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Management: Arab World Edition Robbins, Coulter, Sidani, Jamali Chapter 6: Managers as Decision Makers Lecturer: [Qais A. Marji]
6-3 Copyright © 2011 Pearson Education Learning Outcomes Follow this Learning Outline as you read and study this chapter. 6.1 The Decision-Making Process Define decision. Describe the eight steps in the decision-making process. 6.2 Managers Making Decisions Discuss the assumptions of rational decision making. Describe the concepts of bounded rationality, satisficing, and escalation of commitment. Explain intuitive decision making.
6-4 Copyright © 2011 Pearson Education Learning Outcomes 6.3 Types Of Decisions and Decision-Making Conditions Explain 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 Styles Describe two decision-making styles. Discuss the twelve decision-making biases. Explain the managerial decision-making model. Describe decision-making practices in the Arab context.
6-5 Copyright © 2011 Pearson Education 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.
6-6 Copyright © 2011 Pearson Education The Decision-Making Process 1. Define decision. 2. Describe the eight steps in the decision-making process.
6-7 Copyright © 2011 Pearson Education Decision Making Decision Making a choice from two or more alternatives. It is a process, not just a simple act of choosing among alternatives The Decision-Making Process Identifying 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.
6-8 Copyright © 2011 Pearson Education The Situation Sarah is a sales manager whose reps need new laptops because their old ones are outdated and inadequate for doing their job.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.
6-9 Copyright © 2011 Pearson Education Exhibit 6–1 The Decision- Making Process
6-10 Copyright © 2011 Pearson Education Problem A discrepancy between an existing and desired state of affairs. Characteristics of Problems A 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. Step 1: Identifying the Problem
6-11 Copyright © 2011 Pearson Education 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) Step 2: Identifying Decision Criteria
6-12 Copyright © 2011 Pearson Education 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. Step 3: Allocating Weights to the Criteria
6-13 Copyright © 2011 Pearson Education Criterion Weight Memory and Storage 10 Battery life 8 Carrying Weight 6 Warranty 4 Display Quality 3 Exhibit 6–2 Criteria and Weights for Computer Replacement Decision
6-14 Copyright © 2011 Pearson Education Identifying viable alternatives Alternatives are listed (without evaluation) that can resolve the problem. This is the step where a decision maker needs to be creative. Step 4: Developing Alternatives
6-15 Copyright © 2011 Pearson Education Appraising each alternative’s strengths and weaknesses An 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. Step 5: Analyzing Alternatives
6-16 Copyright © 2011 Pearson Education Exhibit 6–3 Assessed Values of Laptop Computers Using Decision Criteria
6-17 Copyright © 2011 Pearson Education Choosing the best alternative The alternative with the highest total weight is chosen. Step 6: Selecting an Alternative
6-18 Copyright © 2011 Pearson Education Exhibit 6–4 Evaluation of Laptop Alternatives Against Weighted Criteria
6-19 Copyright © 2011 Pearson Education Putting the chosen alternative into action Conveying 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. Step 7: Implementing the Alternative
6-20 Copyright © 2011 Pearson Education The soundness of the decision is judged by its outcomes How effectively was the problem resolved by outcomes resulting from the chosen alternatives? If the problem was not resolved, what went wrong? Step 8: Evaluating the Decision’s Effectiveness
6-21 Copyright © 2011 Pearson Education 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.
6-22 Copyright © 2011 Pearson Education 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.
6-23 Copyright © 2011 Pearson Education Exhibit 6–5 Decisions in the Management Functions
6-24 Copyright © 2011 Pearson Education 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.
6-25 Copyright © 2011 Pearson Education 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.
6-26 Copyright © 2011 Pearson Education Making Decisions (cont’d) Bounded Rationality Managers 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 making Escalation of commitment: an increased commitment to a previous decision despite evidence that it may have been wrong.
6-27 Copyright © 2011 Pearson Education The Role of Intuition Intuitive decision making Making decisions on the basis of experience, feelings, and accumulated judgment.
6-28 Copyright © 2011 Pearson Education 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.
6-29 Copyright © 2011 Pearson Education The Role of Intuition Intuitive 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 when making decisions may not be the best advice.
6-30 Copyright © 2011 Pearson Education 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.
6-31 Copyright © 2011 Pearson Education 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 Problems – Unstructured Problems
6-32 Copyright © 2011 Pearson Education Types of Problems and Decisions Structured Problems Some problems are straightforward. Involve goals that are clear Are familiar (have occurred before) Are easily and completely defined ‒ information about the problem is available and complete Programmed Decision A repetitive decision that can be handled by a routine approach.
6-33 Copyright © 2011 Pearson Education 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. M Manager relies on one of three types of programmed decisions: Procedure. Rule policy.
6-34 Copyright © 2011 Pearson Education Types of Programmed Decisions Procedure A 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. Rule An 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. Policy A 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.
6-35 Copyright © 2011 Pearson Education Policy, Procedure, and Rule Examples Policy Accept all customer-returned merchandise. Procedure Follow all steps for completing merchandise return documentation. Rules Managers must approve all refunds over $ No credit purchases are refunded for cash.
6-36 Copyright © 2011 Pearson Education Problems and Decisions Unstructured Problems Problems that are new or unusual and for which information is ambiguous or incomplete. Problems that will require custom-made solutions. Nonprogrammed Decisions Decisions that are unique and nonrecurring. Decisions that generate unique responses.
6-37 Copyright © 2011 Pearson Education Exhibit 6–7 Programmed Versus Nonprogrammed Decisions
6-38 Copyright © 2011 Pearson Education Few managerial decisions in the real world are either fully programmed or nonprogrammed. Most fall somewhere in between.
6-39 Copyright © 2011 Pearson Education Decision-Making Conditions managers may face three different conditions whin making decisions, : certainty, Risk uncertainty.
6-40 Copyright © 2011 Pearson Education Decision-Making Conditions Certainty A situation in which a manager can make an accurate decision because the outcome of every alternative choice is known. Risk A 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
6-41 Copyright © 2011 Pearson Education Exhibit 6–8 Expected Value for Revenues from the Addition of One Ski Lift
6-42 Copyright © 2011 Pearson Education Decision Making Conditions Uncertainty Limited 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 payoff Maximin (pessimistic): the pessimistic manager’s choice to maximize the minimum payoff Minimax (regret): the manager’s choice to minimize maximum regret
6-43 Copyright © 2011 Pearson Education Example A 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
6-44 Copyright © 2011 Pearson Education Exhibit 6–9 Payoff Matrix
6-45 Copyright © 2011 Pearson Education Exhibit 6–9 Payoff Matrix Maximax (optimistic): S4: $28M
6-46 Copyright © 2011 Pearson Education Exhibit 6–9 Payoff Matrix Maximin (pessimistic): S3: 15 M
6-47 Copyright © 2011 Pearson Education Exhibit 6–10 Regret Matrix Minimax (regret): S4: $6 “ a regret of profits given up of more than US$7 M managers 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
6-48 Copyright © 2011 Pearson Education 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.
6-49 Copyright © 2011 Pearson Education Decision-Making Styles Linear thinking style A person’s preference for using external data and facts and processing this information through rational, logical thinking. Nonlinear thinking style A person’s preference for internal sources of information and processing this information with internal insights, feelings and hunches.
6-50 Copyright © 2011 Pearson Education 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.
6-51 Copyright © 2011 Pearson Education Exhibit 6–11 Common Decision-Making Errors and Biases
6-52 Copyright © 2011 Pearson Education Decision-Making Biases and Errors Heuristics Using “rules of thumb” to simplify decision making. Overconfidence Bias Holding unrealistically positive views of oneself and one’s performance. Immediate Gratification Bias Choosing alternatives that offer immediate rewards and avoid immediate costs.
6-53 Copyright © 2011 Pearson Education Decision-Making Biases and Errors (cont’d) Anchoring Effect Fixating on initial information and ignoring subsequent information. Selective Perception Bias Selecting, organizing and interpreting events based on the decision maker’s biased perceptions. Confirmation Bias Seeking out information that reaffirms past choices and discounting contradictory information.
6-54 Copyright © 2011 Pearson Education Decision-Making Biases and Errors (cont’d) Framing Bias Selecting and highlighting certain aspects of a situation while ignoring other aspects. Availability Bias Losing decision-making objectivity by focusing on the most recent events. Representation Bias Drawing analogies and seeing identical situations when none exist. Randomness Bias Creating unfounded meaning out of random events.
6-55 Copyright © 2011 Pearson Education Decision-Making Biases and Errors (cont’d) Sunk Costs Errors Forgetting that current actions cannot influence past events and relate only to future consequences. Self-Serving Bias Taking quick credit for successes and blaming outside factors for failures. Hindsight Bias Mistakenly believing that an event could have been predicted once the actual outcome is known (after-the-fact).
6-56 Copyright © 2011 Pearson Education 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
6-57 Copyright © 2011 Pearson Education Exhibit 6–12 Overview of Managerial Decision Making
6-58 Copyright © 2011 Pearson Education 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.
6-59 Copyright © 2011 Pearson Education 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.
6-60 Copyright © 2011 Pearson Education 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?
6-61 Copyright © 2011 Pearson Education 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.
6-62 Copyright © 2011 Pearson Education 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.
6-63 Copyright © 2011 Pearson Education 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.
6-64 Copyright © 2011 Pearson Education Terms to Know decision decision-making process problem decision criteria rational decision making bounded rationality satisficing escalation of commitment intuitive decision making structured problems programmed decision procedure rule policy unstructured problems nonprogrammed decisions certainty risk uncertainty directive style analytic style conceptual style
6-65 Copyright © 2011 Pearson Education Terms to Know (cont’d) behavioral style heuristics business performance management (BPM) software
6-66 Copyright © 2011 Pearson Education This work is protected by local and international copyright laws and is provided solely for the use of instructors in teaching their courses and assessing student learning. Dissemination or sale of any part of this work (including on the World Wide Web) will destroy the integrity of the work and is not permitted. The work and materials from this site should never be made available to students except by instructors using the accompanying text in their classes. All recipients of this work are expected to abide by these restrictions and to honor the intended pedagogical purposes and the needs of other instructors who rely on these materials.
Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall 6–1 Managers as Decision Makers Chapter 6 Management Stephen P. Robbins Mary Coulter.
Chapter 6 DECISION MAKING: THE ESSENCE OF THE MANAGERS JOB © Prentice Hall,
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