Chapter Outline The Nature of Managerial Decision Making Programmed and Nonprogrammed Decision Making The Classical Model The Administrative Model Steps in the Decision-Making Process Recognize the Need for a Decision Generate Alternatives Evaluate Alternatives Choose Among Alternatives Implement the Chosen Alternative © Copyright McGraw-Hill. All rights reserved.

Chapter Outline (cont’d) Steps in the Decision-Making Process (cont’d) Learning from Feedback Cognitive Biases and Decision Making Prior Hypothesis Bias Representative Bias Illusion of Control Escalating Commitment Group Decision Making Perils of Groupthink Devil’s Advocacy and Dialectical Inquiry © Copyright McGraw-Hill. All rights reserved.

Chapter Outline (cont’d) Group Decision Making (cont’d) Diversity Among Decision Makers Organizational Learning and Creativity Creating a Learning Organization Promoting Individual Creativity Promoting Group Creativity Promoting Creativity at the Global Level © Copyright McGraw-Hill. All rights reserved.

The Nature of Managerial Decision Making The process by which managers respond to opportunities and threats by analyzing options, and making decisions about goals and courses of action. Decisions in response to opportunities—occurs when managers respond to ways to improve organizational performance. Decisions in response to threats—occurs when managers are impacted by adverse events to the organization. © Copyright McGraw-Hill. All rights reserved.

Programmed and Nonprogrammed Decisions Routine, virtually automatic decision making that follows established rules or guidelines. Managers have made the same decision many times before. There are rules or guidelines to follow based on experience with past decisions. Example: Disciplinary action to be taken concerning a tardy employee. © Copyright McGraw-Hill. All rights reserved.

Programmed and Nonprogrammed Decisions Nonroutine decision making that occurs in response to unusual, unpredictable opportunities and threats. The are no rules to follow since the decision is new. Decisions are made based on information, and a manager’s intuition, and judgment. Example: Deciding to invest in additional production equipment to meet forecasted demand. © Copyright McGraw-Hill. All rights reserved.

The Classical Model of Decision Making © Copyright McGraw-Hill. All rights reserved. Figure 7.1

The Administrative Model Administrative Model of Decision Making An approach to decision making that explains why decision making is inherently uncertain and risky and why managers usually make satisfactory rather than optimum decisions. © Copyright McGraw-Hill. All rights reserved.

The Administrative Model (cont’d) Administrative Model of Decision Making (cont’d) Bounded rationality There is a large number of alternatives and available information can be so extensive that managers cannot consider it all. Decisions are limited by people’s cognitive abilities. Incomplete information most managers do not see all alternatives and decide based on incomplete information. © Copyright McGraw-Hill. All rights reserved.

Why Information Is Incomplete Figure 7.2 © Copyright McGraw-Hill. All rights reserved.

Six Steps in Decision Making © Copyright McGraw-Hill. All rights reserved. Figure 7.4

General Criteria for Evaluating Possible Courses of Action © Copyright McGraw-Hill. All rights reserved. Figure 7.5

Evaluating Alternatives © Copyright McGraw-Hill. All rights reserved.

Cognitive Biases and Decision Making Heuristics Rules of thumb to deal with complex situations. Decision makers use heuristics to deal with bounded rationality. If the heuristic is wrong, however, then poor decisions result from its use. Systematic errors can result from use of an incorrect heuristic and will appear over and over since the rule used to make decision is flawed. © Copyright McGraw-Hill. All rights reserved.

Sources of Cognitive Bias at the Individual and Group Levels © Copyright McGraw-Hill. All rights reserved. Source: Figure 7.6

Types of Cognitive Biases Illusion of Control The tendency to overestimates one’s own ability to control activities and events. Escalating Commitment Committing considerable resources to project and then committing more even if evidence shows the project is failing. © Copyright McGraw-Hill. All rights reserved.

Group Decision Making Most decisions are made in group settings. Groups tend to reduce cognitive biases and can call on their greater combined skills and abilities. Groupthink Biased decision making resulting from group members striving for agreement. Usually occurs when group members rally around a central manager’s idea , and become blindly commit to the idea without considering alternatives. The group’s influence tends to convince each member that the idea must go forward. © Copyright McGraw-Hill. All rights reserved.

Devil’s Advocacy and Dialectical Inquiry © Copyright McGraw-Hill. All rights reserved. Source: Figure 7.7

Organizational Learning and Creativity Managers seek to improve a employee’s desire and ability to understand and manage the organization and its task environment so as to raise effectiveness. The Learning Organization Managers try to maximize the people’s ability to behave creatively to maximize organizational learning. © Copyright McGraw-Hill. All rights reserved.

Senge’s Principles for Creating a Learning Organization © Copyright McGraw-Hill. All rights reserved. Source: Figure 7.8

Organizational Learning and Creativity The ability of the decision maker to discover novel ideas leading to a feasible course of action. A creative management staff and employees are the key to the learning organization. © Copyright McGraw-Hill. All rights reserved.