1. Managerial Decision Making
Chapter 03
McGraw-Hill/Irwin
Copyright © 2011 by the McGraw-Hill Companies, Inc. All rights reserved.

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

3. Learning Objectives (cont.)
LO5 Identify procedures to use in leading a decision-making group
LO6 Explain how to encourage creative decisions
LO7 Discuss the process by which decisions are made in organizations
LO8 Describe how to make decisions in a crisis

4. Characteristics of Managerial Decisions
Decision-making is making a choice and having to make a choice. Decision-making is a process of choosing from available alternatives because you identified a problem and are looking for ways to solve that problem.
Figure 3.1

5. Lack of Structure Non programmed decisions Programmed decisions
Decisions encountered and made before, having objectively correct answers, and solvable by using simple rules, policies, or numerical computations.
SOP
Non programmed decisions
New, novel, complex decisions having no proven answers.
Example of the recent British Petroleum Gulf oil spill.

6. Comparison of Types of Decisions
Non-program decisions many times are forced
Table 3.1

7. Ex. 6.1 Conditions That Affect the Possibility of Decision Failure
Organizational
Problem
Low
High
Possibility of Failure
Certainty
Risk
Uncertainty
Ambiguity
Programmed
Decisions
Nonprogrammed
Problem
Solution
© 2006 by South-Western, a division of Thomson Learning. All rights reserved.

8. Conflict
Conflict
Opposing pressures from different sources, occurring on the level of psychological conflict or of conflict between individuals or groups.

9. Two Levels of Conflict
Individual decision makers experience psychological conflict when several options are attractive, or when none of the options is attractive
Conflict arises between people

10. Ex. 6.3 Six Steps in the Managerial Decision-Making Process
Ex. 6.3 Six Steps in the Managerial Decision-Making Process
© 2006 by South-Western, a division of Thomson Learning. All rights reserved.

11. 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).

12. Diagnosis Questions (Kepner & Tregoe)
Diagnosis Questions (Kepner & Tregoe)
What is the state of disequilibrium affecting us?
When did it occur?
Where did it occur?
How did it occur?
To whom did it occur?
What is the urgency of the problem?
What is the interconnectedness of events?
What result came from what activity?
Who,what, when, where,why,how, importance?
Downstream effects
Who what when where why and how.
Who caused and who involved in the decision process and who will it affect
What caused and what of the downstream effect of various alternatives including leaving alone.
Contingency plans if it doesn’t work. What is the level of uncertainty?
© 2006 by South-Western, a division of Thomson Learning. All rights reserved.

13. 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.

14. 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

15. Evaluating Alternatives
Involves determining the value or adequacy of the alternatives that were generated
Which solution will be the best?

16. Making the Choice Maximizing
A decision realizing the best possible outcome
Degree of certainty
Satisfying
optimizing

17. Implementing the Decision
Determine how things will look when the decision is fully operational.
Chronologically order the steps necessary to achieve a fully operational decision.
List the resources and activities required to implement each step.
Estimate the time needed for each step.
Assign responsibility for each step to specific individuals.
Action plans--PERT

18. 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?
Barriers-legal, political, personalities,
competition
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.

19. Barriers to Decision Making
Psychological biases
Time pressure
Social realities
Information– conflicts--- change

20. 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
Ain’t done yet--- vigilance

21. Psychological Biases Discounting the future
A bias weighting short-term costs and benefits more heavily than longer-term costs and benefits.
What about group decision-making?
Ask question in preparation fo rnext slide.

22. Pros and Cons of Using a Group to Make Decisions
Table 3.2

23. Potential Problems of Using a Group
Groupthink
A phenomenon that occurs in decision making when group members avoid disagreement as they strive for consensus
Goal displacement
A condition that occurs when a decision-making group loses sight of its original goal and a new, less important goal emerges.

24. Managing Group Decision Making
Who is the leader? Team conflicts? Creativity
.Constructive conflict-Devil’s Advocate-questions

25. 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.

26. 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

27. 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.

28. Two Disasters
Table 3.3

29. 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?
What steps should you take when a crisis arises? Tylenol, British Petroleum, Catholic Church.

30. Elements of a Crisis Plan
Strategic actions
Technical and structural actions
Evaluation and diagnostic actions
Communication actions
Psychological and cultural actions
Be calm be truthful, communications call is affected and actions figurehead
Role-play a UNC W. disaster.