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Introduction to Management

PART II: Planning

4

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Introduction to Management

Learning Outcomes

After this class, I will be able to:

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Introduction to Management

1. Describe the steps in the decision-making process.

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2. Identify the assumptions of the rational decision-making model.

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3. Explain the limits to rationality.

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4. Describe the actions of the

bounded-rational decision maker.

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5. Identify the two types of decision problems and the two types of

decisions that are used to solve them.

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6. Define heuristics and explain how they

affect the decision-making process.

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7. Identify four decision-making styles.

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8. Describe the advantages and disadvantages of group decisions.

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9. Explain three techniques for

improving group decision making.

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Introduction to Management

Decision-making

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Staple or Paper Clip?Book or Movie?Friend or Foe?

Apple or Orange?Good or Evil?

Healthy or Unhealthy?Work or Play?

Attack or Defend?Transparent or Fake?Positive or Negative?

Freedom or Confinement?Bible or Football?

Computer or Compassion?

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Introduction to Management

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Introduction to Management

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Introduction to Management

Decision-making

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Can you decompose a management problem and “recombine its elements in some new manner”?

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•Strategy is all about choice, which affects outcomes.

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•Strategy is differentiated from tactics or immediate actions with resources at hand by its nature of being extensively premeditated, and often practically rehearsed.

•Strategies are used to make the problem easier to understand and solve.

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Introduction to Management

Examples of Planning-Function Decisions

What are the organization’s long-term objectives?

What strategies will best achieve those objectives?

What should the organization’s short-term objectives be?

What is the most efficient means of completing tasks?

What might the competition be considering?

What budgets are needed to complete department tasks?

How difficult should individual goals be? Exhibit 4.1

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Introduction to Management

• Decision-making process– A set of eight steps that includes identifying a

problem, selecting a solution, and evaluating the effectiveness of the solution

• Problem– A discrepancy between an existing and a

desired state of affairs• Decision criteria

– Factors that are relevant in a decision

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Introduction to Management

The Decision-Making Process

Exhibit 4.2

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Criteria and Weight in Car-Buying Decision

(Scale of 1 to 10)CRITERION WEIGHT

Price 10

Interior comfort 8

Durability 5

Repair record 5

Performance 3

Handling 1Exhibit 4.3

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Assessment of Car Alternatives

Exhibit 4.4

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Weighting of Vehicles(Assessment Criteria X Criteria Weight)

Exhibit 4.5

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Decision-making (cont’d)

• Decision implementation– Putting a decision into action; includes

conveying the decision to the persons who will be affected by it and getting their commitment to it.

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Making Decisions: The Rational Model• Certainty

– The implication that the outcome of every possible alternative is known.

• Uncertainty– A condition under which there is not full

knowledge of the problem and reasonable probabilities for alternative outcomes cannot be determined.

• Risk– The probability that a particular outcome will

result from a given decision.

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Assumptions of Rationality

Exhibit 4.6

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What Is Creative Potential?• Expertise

– Understanding, abilities, knowledge, proficiencies, necessary in the field of creative endeavor.

• Creative-thinking skills– The personality characteristics associated with

creativity, the ability to use analogies, as well as the talent to see the familiar in a different light.

• Intrinsic task motivation– The desire to work on something because it’s

interesting, involving, exciting, satisfying, or personally challenging.

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Three Elements of Creativity

CreativityThe ability to produce novel and useful ideas

Exhibit 4.7Source: T. M. Amabile. “Motivating Creativity in Organizations,” Califormia Management Review (Fall 1997), p. 43. Copyright © 1997, by The Regents of the University of California. Reprinted by permission of the Regents.

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Introduction to Management

Making Decisions: The Rational Model• Rational

– Describes choices that are consistent and value-maximizing within specified constraints.

• Bounded rationality (Herbert Simon)– Behavior that is rational within the parameters of a

simplified model that captures the essential features of a problem.

• Satisfice– Making a “good enough” decision: choosing the first-

identified alternative that satisfactorily and sufficiently solves the problem.

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Common Decision-making Errors• Heuristics: Using judgmental shortcuts

– Availability heuristic• The tendency to base judgments on information that is

readily available.– Representative heuristic

• The tendency to base judgments of probability on things (objects or events) that are familiar

– Escalation of commitment• An increased commitment to a previous decision

despite negative information about the decision’s present outcomes.

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How Do Problems Differ?• Well-structured problems

– Straightforward, familiar, easily defined problems

• Ill-structured problems

– New problems in which information is ambiguous or incomplete

• Programmed decision

– A repetitive decision that can be handled by a routine approach

• Nonprogrammed decisions

– Decisions that must be custom-made to solve unique and nonrecurring problems

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Programmed Decision-Making Aids

• Policy– A general guide that establishes parameters for making

decisions about recurring problems.• Procedure

– A series of interrelated sequential steps that can be used to respond to a well-structured problem (policy implementation).

• Rule– An explicit statement that tells managers what they

ought or ought not to do (limits on procedural actions).

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Introduction to Management

Examples of Planning-Function Decisions – consider your business What are the organization’s long-term objectives?

What strategies will best achieve those objectives?

What should the organization’s short-term objectives be?

What is the most efficient means of completing tasks?

What might the competition be considering?

What budgets are needed to complete department tasks?

How difficult should individual goals be? Exhibit 4.1

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Introduction to Management

Types of Problems, Types of Decisions,

and Level in the Organization

Exhibit 4.8

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Technology And Decision Making• Expert systems

– Software that acts like an expert in analyzing and solving ill-structured problems

• Use specialized knowledge about a particular problem area rather than general knowledge

• Use qualitative reasoning rather than numerical calculations

• Perform at a level of competence higher than that of nonexpert humans.

• Neural networks– Software that is designed to imitate the structure of brain

cells and connections among them

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Introduction to Management

Decision Making: Styles

• Directive style– Characterizes the low tolerance for ambiguity and a

rational way of thinking of individuals who are logical and efficient and typically make fast decisions that focus on the short term.

• Analytic style– Characterizes the high tolerance for ambiguity

combined with a rational way of thinking of individuals who prefer to have complete information before making a decision.

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Decision Making: Styles (cont’d)• Conceptual style

– Individuals who tend to be very broad in outlook, to look at many alternatives, and to focus on the long run and often look for creative solutions.

• Behavioral style– Individuals who think intuitively but have a low

tolerance for uncertainty; they work well with others, are open to suggestions, and are concerned about the individuals who work for them.

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Introduction to Management

Decision-Making Styles

Exhibit 4.9

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Introduction to Management

Group Decision Making

• Advantages– Make more accurate

decisions– Provides more complete

information– Offers a greater diversity of

experiences and perspectives

– Generates more alternatives– Increases acceptance of a

solution– Increases the legitimacy of a

decision.

• Disadvantages– Is more time-consuming

and less efficient– Minority domination can

influence decision process– Increased pressures to

conform to the group’s mindset (groupthink)

– Ambiguous responsibility for the outcomes of decisions

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When Are Groups Most Effective?• Creativity

– Groups tend to be more creative than individuals.

• Acceptance of the final solution– Groups help increase the acceptance of

decisions.• Effectiveness of group decision making

– Groups of five to seven members are optimal for decision process speed and quality.

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Improving Group Decision Making• Brainstorming

– An idea-generating process that encourages alternatives while withholding criticism.

• Nominal group technique– A decision-making technique in which group

members are physically present but operate independently.

• Electronic meeting– A type of nominal group technique in which

participants are linked by computer.