6. Decision Making for Engg Manag
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Transcript of 6. Decision Making for Engg Manag
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Types of Decisions andTypes of Decisions and
ProblemsProblems
Decision-a choice made from available alternatives.
Decision Making-the process of identifying problems
and opportunities and then resolving them.
Programmed Decision -a decision made in response
to a situation that has occurred often enough to
enable decision rules to be developed and applied
in the future. (SOP)
Non programmed Decision - a decision made in
response to a situation that is unique, is poorly
defined and largely unstructured, and has important
consequences for the organization.
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Types of Decisions andTypes of Decisions and
Problems (cont.)Problems (cont.)
Certainty -all the information the decision maker
needs is fully available
¡ Risk -a decision has clear cut goals and good
information is available, but the future outcomesassociated with each alternative are subject to change.
Uncertainty -managers know which goal they wish to
achieve, but information about alternatives and future
events in incomplete. Ambiguity -the goals to be achieved or the problem to
be solved is unclear, alternatives are difficult to define,
and information about outcomes is unavailable.
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Sources of Organizational andSources of Organizational and
Entrepreneurial DecisionEntrepreneurial Decision
Sources of Organizational andSources of Organizational and
Entrepreneurial DecisionEntrepreneurial Decision
Managers are faced with decisions when a
problem occurs or when an opportunity arises.
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Sources of Organizational andSources of Organizational and
Entrepreneurial DecisionsEntrepreneurial Decisions
Sources of Organizational andSources of Organizational and
Entrepreneurial DecisionsEntrepreneurial Decisions
Problem
A situation in which some aspect of
organizational performance is less thandesirable.
Opportunity
A situation that has the potential to provide
additional beneficial outcomes.
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Classification of DecisionClassification of Decision
SituationsSituations
Classification of DecisionClassification of Decision
SituationsSituations
Programmed decisions
Decisions made in response to routine situations
that have occurred in the past.
Non programmed decisions
Decisions made in response to situations that areunique, unstructured, or poorly defined.
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Classification of DecisionClassification of Decision
SituationsSituations
Classification of DecisionClassification of Decision
SituationsSituations
R esponses to Decision Situations
Programmed decisions Non programmed decisions
Alternatives are
familiar to decision
makers
R esponses are
routine
Alternatives are not
familiar to decision
makers
R esponses require
creativity
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DecisionDecision--Making StepsMaking Steps 6 Steps
1. Recognition of Decision Requirement
2. Diagnosis and Analysis of Causes
3. Development of Alternatives4. Selection of Desired Alternative
5. Implementation of Chosen Alternative
6. Evaluation and Feedback
± These steps are used regardless of whichmodel of decision used or whether thedecision is programmed or non programmed.
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1. Recognition of Decision Requirement1. Recognition of Decision Requirement
± A decision requirement arises when there is
either an opportunity or a problem.
Opportunity-a situation in which managers seepotential organizational accomplishments that
exceed current goals.
Problem-a situation in which organizational
accomplishments have failed to meet establishedgoals.
± Sources of information: financial reports,
performance reports, customer satisfaction
reports, etc.
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2. Diagnosis and Analysis of Causes2. Diagnosis and Analysis of Causes
± Once a problem or opportunity has come to a
manager¶s attention, the understanding of the
situation should be refined. Diagnosis: the step in the decision making
process in which managers analyze underlying
causal factors associated with the decision
situation. (see what is going on!) Ask questions; gather information; how urgent is
the problem, is it isolated, will it affect other areas
of the organization?
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3. Development of Alternatives3. Development of Alternatives
± Once the problem or opportunity has been
recognized and analyzed, decision makers
begin to consider taking action. Don¶t limit the alternative solutions
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4. Selection of Desired4. Selection of Desired
AlternativesAlternatives ± Once feasible alternatives have been
developed, one must be selected.
± Choose the most promising of several
alternative courses of action. ± The best alternative is one in which the solution
best fits the overall goals and values of the
organization and achieved the desired results
using the fewest resources.
± Risk Propensity will affect your choices
The willingness to undertake risk with the opportunity
of gaining an increased payoff.
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5. Implementation of Chosen Alternative5. Implementation of Chosen Alternative
± The implementation stage involves the use of
managerial, administrative, and persuasive
abilities to ensure that the chosen alternativeis carried out.
± Can your decision be carried out?
± Implementation: the step in a decision
making process that involves usingmanagerial, administrative, and persuasive
abilities to translate the chosen alternative
into action.
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6. Evaluation and Feedback6. Evaluation and Feedback
± Decision makers gather information that tells
them how well the decision was implemented
and whether it was effective in achieving itsgoals.
± Did you make the right decision?
± Do you need to make additional decisions?
± Additional tweaking may be necessary
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Personal Decision Making FrameworkPersonal Decision Making Framework ± Each manager has their own style for making decisions
Problems are perceived differently and managers decide toact upon problems and opportunities differently.
± Directive-simple, clear cut solutions to problems; makedecisions quickly with just a few alternatives.
± Analytical-like to consider complex solutions based upon asmuch data as they can gather. Base decisions on objective,rational data from management control systems & other sources.
± Conceptual-consider large amounts of information combinedwith discussions with other people. Use both people andsystems.
± Behavioral-deep concern for others as individuals. Maymake decisions to help others achieve their goals.
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Increasing Participation in Decision MakingIncreasing Participation in Decision Making ± Learn, Don¶t Punish
± Decisions are made under conditions of uncertainty
and time pressure which may cause some errors.
± How will you react?
± Each failure provides new information and learning.
± Late Departures:
American Airlines (who has done it?) vs. Southwest Airlines (team
delay)
± Know When to Bail ± ³fail early, fail often, and pull the plug early.´
± Escalating Commitment-invest time and resources in a
failing decision.
± Your solution from time to time may in fact be wrong!
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Increasing Participation in Decision Making (cont.)Increasing Participation in Decision Making (cont.)
± Practice the Five Whys
± Learn to ask why, not just once, but 5 times.
± Each subsequent answer will generate alternatives for solving the
problem and probes deeper into the problem
± Build Collective Intuition
± Combined knowledge, experience, and understanding of the group. ± Meet as a group and work together on a solution allowing
everybody's ideas to interplay bringing additional alternatives and
solutions.
± Engage in Constructive Conflict
± A diverse group with varied levels of experience.
± Devils Advocate-challenge the assumptions and assertions to
prevent premature consensus or µgroup think¶.
± Point-Counterpoint: divide the group and argue two sides of the
issue.
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Using Information Technology for decisionUsing Information Technology for decision
making.making.
Managers use information systems that rely
on a massive data warehouse to make
decisions about what to stock, how to priceand promote it, and when to reorder or
discontinue items.
Enhances ability to analyze buying patters,
spot problems or opportunities and conveythe information to lower levels.
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Economies of scale
Economies of scale, in microeconomics, are the cost advantages that abusiness obtains due to expansion. They are factors that cause aproducer¶s average cost per unit to fall as scale is increased. Economiesof scale is a long run concept and refers to reductions in unit cost as thesize of a facility, or scale, increases. Diseconomies of scale are the
opposite. Economies of scale may be utilized by any size firm expandingits scale of operation. The common ones are purchasing (bulk buying of materials through long-term contracts), managerial (increasing thespecialization of managers), financial (obtaining lower-interest chargeswhen borrowing from banks and having access to a greater range of financial instruments), and marketing (spreading the cost of advertising
over a greater range of output in media markets). Each of these factorsreduces the long run average costs (LRAC) of production by shifting theshort-run average total cost (SRATC) curve down and to the right.
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Recession is a business cycle contraction, a general
slowdown in economic activity over a period of time.During recessions, many macroeconomic indicators vary
in a similar way. Production as measured by Gross
Domestic Product (GDP), employment, investment
spending, capacity utilization, household incomes,
business profits and inflation all fall during recessions;
while bankruptcies and the unemployment rate rise.
Recessions are generally believed to be caused by a
widespread drop in spending. Governments usually
respond to recessions by adopting expansionary
macroeconomic policies, such as increasing money
supply, increasing government spending and decreasing
taxation.
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Information TechnologyInformation Technology
± The hardware, software, telecommunications,
database management, and other
technologies used to store, process, and
distribute information.
± Data-raw, un-summarized, and unanalyzed
facts and figures.
± Information-data that have been convertedinto a meaningful and useful context for the
receiver.
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Characteristics of useful informationCharacteristics of useful information
Time: information should be available and
provided when needed, up to date, and related to
the appropriate time period.
Content: useful information is error free, suited tothe user¶s needs, complete, concise, relevant (get
rid of the unnecessary data), and an accurate
measure of performance.
Form: information should be provided in a formthat is easy for the user to understand and that
meets the user¶s needs for the level of detail.
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Types of Information SystemsTypes of Information Systems
Operations Information Systems
Management Information Systems
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Operations Information SystemsOperations Information Systems
A computer based information system that
supports a company¶s day-to-day operations.
2 Types of Systems
Transaction Processing System Records and processes data resulting from routine
business transactions such as sales, purchases, and
payroll.
Office Automation Systems Combine modern hardware and software to handle the
tasks of publishing, distributing information, and
process accounting procedures electronically.
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The Internet and EThe Internet and E--BusinessBusiness
Internet World Wide Web
E-business: any business that takes place by digital
processes over computer network rather than physical place.
E-commerce: business exchanges that occur electronically. Intranet: an internal communications system that uses the
technology and standards of the internet but is accessible
only to people within the organization.
Electronic Data Interchange (EDI): a network that links thecomputer systems of buyers and sellers to allow the
transmission of structured data primarily for ordering,
distribution, and payable and receivables.
Extranet: an external communications system that uses the
internet and is shared by two or more organizations.
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How to get Business into EHow to get Business into E--
BusinessBusiness
E-business strategies
In-house internet division
your own company site
Spin-off
Barnes & Noble vs. barnesandnoble.com
Whirlpool vs. brandwise.com
Strategic partnership
Toys R Us and Amazon.com
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Enhanced CollaborationEnhanced Collaboration Intranets and networks keep customers,
suppliers, and other organizations in better
communication.
What is available online for the customers?
Hong Kong¶s Li & Fung, A&F, Guess, Ann Taylor
They own no factories or machines
Electronically connected to 7,500 supply and manufacturing
partners in 37 countries
Are there risks for customers?
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Organizational LearningOrganizational Learning Information gets to Managers faster
Information gets to Employees faster
Decisions are made with more and better information
Access to databases about industry,
financial, and demographic trends in their
environments will help managers stay on top
of important trends.
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IT TrendsIT Trends Instant Messaging
Wireless Internet
Peer-to-Peer File Sharing
Google Desktop Search