Bounded rationality

A less-than-perfect form

of rationality in which

decision makers cannot

be perfectly rational

because decisions are

complex and complete

information is

unavailable or cannot befully processed

Incremental model

Model of organizational

decision making in which

major solutions arise

through a series of

smaller decisions

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Models of Organizational Decision

Processes

Coalitional model

Model of organizational

decision making in which

groups with differing

preferences use power

and negotiation to

influence decisions.

Garbage can model

Model of organizational

decision making

depicting a chaotic

process and seemingly

random decisions.

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Two Disasters

3-37Table 3.3

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Decision Making in a Crisis

What kinds of crises could your company

face?

Can your company detecta crisis in its earlystages?

How will it managea crisis if one occurs?

How can it benefitfrom a crisis after it haspassed?

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Elements of a Crisis Plan

1. Strategic actions

2. Technical and structural actions

3. Evaluation and diagnostic actions4. Communication actions

5. Psychological and cultural actions

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Destination CEO: Allstate

What do you think

would be the most

challenging part of

being CEO ofAllstate?

Do you agree with

Liddys decision not

to write or renew

homeownerspolicies in hurricane-

prone areas? Why or

why not?

3 40

http://www.allstate.com/