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Transcript of Managerial Decision Making Chapter Three Copyright © 2015 McGraw-Hill Education. All rights...
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Managerial Decision Making
Chapter Three
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
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3-2
Learning Objectives
LO1 Describe the kinds of decisions you will face as a manager.
LO2 Summarize the steps in making “rational” decisions.
LO3 Recognize the pitfalls you should avoid when making decisions.
LO4 Evaluate the pros and cons of using a group to make decisions.
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Learning Objectives (cont.)
LO5 Identify procedures to use in leading a decision-making group
LO6 Explain how to encourage creative decisionsLO7 Discuss the process by which decisions are
made in organizationsLO8 Describe how to make decisions in a crisis
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Characteristics of Managerial Decisions
Figure 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.
Nonprogrammed decisions New, novel, complex decisions having no proven
answers.
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Comparison of Types of DecisionsTable 3.1
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3-7
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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3-8
Uncertainty and Risk
Risk The state that exists when the probability of
success is less than 100 percent and losses may occur.
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3-9
Conflict
Conflict Opposing pressures from different sources,
occurring on the level of psychological conflict or of conflict between individuals or groups.
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Two Levels of Conflict
1. Individual decision makers experience psychological conflict when several options are attractive, or when none of the options is attractive
2. Conflict arises between people
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3-11
The Phases of Decision Making
Generating alternative solutions
Evaluating alternative solutions
Making the choice
Implementing the 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 current state (the way things are) and a desired state (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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3-15
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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3-16
Evaluating Alternatives
Contingency plans Alternative courses of action that can be
implemented based on 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 possible balance among several goals.
A. MaximizingB. SatisficingC. OptimizingD. Minimizing
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3-19
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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3-21
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 continued and applied elsewhere in the organization.
Negative feedback 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. InnovationB. QualityC. 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
Psychological biases
Time pressure
Social realities
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Psychological Biases
Illusion of control People’s 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 and benefits more heavily than longer-term costs and benefits.
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Pros and Cons of Using aGroup to Make Decisions
Table 3.2
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Potential Problems of Using a Group
Groupthink occurs when people
choose not to disagree or raise objections because they don’t want to break up a positive team spirit
Goal displacement A condition that
occurs when a decision-making group 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 or judgments.
Affective conflict Emotional
disagreement directed toward other people.
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3-32
Constructive Conflict
Devil’s advocate A person who has
the job of criticizing ideas to ensure that their downsides are fully explored.
Dialectic A structured debate
comparing two conflicting courses of action.
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Encouraging Creativity
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 be fully 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
Table 3.3
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Decision Making in a Crisis
What kinds of crises could your company face?
Can your company detect a crisis in its early stages?
How will it manage a crisis if one occurs?How can it benefit from a crisis after it has
passed?
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Elements of a Crisis Plan
1. Strategic actions
2. Technical and structural actions
3. Evaluation and diagnostic actions
4. Communication actions
5. Psychological and cultural actions
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Video: PODs
What decision led to the creation of PODS?What common decisions do startups often
face?