Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Chapter 6 Decision Making

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 2 Learning Objectives After reading this chapter, you should be able to: Recognize the nature of management decisions: programmability, uncertainty, risk, conflict, decision scope, and crisis situations. Utilize the six steps of decision making. Apply the criteria of quality and acceptance to a decision. Reap the benefits and avoid the problems of group decision making. Develop time management skills to generate adequate time to make decisions. Know when to delegate, and how to do so wisely.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 3 Introduction Making decisions under conditions of risk and uncertainty is one of the most important activities that managers engage in. Generally, there is a lack of information and a limited amount of time available to make the decision. Procrastinating and not making a decision sometimes has greater risk than making it.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 4 Decision Making The process of identifying problems and opportunities and resolving them. Management decisions can be made by managers, teams, or individual employees, depending on:  The scope of the decision, and  The design and structure of the organization.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 5 Characteristics of Management Decision Making Programmability Uncertainty Risk Conflict Decision Scope Crisis

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 6 Programmability Uncertainty Characteristics of Management Decision Making (Cont) Non-programmed Decisions Certainty Uncertainty Programmed Decisions

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 7 Risk – occurs when the outcome of management decision is uncertain  Risk has both positive and negative aspects  Decision environment for risk vary depending upon company culture and size Conflict – occurs when there are opposing goals, scares resources, or differences in priorities Crisis – a situation that involves small amounts of time to make a decision that can impact the survival of the organization Characteristics of Management Decision Making (Cont)

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 8 Decision Scope – the effect and time horizon of a decision –Strategic Decisions – long term perspective of 2-5 years and affect on the organization –Tactical Decisions – short term perspective of 1 year or less and focus on subunits –Operational Decisions – shortest time perspective, generally less than a year, often measured on a daily or weekly basis Characteristics of Management Decision Making (Cont)

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 9 Stages of Decision Making Identifying and diagnosing the problem Generating alternative solutions Evaluating alternatives Selecting the best alternative Implementing the decision Evaluating the decision

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 10 Typical problems that require decisions A high level of employee turnover. A reduction in firm profits. Unacceptable levels of “shrinkage” in a store. Lower than planned quality of finished goods. An unexpected increase in workplace injuries. The invention of a new technology that can increase the productivity of the workforce.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 11 Evaluating Alternatives Decision criteria should be related to the performance goals of the organization and its subunits. Decision criteria can include:  Costs  Profits  Timeliness  Whether the decision will work  Fairness

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 12 Evaluating Alternatives (cont) A practical way to apply decision criteria is to consider:  Decision quality – aspect of decision making based on such facts as costs, revenues, and product design specifications.  Decision acceptance – aspect of decision making based on people’s feelings.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 13 Approaches to selecting the best alternative Optimizing – selecting the best alternative from among multiple criteria. Satisficing – selecting the first alternative solution that meets a minimum criterion.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 14 Key factors for successful implementation Providing resources (staff, budgets, office space) that will be needed for the activities that are required for successful implementation. Exercising leadership to persuade others to move the implementation forward. Developing communication and information systems that enable management to know if the decision alternative is meeting its planned objectives. Recognition and rewards for individuals and teams that are successful with implementation.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 15 Assumptions of the Rational Decision Making Process The problem is clear and unambiguous. There is a single, well-defined goal that all parties agree to. Full information is available about criteria. All the alternatives and their consequences are known.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 16 Assumptions of the Rational Decision Making Process (cont) The decision preferences are clear. The decision preferences are constant and stable over time. There are no time and cost constraints affecting the decision. The decision solution will maximize the economic payoff.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 17 Factors That Limit Rational Decision Making Organization Politics Emotions and Personal Preferences Illusion of Control

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 18 Nonrational Decision Making Models Administrative Model Bounded rationality – the ability of a manager to be perfectly rational is limited by factors such as cognitive capacity and time constraints Therefore, decision makers apply heuristics, or decision rules, that quickly eliminate alternatives By using the heuristic known as satisficing, a manager seeks out the first decision alternative that appears to be satisfactory Satisficing is an accurate model many management decisions.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 19 Nonrational Decision Making Models (cont) Garbage Can Model This model suggests that managers have a set of preestablished solutions to problems located in “garbage cans.” The garbage can model is likely to be used when decision makers are undisciplined and have no clear immediate goals. The decision making process lacks structure This can lead to serious difficulties

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 20 Advantages and Disadvantages of Group Decision Making Advantages Increased acceptance Greater pool of knowledge Different perspectives Greater comprehension Training ground Disadvantages Social pressure Minority domination Logrolling Goal displacement “Groupthink”

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 21 Managing Group Decision Making Leadership Style Devil’s Advocate Role Stimulating Creativity

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 22 Leader Decision Making Styles Decide and persuade Discover facts and decide Consult and decide Consult with group and decide Group decision

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 23 Decision Making Techniques to Stimulate Group Creativity BrainstormingStoryboarding Nominal Group Technique (NGT) Delphi Technique

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 24 Skills for Decision Making Process Time management skills  To make good decisions, managers need time to understand the problem and develop creative solutions. Delegation skills  Managers who know how to delegate are able to accomplish more than those who feel the need to be involved in every decision, no matter how trivial.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 25 Effective Time Management Practices Plan a list of things that need to be done today. Plan weekly, monthly, and annual schedules of activities. Schedule difficult and challenging activities when you are at your highest level of energy and alertness. Set deadlines.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 26 Effective Time Management Practices (cont) Answer phone messages and in batches during a lull in your work schedule. Have a place to work uninterrupted. Do something productive during non- productive activities.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 27 Effective Delegation Determine what you want done. Match the desired task with the most appropriate employee. Communicate clearly when assigning the task.  Ask questions to make sure the task is fully understood.  Set clear guidelines.

Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved McGraw-Hill/Irwin Slide 28 Effective Delegation (cont) Keep communication channels open. Allow employees to do the task the way they feel comfortable doing it. Trust employees’ capabilities. Check on the progress of the assignment. Hold the employee responsible for the work. Recognize what the employee has done, and show appropriate appreciation.