2 Management: Arab World Edition Robbins, Coulter, Sidani, Jamali Chapter 6: Managers as Decision MakersLecturer: [Qais A. Marji]
3 Learning Outcomes Follow this Learning Outline as you read and study this chapter. 6.1 The Decision-Making ProcessDefine decision.Describe the eight steps in the decision-making process.6.2 Managers Making DecisionsDiscuss the assumptions of rational decision making.Describe the concepts of bounded rationality, satisficing, and escalation of commitment.Explain intuitive decision making.
4 Learning Outcomes6.3 Types Of Decisions and Decision-Making ConditionsExplain the two types of problems and decisions.Contrast the three decision-making conditions.Explain maximax, maximin, and minimax decision choice approaches.6.4 Decision-Making StylesDescribe two decision-making styles.Discuss the twelve decision-making biases.Explain the managerial decision-making model.Describe decision-making practices in the Arab context.
5 Learning Outcomes 6.5 Effective Decision Making In Today’s World Explain how managers can make effective decisions in today’s world.List the six characteristics of an effective decision-making process.List the five habits of highly reliable organizations.
6 The Decision-Making Process 1. Define decision.2. Describe the eight steps in the decision-making process.
7 Decision Making Decision Making a choice from two or more alternatives.It is a process, not just a simple act of choosing among alternativesThe Decision-Making ProcessIdentifying a problem and decision criteria and allocating weights to the criteria.Developing, analyzing, and selecting an alternative that can resolve the problem.Implementing the selected alternative.Evaluating the decision’s effectiveness.
8 The SituationSarah is a sales manager whose reps need new laptops because their old ones are outdated and inadequate for doing their job. To make it simple, assume that it is not economical to add memory to the old computers and it is the company’s policy to purchase, not lease.Reps: ممثلين
10 Step 1: Identifying the Problem A discrepancy between an existing and desired state of affairs.Characteristics of ProblemsA problem becomes a problem when a manager becomes aware of it.There is pressure to solve the problem.problem identification is subjective: what one manager considers a problem might not be considered a problem by another manager.The manager must have the authority, information, or resources needed to solve the problem.
11 Step 2: Identifying Decision Criteria Decision criteria are factors that are important (relevant) to resolving the problem such as:Costs that will be incurred (investments required)Risks likely to be encountered (chance of failure)Outcomes that are desired (growth of the firm)
12 Step 3: Allocating Weights to the Criteria Decision criteria are not of equal importance:Assigning a weight to each item places the items in the correct priority order of their importance in the decision- making process.Every decision maker has criteria that guide his or her decisions, even if they are not explicidy stated.
13 Exhibit 6–2 Criteria and Weights for Computer Replacement Decision Criterion WeightMemory and Storage 10Battery life 8Carrying Weight 6Warranty 4Display Quality 3
14 Step 4: Developing Alternatives Identifying viable alternativesAlternatives are listed (without evaluation) that can resolve the problem.This is the step where a decision maker needs to be creative.
15 Step 5: Analyzing Alternatives Appraising each alternative’s strengths and weaknessesAn alternative’s appraisal is based on its ability to resolve the issues identified in steps 2 and 3.There are times when a decision maker might not have to do this step. If one alternative scored highest on every criterion, you would not need to consider the weights because that alternative would already be the top choice. Or, if the weights were all equal, you could evaluate an alternative merely by summing up the assessed values for them all.
16 Exhibit 6–3. Assessed Values of Laptop Exhibit 6–3 Assessed Values of Laptop Computers Using Decision Criteria
17 Step 6: Selecting an Alternative Choosing the best alternativeThe alternative with the highest total weight is chosen.
18 Exhibit 6–4. Evaluation of Laptop Alternatives Exhibit 6–4 Evaluation of Laptop Alternatives Against Weighted Criteria
19 Step 7: Implementing the Alternative Putting the chosen alternative into actionConveying the decision to and gaining commitment from those who will carry out the decision.you put the decision into action by communicating it to those affected and getting their commitment to it. We know that if the people who must implement a decision participate in the process, they are more likely to support it than if you just tell them what to do.managers may need to do during implementation is reassess the environment for any changes, especially with a long-term decision.
20 Step 8: Evaluating the Decision’s Effectiveness The soundness of the decision is judged by its outcomesHow effectively was the problem resolved by outcomes resulting from the chosen alternatives?If the problem was not resolved, what went wrong?
21 Managers Making Decisions 1. Discuss the assumptions of rational decision making.2. Describe the concepts of bounded rationality, satisficing, and escalation of commitment.3. Explain intuitive decision making.
22 Managers Making Decisions Decision making is part of all four managerial functions (next slide). In fact, that is why we say that decision making is the essence of management.that is why managers ‒ when they plan, organize, lead, and control ‒ are called decision makers.
23 Exhibit 6–5 Decisions in the Management Functions
24 The fact that almost everything a manager does involves making decisions does not mean that decisions are always time-consuming, complex, or evident to an outside observer. Most decision making is routine. Every day of the year, you make a decision.Managers also make dozens of these routine decisions every day - for example, which employee will work what shift next week, what information should be included in a report, or how to resolve a customer’s complaint.Keep in mind that even though a decision seems easy or has been faced by a manager a number of times before, it still is a decision.
25 Making Decisions Rationality Managers make consistent, value-maximizing choices with specified constraints.Assumptions are that decision makers:Are perfectly rational, fully objective, and logical.Have carefully defined the problem and identified all viable alternatives.Have a clear and specific goal.Will select the alternative that maximizes outcomes in the organization’s interests rather than in their personal interests.
26 Making Decisions (cont’d) Bounded RationalityManagers make decisions rationally, but are limited (bounded) by their ability to process information.Assumptions are that decision makers:Will not seek out or have knowledge of all alternatives.Will satisfice ‒ choose the first alternative encountered that satisfactorily solves the problem ‒ rather than maximize the outcome of their decision by considering all alternatives and choosing the best.Influence on decision makingEscalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong.Escalation: التصعيد
27 The Role of Intuition Intuitive decision making Making decisions on the basis of experience, feelings, and accumulated judgment.
28 Exhibit 6–6 What Is Intuition? Source: Based on L. A. Burke and M. K. Miller, “Taking the Mystery Out of Intuitive Decision Making,” Academy of Management Executive, October 1999, pp. 91–99.
29 The Role of IntuitionIntuitive decision making can complement bounded rational decision making.First of all, a manager who has had experience with a similar type of problem or situation often can act quickly with what appears to be limited information because of that past experience.Recent study found that individuals who experienced intense feelings and emotions when making decisions actually achieved higher decision-making performance, especially when they understood their feelings as they were making decisions.The old belief that managers should ignore emotions whenmaking decisions may not be the best advice.
30 Types Of Decisions and Decision-Making Conditions 1. Explain the two types of problems and decisions.2. Contrast the three decision-making conditions.3. Explain maximax, maximin, and minimax decision choice approaches.
31 Types of Problems and Decisions Managers face different types of problems and decisions as they do their jobs.Depending on the nature of the problem, a manager can make one of two different types of decisions:Structured ProblemsUnstructured Problems
32 Types of Problems and Decisions Structured ProblemsSome problems are straightforward.Involve goals that are clearAre familiar (have occurred before)Are easily and completely defined ‒ information about the problem is available and completeProgrammed DecisionA repetitive decision that can be handled by a routine approach.
33 With this type of decision the “develop-the-alternatives” stage of the decision-making process either does not exist or is given little attention.once the structured problem is defined, the solution is usually self-evident or at least reduced to a few alternatives that are familiar and have proved successful in the past. MManager relies on one of three types of programmed decisions:Procedure.Rulepolicy.
34 Types of Programmed Decisions ProcedureA series of interrelated steps that a manager can use to respond (applying a policy) to a structured problem.The only difficulty is identifying the problem. Once the problem is clear, so is the procedure.RuleAn explicit statement that limits what a manager or employee can or cannot do.They are frequently used because they are simple to follow and ensure consistency.PolicyA general guideline for making a decision about a structured problem.In contrast to a rule, a policy establishes general parameters for the decision maker rather than specifically stating what should or should not be done.
35 Policy, Procedure, and Rule Examples Accept all customer-returned merchandise.ProcedureFollow all steps for completing merchandise return documentation.RulesManagers must approve all refunds over $50.00.No credit purchases are refunded for cash.
36 Problems and Decisions Unstructured ProblemsProblems that are new or unusual and for which information is ambiguous or incomplete.Problems that will require custom-made solutions.Nonprogrammed DecisionsDecisions that are unique and nonrecurring.Decisions that generate unique responses.
37 Exhibit 6–7 Programmed Versus Nonprogrammed Decisions Vague: غامض
38 Few managerial decisions in the real world are either fully programmed or nonprogrammed. Most fall somewhere in between.
39 Decision-Making Conditions managers may face three different conditions whin making decisions, :certainty,Riskuncertainty.
40 Decision-Making Conditions CertaintyA situation in which a manager can make an accurate decision because the outcome of every alternative choice is known.RiskA situation in which the manager is able to estimate the likelihood (probability) of outcomes that result from the choice of particular alternatives.managers have historical data from past personal experiences or secondary information that lets them assign probabilities to different alternatives
41 Exhibit 6–8 Expected Value for Revenues from the Exhibit 6–8 Expected Value for Revenues from the Addition of One Ski Lift
42 Decision Making Conditions UncertaintyLimited information prevents estimation of outcome probabilities for alternatives associated with the problem and may force managers to rely on intuition, hunches, and “gut feelings”.Maximax (optimistic): the optimistic manager’s choice to maximize the maximum payoffMaximin (pessimistic): the pessimistic manager’s choice to maximize the minimum payoffMinimax (regret): the manager’s choice to minimize maximum regretPessimistic: متشائم
43 ExampleA marketing manager at Visa has determined four possible strategies (SI, S2, S3, and S4) for promoting the Visa card throughout the Middle East.The marketing manager also knows that a major competitor, MasterCard, has three competitive actions (CA1, CA2, CA3) it is using to promote its card in the same region
46 Exhibit 6–9 Payoff Matrix Maximin (pessimistic): S3: 15 M
47 Exhibit 6–10 Regret Matrix Minimax (regret): S4: $6 “a regret of profits given up of more than US$7 Mmanagers recognize that once a decision is made, it will not necessarily result in the most profitable payoff. There may be a “regret” of profits given up
48 Decision-Making Styles 1. Describe two decision-making styles.2. Discuss the twelve decision-making biases.3. Explain the managerial decision-making model.4. Describe decision-making practices in the Arab context.
49 Decision-Making Styles Linear thinking styleA person’s preference for using external data and facts and processing this information through rational, logical thinking.Nonlinear thinking styleA person’s preference for internal sources of information and processing this information with internal insights, feelings and hunches.
50 Managers need to recognize that their employees may use different decisionmaking styles. Some employees may take their time weighing alternatives and relying on how they feel about it, while others may rely on external data before logically making a decision.This does not make one person’s approach better than the other. It just means that their decision-making styles are different.
51 Exhibit 6–11 Common Decision-Making Errors and Biases
52 Decision-Making Biases and Errors HeuristicsUsing “rules of thumb” to simplify decision making.Overconfidence BiasHolding unrealistically positive views of oneself and one’s performance.Immediate Gratification BiasChoosing alternatives that offer immediate rewards and avoid immediate costs.Heuristics: الاستدلالGratification: اشباع، ارضاء
53 Decision-Making Biases and Errors (cont’d) Anchoring EffectFixating on initial information and ignoring subsequent information.Selective Perception BiasSelecting, organizing and interpreting events based on the decision maker’s biased perceptions.Confirmation BiasSeeking out information that reaffirms past choices and discounting contradictory information.Anchoring:
54 Decision-Making Biases and Errors (cont’d) Framing BiasSelecting and highlighting certain aspects of a situation while ignoring other aspects.Availability BiasLosing decision-making objectivity by focusing on the most recent events.Representation BiasDrawing analogies and seeing identical situations when none exist.Randomness BiasCreating unfounded meaning out of random events.
55 Decision-Making Biases and Errors (cont’d) Sunk Costs ErrorsForgetting that current actions cannot influence past events and relate only to future consequences.Self-Serving BiasTaking quick credit for successes and blaming outside factors for failures.Hindsight BiasMistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact).
56 Managers avoid the negative effects of these decision errors and biases by being aware of them and then not using them.Managers should also pay attention to how they make decisions and try to identify the heuristics they typically use and critically evaluate how appropriate those are.Managers might want to ask those around them to help identify weaknesses in their decision-making style and try to improve on
57 Exhibit 6–12 Overview of Managerial Decision Making
58 Practices Of Decision Making In The Arab World The traditional Arab decision-making process has been impacted by several factors.A system of networking and collective decision making where the leader/manager consults with other group members to arrive at a decision that has the backing of the community.The concept of Shura is important. It is not restricted to the political arena; it has its manifestations in different social institutions, including the family and business organizations.The consultative style seems to be widespread in Arab organizations.
59 Effective Decision Making In Today’s World 1. Explain how managers can make effective decisions in today’s world.2. List the six characteristics of an effective decision-making process.3. List the five habits of highly reliable organizations.
60 Decision Making for Today’s World (cont’d) Today’s business world revolves around making decisions, often risky ones, usually with incomplete or inadequate information, and under intense time pressure.Most managers make one decision after another; and as if that were not challenging enough, more is at stake than ever before. Bad decisions can cost millions.What do managers need to do to make effective decisions in today’s fast-moving world?
61 Decision Making for Today’s World Guidelines for making effective decisions:1. Understand cultural differences.In some cases, there is no best way to make decisions. The best way may depend on the values, attitudes, and beliefs that prevail in a specific culture.2. Know when it’s time to stop.Good decision makers are not afraid to change their minds. They do not become attached to one course of thinking.
62 Decision Making for Today’s World (cont’d) 3. Use an effective decision-making process. This process has six characteristics:It focuses on what is important.It is logical and consistent.It acknowledges both subjective and objective thinking and blends analytical with intuitive thinking.It requires only as much information and analysis as is necessary to resolve a particular dilemma.It encourages and guides the gathering of relevant information and informed opinion.It is straightforward, reliable, easy to use, and flexible.
63 Decision Making for Today’s World (cont’d) 4. Build an organization that can spot the unexpected and quickly adapt to the changed environment. Karl Weick calls such organizations highly reliable organizations (HROs) and says they share five habits:Are not tricked by their success.: They are alert to the smallest deviations and react quickly to anything that does not fit with their expectations.Defer to the experts on the front line. Let the front line workers to have firsthand knowledge of what can and cannot be done, what will and will not work. Get their input. Let them make decisions.Let unexpected circumstances provide the solution.Embrace complexity. organizations aim for deeper understanding of the situation.Anticipate, but also recognize their limits. These organizations do try to anticipate as much as possible, but they recognize that they cannot anticipate everything.Embrace: تعانق
64 Terms to Knowdecision decision-making process problem decision criteria rational decision making bounded rationality satisficing escalation of commitment intuitive decision making structured problems programmed decisionprocedurerulepolicyunstructured problemsnonprogrammed decisionscertaintyriskuncertaintydirective styleanalytic styleconceptual style
65 Terms to Know (cont’d) behavioral style heuristics business performance management (BPM) software
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